UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2010.

OR

o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the transition period from ___________________ to ____________________

COMMISSION FILE NUMBER: 001-13577

PREMIERE GLOBAL SERVICES, INC.
(Exact name of registrant as specified in its charter)

GEORGIA
(State or other jurisdiction of incorporation or organization)

59-3074176
(I.R.S. Employer Identification No.)

3280 PEACHTREE ROAD NE
THE TERMINUS BUILDING, SUITE 1000
ATLANTA, GEORGIA 30305
(Address of principal executive offices, including zip code)

(404) 262-8400
(Registrant’s telephone number including area code)

N/A
(Former name, former address and former fiscal year,
if changed since last report)

     Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x  No o

     Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes x  No o

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one):

Large accelerated filer x   Accelerated filer o
Non-accelerated filer o (Do not check if a smaller reporting company) Smaller reporting company o

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o  No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class Outstanding at August 4, 2010
Common Stock, $0.01 par value 60,482,356 Shares



PREMIERE GLOBAL SERVICES, INC. AND SUBSIDIARIES

INDEX TO FORM 10-Q

    Page
   
PART I FINANCIAL INFORMATION  
   
      Item 1    Condensed Consolidated Financial Statements  
   
     Condensed Consolidated Balance Sheets
     as of June 30, 2010 and December 31, 2009 1
   
     Condensed Consolidated Statements of Operations
     for the Three and Six Months Ended June 30, 2010 and 2009 2
   
     Condensed Consolidated Statement of Shareholders’ Equity
     for the Six Months Ended June 30, 2010 3
   
     Condensed Consolidated Statements of Cash Flows
     for the Six Months Ended June 30, 2010 and 2009 4
   
     Notes to Condensed Consolidated Financial Statements 5
   
      Item 2    Management’s Discussion and Analysis of Financial Condition
   and Results of Operations 19
   
      Item 3    Quantitative and Qualitative Disclosures About Market Risk 35
   
      Item 4    Controls and Procedures 35
   
PART II OTHER INFORMATION
  
      Item 1    Legal Proceedings 36
   
      Item 1A.    Risk Factors 36
   
      Item 2    Unregistered Sales of Equity Securities and Use of Proceeds 36
   
      Item 3    Defaults Upon Senior Securities 36
   
      Item 4    Removed and Reserved 36
   
      Item 5    Other Information 36
   
      Item 6    Exhibits 36
   
SIGNATURES 37
   
EXHIBIT INDEX 38

i



PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

PREMIERE GLOBAL SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)

  June 30,   December 31,
  2010
  2009
  (Unaudited)        
             
ASSETS              
CURRENT ASSETS              
   Cash and equivalents $ 42,310     $ 41,402  
   Accounts receivable (less allowances of $1,488 and $1,702, respectively)   93,433       89,906  
   Prepaid expenses and other current assets   14,872       10,735  
   Deferred income taxes, net   7,038       7,261  
 
 
         Total current assets   157,653       149,304  
 
 
 
PROPERTY AND EQUIPMENT, NET   139,253       137,235  
 
OTHER ASSETS            
   Goodwill   347,798       354,609  
   Intangibles, net of amortization   19,998      

24,840

 
   Deferred income taxes, net   3,229       2,703  
   Restricted cash   97       103  
   Other assets   12,195       9,432  
 
 
         Total assets $ 680,223     $ 678,226  
 
 
 
LIABILITIES AND SHAREHOLDERS' EQUITY            
CURRENT LIABILITIES            
   Accounts payable $ 51,115     $ 51,502  
   Income taxes payable   4,573       4,507  
   Accrued taxes, other than income taxes   7,671       6,947  
   Accrued expenses   26,516       28,543  
   Current maturities of long-term debt and capital lease obligations   7,774       3,596  
   Accrued restructuring costs   6,785       7,765  
 
 
         Total current liabilities   104,434       102,860  
 
 
 
LONG-TERM LIABILITIES            
   Long-term debt and capital lease obligations   258,103       262,927  
   Accrued restructuring costs   3,671       5,392  
   Accrued expenses   19,520       17,133  
   Deferred income taxes, net   9,352       8,872  
 
 
         Total long-term liabilities   290,646       294,324  
 
 
COMMITMENTS AND CONTINGENCIES (Note 9)            
             
SHAREHOLDERS' EQUITY            
   Common stock, $0.01 par value; 150,000,000 shares authorized,
      60,041,135 and 59,392,311 shares issued and outstanding, respectively
  600       594  
   Additional paid-in capital   548,524       544,896  
   Notes receivable, shareholder   (1,868 )     (1,814 )
   Accumulated other comprehensive (loss) gain   (5,234 )     6,217  
   Accumulated deficit   (256,879 )     (268,851 )
 
 
         Total shareholders' equity   285,143       281,042  
 
 
            Total liabilities and shareholders' equity $ 680,223       $ 678,226  
 
 

Accompanying notes are integral to these condensed consolidated financial statements.

1



PREMIERE GLOBAL SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per share data)

  Three Months Ended
June 30,

  Six Months Ended
June 30,

  2010
  2009
  2010
  2009
 
Net revenues $ 144,586     $ 153,933     $ 290,991     $ 309,015  
Operating expenses:                            
    Cost of revenues (exclusive of depreciation
     and amortization shown separately below)
  62,092       65,628       122,649       130,998  
   Selling and marketing   33,638       35,727       72,042       72,715  
   General and administrative (exclusive of expenses
      shown separately below)
  16,650       16,308       33,106       31,859  
   Research and development   4,560       4,105       9,487       7,983  
   Excise and sales tax expense   439       -       439       -  
   Depreciation   9,995       9,091       19,875       17,722  
   Amortization   1,897       2,777       4,158       5,757  
   Restructuring costs   3,186       4,686       3,186       6,280  
   Asset impairments   1,887       -       1,942       -  
   Net legal settlements and related expenses   44       161       192       161  
   Acquisition-related costs   142       231       316       571  
 
 
 
 
      Total operating expenses   134,530       138,714       267,392       274,046  
 
 
 
 
 
Operating income   10,056       15,219       23,599       34,969  
 
 
 
 
 
Other (expense) income:                            
   Interest expense   (4,292 )     (3,767 )     (7,123 )     (7,792 )
   Unrealized gain on change in fair value of interest rate swaps   490       1,145       974       2,086  
   Interest income   36       74       71       180  
   Other, net   (75 )     (153 )     (171 )     (91 )
 
 
 
 
      Total other expense   (3,841 )     (2,701 )     (6,249 )     (5,617 )
 
 
 
 
 
Income from continuing operations before income taxes   6,215       12,518       17,350       29,352  
Income tax expense   1,815       4,062       5,378       9,581  
 
 
 
 
Net income from continuing operations   4,400       8,456       11,972       19,771  
 
 
 
 
 
Loss on discontinued operations, net of taxes   -       (672 )     -       (1,763 )
 
 
 
 
 
Net income $ 4,400     $ 7,784     $ 11,972     $ 18,008  
 
 
 
 
 
BASIC WEIGHTED-AVERAGE SHARES OUTSTANDING   58,367       58,840       58,294       58,834  
 
 
 
 
 
Basic net income (loss) per share                            
   Continuing operations $ 0.08     $ 0.14     $ 0.21     $ 0.34  
   Discontinued operations   -       (0.01 )     -       (0.03 )
 
 
 
 
      Net income per share $ 0.08     $ 0.13     $ 0.21     $ 0.31  
 
 
 
 
 
 
DILUTED WEIGHTED-AVERAGE SHARES OUTSTANDING   58,774       59,439       58,655       59,400  
 
 
 
 
 
Diluted net income (loss) per share                            
   Continuing operations $ 0.07     $ 0.14     $ 0.20     $ 0.33  
   Discontinued operations   -       (0.01 )     -       (0.03 )
 
 
 
 
      Net income per share $ 0.07       $ 0.13       $ 0.20       $ 0.30  
 
 
 
 

Accompanying notes are integral to these condensed consolidated financial statements.

2



PREMIERE GLOBAL SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
(Unaudited, in thousands)

  Common
Stock
Issued
    Additional
Paid-In
Capital
    Notes
Receivable,
Shareholder
    Accumulated
Deficit
    Accumulated
Other
Comprehensive
(Loss) Gain
    Total
Shareholders'
Equity
 
 
 
 
 
 
BALANCE, December 31, 2009 $ 594     $ 544,896     $ (1,814 )   $ (268,851 )   $ 6,217     $ 281,042  
 
 
 
 
 
 
                                               
Comprehensive income, net of taxes:                                              
Net income   -       -       -       11,972       -       11,972  
Translation adjustments, net of taxes   -       -       -       -       (12,249 )     (12,249 )
Change in unrealized loss on
   derivatives, net of taxes
  -       -       -       -       798       798  
                     
Comprehensive income, net of taxes                                           521  
                     
Issuance of common stock:                                              
Equity-based compensation   -       4,817       -       -       -       4,817  
Redemption of restricted shares, net   6       (906 )     -       -       -       (900 )
Income tax deficiency from equity awards   -       (283 )     -       -       -       (283 )
Interest related to notes receivable,
   shareholder
  -       -       (54 )     -       -       (54 )
 
 
 
 
 
 
BALANCE, June 30, 2010 $ 600     $ 548,524     $ (1,868 )   $ (256,879 )   $ (5,234 )   $ 285,143  
 
 
 
 
 
 

Accompanying notes are integral to these condensed consolidated financial statements.

3



PREMIERE GLOBAL SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)

  Six Months Ended
  June 30,
 
  2010   2009
 
 
CASH FLOWS FROM OPERATING ACTIVITIES          
      Net income $ 11,972    $ 18,008 
      Loss from discontinued operations, net of taxes   -      1,763 
 

 

         Net income from continuing operations   11,972      19,771 
Adjustments to reconcile net income to net cash provided by operating activities:          
      Depreciation   19,875      17,722 
      Amortization   4,158      5,757 
      Amortization of debt issuance costs   391      296 
      Write-off of unamortized debt issuance costs   161      - 
      Net legal settlements and related expenses   192      161 
      Payments for legal settlements and related expenses   (178)     - 
      Deferred income taxes, net of effect of acquisitions   (460)     (206)
      Restructuring costs   3,186      6,280 
      Payments for restructuring costs   (5,817)     (2,196)
      Asset impairments   1,942      - 
      Equity-based compensation   4,958      5,809 
      Excess tax benefits from share-based payment arrangements   (2)     (308)
      Unrealized gain on change in fair value of interest rate swaps   (974)     (2,086)
      Provision for doubtful accounts   858      549 
      Changes in working capital   (7,619)     (6,756)
 

 

         Net cash provided by operating activities from continuing operations   32,643      44,793 
 

 

         Net cash used in operating activities from discontinued operations   -      (1,792)
 

 

            Net cash provided by operating activities   32,643      43,001 
 

 

 
CASH FLOWS FROM INVESTING ACTIVITIES          
      Capital expenditures   (19,160)     (22,750)
      Other investing activities   -      103 
      Business acquisitions, net of cash acquired   (392)     (7,856)
 

 

         Net cash used in investing activities from continuing operations   (19,552)     (30,503)
 

 

         Net cash used in investing activities from discontinued operations   -      (1,934)
 

 

            Net cash used in investing activities   (19,552)     (32,437)
 

 

 
CASH FLOWS FROM FINANCING ACTIVITIES          
      Principal payments under borrowing arrangements   (73,742)     (116,996)
      Proceeds from borrowing arrangements   65,844      116,907 
      Payment of debt issuance costs   (1,038)     (5)
      Excess tax benefits from share-based payment arrangements   2      308 
      Purchase of treasury stock, at cost   (999)     (3,978)
      Exercise of stock options   -      554 
 

 

         Net cash used in financing activities   (9,933)     (3,210)
 

 

 
Effect of exchange rate changes on cash and equivalents   (2,250)     407 
 

 

 
NET INCREASE IN CASH AND EQUIVALENTS   908      7,761 
 

 

CASH AND EQUIVALENTS, beginning of period   41,402      27,535 
 

 

CASH AND EQUIVALENTS, end of period $ 42,310      $ 35,296 
 

 


Accompanying notes are integral to these condensed consolidated financial statements.

4



PREMIERE GLOBAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

1. BASIS OF PRESENTATION

     Premiere Global Services, Inc., or PGi, is a leading global provider of conferencing and collaboration solutions that enable companies and individuals to meet and collaborate in a more productive and efficient manner. We have a global presence in 24 countries in our three segments in North America, Europe and Asia Pacific.

     Our unaudited condensed consolidated financial statements and related footnotes have been prepared in accordance with generally accepted accounting principles in the United States, or GAAP, for interim financial information and Rule 10-01 of Regulation S-X issued by the Securities and Exchange Commission, or SEC. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. We believe that these condensed consolidated financial statements include all adjustments (consisting only of normal recurring adjustments) necessary to fairly present the results for interim periods shown. All significant intercompany accounts and transactions have been eliminated in consolidation. Our results of operations for the three and six months ended June 30, 2010 are not indicative of the results that may be expected for the full fiscal year of 2010 or for any other interim period. The financial information presented herein should be read in conjunction with our annual report on Form 10-K for the year ended December 31, 2009, which includes information and disclosures not included in this quarterly report.

2. SIGNIFICANT ACCOUNTING POLICIES

Foreign Currency Translation

     The assets and liabilities of subsidiaries with a functional currency other than the U.S. Dollar are translated at rates of exchange existing at our condensed consolidated balance sheet dates. Revenues and expenses are translated at average rates of exchange prevailing during the year. The resulting translation adjustments are recorded in the “Accumulated other comprehensive (loss) gain” component of shareholders’ equity of our condensed consolidated balance sheets. In addition, intercompany loans with foreign subsidiaries generally are considered to be permanently invested for the foreseeable future. Therefore, all foreign currency exchange gains and losses related to these balances are recorded in the “Accumulated other comprehensive (loss) gain” component of shareholders’ equity in our condensed consolidated balance sheets.

Accounts Receivable and Allowance for Doubtful Accounts

     Included in accounts receivable at June 30, 2010 and December 31, 2009 was earned but unbilled revenue of $9.9 million and $8.5 million, respectively, which results from non-calendar month billing cycles and the one-month lag time in billing related to certain of our services. Earned but unbilled revenue is billed within 30 days. Provision for doubtful accounts was $0.5 million and $0.4 million for the three months ended June 30, 2010 and 2009, respectively. Provision for doubtful accounts was $0.9 million and $0.5 million for the six months ended June 30, 2010 and 2009, respectively. Write-offs against the allowance for doubtful accounts were $0.7 million and $0.6 million in the three months ended June 30, 2010 and 2009, respectively. Write-offs against the allowance for doubtful accounts were $1.1 million and $1.0 million in the six months ended June 30, 2010 and 2009, respectively. Our allowance for doubtful accounts represents reserves for receivables that reduce accounts receivable to amounts expected to be collected. Management uses significant judgment in estimating uncollectible amounts. In estimating uncollectible amounts, management considers factors such as historical and anticipated customer payment performance and industry-specific economic conditions. Using these factors, management assigns reserves for uncollectible amounts by accounts receivable aging categories to specific customer accounts.

Revenue Recognition

     We recognize revenues when persuasive evidence of an arrangement exists, services have been rendered, the price to the buyer is fixed or determinable and collectability is reasonably assured. Revenues consist primarily of usage fees generally based on per minute, per fax page or per transaction methods. To a lesser extent, we charge subscription fees and have fixed-period minimum revenue commitments. Unbilled revenue consists of earned but unbilled revenue that results from non-calendar month billing cycles and the one-month lag time in billing related to

5



PREMIERE GLOBAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

certain of our services. Deferred revenue consists of payments made by customers in advance of the time services are rendered. Should changes in conditions cause management to determine these criteria are not met for certain future transactions, revenue recognized for any reporting period could be adversely affected.

USF Charges

     In accordance with Federal Communications Commission rules, we are required to contribute to the federal Universal Service Fund, or USF, for some of our PGiMeet solutions, which we recover from our applicable PGiMeet customers and remit to the Universal Service Administration Company. We present the USF charges that we collect and remit on a net basis, with charges to our customers netted against the cost we remit.

Sales Tax and Excise Tax

     Historically, we have collected and remitted state sales tax from our non-PGiMeet solutions customers in applicable states, but we have not collected and remitted state sales tax from our PGiMeet solutions customers in all applicable jurisdictions. In addition, certain of our PGiMeet solutions may be subject to telecommunications excise tax statutes in certain states. We have reserves for certain state sales and excise tax contingencies based on the likelihood of obligation. At June 30, 2010 and December 31, 2009, we had reserved $4.1 million and $4.4 million, respectively, for certain state sales and excise tax contingencies. These reserved amounts are included in “Accrued taxes, other than income taxes” in our condensed consolidated balance sheets. We believe we have appropriately accrued for these contingencies. In the event that actual results differ from these reserves, we may need to make adjustments, which could materially impact our financial condition and results of operations. In addition, states may disagree with our method of assessing and remitting such taxes or additional states may subject us to inquiries regarding such taxes. During the six months ended June 30, 2010, we made aggregate payments of $0.8 million related to the settlement of certain of these state sales tax contingencies.

Income Taxes

     Income tax expense for the three and six months ended June 30, 2010 was $1.8 million and $5.4 million, respectively, compared to $4.1 million and $9.6 million for the three and six months ended June 30, 2009, respectively. The decline in income tax expense between 2010 and 2009 was primarily related to the decrease in income from continuing operations in 2010.

     Our unrecognized tax benefit of $5.7 million at each of June 30, 2010 and December 31, 2009, if recognized, would affect our annual effective tax rate. The unrecognized tax benefit at June 30, 2010 is included in “Other assets,” “Income taxes payable” and “Accrued expenses” under “Long-Term Liabilities” in our condensed consolidated balance sheets. We do not expect our unrecognized tax benefit to change significantly over the next 12 months.

Treasury Stock

     All treasury stock transactions are recorded at cost, and all shares of treasury stock repurchased are retired. During the six months ended June 30, 2010, we did not repurchase any of our common stock in the open market pursuant to our board-approved stock repurchase program. During the six months ended June 30, 2009, we repurchased 375,800 shares of our common stock for $2.7 million in the open market pursuant to our board-approved stock repurchase program.

     During the six months ended June 30, 2010 and 2009, we redeemed 121,440 and 156,087 shares, respectively, of our common stock to satisfy certain of our employees’ tax withholdings due upon the vesting of their restricted stock grants and remitted $1.0 million and $1.3 million, respectively, to the Internal Revenue Service on our employees’ behalf.

6



PREMIERE GLOBAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Preferred Stock

     We have 5.0 million shares of authorized $0.01 par value preferred stock, none of which are issued or outstanding. Under the terms of our amended and restated articles of incorporation, our board of directors is empowered to issue preferred stock without shareholder action.

Comprehensive Income

     Comprehensive income represents the change in equity of a business during a period, except for investments by, and distributions to, owners. Comprehensive income was $(4.4) million and $17.5 million for the three months ended June 30, 2010 and 2009, respectively, and $0.5 million and $23.9 million for the six months ended June 30, 2010 and 2009, respectively. The primary differences between net income, as reported, and comprehensive income are foreign currency translation adjustments, net of taxes, and changes in unrealized loss on derivatives, net of taxes.

Software Development Costs

     We capitalize certain costs incurred to develop software features sold as part of our service offerings as part of “Property and Equipment, Net” on our condensed consolidated balance sheets. We capitalized $2.9 million and $5.0 million of these costs for the three months ended June 30, 2010 and 2009, respectively, and $5.4 million and $10.3 million of these costs for the six months ended June 30, 2010 and 2009, respectively. We amortize these capitalized costs on a straight-line basis over the estimated life of the related software, not to exceed five years. Depreciation expense recorded for developed software was $3.0 million and $2.2 million for the three months ended June 30, 2010 and 2009, respectively, and was $5.8 million and $4.2 million for the six months ended June 30, 2010 and 2009, respectively.

Property and Equipment

     Property and equipment are recorded at cost. Depreciation is recorded under the straight-line method over the estimated useful lives of the assets, commencing when the assets are placed in service. The estimated useful lives are five to seven years for furniture and fixtures, two to five years for software and three to ten years for computer servers and Internet and telecommunications equipment. Accumulated depreciation was $150.7 million and $136.8 million as of June 30, 2010 and December 31, 2009, respectively. The cost of installation of equipment is capitalized, as applicable. Amortization of assets recorded under capital leases is included in depreciation. Assets recorded under capital leases and leasehold improvements are depreciated over the shorter of their useful lives or the term of the related lease.

Goodwill

     Summarized below is the carrying value of goodwill, and any changes to the carrying value of goodwill, from December 31, 2009 to June 30, 2010 (in thousands):

  North
America
    Europe     Asia
Pacific
    Total
 
 
 
 
Goodwill:                      
Gross value at December 31, 2009 $ 397,763    $ 44,585    $ 4,684    $ 447,032 
Accumulated impairment losses   (92,423)     -      -      (92,423)
 

 

 

 

Carrying value at December 31, 2009   305,340      44,585      4,684      354,609 
Impact of currency fluctuations   (261)     (6,278)     (272)     (6,811)
Change in impairment losses   -      -      -      - 
 

 

 

 

Carrying value at June 30, 2010 $ 305,079    $ 38,307    $ 4,412    $ 347,798 
 

 

 

 


     Goodwill is not subject to amortization but is subject to periodic reviews for impairment.

7



PREMIERE GLOBAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Other Intangible Assets

     Summarized below are the carrying value and accumulated amortization, if applicable, by intangible asset class (in thousands):

  June 30, 2010   December 31, 2009
 
 
  Gross         Net   Gross         Net
  Carrying   Accumulated   Carrying   Carrying   Accumulated   Carrying
  Value     Amortization     Value     Value     Amortization     Value
 
 
 
 
 
 
Other intangible assets:                                  
Customer lists $ 131,182   $ (115,636)   $ 15,546   $ 132,704   $ (112,975)   $ 19,729
Non-compete agreements   5,992     (4,336)     1,656     6,087     (3,974)     2,113
Developed technology   39,626     (39,554)     72     39,626     (39,421)     205
Other   2,819     (95)     2,724     2,855     (62)     2,793
 

 

 

 

 

 

    Total other intangible assets $ 179,619   $ (159,621)   $ 19,998   $ 181,272   $ (156,432)   $ 24,840
 

 

 

 

 

 


     Other intangible assets are amortized over an estimated useful life between one and ten years. Estimated amortization expense related to our other intangible assets for the full year 2010 and the next four years is as follows (in thousands):

    Estimated
    Amortization
Year   Expense

   
2010   $7,406
2011   $5,760
2012   $3,470
2013   $1,201
2014   $   847

Recently Adopted Accounting Pronouncements

     In February 2010, the Financial Accounting Standards Boards, or FASB, issued Accounting Standards Update, or ASU, No. 2010-09, Amendments to Certain Recognition and Disclosure Requirements, as an amendment to FASB Accounting Standards Codification, or ASC, Topic 855, Subsequent Events. As a result of ASU No. 2010-09, SEC registrants are no longer required to disclose the date through which management evaluated subsequent events in the financial statements. ASU No. 2010-09 is effective March 31, 2010 for our condensed consolidated financial statements. The adopted provisions of ASU No. 2010-09 are limited to disclosures and did not have any effect on our consolidated financial position or result of operations.

     In January 2010, the FASB issued ASU No. 2010-06 “Fair Value Measurements and Disclosures,” which requires disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. The new disclosures are effective for interim and annual reporting periods beginning after December 15, 2009. The adopted provisions of ASU No. 2010-06 are limited to disclosures and did not have any effect on our consolidated financial position or result of operations.

     In October 2009, the FASB issued ASU No. 2009-13, “Revenue Recognition, Multiple-Deliverable Revenue Arrangements,” an amendment to its accounting guidance on revenue arrangements with multiple deliverables. This new accounting guidance addresses the unit of accounting for arrangements involving multiple deliverables and how consideration should be allocated to separate units of accounting, when applicable. In the same month, the FASB also issued ASU No. 2009-14, “Software, Certain Revenue Arrangements That Include Software Elements,” which changes revenue recognition for tangible products containing software and hardware

8



PREMIERE GLOBAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

elements. This update excludes from software revenue recognition all tangible products containing both software and non-software components that function together to deliver the product’s essential functionality and includes such products in the multiple-deliverable revenue guidance discussed above. This guidance will be effective for fiscal years beginning on or after June 15, 2010. Early adoption is permitted. All guidance contained within these updates must be adopted in the same period. We do not expect this guidance to have a material impact on our consolidated financial position or results of operations.

3. RESTRUCTURING COSTS

   Consolidated restructuring costs at June 30, 2010 and December 31, 2009 are as follows (in thousands):

  Balance at                 Balance at
  December           Cash          June 30,
  31, 2009   Provisions   Payments   Non-cash   2010
 
 
 
 
 
Accrued restructuring costs:                            
    Severance and exit costs $ 5,492   $ 2,169   $ (4,379)   $ (41)   $ 3,241
    Contractual obligations   7,665     1,017     (1,438)     (29)     7,215
 

 

 

 

 

    Total restructuring costs $ 13,157   $ 3,186   $ (5,817)   $ (70)   $ 10,456
 

 

 

 

 


Realignment of Workforce – 2010

     During the three months ended June 30, 2010, we executed a restructuring plan to consolidate and streamline various functions of our work force, and we discontinued a non-core e-mail platform. We incurred restructuring costs of $2.2 million and asset impairment charges of $1.8 million associated with these efforts. As part of these consolidations, we eliminated approximately 75 positions. During the three months ended June 30, 2010, we recorded total severance and exit costs of $2.1 million. Additionally, during the three months ended June 30, 2010, we recorded $0.1 million of lease termination costs associated with an office location in North America. The expenses associated with these activities are reflected in “Restructuring costs” in our condensed consolidated statements of operations. On a segment basis, these restructuring costs totaled $2.1 million in North America, including $0.6 million related to the discontinued e-mail platform noted above, and $0.1 million in Europe. Our reserve for the 2010 restructuring costs was $2.0 million at June 30, 2010. We anticipate these severance-related costs will be paid over the next year and these lease termination costs will be paid over the next 18 months.

Realignment of Workforce – 2009

     During the year ended December 31, 2009, we executed a restructuring plan to consolidate and streamline various functions of our work force. As part of these consolidations, we eliminated approximately 500 positions. During the year ended December 31, 2009, we recorded total severance and exit costs of $14.8 million, which included the acceleration of vesting of restricted stock with a fair market value of $0.2 million. Severance costs for 2009 included $0.4 million associated with the decision to divest our e-mail marketing business, PGiMarket. Additionally, during the year ended December 31, 2009, we recorded $4.4 million of lease termination costs associated with office locations in North America and Europe. The expenses associated with these activities are reflected in “Restructuring costs” in our condensed consolidated statements of operations. On a segment basis, these restructuring costs totaled $12.0 million in North America, $6.6 million in Europe and $0.6 million in Asia Pacific. In the six months ended June 30, 2010, we adjusted the initially recorded charges for North America by $0.6 million and $0.5 million for severance-related costs and lease termination costs, respectively, and for Europe by $(0.5) million for severance-related costs. Our reserve for the 2009 restructuring costs was $4.7 million at June 30, 2010. We anticipate these severance-related costs will be paid over the next year and these lease termination costs will be paid over the next nine years.

Realignment of Workforce – Prior to 2009

     Our remaining reserve for restructuring costs incurred prior to 2009 is associated with lease termination costs and totaled $3.8 million at June 30, 2010. During the year ended December 31, 2009, we revised assumptions used in

9



 

PREMIERE GLOBAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

determining the estimated costs associated with these lease terminations incurred prior to 2009. As a result, we recorded an additional $3.2 million of lease termination costs. During the six months ended June 30, 2010, we made additional adjustments of $0.3 million. The expenses associated with these activities are reflected in “Restructuring costs” in our condensed consolidated statements of operations. We anticipate these remaining lease termination costs will be paid over the next six years.

4. ACQUISITIONS

     We seek to acquire complementary companies that increase our market share and provide us with additional customers, technologies, applications and sales personnel. All revenues and results of operations from these transactions have been included in our condensed consolidated financial statements as of the effective date of each acquisition.

North America

     In February 2009, we acquired certain technology assets of a provider of web collaboration services in exchange for warrants to purchase 105,000 shares of our common stock. We allocated the $0.3 million fair value of the warrants to in-process research and development in other intangible assets. The in-process research and development is not currently being amortized, but is subject to periodic impairment testing. We paid transaction fees and closing costs of $0.2 million, which we expensed as incurred.

     In February 2009, we acquired certain assets and assumed certain liabilities of LINK Conference Service, LLC, a U.S.-based provider of audio and web conferencing services. We paid $7.1 million in cash at closing and $0.3 million in transaction fees and closing costs, which we expensed as incurred. We funded the purchase through our credit facility and cash and equivalents on hand. We allocated $0.7 million to accounts receivable, $0.1 million to prepaid assets, $0.3 million to acquired fixed assets, $0.3 million to other acquisition liabilities, $2.4 million to identifiable customer lists and $0.1 million to non-compete agreements, with the customer lists amortized over ten years and the non-compete agreements amortized over five years. We allocated the residual $3.8 million of the purchase price to goodwill, which is subject to a periodic impairment assessment.

5. DISCONTINUED OPERATIONS

     On November 5, 2009, we completed the sale of our PGiMarket business. Prior period results have been reclassified to present this business as discontinued operations.

     The following amounts associated with our PGiMarket business have been segregated from continuing operations and are reflected as discontinued operations for three and six months ended June 30, 2009 (in thousands):

  Three Months Ended
June 30,
2009
    Six Months Ended
June 30,
2009
 
 
Net revenue from discontinued operations $ 758   $ 1,547
 

 

 
Operating loss   (1,068)     (2,800)
Income tax benefit   396     1,037
 
 
Loss from discontinued operations, net of taxes $ (672)   $ (1,763)
 

 


10



PREMIERE GLOBAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

6. INDEBTEDNESS

     Long-term debt and capital lease obligations at June 30, 2010 and December 31, 2009 are as follows (in thousands):

  June 30,
2010
    December 31,
2009
 
 
Borrowings on credit facility $ 253,237   $ 254,880
Capital lease obligations   12,640     11,643
 

 

      Subtotal $ 265,877   $ 266,523
Less current portion   (7,774)     (3,596)
 

 

      Total long-term debt and capital lease obligations $ 258,103   $ 262,927
 

 


     On May 10, 2010, we closed the refinancing of our prior credit facility by entering into a new, four-year $325.0 million credit facility consisting of a $275.0 million revolver and a $50.0 million Term A loan. All commitments under our prior credit facility were terminated, and all outstanding borrowings were repaid. Our prior credit facility was scheduled to mature in April 2011. Our new credit facility includes a $75.0 million accordion feature, which allows for additional credit commitments up to a maximum of $400.0 million, subject to its terms and conditions. Our subsidiary, American Teleconferencing Services, Ltd., or ATS, is the borrower under this new credit facility, with PGi and certain of our material domestic subsidiaries guaranteeing the obligations of ATS under the credit facility, which is secured by substantially all of our assets and the assets of our material domestic subsidiaries. In addition, we have pledged as collateral all of the issued and outstanding stock of our material domestic subsidiaries and 65% of our material foreign subsidiaries. We used the initial borrowings under the new credit facility and proceeds of the Term A loan to repay all outstanding borrowings under the prior credit facility and to pay certain transaction fees and closing costs. Future proceeds drawn under our new credit facility can be used for working capital, capital expenditures, acquisitions and other general corporate purposes. The annual interest rate applicable to borrowings under our new credit facility, at our option, is (1) the base rate (the greater of either the federal funds rate plus one-half of one percent, the prime rate or one-month LIBOR plus one and one-half percent) plus an applicable percentage that varies based on our consolidated leverage ratio at quarter end, or (2) LIBOR for one, two, three, nine or twelve months adjusted for a percentage that represents the Federal Reserve Board’s reserve percentage plus an applicable percentage that varies based on our consolidated leverage ratio at quarter end. The applicable percentage for base rate loans and LIBOR loans were 1.75% and 2.75%, respectively, at June 30, 2010 under our new credit facility. Our interest rate on LIBOR loans, which comprised materially all of our outstanding borrowings as of June 30, 2010, was 3.10%. The Term A loan requires amortization in the form of quarterly scheduled principal payments of $3.75 million per year (or $937,500 per quarter) in each of years one through three of the term, with the remaining balance of $38.75 million due in year four ($937,500 in the first three quarters and the remaining outstanding principal balance due in the fourth and final quarter at maturity). As anticipated, given general credit market conditions, pricing on our new credit facility is higher than the level in our prior credit facility. Our new credit facility contains customary restrictive covenants, including financial covenants, and otherwise contains terms substantially similar to the terms in our prior credit facility.

     At June 30, 2010, we were in compliance with the covenants under our credit facility. At June 30, 2010, we had $253.2 million of borrowings and $5.8 million in letters of credit outstanding under our credit facility.

     In August 2007, we entered into two $100.0 million two-year interest rate swaps at a fixed rate of 4.99%. In December 2007, we amended the life of one of the $100.0 million swaps to three years and reduced the fixed rate to 4.75%. As of June 30, 2010, we have one $100.0 million interest rate swap outstanding, which has a fixed rate of 4.75% and expires in August 2010.

     We did not initially designate these interest rate swaps as hedges and, as such, we did not account for them under hedge accounting. During the fourth quarter of 2008, we prospectively designated these interest rate swaps as cash flow hedges of our interest rate risk associated with our credit facility using the long-haul method of effectiveness testing. Concurrent with the refinancing of our credit facility on May 10, 2010, we dedesignated the

11



PREMIERE GLOBAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

cash flow hedge associated with our remaining interest rate swap. Any changes in fair value prior to designation as a hedge, subsequent to dedesignation as a hedge, and any ineffectiveness while designated are recognized as “Unrealized gain on change in fair value of interest rate swaps” as a component of “Other (expense) income” in our condensed consolidated statements of operations and amounted to $0.5 million and $1.1 million during the three months ended June 30, 2010 and 2009, respectively and $1.0 million and $2.1 million during the six months ended June 30, 2010 and 2009, respectively.

     Any changes in fair value that were determined to be effective while designated as a hedge were recorded as a component of “Accumulated other comprehensive (loss) gain” in our condensed consolidated balance sheets and amounted to a gain of $0.8 million, net of taxes, for the six months ended June 30, 2010. The balance remaining in “Accumulated other comprehensive (loss) gain” on May 10, 2010 of $(0.2) million will be reclassified into earnings during the third quarter of 2010 when the swap expires.

     We recognize the fair value of derivatives in our condensed consolidated balance sheets as part of “Accrued expenses” under “Current Liabilities” or “Long-Term Liabilities” depending on the maturity date of the contract. The amount recognized in current liabilities was $0.6 million and $2.8 million at June 30, 2010 and December 31, 2009, respectively.

7. EQUITY-BASED COMPENSATION

     We may issue restricted stock awards, stock options, stock appreciation rights, restricted stock units and other stock-based awards to employees, directors, non-employee consultants and advisors under our amended and restated 2004 long-term incentive plan and our amended and restated 2000 directors stock plan, each plan as amended. Options issued under these plans, other than the directors stock plan, may be either incentive stock options, which permit income tax deferral upon exercise of options, or non-qualified options not entitled to such deferral. The compensation committee of our board of directors administers these stock plans.

     Equity-based compensation expense is measured at the grant date, based on the fair value of the award, and is recognized over the applicable vesting periods. The following table presents total equity-based compensation expense for restricted stock awards included in the line items below in our condensed consolidated statements of operations (in thousands):

  Three Months Ended
June 30,
  Six Months Ended
June 30,
 
 
  2010     2009     2010     2009
 
 
 
 
Cost of revenues $ 98   $ 85   $ 185   $ 173
Selling and marketing   405     670     938     1,438
Research and development   232     327     506     647
General and administrative   1,516     1,791     3,329     3,551
 
 
 
 
Equity-based compensation expense   2,251     2,873     4,958     5,809
Income tax benefits   (698)     (919)     (1,537)     (1,859)
 
 
 
 
    Total equity-based compensation expense, net of tax $ 1,553   $ 1,954   $ 3,421   $ 3,950
 
 
 
 

Restricted Stock Awards

     The fair value of restricted stock awards is the market value of the stock on the date of grant. The effect of vesting conditions that apply only during the requisite service period is reflected by recognizing compensation cost only for the restricted stock awards for which the requisite service is rendered. As a result, we are required to estimate an expected forfeiture rate, as well as the probability that performance conditions that affect the vesting of certain stock-based awards will be achieved and only recognize expense for those shares expected to vest. We estimate that forfeiture rate based on historical experience of our stock-based awards that are granted, exercised and voluntarily cancelled. If our actual forfeiture rate is materially different from our estimate, the stock-based

12



PREMIERE GLOBAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

compensation expense could be significantly different from what we have recorded in the current period. Our estimated forfeiture rate for restricted stock awards is 1.5%.

     The following table summarizes the activity of restricted stock awards under our stock plans from December 31, 2009 to June 30, 2010:

  Shares     Weighted-
Average Grant
Date Fair Value
 
 
Unvested at December 31, 2009 1,195,271   $ 11.30
      Granted 797,764     8.21
      Vested/released (459,803)     9.80
      Forfeited (27,500)     12.17
 
 

Unvested at June 30, 2010 1,505,732   $ 10.12
 
 


     The weighted-average grant date fair value of restricted stock awards granted during the six months ended June 30, 2010 and 2009 was $8.21 and $9.79, respectively. The aggregate fair value of restricted stock vested was $1.7 million and $3.4 million for the three and six months ended June 30, 2010, respectively, and $2.9 million and $5.1 million for the three and six months ended June 30, 2009, respectively. We had $10.9 million of unvested restricted stock, which we will recognize over a weighted-average recognition period of approximately two years.

Stock Options

     The fair value of stock options is estimated at the date of grant with the Black-Scholes option pricing model using various assumptions such as expected life, volatility, risk-free interest rate, dividend yield and forfeiture rates. The expected life of stock-based awards granted represents the period of time that they are expected to be outstanding and is estimated using historical data. Using the Black-Scholes option valuation model, we estimate the volatility of our common stock at the date of grant based on the historical volatility of our common stock. We base the risk-free interest rate used in the Black-Scholes option valuation model on the implied yield currently available on U.S. Treasury zero-coupon issues with an equivalent remaining term equal to the expected life of the award. We have not paid any cash dividends on our common stock, and we do not anticipate paying any cash dividends in the foreseeable future. Consequently, we use an expected dividend yield of zero in the Black-Scholes option valuation model. Finally, we use historical data to estimate pre-vesting option forfeitures. Stock-based compensation is recorded for only those awards that are expected to vest. No stock options have been issued since the year ended December 31, 2005.

     The following table summarizes the stock options activity under our stock plans from December 31, 2009 to June 30, 2010:

  Options     Weighted-
Average
Exercise
Price
    Weighted-
Average
Remaining
Contractual
Life (in
years)
    Aggregate
Intrinsic
Value
 
 
 
 
Options outstanding at December 31, 2009 562,338   $ 9.89        
      Granted -     -        
      Exercised -     -        
      Expired (75,168)     11.39        
 
 

       
Options outstanding at June 30, 2010 487,170     9.66   2.06   -
 
 

 
 
Options exercisable at June 30, 2010 487,170   $ 9.66   2.06   -
 
 

 
 

     The total intrinsic value of options exercised during the six months ended June 30, 2009 was $1.0 million. As of June 30, 2010, we had no remaining unvested stock options to be recorded as an expense for future periods.

13



PREMIERE GLOBAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

8. EARNINGS PER SHARE

Basic and Diluted Earnings Per Share

     Basic earnings per share is computed by dividing net income available to common shareholders by the weighted-average number of common shares outstanding during the period. The weighted-average number of common shares outstanding does not include any potentially dilutive securities or any unvested restricted shares of common stock. These unvested restricted shares, although classified as issued and outstanding at June 30, 2010 and June 30, 2009, are considered contingently returnable until the restrictions lapse and will not be included in the basic earnings per share calculation until the shares are vested.

     Diluted earnings per share includes the effect of all potentially dilutive securities on earnings per share. Our unvested restricted shares, outstanding stock options and warrants are potentially dilutive securities. The difference between basic and diluted weighted-average shares outstanding was the dilutive effect of unvested restricted shares, stock options and warrants for the three and six months ended June 30, 2010 and 2009.

     The following table represents a reconciliation of the shares used in the calculation of basic and diluted net income per share from continuing operations computations contained in our condensed consolidated financial statements (in thousands, except per share data):

  Three Months
Ended June 30
,
    Six Months
Ended
  June 30,
 
 
  2010 2009   2010   2009
 
 
 
 
Net income from continuing operations $ 4,400     $ 8,456   $ 11,972     $ 19,771
 

 

 

 
Weighted-average shares outstanding - basic and diluted:                      
  Weighted-average shares outstanding - basic   58,367 58,840     58,294     58,834
    Add effect of dilutive securities - unvested restricted shares   390     492     352     440
    Add effect of dilutive securities - stock options   17     99     9     122
    Add effect of dilutive securities - warrants   -     8     -     4
 

 

 

 

  Weighted-average shares outstanding - diluted   58,774     59,439     58,655     59,400
 

 

 

 

Basic net income per share from continuing operations $ 0.08   $ 0.14   $ 0.21   $ 0.34
 

 

 

 

Diluted net income per share from continuing operations $ 0.07   $ 0.14   $ 0.20   $ 0.33
 

 

 

 


     The weighted-average diluted common shares outstanding for the three and six months ended June 30, 2010 excludes the effect of an aggregate of 476,466 and 576,146 restricted shares, out-of-the-money options and warrants, respectively, because their effect would be anti-dilutive. The weighted-average diluted common shares outstanding for the three and six months ended June 30, 2009 excludes the effect of an aggregate of 386,712 and 583,356 restricted shares, out-of-the-money options and warrants, respectively, because their effect would be anti-dilutive.

9. COMMITMENTS AND CONTINGENCIES

State Income Tax Matter

     In May 2009, one of our former subsidiaries, PTEKVentures.com, Inc., a Nevada corporation formally dissolved in 2002, received a notice of proposed income tax assessment from the Georgia Department of Revenue totaling approximately $22.7 million as of June 15, 2009. We are at a preliminary stage of the process for resolving this dispute with the Georgia Department of Revenue, and we cannot, at this time, reasonably estimate the amount, if any, of taxes or other interest, penalties or additions to tax that would ultimately be assessed at the conclusion of the process. We have not accrued any amounts related to this assessment. We are also not able to currently estimate when the administrative procedures and review within the Georgia Department of Revenue will be completed. We believe we have meritorious defenses and will continue to vigorously contest this matter. However, if the Georgia Department of Revenue’s initial position is sustained, the amount assessed would result in a

14



PREMIERE GLOBAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

material adjustment to our consolidated financial statements and would adversely impact our financial condition and results of operations. We record costs to resolve this dispute, including legal fees incurred, as “Net legal settlements and related expenses” in our condensed consolidated statements of operations and recorded $0.2 million of such costs in the six months ended June 30, 2010.

Litigation and Claims

     We are involved from time to time in legal proceedings that we do not believe will have a material adverse effect upon our business, financial condition or results of operations, although we can offer no assurance as to the ultimate outcome of any such proceedings.

10. FAIR VALUE MEASUREMENTS

     The fair value amounts for cash and equivalents, accounts receivable, net, and accounts payable and accrued expenses approximate carrying amounts due to the short maturities of these instruments. The estimated fair value of our long-term debt and capital lease obligations at June 30, 2010 and December 31, 2009 was based on expected future payments discounted using current interest rates offered to us on debt of the same remaining maturity and characteristics, including credit quality, and did not vary materially from carrying value. The fair value of our derivative instruments is calculated at the end of each period and carried on our condensed consolidated balance sheets in the appropriate category, as further discussed below.

     Fair value is defined as an exit price representing the amount that would be received to sell an asset or paid to transfer a liability at the measurement date in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. ASC 820, “Fair Value Measurements and Disclosures,” establishes a three-tier fair value hierarchy as a basis for such assumptions which prioritizes the inputs used in measuring fair value as follows:

     We value our interest rate swaps using a market approach based on interest rate yield curves observable in market transactions. The fair value of our interest rate swaps is based on models whose inputs are observable; therefore, the fair value of these financial instruments is based on Level 2 inputs.

     We have segregated all financial assets and liabilities that are measured at fair value on a recurring basis into the most appropriate level within the fair value hierarchy based on the inputs used to determine the fair value at the measurement date in the table below (in thousands):

  June 30, 2010
 
  Fair Value     Level 1     Level 2   Level 3
 
 
 
 
Current liabilities:                        
Interest rate swap $ (574)   $ -   $ (574)   $ -
 

 

 

 

Total $ (574)   $ -   $ (574)   $ -
 

 

 

 


15



PREMIERE GLOBAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

  December 31, 2009
 
  Fair Value     Level 1     Level 2   Level 3
 
 
 
 
Current liabilities:                        
Interest rate swap $ (2,777)   $ -   $ (2,777)   $ -
 

 

 

 

Total $ (2,777)   $ -   $ (2,777)   $ -
 

 

 

 


11. DERIVATIVE INSTRUMENTS

     During the three and six months ended June 30, 2010 and 2009, our derivative instruments were limited to interest rate swaps. We use derivative instruments to manage risks related to interest rates. We are exposed to one-month LIBOR interest rate risk on our $325.0 million credit facility. In August 2007, we entered into two $100.0 million pay fixed, receive floating interest rate swaps to hedge the variability in our cash flows associated with changes in one-month LIBOR interest rates. One of these interest rate swaps expired in August 2009, and the other will expire in August 2010.

     As of June 30, 2010, our outstanding interest rate swap was no longer designated as a cash flow hedge, as further disclosed in Note 6, and the fair value recorded in “Current Liabilities” totaled $0.6 million and $2.8 million at June 30, 2010 and December 31, 2009, respectively, as disclosed in the fair value table above.

Cash-Flow Hedges

     For a derivative instrument designated as a cash-flow hedge, the effective portion of the derivative’s gain (loss) is initially reported as a component of other comprehensive income and is subsequently recognized in earnings in the same period or periods during which the hedged exposure is recognized in earnings. Gains and losses on the derivative representing hedge ineffectiveness are recognized in current earnings. Monthly settlements with the counterparties are recognized in the same line item, “Interest expense,” as the interest costs associated with our credit facility. Accordingly, cash settlements are included in operating cash flows and were $2.3 million and $4.4 million for the six months ended June 30, 2010 and 2009, respectively. Concurrent with the refinancing of our credit facility on May 10, 2010, we dedesignated the cash flow hedge associated with our remaining interest rate swap. See Note 6 for more detail on the dedesignation of our cash flow hedge.

     During the three and six months ended June 30, 2010 and 2009, we recognized the following gains and interest expense related to interest rate swaps (in thousands):

  Three Months Ended
June 30, 2010
  Three Months Ended
June 30, 2009
 
 
Effective portion:            
    Gain recognized in other comprehensive income, net of tax          
      effect of $0.2 million and $0.3 million in 2010 and 2009,          
      respectively $ 421   $ 531
 

 

Ineffective portion:          
    Unrealized gain on change in fair value of interest rate          
      swaps recognized in other expense $ 490   $ 1,145
 

 

Interest expense related to monthly cash settlements:          
    Interest expense $ (1,126)   $ (2,252)
 

 


16



PREMIERE GLOBAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

  Six Months Ended
June 30, 2010
  Six Months Ended
June 30, 2009
 
 
Effective portion:            
Gain recognized in other comprehensive income, net of tax          
effect of $0.4 million and $0.5 million in 2010 and 2009,          
respectively $ 798   $ 876
 

 

Ineffective portion:          
Unrealized gain on change in fair value of interest rate          
swaps recognized in other expense $ 974   $ 2,086
 

 

Interest expense related to monthly cash settlements:          
Interest expense $ (2,254)   $ (4,419)
 

 


For further disclosure on our policy for accounting for derivatives and hedges, see Note 6.

12. SEGMENT REPORTING

     We manage our operations on a geographic regional basis, with reportable segments in North America, Europe and Asia Pacific. The accounting policies as described in the summary of significant accounting policies are applied consistently across our segments. Our North America segment is comprised of operations in the United States and Canada. We present “Operating income” for each of our reportable segments as a measure of segment profit. Our chief operating decision makers use operating income internally as a means of analyzing segment performance and believe that it more clearly represents our segment profit without the impact of income taxes and other non-operating items. The sum of these regional results may not agree to the consolidated results due to rounding. Information concerning our operations in our reportable segments is as follows (in thousands):

  Three Months Ended
June 30,
  Six Months Ended
June 30,   
 
 
  2010   2009   2010   2009
 
 
 
 
Net revenues:                      
  North America                      
    PGiMeet solutions $ 76,357     $ 81,175     $ 153,715     $ 164,574
    Broadcast fax solutions   1,227     1,833     2,453     4,218
    Other PGiSend solutions   11,622     13,318     23,294     26,796
 

 

 

 

      Total North America $ 89,206   $ 96,326   $ 179,462   $ 195,588
 

 

 

 

 
  Europe                      
    PGiMeet solutions $ 21,334   $ 21,989   $ 43,548   $ 43,589
    Broadcast fax solutions   1,507     1,819     3,105     3,687
    Other PGiSend solutions   4,791     5,477     9,990     10,824
 

 

 

 

      Total Europe $ 27,632   $ 29,285   $ 56,643   $ 58,100
 

 

 

 

 
  Asia Pacific                      
    PGiMeet solutions $ 13,246   $ 13,545   $ 26,169   $ 26,407
    Broadcast fax solutions   6,828     7,198     13,746     14,439
    Other PGiSend solutions   7,674     7,579     14,971     14,481
 

 

 

 

      Total Asia Pacific $ 27,748   $ 28,322   $ 54,886   $ 55,327
 

 

 

 


17



PREMIERE GLOBAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

  Consolidated                      
    PGiMeet solutions $ 110,937     $ 116,709     $ 223,432     $ 234,570
    Broadcast fax solutions   9,562     10,850     19,304     22,344
    Other PGiSend solutions   24,087     26,374     48,255     52,101
 

 

 

 

      Total consolidated $ 144,586   $ 153,933   $ 290,991   $ 309,015
 

 

 

 

 
Operating income:                      
  North America $ (3,410)   $ 5,127   $ (3,606)   $ 13,341
  Europe   8,582     4,010     18,012     9,643
  Asia Pacific   4,884     6,082     9,193     11,985
 

 

 

 

      Total operating income $ 10,056   $ 15,219   $ 23,599   $ 34,969
 

 

 

 


13. RELATED PARTY TRANSACTIONS

Notes receivable, shareholder

     We have made loans in prior years to our chief executive officer and to a limited partnership in which he has an indirect interest, pursuant to extensions of credit agreed to by us prior to July 30, 2002. These loans were made pursuant to his then current employment agreement for the exercise price of certain stock options and the taxes related thereto. Each of these loans is evidenced by a recourse promissory note bearing interest at the applicable federal rate and secured by the common stock purchased. These loans mature on October 31, 2010. These loans, including accrued interest, are recorded in the equity section of our condensed consolidated balance sheets under the caption “Notes receivable, shareholder.” The principal amount outstanding under all remaining loans owed to us by our chief executive officer is approximately $1.9 million as of June 30, 2010.

14. CONSOLIDATED STATEMENT OF CASH FLOWS INFORMATION

Supplemental disclosures of cash flow information are as follows:

  Six Months Ended
June 30,
 
 
  2010   2009
 
 
 
Cash paid for interest $ 4,500     $ 7,163
Income tax payments $ 6,778   $ 9,343
Income tax refunds $ 1,014   $ 1,881
Capital lease additions $ 3,619   $ 1,484
Capital expenditures in total current liabilities $ 5,951   $ 4,368
Capitalized interest $ 185   $ 223

     On May 10, 2010, we refinanced our prior credit facility by entering into a new, four-year $325.0 million credit facility consisting of a $275.0 million revolver and a $50.0 million Term A loan. We used the initial borrowings of $230.4 million under the new credit facility and $50.0 million of proceeds from the Term A loan to satisfy $268.0 million of outstanding borrowings under the prior credit facility, $2.8 million of certain transaction fees and closing costs and $0.4 million of interest expense related to the prior credit facility, all of which were non-cash transactions. The residual $9.2 million was received in cash. We paid an additional $1.0 million in cash for certain fees and expenses related to the transaction.

18


ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

     PGi is a leading global provider of conferencing and collaboration solutions that enable companies and individuals to meet and collaborate in a more productive and efficient manner. We have a global presence in 24 countries in our three segments in North America, Europe and Asia Pacific.

     During the year ended December 31, 2009, we initiated a plan to divest our PGiMarket business and completed its sale on November 5, 2009. Prior period results in the following discussion and analysis have been reclassified to present this business as discontinued operations. As a result, and except as provided herein, the following discussion and analysis reflects our results from continuing operations.

     Key highlights of our financial and strategic accomplishments for the second quarter and first six months of 2010 include:

     Our primary corporate objectives for the remainder of 2010 are focused on continuing to:

     Specifically, in 2010, our strategic plan includes a continued focus on expanding the delivery options for our services beyond our traditional software-as-a-service model in new models, such as dedicated hosting and managed services. We are also focusing on the pending launch of our suite of new online collaboration applications, including iMeet®, which will be the first application launched on our next-generation collaboration platform. iMeet is our proprietary, browser-based online meeting application that combines video, web and audio conferencing along with elements of social networking. It is currently in beta testing and is scheduled to be launched later this year. We believe these strategic initiatives will increase the addressable market opportunity for PGi and our solutions.

     In the first six months of 2010, we generated nearly 41% of our consolidated net revenues in countries outside the United States. Because we generate a significant portion of our consolidated net revenues from our international operations, movements in foreign currency exchange rates affect our reported results. We estimate that changes in foreign currency exchange rates during the three and six months ended June 30, 2010 increased our consolidated net revenues by approximately $1.1 million and $5.9 million, respectively, as compared to the same periods in 2009. We estimate that changes in foreign currency exchange rates decreased our consolidated net revenues by $1.8 million during the three months ended June 30, 2010, compared to the three months ended March 31, 2010, and without this foreign currency pressure, our consolidated net revenues would have been $146.4 million in the three months ended June 30, 2010.

     We have historically generated net revenue growth in our PGiMeet solutions. The average rate per minute that we charge our PGiMeet solutions customers continues to decline while total minutes sold continues to increase. We believe that this trend is consistent with the industry, and we expect it to continue in the foreseeable future. Our business trends and revenue growth in our PGiMeet solutions continue to be affected by the challenging economic climate, higher global unemployment and lower global business

19



activity. Net revenue from our PGiMeet solutions in the three months ended June 30, 2010 and 2009 was $110.9 million and $116.7 million, respectively. Net revenue from our PGiMeet solutions in the six months ended June 30, 2010 and 2009 was $223.4 million and $234.6 million, respectively.

     We have experienced revenue declines in our broadcast fax services, primarily as a result of decreased volume and average selling price, partially offset by fluctuations in foreign currency exchange rates. Net revenue from these services in the three months ended June 30, 2010 and 2009 was $9.6 million and $10.9 million, respectively. Net revenue from these services in the six months ended June 30, 2010 and 2009 was $19.3 million and $22.3 million, respectively. Although we intend to continue to convert these customers to our alternative solutions, we expect this overall revenue decline to continue.

     We have historically used our cash flows from operating activities for debt repayments, acquisitions, capital expenditures and stock repurchases. As of June 30, 2010, borrowings under our credit facility were $253.2 million. On May 10, 2010, we closed the refinancing of our prior credit facility by entering into a new, four-year $325.0 million credit facility consisting of a $275.0 million revolver and a $50.0 million Term A Loan. Our new credit facility includes a $75.0 million accordion feature, which allows for additional credit commitments up to a maximum of $400.0 million, subject to its term and conditions. See “Capital resources” for a description of our new credit facility.

     In addition, we intend to continue to prudently invest in our PGiMeet solutions, specifically in technology innovation and platform development, as well as new market strategies to better meet the needs of our large, global enterprise customers and to better attract, engage and acquire small- and medium-size business customers. We currently anticipate an increase in selling and marketing expense in 2010 as compared to 2009 relating to the launch of our suite of new online collaboration applications later this year. We will also continue to evaluate our cost structure in 2010 to ensure that our businesses are operating as efficiently as possible.

     The preparation of financial statements in conformity with GAAP requires us 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 net revenues and expenses during the reporting period. Actual results could differ from the estimates. See “—Critical Accounting Policies.” The following discussion and analysis provides information that we believe is relevant to an assessment and understanding of our condensed consolidated results of operations and financial condition. The results of operations for the three and six months ended June 30, 2010 are not indicative of the results that may be expected for the full fiscal year of 2010 or for any other interim period. The financial information and discussion presented herein should be read in conjunction with our annual report on Form 10-K for the year ended December 31, 2009, which includes information and disclosures not included in this quarterly report. All significant intercompany accounts and transactions have been eliminated in consolidation.

20



RESULTS OF OPERATIONS

Net Revenues

     The following table presents certain financial information about our segments for the periods presented (in thousands, except percentages):

  Three Months Ended
June 30,
  Change
 
 
  2010   2009   $   %
 
 
 
 
Net revenues:                  
  North America                    
    PGiMeet solutions $ 76,357   $ 81,175   (4,818)   (5.9)
    Broadcast fax solutions   1,227     1,833   (606)   (33.1)
    Other PGiSend solutions   11,622     13,318   (1,696)   (12.7)
 

 

 
   
      Total North America $ 89,206   $ 96,326   (7,120)   (7.4)
 

 

 
   
 
  Europe                  
    PGiMeet solutions $ 21,334   $ 21,989   (655)   (3.0)
    Broadcast fax solutions   1,507     1,819   (312)   (17.2)
    Other PGiSend solutions   4,791     5,477   (686)   (12.5)
 

 

 
   
      Total Europe $ 27,632   $ 29,285   (1,653)   (5.6)
 

 

 
   
 
  Asia Pacific                  
    PGiMeet solutions $ 13,246     $ 13,545   (299)   (2.2)
    Broadcast fax solutions   6,828     7,198     (370)   (5.1)
    Other PGiSend solutions   7,674     7,579   95   1.3
 

 

 
   
      Total Asia Pacific $ 27,748   $ 28,322   (574)   (2.0)
 

 

 
   
 
  Consolidated                  
    PGiMeet solutions $ 110,937   $ 116,709   (5,772)   (4.9)
    Broadcast fax solutions   9,562     10,850   (1,288)   (11.9)
    Other PGiSend solutions   24,087     26,374   (2,287)   (8.7)
 

 

 
   
      Total consolidated $ 144,586   $ 153,933   (9,347)   (6.1)
 

 

 
   
 
Operating income:                  
  North America $ (3,410)   $ 5,127   (8,537)   (166.5)
  Europe   8,582     4,010   4,572   114.0
  Asia Pacific   4,884     6,082   (1,198)   (19.7)
 

 

 
   
      Total operating income $ 10,056   $ 15,219   (5,163)   (33.9)
 

 

 
   
 
Percent of net revenues:                  
  North America   61.7%     62.6%        
  Europe   19.1%     19.0%        
  Asia Pacific   19.2%     18.4%        
 

 

       
      Consolidated net revenues   100.0%     100.0%        
 

 

       

21



  Six Months Ended
June 30,
  Change
 
 
  2010 2009 $   %
 
 
 
 
Net revenues:                  
  North America                  
    PGiMeet solutions $ 153,715     $ 164,574     (10,859)     (6.6)
    Broadcast fax solutions   2,453     4,218   (1,765)   (41.8)
    Other PGiSend solutions   23,294     26,796   (3,502)   (13.1)
 

 

 
   
      Total North America $ 179,462   $ 195,588   (16,126)   (8.2)
 

 

 
   
 
  Europe                  
    PGiMeet solutions $ 43,548   $ 43,589   (41)   (0.1)
    Broadcast fax solutions   3,105     3,687   (582)   (15.8)
    Other PGiSend solutions   9,990     10,824   (834)   (7.7)
 

 

 
   
      Total Europe $ 56,643   $ 58,100   (1,457)   (2.5)
 

 

 
   
 
  Asia Pacific                  
    PGiMeet solutions $ 26,169   $ 26,407   (238)   (0.9)
    Broadcast fax solutions   13,746     14,439   (693)   (4.8)
    Other PGiSend solutions   14,971     14,481   490   3.4
 

 

 
   
      Total Asia Pacific $ 54,886   $ 55,327   (441)   (0.8)
 

 

 
   
 
  Consolidated                  
    PGiMeet solutions $ 223,432   $ 234,570   (11,138)   (4.7)
    Broadcast fax solutions   19,304     22,344   (3,040)   (13.6)
    Other PGiSend solutions   48,255     52,101   (3,846)   (7.4)
 

 

 
   
      Total consolidated $ 290,991   $ 309,015   (18,024)   (5.8)
 

 

 
   
 
Operating income:                  
  North America $ (3,606)   $ 13,341   (16,947)   (127.0)
  Europe   18,012     9,643   8,369   86.8
  Asia Pacific   9,193     11,985   (2,792)   (23.3)
 

 

 
   
      Total operating income $ 23,599   $ 34,969   (11,370)   (32.5)
 

 

 
   
 
Percent of net revenues:                  
  North America   61.6%     63.3%        
  Europe   19.5%     18.8%        
  Asia Pacific   18.9%     17.9%        
 

 

       
      Consolidated net revenues   100.0% 100.0%        
 

 

       

22



Consolidated Net Revenues

     The following table details the changes in consolidated net revenues from the three and six months ended June 30, 2009 to the three and six months ended June 30, 2010 (in thousands):

  Three Months Ended
 
  Consolidated   North
America
  Europe   Asia
Pacific
 
 
 
 
 
June 30, 2009 $ 153,933     $ 96,326     $ 29,285     $ 28,322
  Change in volume   6,476     6,094     1,352     (970)
  Change in selling prices   (16,938)     (13,650)     (1,942)     (1,346)
  Impact of acquisitions   -     -     -     -
  Impact of fluctuations in foreign                      
    currency exchange rates   1,115     436     (1,063)     1,742
 

 

 

 

June 30, 2010 $ 144,586   $ 89,206   $ 27,632   $ 27,748
 

 

 

 

 
  Six Months Ended
 
  Consolidated   North
America
  Europe   Asia
Pacific
 
 
 
 
 
June 30, 2009 $ 309,015   $ 195,588   $ 58,100   $ 55,327
  Change in volume   11,346     10,397     2,277     (1,328)
  Change in selling prices   (35,656)     (27,962)     (4,389)     (3,305)
  Impact of acquisitions   346     346     -     -
  Impact of fluctuations in foreign                      
    currency exchange rates   5,940     1,093     655     4,192
 

 

 

 

June 30, 2010 $ 290,991   $ 179,462   $ 56,643   $ 54,886
 

 

 

 


     With the exception of our Asia Pacific operating segment, volume and pricing changes have followed similar trends. In North America and Europe, volume increases in our net revenue for the three and six months ended June 30, 2010 from the comparable prior year periods were driven by our PGiMeet solutions, offset in part by volume decreases in our broadcast fax and other PGiSend solutions. The decrease in average selling prices for the three and six months ended June 30, 2010 resulted from a higher mix of large volume enterprise customers and price reductions from existing customers, primarily related to our PGiMeet solutions.

     Our Asia Pacific operating segment has experienced different trends than our North America and Europe operating segments. Volume decreases in our Asia Pacific net revenue for the three and six months ended June 30, 2010 from the same periods in 2009 were driven by declines in all of our solutions. The decrease in average selling prices for the three and six months ended June 30, 2010 was primarily associated with our PGiMeet solutions and broadcast fax services.

Cost of Revenues

  Three Months Ended
June 30,
  Change
 
 
  2010   2009   $   %
 
 
   
 
  (in thousands)        
Cost of revenues:                    
  North America $ 40,867     $ 41,784   (917)   (2.2)
  Europe   7,814     10,132   (2,318)   (22.9)
  Asia Pacific   13,411     13,712   (301)   (2.2)
 

 

 
   
    Consolidated $ 62,092   $ 65,628   (3,536)   (5.4)
 

 

 
   

23



  Six Months Ended
June 30,
  Change
 
 
  2010   2009   $   %
 
 
   
 
  (in thousands)        
Cost of revenues:                    
  North America $ 80,065     $ 84,344   (4,279)     (5.1)
  Europe   16,139     19,988   (3,849)   (19.3)
  Asia Pacific   26,445     26,666   (221)   (0.8)
 

 

 
   
    Consolidated $ 122,649   $ 130,998   (8,349)   (6.4)
 

 

 
   
 
  Three Months Ended
June 30,
Six Months Ended
June 30,
 
 
  2010   2009   2010   2009
 
 
 
 
Cost of revenue expense as a percent of net revenues:                  
  North America   45.8%     43.4%   44.6%   43.1%
  Europe   28.3%     34.6%   28.5%   34.4%
  Asia Pacific   48.3%     48.4%   48.2%   48.2%
    Consolidated   42.9%     42.6%   42.1%   42.4%

     Consolidated cost of revenues decreased in the three and six months ended June 30, 2010 compared to the same periods in 2009 as a result of savings related to our 2009 restructuring efforts, lower revenues and cost savings realized in our per minute rates from our telecommunications service suppliers. Fluctuations in foreign currency exchange rates resulted in increased consolidated cost of revenues of $0.5 million and $2.0 million for the three and six months ended June 30, 2010, respectively, as compared to the same periods in 2009.

     The increases in North America cost of revenue as a percentage of operating segment net revenue for the three and six months ended June 30, 2010 as compared to the same periods in 2009 were attributable to growth in higher cost of revenue large enterprise customers in our PGiMeet solutions and declines in our broadcast fax, transactional fax and e-mail delivery net revenues, which have a lower variable cost of revenue in North America than our other solutions, partially offset by savings related to our 2009 restructuring efforts. Fluctuations in foreign currency exchange rates from our Canadian operations resulted in increased North America cost of revenue of $0.1 million and $0.3 million for the three and six months ended June 30, 2010, respectively, as compared to the same periods in 2009.

     The decreases in Europe cost of revenue as a percentage of operating segment net revenue for the three and six months ended June 30, 2010 as compared to the same periods in 2009 were attributable to savings related to our 2009 restructuring efforts, growth in our lower cost of revenue PGiMeet solutions and cost savings realized in our per minute rates from suppliers. Fluctuations in foreign currency exchange rates resulted in decreased Europe cost of revenue of $0.3 million for the three months ended June 30, 2010 as compared to the same period in 2009 and had no impact on the six months ended June 30, 2010 compared to the same period in 2009.

     Asia Pacific cost of revenue as a percentage of operating segment net revenue for the three and six months ended June 30, 2010 did not materially change when compared to the same periods in 2009. Fluctuations in foreign currency exchange rates resulted in increased Asia Pacific cost of revenue of $0.7 million and $1.6 million for the three and six months ended June 30, 2010, respectively, as compared to the same periods in 2009.

24


Selling and Marketing Expenses

  Three Months Ended
June 30,
  Change
 
 
  2010   2009   $   %
 
 
   
 
  (in thousands)        
Selling and marketing expenses:                  
  North America $ 20,433     $ 22,422     (1,989)     (8.9)
  Europe   7,060     7,621   (561)   (7.4)
  Asia Pacific   6,145     5,684   461   8.1
 

 

 
   
    Consolidated $ 33,638   $ 35,727   (2,089)   (5.8)
 

 

 
   
 
  Six Months Ended
June 30,
  Change
 
 
  2010   2009   $   %
 
 
   
 
  (in thousands)        
Selling and marketing expenses:                  
  North America $ 44,664   $ 45,846   (1,182)   (2.6)
  Europe   14,706     15,775   (1,069)   (6.8)
  Asia Pacific   12,672     11,094   1,578   14.2
 

 

 
   
    Consolidated $ 72,042   $ 72,715   (673)   (0.9)
 

 

 
   
 
  Three Months Ended
June 30,
Six Months Ended
June 30,
 
 
  2010   2009   2010   2009
 
 
 
 
Selling and marketing expenses as a percent of net revenues:                  
  North America   22.9%     23.3%   24.9%   23.4%
  Europe   25.6%     26.0%   26.0%   27.2%
  Asia Pacific   22.1%     20.1%   23.1%   20.1%
    Consolidated   23.3%     23.2%   24.8%   23.5%

     Consolidated selling and marketing expenses decreased for the three and six months ended June 30, 2010 from the same periods in 2009 as a result of the savings related to our 2009 restructuring efforts partially offset by fluctuations in foreign currency exchange rates. Fluctuations in foreign currency exchange rates resulted in increased selling and marketing expenses of $0.3 million and $1.8 million for the three and six months ended June 30, 2010, respectively, as compared to the same periods in 2009.

     The decrease in North America selling and marketing expenses for the three and six months ended June 30, 2010 was attributable to savings related to our 2009 restructuring efforts partially offset by fluctuations in foreign currency exchange rates. Fluctuations in foreign currency exchange rates from our Canadian operations resulted in increased North America selling and marketing expenses of $0.1 million and $0.2 million for the three and six months ended June 30, 2010, respectively, as compared to the same periods in 2009.

     The decrease in Europe selling and marketing expenses for the three and six months ended June 30, 2010 was attributable to savings related to our 2009 restructuring efforts. Fluctuations in foreign currency exchange rates resulted in decreased Europe selling and marketing expenses of $0.3 million for the three months ended June 30, 2010 and increased selling and marketing expenses of $0.2 million for the six months ended June 30, 2010 as compared to the same periods in 2009.

     The increase in Asia Pacific selling and marketing expenses for the three and six months ended June 30, 2010 was primarily attributable to the strengthening of the Australian Dollar against the U.S. Dollar. Fluctuations in foreign currency exchange rates resulted in increased Asia Pacific selling and marketing expenses of $0.5 million

25



and $1.4 million for the three and six months ended June 30, 2010, respectively, as compared to the same periods in 2009.

General and Administrative Expenses

  Three Months Ended
June 30,
  Change
 
 
  2010   2009   $   %
 
 
   
 
  (in thousands)        
General and administrative expenses:                  
  North America $ 11,499     $ 11,464     35   0.3
  Europe   2,648       2,923   (275)     (9.4)
  Asia Pacific   2,503     1,921   582   30.3
 

 

 
   
    Consolidated $ 16,650   $ 16,308   342   2.1
 

 

 
   
 
  Six Months Ended
June 30,
  Change
 
 
  2010   2009   $   %
 
 
   
 
  (in thousands)        
General and administrative expenses:                  
  North America $ 22,743   $ 22,296   447   2.0
  Europe   5,408     5,641   (233)   (4.1)
  Asia Pacific   4,955     3,922   1,033   26.3
 

 

 
   
    Consolidated $ 33,106   $ 31,859   1,247   3.9
 

 

 
   
 
  Three Months Ended
June 30,
Six Months Ended
June 30,
 
 
  2010   2009   2010   2009
 
 
 
 
General and administrative expenses as a percent of net revenues:                  
  North America   12.9%     11.9%   12.7%   11.4%
  Europe   9.6%     10.0%   9.5%   9.7%
  Asia Pacific   9.0%     6.8%   9.0%   7.1%
    Consolidated   11.5%     10.6%   11.4%   10.3%

     Consolidated general and administrative expenses increased for the three and six months ended June 30, 2010 from the same periods in 2009 as a result of strengthening of various currencies to the U.S. Dollar and an increase in consulting fees incurred to assist us with initiatives to decrease per minute rates paid to our suppliers. Fluctuations in foreign currency exchange rates resulted in increased general and administrative expenses of $0.1 million and $0.6 million for the three and six months ended June 30, 2010, respectively, as compared to the same periods in 2009.

     The increase in North America general and administrative expenses for the three and six months ended June 30, 2010 was attributable to increased bad debt expense.

     The decrease in Europe general and administrative expenses for the three and six months ended June 30, 2010 was attributable to savings realized from our 2009 restructuring efforts partially offset by consulting fees incurred to assist us with initiatives to decrease per minute rates paid to our suppliers. Fluctuations in foreign currency exchange rates resulted in decreased Europe general and administrative expenses of $0.1 million for the three months ended June 30, 2010 and increased Europe general and administrative expenses of $0.1 million for the six months June 30, 2010, as compared to the same periods in 2009.

26



     The increase in Asia Pacific general and administrative expenses for the three and six months ended June 30, 2010 was attributable to the strengthening of the Australian Dollar against the U.S. Dollar and consulting fees incurred to assist us with initiatives to decrease per minute rates paid to our suppliers. Fluctuations in foreign currency exchange rates resulted in increased Asia Pacific general and administrative expenses of $0.2 million and $0.4 million for the three and six months ended June 30, 2010, respectively, as compared to the same periods in 2009.

Research and Development Expenses

     Consolidated research and development expense as a percentage of consolidated net revenues was 3.2% and 2.7% for the three months ended June 30, 2010 and 2009, respectively, and 3.3% and 2.6% for the six months ended June 30, 2010 and 2009, respectively. Consolidated research and development expenses increased $0.5 million and $1.5 million to $4.6 million and $9.5 million for the three and six months ended June 30, 2010, respectively, compared with $4.1 million and $8.0 million for the same periods in 2009. We incurred the majority of research and development costs in North America.

Equity-Based Compensation Expense

     Equity-based compensation expense for restricted stock awards was included in operating expenses. The expense was recorded in the line items below (in thousands):

  Three Months Ended
June 30,

    Six Months Ended
June 30,

  2010
   2009
  2010
   2009
Cost of revenues $ 98   $ 85   $ 185   $ 173
Selling and marketing   405     670     938     1,438
Research and development   232     327     506     647
General and administrative   1,516     1,791     3,329     3,551
 
 
 
 
    Equity-based compensation expense $ 2,251   $ 2,873   $ 4,958   $ 5,809
 
 
 
 

Depreciation Expense

  Three Months Ended
June 30,
  Change
 
 
  2010   2009   $   %
 
 
   
 
  (in thousands)        
Depreciation expense:                  
  North America $ 8,396   $ 7,523   873   11.6
  Europe   895     926   (31)   (3.3)
  Asia Pacific   704       642     62     9.7
 

 

 
   
    Consolidated $ 9,995   $ 9,091   904   9.9
 

 

 
   
 
  Six Months Ended
June 30,
  Change
 
 
  2010   2009   $   %
 
 
   
 
  (in thousands)        
Depreciation expense:                  
  North America $ 16,610   $ 14,706   1,904   12.9
  Europe   1,856     1,758   98   5.6
  Asia Pacific   1,409     1,258   151   12.0
 

 

 
   
    Consolidated $ 19,875   $ 17,722   2,153   12.1
 

 

 
   
 
  Three Months Ended
June 30,
Six Months Ended
June 30,
 
 
  2010   2009   2010   2009
 
 
 
 
Depreciation expense as a percent of net revenues:                  
  North America   9.4%     7.8%   9.3%   7.5%
  Europe   3.2%     3.2%   3.3%   3.0%
  Asia Pacific   2.5%     2.3%   2.6%   2.3%
    Consolidated   6.9%     5.9%   6.8%   5.7%

     Consolidated depreciation expense increased for the three and six months ended June 30, 2010 as compared to the same periods in 2009 as a result of increases in our productive asset base.

27



Amortization Expense

  Three Months Ended
June 30,
  Change
 
 
  2010   2009   $   %
 
 
   
 
  (in thousands)        
Amortization expense:                  
  North America $ 1,451   $ 2,314   (863)     (37.3)
  Europe   380     406   (26)   (6.4)
  Asia Pacific   66       57   9   15.8
 

 

 
   
    Consolidated $ 1,897   $ 2,777   (880)   (31.7)
 

 
 
   
 
  Six Months Ended
June 30,
  Change
 
 
  2010   2009   $   %
 
 
   
 
  (in thousands)        
Amortization expense:                  
  North America $ 3,233   $ 4,855   (1,622)   (33.4)
  Europe   792     795   (3)   (0.4)
  Asia Pacific   133     107   26   24.3
 

 

 
   
    Consolidated $ 4,158   $ 5,757   (1,599)   (27.8)
 

 

 
   
 
  Three Months Ended
June 30,
Six Months Ended
June 30,
 
 
  2010   2009   2010   2009
 
 
 
 
Amortization expense as a percent of net revenues:                  
  North America   1.6%     2.4%   1.8%   2.5%
  Europe   1.4%     1.4%   1.4%   1.4%
  Asia Pacific   0.2%     0.2%   0.2%   0.2%
    Consolidated   1.3%     1.8%   1.4%   1.9%

     Consolidated amortization expense decreased for the three and six months ended June 30, 2010 as compared to the same periods in 2009 as a result of the decrease in amortization expense in North America related to customer list and non-compete intangible assets from acquisitions made in 2004 that have become fully amortized, partially offset by intangible amortization expense resulting from our 2009 acquisitions.

Restructuring Costs

     Consolidated restructuring costs were $3.2 million and $4.7 million, or 2.2% and 3.0% of consolidated revenues, for the three months ended June 30, 2010 and 2009, respectively, and $3.2 million and $6.3 million, or 1.1% and 2.0% of consolidated revenues, for the six months ended June 30, 2010 and 2009, respectively.

Realignment of Workforce – 2010

     During the three months ended June 30, 2010, we executed a restructuring plan to consolidate and streamline various functions of our work force, and we discontinued a non-core e-mail platform. We incurred restructuring costs of $2.2 million and asset impairment charges of $1.8 million associated with these efforts. As part of these consolidations, we eliminated approximately 75 positions. During the three months ended June 30, 2010, we recorded total severance and exit costs of $2.1 million. Additionally, during the three months ended June 30, 2010, we recorded $0.1 million of lease termination costs associated with an office location in North America. The expenses associated with these activities are reflected in “Restructuring costs” in our condensed consolidated statements of operations. On a segment basis, these restructuring costs totaled $2.1 million in North America, including $0.6 million related to the discontinued e-mail platform noted above, and $0.1 million in Europe. Our reserve for the 2010 restructuring costs was $2.0 million at

28



June 30, 2010. We anticipate these severance-related costs will be paid over the next year and these lease termination costs will be paid over the next 18 months.

Realignment of Workforce – 2009

     During the year ended December 31, 2009, we executed a restructuring plan to consolidate and streamline various functions of our work force. As part of these consolidations, we eliminated approximately 500 positions. During the year ended December 31, 2009, we recorded total severance and exit costs of $14.8 million, which included the acceleration of vesting of restricted stock with a fair market value of $0.2 million. Severance costs for 2009 included $0.4 million associated with the decision to divest our PGiMarket business. Additionally, during the year ended December 31, 2009, we recorded $4.4 million of lease termination costs associated with office locations in North America and Europe. The expenses associated with these activities are reflected in “Restructuring costs” in our condensed consolidated statements of operations. On a segment basis, these restructuring costs totaled $12.0 million in North America, $6.6 million in Europe and $0.6 million in Asia Pacific. In the six months ended June 30, 2010, we adjusted the initially recorded charges for North America by $0.6 million and $0.5 million for severance-related costs and lease termination costs, respectively, and for Europe by $(0.5) million for severance-related costs. Our reserve for the 2009 restructuring costs was $4.7 million at June 30, 2010. We anticipate these severance-related costs will be paid over the next year and these lease termination costs will be paid over the next nine years.

Realignment of Workforce – Prior to 2009

     Our remaining reserve for restructuring costs incurred prior to 2009 is associated with lease termination costs and totaled $3.8 million at June 30, 2010. During the year ended December 31, 2009, we revised assumptions used in determining the estimated costs associated with these lease terminations incurred prior to 2009. As a result, we recorded an additional $3.2 million of lease termination costs. During the six months ended June 30, 2010, we made additional adjustments of $0.3 million. The expenses associated with these activities are reflected in “Restructuring costs” in our condensed consolidated statements of operations. We anticipate these remaining lease termination costs will be paid over the next six years.

Net Legal Settlements and Related Expenses

     Net legal settlements and related expenses for the three and six months ended June 30, 2010 were attributable to legal fees incurred during the defense of the state income tax matter described in Note 9.

Acquisition-Related Costs

     During the three months ended June 30, 2010 and 2009, we expensed $0.1 million and $0.2 million, respectively, in acquisition-related costs. During the six months ended June 30, 2010 and 2009, we expensed $0.3 million and $0.6 million, respectively, in acquisition-related costs. We allocated similar costs in years prior to 2009 to the assets acquired and liabilities assumed in such acquisitions.

Interest Expense

     Interest expense was $4.3 million and $3.8 million in the three months ended June 30, 2010 and 2009, respectively, and was $7.1 million and $7.8 million in the six months ended June 30, 2010 and 2009, respectively. Interest expense increased during the three months ended June 30, 2010 as a result of increased interest rates on our new credit facility due to general credit market conditions, $0.2 million of debt issuance cost related to our prior credit facility written off in the current quarter, and $0.6 million of excise tax interest incurred during the current quarter, partially offset with the expiration of one of our interest rate swaps in August 2009. We had $153.2 million and $67.8 million of outstanding borrowings on our credit facility subject to interest rate risk at June 30, 2010 and 2009, respectively. Our effective interest rate on the U.S. Dollar amount of this portion of our existing credit facility was 3.10% and 1.56% at June 30, 2010 and 2009, respectively. As of June 30, 2010, we have one $100.0 million interest rate swap outstanding which has a fixed rate of 4.75% and expires in August 2010. The weighted-average outstanding balance on our credit facility was $268.5 million and $288.0 million for the three months ended June 30, 2010 and 2009, respectively, and $268.3 million and $288.0 million in the six months ended June 30, 2010 and 2009, respectively. The decrease in our weighted-average debt outstanding is attributable to our

29



concerted efforts to reduce our outstanding debt, partially offset by debt issuance costs that we incurred in connection with our new credit facility.

Income Tax Expense

     Income tax expense for the three and six months ended June 30, 2010 was $1.8 million and $5.4 million, respectively, compared to $4.1 million and $9.6 million for the three and six months ended June 30, 2009, respectively. The decline in income tax expense between 2010 and 2009 was primarily related to the decrease in income from continuing operations in 2010.

     Our unrecognized tax benefit of $5.7 million at each of June 30, 2010 and December 31, 2009, if recognized, would affect our annual effective tax rate. The unrecognized tax benefit at June 30, 2010 is included in “Other assets,” “Income taxes payable” and “Accrued expenses” under “Long-Term Liabilities” in our condensed consolidated balance sheets. We do not expect our unrecognized tax benefit to change significantly over the next 12 months.

Discontinued Operations

     On November 5, 2009, we completed the sale of our PGiMarket business. Prior period results have been reclassified to present this business as discontinued operations.

     The following amounts associated with our PGiMarket business have been segregated from continuing operations and are reflected as discontinued operations for three and six months ended June 30, 2009 (in thousands):

  Three Months Ended
June 30,
2009
  Six Months Ended
June 30,
2009
 
 
Net revenue from discontinued operations $ 758     $ 1,547
 

 

 
Operating loss   (1,068)     (2,800)
Income tax benefit   396     1,037
 

 

Loss from discontinued operations, net of taxes $ (672)   $ (1,763)
 

 

Liquidity and Capital Resources

     At June 30, 2010, we had utilized $259.0 million of our $325.0 million credit facility, with $253.2 million in borrowings and $5.8 million in letters of credit outstanding. From time to time, we enter into interest rate swaps to reduce our exposure to market risk from changes in interest rates on interest payments associated with our credit facility. As of June 30, 2010, we have one $100.0 million interest rate swap outstanding, which has a fixed rate of 4.75% and expires in August 2010. See Note 6 for more detail on our credit facility and interest rate swap.

     At the scheduled maturity of our credit facility in May 2014 or in the event of an acceleration of the indebtedness under the credit facility following an event of default, the entire outstanding principal amount of the indebtedness under the facility, together with all other amounts payable thereunder, will become due and payable. We may not have sufficient funds to pay such obligations in full at maturity or upon such acceleration. If we default and are not able to pay any such obligations due, our lenders have liens on substantially all of our assets and could foreclose on our assets in order to satisfy our obligations.

     As of June 30, 2010, we had $42.3 million in cash and equivalents compared to $41.4 million as of December 31, 2009. Cash balances residing outside of the United States as of June 30, 2010 were $41.1 million compared to $40.4 million as of December 31, 2009. We repatriate cash for repayment of royalties and management fees charged to international locations from the United States. Therefore, we record foreign currency exchange gains and losses resulting from these transactions in “Other, net” in our condensed consolidated statements of operations. We generally consider intercompany loans with foreign subsidiaries to be permanently invested for the foreseeable future. Therefore, we record foreign currency exchange fluctuations resulting from these transactions in

30



the cumulative translation adjustment account on our condensed consolidated balance sheets. Based on our potential cash position and potential conditions in the capital markets, we could require repayment of these intercompany loans despite the long-term intention to hold them as permanent investments.

Cash provided by operating activities

     Consolidated operating cash flows were $32.6 million and $44.8 million for the six months ended June 30, 2010 and 2009, respectively. The decrease in net cash provided by operating activities was primarily attributable to lower net income and higher payments for restructuring costs in 2010 compared to 2009.

Cash used in investing activities

     Consolidated investing activities used cash of $19.6 million and $30.5 million for the six months ended June 30, 2010 and 2009, respectively. The principal use of cash in investing activities for the six months ended June 30, 2010 related to $19.2 million of capital expenditures. The principal uses of cash in investing activities for the six months ended June 30, 2009 included $22.8 million of capital expenditures and $7.9 million related to our 2009 acquisitions.

Cash provided by financing activities

     Consolidated financing activities used cash of $9.9 million and $3.2 million for the six months ended June 30, 2010 and 2009, respectively. The primary uses of cash for financing activities in the six months ended June 30, 2010 included $7.9 million of net payments on our credit facility, $1.0 million of payment of debt issuance cost and $1.0 million in treasury stock purchases. Cash provided by financing activities in the six months ended June 30, 2009 included $0.6 million of proceeds from stock option exercises and $0.3 million from excess tax benefits from share-based payment arrangements, offset by $4.0 million of treasury stock purchases.

Off-balance sheet arrangements

     At June 30, 2010, we did not have any off-balance-sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.

Capital resources

     On May 10, 2010, we closed the refinancing of our prior credit facility by entering into a new, four-year $325.0 million credit facility consisting of a $275.0 million revolver and a $50.0 million Term A loan. All commitments under our prior credit facility were terminated, and all outstanding borrowings were repaid. Our prior credit facility was scheduled to mature in April 2011. Our new credit facility includes a $75.0 million accordion feature, which allows for additional credit commitments up to a maximum of $400.0 million, subject to its terms and conditions. Our subsidiary ATS is the borrower under this new credit facility, with PGi and certain of our material domestic subsidiaries guaranteeing the obligations of ATS under the credit facility, which is secured by substantially all of our assets and the assets of our material domestic subsidiaries. In addition, we have pledged as collateral all of the issued and outstanding stock of our material domestic subsidiaries and 65% of our material foreign subsidiaries. We used the initial borrowings under the new credit facility and proceeds of the Term A loan to repay all outstanding borrowings under the prior credit facility and to pay certain transaction fees and closing costs. Future proceeds drawn under our new credit facility can be used for working capital, capital expenditures, acquisitions and other general corporate purposes. The annual interest rate applicable to borrowings under our new credit facility, at our option, is (1) the base rate (the greater of either the federal funds rate plus one-half of one percent, the prime rate or one-month LIBOR plus one and one-half percent) plus an applicable percentage that varies based on our consolidated leverage ratio at quarter end, or (2) LIBOR for one, two, three, nine or twelve months adjusted for a percentage that represents the Federal Reserve Board’s reserve percentage plus an applicable percentage that varies based on our consolidated leverage ratio at quarter end. The applicable percentage for base rate loans and LIBOR loans were 1.75% and 2.75%, respectively, at June 30, 2010 under our new credit facility. Our interest rate on LIBOR loans, which comprised materially all of our outstanding borrowings as of June 30, 2010, was 3.10%. The Term A loan requires amortization in the form of quarterly scheduled principal payments of $3.75 million per year (or $937,500 per quarter) in each of years one through three of the term, with the remaining balance of $38.75

31



million due in year four ($937,500 in the first three quarters and the remaining outstanding principal balance due in the fourth and final quarter at maturity). As anticipated, given general credit market conditions, pricing on our new credit facility is higher than the level in our prior credit facility. Our new credit facility contains customary restrictive covenants, including financial covenants, and otherwise contains terms substantially similar to the terms in our prior credit facility.

     At June 30, 2010, we were in compliance with the covenants under our credit facility. At June 30, 2010, we had $253.2 million of borrowings and $5.8 million in letters of credit outstanding under our credit facility.

     In August 2007, we entered into two $100.0 million two-year interest rate swaps at a fixed rate of 4.99%. In December 2007, we amended the life of one of the $100.0 million swaps to three years and reduced the fixed rate to 4.75%. As of June 30, 2010, we have one $100.0 million interest rate swap outstanding, which has a fixed rate of 4.75% and expires in August 2010.

     We did not initially designate these interest rate swaps as hedges and, as such, we did not account for them under hedge accounting. During the fourth quarter of 2008, we prospectively designated these interest rate swaps as cash flow hedges of our interest rate risk associated with our credit facility using the long-haul method of effectiveness testing. Concurrent with the refinancing of our credit facility on May 10, 2010 we dedesignated the cash flow hedge associated with our remaining interest rate swap. Any changes in fair value prior to designation as a hedge, subsequent to dedesignation as a hedge, and any ineffectiveness while designated are recognized as “Unrealized gain on change in fair value of interest rate swaps” as a component of “Other (expense) income” in our condensed consolidated statements of operations and amounted to $0.5 million and $1.1 million during the three months ended June 30, 2010 and 2009, respectively and $1.0 million and $2.1 million during the six months ended June 30, 2010 and 2009, respectively.

     Any changes in fair value that were determined to be effective while designated as a hedge were recorded as a component of “Accumulated other comprehensive (loss) gain” in our condensed consolidated balance sheets and amounted to a gain of $0.8 million, net of taxes, for the six months ended June 30, 2010. The balance remaining in “Accumulated other comprehensive (loss) gain” on May 10, 2010 of $(0.2) million will be reclassified into earnings during the third quarter of 2010 when the swap expires.

     We recognize the fair value of derivatives in our condensed consolidated balance sheets as part of “Accrued expenses” under “Current Liabilities” or “Long-Term Liabilities” depending on the maturity date of the contract. The amount recognized in current liabilities was $0.6 million and $2.8 million at June 30, 2010 and December 31, 2009, respectively.

Liquidity

     At June 30, 2010, we had $42.3 million of cash and equivalents. We generated positive operating cash flows from each of our geographic business segments for the six months ended June 30, 2010. Each geographic business segment had sufficient cash flows from operations to service existing debt obligations, to fund capital expenditure requirements (which historically have been 6% to 8% of annual consolidated net revenues) and to fund research and development costs for new services and enhancements to existing services (which historically have been 2% to 3% of annual consolidated net revenues). Assuming no material change to these costs, which we do not anticipate, we believe that we will generate adequate operating cash flows for capital expenditures and contractual commitments and to satisfy our indebtedness and fund our liquidity needs for at least the next 12 months. We have historically borrowed on our credit facility in order to fund acquisitions and stock repurchases. At June 30, 2010, we had $66.0 million of available credit on our $325.0 million credit facility, without regard to the uncommitted $75.0 million of the accordion feature.

     We regularly review our capital structure and evaluate potential alternatives in light of current conditions in the capital markets. Depending upon conditions in these markets, cash flows from our operating segments and other factors, we may engage in other capital transactions. These capital transactions include, but are not limited to, debt or equity issuances or credit facilities with banking institutions.

32



CRITICAL ACCOUNTING POLICIES

     “Management’s Discussion and Analysis of Financial Condition and Results of Operations” is based upon our condensed consolidated financial statements and the notes thereto, which have been prepared in accordance with GAAP. The preparation of the condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. We review the accounting policies used in reporting our financial results on a regular basis and review critical accounting policies and related disclosures with the audit committee of our board of directors. We have identified the policies below as critical to our business operations and the understanding of our financial condition and results of operations:

     For a detailed discussion on the application of these accounting policies, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our annual report on Form 10-K for the fiscal year ended December 31, 2009.

FORWARD LOOKING STATEMENTS

     When used in this quarterly report on Form 10-Q and elsewhere by us 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. 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 our forward-looking statements, including the following factors:

33



     We caution that these factors are not exclusive. Consequently, all of the forward-looking statements made in this quarterly report on Form 10-Q and in other documents filed with the SEC are qualified by these cautionary statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Form 10-Q. We undertake no obligation to publicly release the results of any revisions to

34



these forward-looking statements that may be made to reflect events or circumstances after the date of this Form 10-Q or the date of the statement, if a different date.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     We are exposed to market risk from changes in interest rates and foreign currency exchange rates. We manage our exposure to these market risks through our regular operating and financing activities and the timing of intercompany payable settlements. In addition, in August 2007, we entered into two $100.0 million two-year interest rate swaps at a fixed rate of 4.99%. On December 17, 2007, we amended one of the $100.0 million swaps to reduce the rate to a fixed rate of 4.75% and extend the maturity to August 16, 2010. As of June 30, 2010, we have one $100.0 million swap outstanding. This interest rate swap effectively converts the interest payments of $100.0 million of our LIBOR-based borrowings to a fixed rate.

     At June 30, 2010, we had borrowings of approximately $153.2 million outstanding under our credit facility that were subject to interest rate risk. Each 100 basis point increase in interest rates relative to these borrowings would impact our annual pre-tax earnings and cash flows by approximately $1.5 million based on our June 30, 2010 debt level.

     We generated approximately 41% of our consolidated net revenues and 33% of our operating expenses in countries outside of the United States in the six months ended June 30, 2010. Additionally, we have foreign currency denominated debt as part of our credit facility. At June 30, 2010, we had debt outstanding of CA$2.7 million. As a result, fluctuations in exchange rates impact the amount of our reported consolidated net revenues, operating income and debt. A hypothetical positive or negative change of 10% in foreign currency exchange rates would positively or negatively change our consolidated net revenues, operating expenses and outstanding debt for the six months ended June 30, 2010 by approximately $11.9 million, $8.9 million and $0.3 million, respectively. Our principal exposure has been related to local currency sales and operating costs in Australia, Canada, the Euro Zone, Japan, Norway and the United Kingdom. We have not used derivatives to manage foreign currency exchange risk, and we did not have any foreign currency exchange derivatives outstanding at June 30, 2010.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

     Our management has evaluated, under the supervision and with the participation of our principal executive officer and principal financial officer, the effectiveness of our disclosure controls and procedures as of June 30, 2010. Based on this evaluation, our principal executive officer and principal financial officer concluded that, as of June 30, 2010, our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), were effective and designed to ensure that (a) information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC's rules and instructions, and (b) information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosures.

Changes in Internal Control Over Financial Reporting

     There were no changes in our internal control over financial reporting during the quarter ended June 30, 2010 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

35



PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

     We are involved from time to time in legal proceedings that we do not believe will have a material adverse effect upon our business, financial condition or results of operations, although we can offer no assurance as to the ultimate outcome of any such proceedings.

ITEM 1A. RISK FACTORS.

     Part I, Item 1A. “Risk Factors” in our annual report on Form 10-K for the year ended December 31, 2009 and Part II, Item IA. “Risk Factors” in our quarterly report on Form 10-Q for the quarter ended March 31, 2010 include a detailed discussion of risk factors that could materially affect our business, financial condition or results of operations. There have been no material changes from the risk factors disclosed in these reports.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

     None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

     None.

ITEM 4. REMOVED AND RESERVED

ITEM 5. OTHER INFORMATION

     None.

ITEM 6. EXHIBITS

     (a) Exhibits

     The exhibits filed with this report are listed on the “Exhibit Index” following the signature page of this Form 10-Q, which are incorporated by reference.

36



SIGNATURE

     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: August 9, 2010 PREMIERE GLOBAL SERVICES, INC.
 
 
  /s/ David E. Trine
 
  David E. Trine
  Chief Financial Officer
  (principal financial and accounting officer and
  duly authorized signatory of the registrant)

37



EXHIBIT INDEX

Exhibit
Number

Description
10.1   Amendatory Agreement #1 to the Premiere Global Services, Inc. 401(K) Plan, dated May 26, 2009
10.2       Amendment to the Premiere Global Services, Inc. 401(K) Plan, dated June 16, 2009.
10.3   Amendment to the Premiere Global Services, Inc. 401(K) Plan, dated September 29, 2009.
10.4   Amendatory Agreement #3 to the Premiere Global Services, Inc. 401(K) Plan, dated February 16, 2010
31.1   Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934.
31.2   Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934.
32.1   Certification of Chief Executive Officer pursuant to Rule 13a-14(b)/15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350.
32.2   Certification of Chief Financial Officer, as required by Rule 13a-14(b)/15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350.
101.INS   XBRL Instance Document*
101.SCH   XBRL Taxonomy Extension Schema Document*
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document*
101.DEF   XBRL Taxonomy Extension Definition Linkbase Document*
101.LAB   XBRL Taxonomy Extension Label Document*
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document*

*     

Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, and otherwise are not subject to liability under these sections.

38