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Form 10-Q

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, 2011

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

Commission File No. 001-35210

PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED

(Exact name of registrant as specified in its charter)


Delaware		54-1708481
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

7901 Jones Branch Drive, Suite 900, McLean, VA		22102
(Address of principal executive offices)		(Zip Code)

(703) 902-2800

(Registrant’s telephone number, including area code)

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

Indicate by check mark 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 ¨

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):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No x

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes x No ¨

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


Class		Outstanding as of August 1, 2011
Common Stock $0.001 par value		13,706,475

PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED

INDEX TO FORM 10-Q


				Page No.
Part I. FINANCIAL INFORMATION
	Item 1.		FINANCIAL STATEMENTS (UNAUDITED)
		Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2011 and 2010			1
		Condensed Consolidated Balance Sheets as of June 30, 2011 and December 31, 2010			2
		Condensed Consolidated Statements of Cash Flows for the Six Months ended June 30, 2011 and 2010			3
		Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2011 and 2010			4
		Notes to Condensed Consolidated Financial Statements			5
	Item 2.		MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		28
	Item 3.		QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		43
	Item 4.		CONTROLS AND PROCEDURES		44
Part II. OTHER INFORMATION
	Item 1.		LEGAL PROCEEDINGS		45
	Item 1A.		RISK FACTORS		45
	Item 2.		UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS		45
	Item 3.		DEFAULTS UPON SENIOR SECURITIES		45
	Item 4.		(REMOVED AND RESERVED)		45
	Item 5.		OTHER INFORMATION		45
	Item 6.		EXHIBITS		45
SIGNATURES					46
EXHIBIT INDEX					47

PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

(unaudited)


	Three Months Ended June 30, 2011			Three Months Ended June 30, 2010			Six Months Ended June 30, 2011			Six Months Ended June 30, 2010
NET REVENUE	$	282,502		$	194,593		$	506,225		$	387,610
OPERATING EXPENSES
Cost of revenue (exclusive of depreciation included below)		205,522			123,960			357,778			245,951
Selling, general and administrative		59,361			47,854			113,313			97,972
Depreciation and amortization		17,093			18,194			32,214			36,063
(Gain) loss on sale or disposal of assets		(19	)		(189	)		34			(179	)
Goodwill impairment		—			—			14,679			—

Total operating expenses		281,957			189,819			518,018			379,807

INCOME (LOSS) FROM OPERATIONS		545			4,774			(11,793	)		7,803
INTEREST EXPENSE		(7,912	)		(8,733	)		(16,605	)		(18,059	)
ACCRETION (AMORTIZATION) ON DEBT PREMIUM/DISCOUNT, net		(53	)		(45	)		(103	)		(89	)
GAIN (LOSS) ON EARLY EXTINGUISHMENT OR RESTRUCTURING OF DEBT		—			164			—			164
GAIN (LOSS) FROM CONTINGENT VALUE RIGHTS VALUATION		96			(382	)		(4,288	)		(2,425	)
INTEREST INCOME AND OTHER INCOME (EXPENSE), net		174			153			119			363
FOREIGN CURRENCY TRANSACTION GAIN (LOSS)		2,365			(9,623	)		6,413			(3,794	)

INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE REORGANIZATION ITEMS AND INCOME TAXES		(4,785	)		(13,692	)		(26,257	)		(16,037	)
REORGANIZATION ITEMS, net		—			—			—			1

INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES		(4,785	)		(13,692	)		(26,257	)		(16,036	)
INCOME TAX BENEFIT (EXPENSE)		(1,378	)		1,883			(548	)		4,053

INCOME (LOSS) FROM CONTINUING OPERATIONS		(6,163	)		(11,809	)		(26,805	)		(11,983	)
INCOME (LOSS) FROM DISCONTINUED OPERATIONS, net of tax		(89	)		(1,528	)		(69	)		(2,217	)
GAIN (LOSS) FROM SALE OF DISCONTINUED OPERATIONS, net of tax		—			193			—			193

NET INCOME (LOSS)		(6,252	)		(13,144	)		(26,874	)		(14,007	)
Less: Net (income) loss attributable to the noncontrolling interest		(90	)		106			1,277			(30	)

NET INCOME (LOSS) ATTRIBUTABLE TO PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED	$	(6,342	)	$	(13,038	)	$	(25,597	)	$	(14,037	)

BASIC AND DILUTED INCOME (LOSS) PER COMMON SHARE:
Income (loss) from continuing operations attributable to Primus Telecommunications Group, Incorporated		(0.47	)		(1.20	)		(2.08	)		(1.24	)
Income (loss) from discontinued operations		(0.01	)		(0.16	)		(0.01	)		(0.23	)
Gain (loss) from sale of discontinued operations		—			0.02			—			0.02

Net income (loss) attributable to Primus Telecommunications Group, Incorporated		(0.48	)		(1.34	)		(2.09	)		(1.45	)

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic and Diluted		13,385			9,743			12,273			9,694

AMOUNTS ATTRIBUTABLE TO COMMON SHAREHOLDERS OF PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
Income (loss) from continuing operations, net of tax	$	(6,253	)	$	(11,703	)	$	(25,528	)	$	(12,013	)
Income (loss) from discontinued operations		(89	)		(1,528	)		(69	)		(2,217	)
Gain (loss) from sale of discontinued operations		—			193			—			193

Net income (loss)	$	(6,342	)	$	(13,038	)	$	(25,597	)	$	(14,037	)

See notes to condensed consolidated financial statements.

PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share amounts)

(unaudited)


	June 30, 2011			December 31, 2010
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	31,476		$	41,534
Accounts receivable (net of allowance for doubtful accounts receivable of $10,613 and $6,854 at June 30, 2011 and December 31, 2010, respectively)		99,133			76,828
Prepaid expenses and other current assets		18,593			19,439

Total current assets		149,202			137,801
RESTRICTED CASH		12,523			12,117
PROPERTY AND EQUIPMENT – Net		154,346			138,488
GOODWILL		71,113			63,731
OTHER INTANGIBLE ASSETS – Net		144,431			147,749
OTHER ASSETS		17,887			14,573

TOTAL ASSETS	$	549,502		$	514,459

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable	$	63,440		$	36,942
Accrued interconnection costs		25,840			29,571
Deferred revenue		12,844			12,891
Accrued expenses and other current liabilities		51,247			46,491
Accrued income taxes		7,541			7,678
Accrued interest		1,857			2,152
Current portion of long-term obligations		910			1,143

Total current liabilities		163,679			136,868
LONG-TERM OBLIGATIONS		218,607			242,748
DEFERRED TAX LIABILITY		31,683			32,208
CONTINGENT VALUE RIGHTS		23,387			19,098
OTHER LIABILITIES		2,954			503

Total liabilities		440,310			431,425
COMMITMENTS AND CONTINGENCIES (See Note 6.)
STOCKHOLDERS’ EQUITY (DEFICIT):
Preferred stock, $0.001 par value – 20,000,000 shares authorized; none issued and outstanding		0			0
Common stock, $0.001 par value – 80,000,000 shares authorized; 13,695,236 and 9,801,463 shares issued and outstanding at June 30, 2011 and December 31, 2010, respectively		14			10
Additional paid-in capital		141,088			86,984
Accumulated earnings (deficit)		(37,952	)		(12,355	)
Accumulated other comprehensive income (loss)		4,769			4,751

Total stockholders’ equity before noncontrolling interest		107,919			79,390

Noncontrolling interest		1,273			3,644

Total stockholders’ equity		109,192			83,034

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)	$	549,502		$	514,459

See notes to condensed consolidated financial statements.

PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)


	Six Months Ended June 30, 2011			Six Months Ended June 30, 2010
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	(26,874	)	$	(14,007	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Reorganization items, net		—			(1	)
Provision for doubtful accounts receivable		4,436			3,449
Share based compensation expense		3,354			204
Depreciation and amortization		32,219			38,413
(Gain) loss on sale or disposal of assets		34			(372	)
Goodwill impairment		14,679			—
Accretion (amortization) of debt premium/discount, net		103			89
Change in fair value of Contingent Value Rights		4,288			2,425
Deferred income taxes		1,299			(4,823	)
(Gain) loss on early extinguishment of debt		—			(164	)
Unrealized foreign currency transaction gain on intercompany and foreign debt		(6,458	)		4,148
Changes in assets and liabilities, net of acquisitions:
(Increase) decrease in accounts receivable		(8,615	)		(2,820	)
(Increase) decrease in prepaid expenses and other current assets		2,841			(1,114	)
(Increase) decrease in other assets		(2,323	)		342
Increase (decrease) in accounts payable		6,900			(2,513	)
Increase (decrease) in accrued interconnection costs		(4,756	)		(3,489	)
Increase (decrease) in accrued expenses, deferred revenue, other current liabilities and other liabilities, net		(5,288	)		(1,984	)
Increase (decrease) in accrued income taxes		(336	)		(1,407	)
Increase (decrease) in accrued interest		(511	)		218

Net cash provided by operating activities before cash reorganization items		14,992			16,594
Cash effect of reorganization items		—			(137	)

Net cash provided by operating activities		14,992			16,457

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment		(13,880	)		(10,737	)
Sale of property and equipment and intangible assets		—			530
Cash acquired from business acquisitions, net of cash paid		9,599			—
Sales of marketable securities		4,087			—
Increase in restricted cash		(123	)		(132	)

Net cash provided by (used in) investing activities		(317	)		(10,339	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term obligations		(24,462	)		(13,175	)
Payment to noncontrolling interest		(1,205	)		—
Proceeds from sale of common stock		1,168			—

Net cash used in financing activities		(24,499	)		(13,175	)

EFFECTS OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS		(234	)		(1,505	)

NET CHANGE IN CASH AND CASH EQUIVALENTS		(10,058	)		(8,562	)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		41,534			42,538

CASH AND CASH EQUIVALENTS, END OF PERIOD	$	31,476		$	33,976


SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest	$	17,008		$	17,879
Cash paid for taxes		431			899
Non-cash investing and financing activities:
Capital lease additions	$	—		$	51
Acquisition purchase consideration recorded in working-capital and long-term liabilities		2,507			—
Business acquisition purchased with Company common stock		50,609			—

See notes to condensed consolidated financial statements.

PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

(unaudited)


	Three Months Ended June 30, 2011			Three Months Ended June 30, 2010			Six Months Ended June 30, 2011			Six Months Ended June 30, 2010
NET INCOME (LOSS)	$	(6,252	)	$	(13,144	)	$	(26,874	)	$	(14,007	)

OTHER COMPREHENSIVE INCOME (LOSS)
Foreign currency translation adjustment		(1,057	)		(879	)		129			(1,077	)

COMPREHENSIVE INCOME (LOSS)		(7,309	)		(14,023	)		(26,745	)		(15,084	)
Less: Comprehensive (income) loss attributable to the noncontrolling interest		(102	)		213			1,166			(33	)

COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED	$	(7,411	)	$	(13,810	)	$	(25,579	)	$	(15,117	)

See notes to condensed consolidated financial statements.

PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements of Primus Telecommunications Group, Incorporated and subsidiaries (the “Company” or “Primus”) have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial reporting and Securities and Exchange Commission (“SEC”) regulations. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such principles and regulations. In the opinion of management, the financial statements reflect all adjustments (all of which are of a normal and recurring nature), which are necessary to present fairly the financial position, results of operations, cash flows and comprehensive income (loss) for the interim periods. The results for the Company’s three months and six months ended June 30, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011.

The results for all periods presented in this Quarterly Report on Form 10-Q reflect the activities of certain operations as discontinued operations (see Note 11 — “Discontinued Operations”).

The financial statements should be read in conjunction with the Company’s audited consolidated financial statements included in the Company’s most recently filed Form 10-K.

On June 23, 2011, the Company began to trade its common stock on the New York Stock Exchange under the ticker symbol “PTGI.” At that time, trading of its common stock on the OTC Bulletin Board under the ticker symbol “PMUG” ceased.

2. ACQUISITIONS

Arbinet Corporation Acquisition

On February 28, 2011, the Company completed its previously announced acquisition of Arbinet Corporation, a Delaware corporation (“Arbinet”). Arbinet is a provider of wholesale telecom exchange services to carriers and the Company purchased Arbinet to supplement its existing International Carrier Services operations. Pursuant to the terms of the Agreement and Plan of Merger dated as of November 10, 2010, as amended by Amendment No. 1 dated December 14, 2010, by and among Primus, PTG Investments, Inc., a Delaware corporation and a wholly-owned subsidiary of Primus (“Merger Sub”), and Arbinet, Merger Sub merged with and into Arbinet with Arbinet surviving the merger as a wholly-owned subsidiary of Primus.

Upon the closing of the merger, each share of Arbinet common stock was cancelled and converted into the right to receive 0.5817 shares of Primus common stock. Arbinet stockholders received cash in lieu of any fractional shares of Primus common stock that they were otherwise entitled to receive in the merger. In connection with the merger, Primus issued 3,232,812 shares of its common stock to former Arbinet stockholders in exchange for their shares of Arbinet common stock, and reserved for issuance approximately 95,000 additional shares of its common stock in connection with its assumption of Arbinet’s outstanding options, warrants, stock appreciation rights and restricted stock units.

The components of the consideration transferred follow (in thousands):


Consideration attributable to stock issued (1)	$	50,432
Consideration attributable to earned replaced equity awards (2)		177

Total consideration transferred	$	50,609

(1)	The fair value of the Company’s common stock on the acquisition date was $15.60 per share based on the closing value of its common stock traded on the over-the-counter bulletin board. The Company issued 3,232,812 shares of stock to effect this merger.

(2)

The portion of the acquisition fair value of Arbinet converted stock-based awards attributable to pre-merger employee service was part of consideration. At the merger closing 50% of the unvested and outstanding Arbinet awards vested. The portion of the fair value-based measure of the replaced awards assigned to past services (including those for which vesting accelerated at the merger closing and those that were already vested at the date of the merger closing) was included in the consideration transferred.

PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(UNAUDITED)

Preliminary Recording of Assets Acquired and Liabilities Assumed

The transaction was accounted for using the acquisition method of accounting which requires, among other things, that assets acquired and liabilities assumed be recognized at their estimated fair values as of the acquisition date.

Estimates of fair value included in the financial statements, in conformity with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) No. 820, “Fair Value Measurements and Disclosures,” (“ASC 820”), represent the Company’s best estimates and valuations developed with the assistance of independent appraisers and, where the following have not yet been completed or are not available, industry data and trends and by reference to relevant market rates and transactions. The following estimates and assumptions are inherently subject to significant uncertainties and contingencies beyond the control of the Company. Accordingly, the Company cannot provide assurance that the estimates, assumptions, and values reflected in the valuations will be realized, and actual results could vary materially. In accordance with ASC No. 805, “Business Combinations,” (“ASC 805”), the allocation of the consideration value is subject to additional adjustment until the Company has completed its analysis. The Company’s analysis and any additional adjustments are required to be made by February 28, 2012, the one year anniversary of the date of the acquisition, which was February 28, 2011, to provide the Company with the time to complete the valuation of its assets and liabilities.

The following table summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed (in thousands):


Cash & cash equivalents	$	12,415
Marketable securities		4,044
Accounts receivable		16,205
Other current assets		1,309
Property and equipment ⁽¹⁾		20,233
Intercompany receivable		309
Goodwill ⁽³⁾		19,360
Customer list ⁽²⁾		900
Other intangible assets		700
Other assets		1,738

Total assets acquired	$	77,213

Trade payables	$	18,280
Accrued interconnection costs		143
Accrued liabilities		2,312
Other current liabilities		3,182
Current portion of long-term obligations		68
Long-term obligations		99
Other long-term liabilities		2,520

Total liabilities assumed	$	26,604

Net assets acquired	$	50,609

(1)

Property and equipment were measured primarily using an income approach. The fair value measurements of the assets were based, in part, on significant inputs not observable in the market and thus represent a Level 3 measurement. The significant inputs included Arbinet resources, assumed future revenue profiles, weighted average cost of capital of 13.0 percent, gross margin at 7.2 percent and assumptions on the timing and amount of future development and operating costs. The property and equipment additions were segmented as part of a new stand-alone reporting unit which will be aggregated with International Carrier Services when integration activities are substantially complete.

PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(UNAUDITED)

(2)	Identifiable intangible assets and other assets were measured using a combination of an income approach and a market approach (Level 3). Identifiable intangible assets are subject to amortization and the customer list will be amortized over 15 years.

(3)

Goodwill was the excess of the consideration transferred over the net assets recognized and represents the future economic benefits, primarily as a result of expected synergies expected from the combination, arising from other assets acquired that could not be individually identified and separately recognized. Goodwill was recognized as part of a new stand-alone reporting unit which will be aggregated with International Carrier Services when integration activities are substantially complete. Goodwill is not amortized and is not deductible for tax purposes.

Arbinet Results and Pro Forma Impact of Merger

The following table presents revenues for Arbinet for the periods presented (in thousands):


	Three months ended June 30, 2011		Acquisition Date through June 30, 2011
Net revenue	$	73,134	$	99,914

The Company incurred a total of $1.7 million in transaction costs related to the merger. Transaction-related costs were expensed as incurred except for $1.0 million of costs incurred to issue common stock to effect the merger which were recorded as an offset to additional paid in capital. The transaction-related costs recognized in the line item “selling, general, and administrative expenses,” in the condensed consolidated statement of operations during the three and six months ended June 30, 2011 were zero and $0.2 million, respectively. The fair value of the total consideration paid for the assets acquired and liabilities assumed increased significantly from the date of the merger agreement, November 10, 2010, to the closing date February 28, 2011. This event triggered the Company to perform a Step 1 impairment test as related to the goodwill which arose from this acquisition. See Note 4 — “Goodwill and Other Intangible Assets,” for more details on the testing. The results of the Step 1 and Step 2 tests required the Company to recognize $14.7 million of impairment expense during the three months ended March 31, 2011. The following table presents pro forma information for the Company as if the merger of Arbinet had occurred at the beginning of each period presented (in thousands, except for per share amounts):


	Three months ended June 30,
	2011			2010
Net revenue	$	282,502		$	271,944
Net income (loss) attributable to continuing operations for Primus		(6,253	)		(15,495	)
Net income (loss) attributable to discontinued operations for Primus		(89	)		(1,528	)
Income (loss) per common share for continuing operations net of tax	$	(0.47	)	$	(1.19	)
Income (loss) per common share for discontinued operations		(0.01	)		(0.12	)

PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(UNAUDITED)


	Six months ended June 30,
	2011			2010
Net revenue	$	558,387		$	549,814
Net income (loss) attributable to continuing operations for Primus		(24,265	)		(20,745	)
Net income (loss) attributable to discontinued operations for Primus		(69	)		(2,217	)
Income (loss) per common share for continuing operations net of tax	$	(1.98	)	$	(1.60	)
Income (loss) per common share for discontinued operations		(0.01	)		(0.17	)

The historical financial information was adjusted to give effect to the pro forma events that were directly attributable to the merger and factually supportable. The unaudited pro forma consolidated results are not necessarily indicative of what the consolidated results of operations actually would have been had the Company completed the merger on January 1, 2011 or January 1, 2010. In addition, the unaudited pro forma consolidated results do not purport to project the future results of operations of the combined company.

Incentive Program

Under the terms of the merger agreement, outstanding Arbinet stock-based awards were converted into Primus stock-based awards based on the merger exchange ratio. The converted Arbinet awards, granted under Arbinet’s 1997 and 2004 Stock Incentive Plans, include restricted stock awards, stock options, stock appreciation rights and restricted stock units. The grant date for the converted Arbinet awards is considered to be the closing date of the merger for purposes of calculating fair value. The maximum term of the Arbinet awards is ten years. No additional awards will be issued under either Arbinet plan.

Unlimitel Inc. and HMNET Technologies, Inc. Acquisitions

During the first quarter of 2011 one of the Company’s Canadian subsidiaries completed the acquisitions of the customer base and fixed assets of Unlimitel Inc. (“Unlimitel”) and HMNet Technologies Inc. (“HMNet”), both commercial VoIP providers. The total consideration transferred to complete the acquisitions was approximately $3.1 million. The cash payments associated with the acquisitions are as follows: $1.0 million was paid upon closing, $0.3 million was paid during the second quarter of 2011, $1.4 million is payable upon the one-year anniversary of the closing date, and $0.4 million is payable upon the two-year anniversary of the closing date.

The table below sets forth the final Unlimitel and HMNet purchase price allocation (in thousands). The purchase price allocation resulted in goodwill of $1.8 million. The valuation of intangible assets was evaluated using Level 3 inputs.


	As of June 30, 2011
Cash and cash equivalents	$	331
Property and equipment		136
Identifiable intangible asset:
Customer relationships		1,229
Goodwill		1,842
Other assets and liabilities, net		(119	)
Deferred income tax		(318	)

Allocation of purchase consideration	$	3,101

PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(UNAUDITED)

The customer relationships above are subject to amortization and have a useful life of five years. The useful life of the customer relationships was estimated at the time of the acquisition based on the period of time from which the Company expects to derive benefits from the customer relationships. The identifiable intangible assets are amortized using the pattern of benefits method, which results in accelerated amortization in the early periods of the useful life.

Goodwill from the Company’s Unlimitel and HMNet acquisitions was the excess of the consideration transferred over the net assets recognized, which represents the value of acquired employees along with the expected synergies from the combination of Unlimitel Inc. and HMNet Technologies Inc. and the Company’s operations. Goodwill resulting from the acquisition of Unlimitel Inc. and HMNet Technologies Inc. is not deductible for tax purposes.

Hyperlink Australia Pty Ltd. Acquisition

During the first quarter of 2011 one of the Company’s Australian subsidiaries completed the acquisition of the customer relationships and fixed assets of Hyperlink Australia Pty Ltd. (“Hyperlink”), a managed data center services provider. The total consideration transferred to complete the acquisition of Hyperlink totaled $1.5 million which included cash paid of $0.8 million and routine working capital adjustments of $0.7 million.

The table below sets forth the final Hyperlink purchase price allocation (in thousands). The fair value of the property and equipment were determined based on Level 3 inputs. The valuation of intangible assets was evaluated using Level 3 inputs.


	As of June 30, 2011
Property and equipment	$	128
Identifiable intangible asset:
Customer relationships		1,467
Other assets and liabilities, net		(69	)

Allocation of purchase consideration	$	1,526

The customer relationships above are subject to amortization and have a useful life of three years. The useful life of the customer relationships was estimated at the time of the acquisition based on the period of time from which the Company expects to derive benefits from the customer relationships. The identifiable intangible assets are amortized using the pattern of benefits method, which results in accelerated amortization in the early periods of the useful life.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation — The consolidated financial statements include the Company’s accounts, its wholly-owned subsidiaries and all other subsidiaries over which the Company exerts control. The Company owns 45.6% of Globility Communications Corporation (GCC) through direct and indirect ownership structures. GCC paid a dividend in April 2011, of which $1.2 million was attributable to the noncontrolling interest shareholder. The results of GCC and its subsidiary are consolidated with the Company’s results based on guidance from ASC No. 810, “Consolidation,” (“ASC 810”). All intercompany profits, transactions and balances have been eliminated in consolidation.

PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(UNAUDITED)

ASC No. 810 changed the presentation of outstanding noncontrolling interests in one or more subsidiaries or the deconsolidation of those subsidiaries. Reconciliations at the beginning and the end of the period of the total equity, equity attributable to the Company and equity attributable to the noncontrolling interest for the six months ended June 30, 2011 and six months ended June 30, 2010 are as follows (in thousands):


							For the Six Months Ended June 30, 2011
							Primus Telecommunications Group, Incorporated Shareholders
							Common Stock										Accumulated Other Comprehensive Income (Loss)
	Total			Comprehensive Loss			Shares		Amount		Additional Paid-In Capital			Accumulated Earnings (Deficit)			Accumulated Other Comprehensive Income (Loss)			Noncontrolling Interest
Balance as of December 31, 2010	$	83,034						9,801	$	10	$	86,984		$	(12,355	)	$	4,751		$	3,644
Share based compensation expense		3,354										3,354
Common shares issued in connection with the Management Compensation Plan, as Amended		1,168						661		1		1,167
Transaction costs of merger		(1,023	)									(1,023	)
Stock consideration issued for merger		50,609						3,233		3		50,606
Dividend to noncontrolling interest		(1,205	)					—		—		—									(1,205	)
Comprehensive income (loss)
Net income (loss)		(26,874	)		(26,874	)									(25,597	)					(1,277	)
Other comprehensive income (loss)		129			129													18			111

Comprehensive income (loss)		(26,745	)		(26,745	)

Balance as of June 30, 2011	$	109,192						13,695	$	14	$	141,088		$	(37,952	)	$	4,769		$	1,273


							For the Six Months Ended June 30, 2010
							Primus Telecommunications Group, Incorporated Shareholders
							Common Stock										Accumulated Other Comprehensive Income (Loss)
	Total			Comprehensive Loss			Shares		Amount		Additional Paid-In Capital			Accumulated Earnings (Deficit)			Accumulated Other Comprehensive Income (Loss)			Noncontrolling Interest
Balance as of December 31, 2009	$	99,909						9,600	$	10	$	85,533		$	6,732		$	4,064		$	3,570
Share based compensation expense		204										204
Common shares issued in connection with the Management Compensation Plan, as Amended		(344	)					143				(344	)
Comprehensive income (loss)
Net income (loss)		(14,007	)	$	(14,007	)									(14,037	)					30
Other comprehensive income (loss)		(1,077	)		(1,077	)												(1,080	)		3

Comprehensive income (loss)		(15,084	)	$	(15,084	)

Balance as of June 30, 2010	$	84,685						9,743	$	10	$	85,393		$	(7,305	)	$	2,984		$	3,603

Discontinued Operations — During 2010 the Company classified its European retail operations as discontinued operations. The Company has applied retrospective adjustments to the three months and six months ended June 30, 2010 to reflect the effects of the discontinued operations that occurred subsequent to June 30, 2010. Accordingly, revenue, costs, and expenses of the discontinued operations have been excluded from the respective captions in the consolidated statements of operations. See Note 11 —“Discontinued Operations,” for further information.

PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(UNAUDITED)

Property and Equipment — Property and equipment are recorded at cost less accumulated depreciation, which is provided on the straight-line method over the estimated useful lives of the assets. Cost includes major expenditures for improvements and replacements which extend useful lives or increase capacity of the assets as well as expenditures necessary to place assets into readiness for use. Expenditures for maintenance and repairs are expensed as incurred. The estimated useful lives of property and equipment are as follows: network equipment — 5 to 8 years, fiber optic and submarine cable — 8 to 25 years, furniture and equipment — 5 years, and leasehold improvements and leased equipment — shorter of lease or useful life. Costs for internal use software that are incurred in the preliminary project stage and in the post-implementation stage are expensed as incurred. Costs incurred during the application development stage are capitalized and amortized over the estimated useful life of the software.

Business Combinations — The Company is required to allocate the purchase price of acquired companies to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. This valuation requires management to make significant estimates and assumptions, especially with respect to intangible assets. Critical estimates in valuing certain of the intangible assets and subsequently assessing the realizability of such assets include, but are not limited to, future expected cash flows from the revenues, customer contracts and discount rates. Management’s estimates of fair value are based on assumptions believed to be reasonable but which are inherently uncertain and unpredictable. Assumptions may be incomplete or inaccurate and unanticipated events and circumstances may occur.

Other estimates associated with the accounting for these acquisitions and subsequent assessment of impairment of the assets may change as additional information becomes available regarding the assets acquired and liabilities assumed.

Goodwill and Other Intangible Assets — Under ASC No. 350, “Intangibles — Goodwill and Other,” (“ASC 350”), goodwill and indefinite lived intangible assets are not amortized but are reviewed annually for impairment, or more frequently, if impairment indicators arise. Intangible assets that have finite lives are amortized over their estimated useful lives and are subject to the provisions of ASC No. 360, “Property, Plant and Equipment,” (“ASC 360”).

Goodwill impairment is tested at least annually (October 1 for the Company) or when factors indicate potential impairment using a two-step process that begins with an estimation of the fair value of each reporting unit. Step 1 is a screen for potential impairment by comparing the fair value of a reporting unit with its carrying amount. The estimated fair value of each reporting unit is compared to its carrying value. The Company estimates the fair values of each reporting unit by a combination of (i) estimation of the discounted cash flows of each of the reporting units based on projected earnings in the future (the income approach) and (ii) a comparative analysis of revenue and EBITDA multiples of public companies in similar markets (the market approach). If there is a deficiency (the estimated fair value of a reporting unit is less than its carrying value), a Step 2 test is required.

Step 2 measures the amount of impairment loss, if any, by comparing the implied fair value of the reporting unit goodwill with its carrying amount. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination is determined; through an allocation of the fair value of a reporting unit to all of the assets and liabilities of that unit as if the reporting unit had been acquired in a business combination. If the carrying amount of the reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss shall be recognized in an amount equal to that excess.

The Company’s reporting units are the same as its operating segments, except as discussed in Note 4 related to Arbinet, as each segment’s components have been aggregated and deemed a single reporting unit because they have similar economic characteristics. Each component is similar in that they each provide telecommunications services for which all of the resources and costs are drawn from the same pool, and are evaluated using the same business factors by management.

Estimating the fair value of a reporting unit requires various assumptions including projections of future cash flows, perpetual growth rates and discount rates. The assumptions about future cash flows and growth rates are based on the Company’s assessment of a number of factors, including the reporting unit’s recent performance against budget, performance in the market that the reporting unit serves, as well as industry and general economic data from third party sources. Discount rate assumptions are based on an assessment of the risk inherent in those future cash flows. Changes to the underlying businesses could affect the future cash flows, which in turn could affect the fair value of the reporting unit.

Intangible assets not subject to amortization consist of trade names. Such indefinite lived intangible assets are tested for impairment annually, or more frequently if events or changes in circumstances indicate that the asset might be impaired. The impairment test shall consist of a comparison of the fair value of an intangible asset with its carrying amount. If the carrying amount of the intangible asset exceeds its fair value an impairment loss shall be recognized in an amount equal to the excess.

PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(UNAUDITED)

Intangible assets subject to amortization consist of certain trade names and customer relationships. These finite lived intangible assets are amortized based on their estimated useful lives. Such assets are subject to the impairment provisions of ASC 360, wherein impairment is recognized and measured only if there are events and circumstances that indicate that the carrying amount may not be recoverable. The carrying amount is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use of the asset group. An impairment loss is recorded if after determining that it is not recoverable, the carrying amount exceeds the fair value of the asset.

Derivative Instruments — Pursuant to the terms of the Company’s 2009 bankruptcy reorganization (the “Reorganization Plan”), the Company issued to holders of the Company’s common stock prior to the effectiveness of the Reorganization Plan contingent value rights (“CVRs”) to receive up to an aggregate of 2,665,000 shares (the “CVR Shares”) of the Company’s common stock. In connection with the issuance of the CVRs, the Company entered into a Contingent Value Rights Distribution Agreement (the “CVR Agreement”), in favor of holders of CVRs thereunder, dated as of July 1, 2009.

Due to the nature of the CVRs, the Company accounted for the instrument in accordance with ASC No. 815, “Derivatives and Hedging,” as well as related interpretations of this standard. The Company determined the CVRs to be derivative instruments to be accounted for as liabilities and marked to fair value at each balance sheet date. Upon issuance, the Company estimated the fair value of its CVRs using a Black-Scholes pricing model and consequently recorded a liability of $2.6 million in the balance sheet caption “other liabilities” as part of fresh-start accounting. The change in value is reflected in the condensed consolidated statements of operations as gain (loss) from contingent value rights valuation. The Company’s estimates of fair value of its CVRs are correlated to and reflective of the Company’s common stock price trends; in general, as the value of the Company’s common stock increases, the estimated fair value of the CVRs also increases and, as a result, the Company recognizes a change in value of its CVRs as loss from contingent value rights valuation. Conversely and also in general, as the value of the Company’s common stock decreases, the estimated fair value of the CVRs also decreases and as a result the Company would recognize a change in value of the CVRs as gain from contingent value rights valuation. See Note 9 — “Fair Value of Financial Instruments and Derivatives”.

Use of Estimates — The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of net revenue and expenses during the reporting period. Actual results may differ from these estimates. Significant estimates include allowance for doubtful accounts receivable, accrued interconnection cost disputes, the fair value of derivatives, market assumptions used in estimating the fair values of certain assets and liabilities, the calculation used in determining the fair value of the Company’s stock options required by ASC No. 718, “Stock Compensation”, income taxes and various tax contingencies.

Estimates of fair value represent the Company’s best estimates developed with the assistance of independent appraisals or various valuation techniques including Black-Scholes and, where the foregoing have not yet been completed or are not available, industry data and trends and by reference to relevant market rates and transactions. The estimates and assumptions are inherently subject to significant uncertainties and contingencies beyond the control of the Company. Accordingly, the Company cannot provide assurance that the estimates, assumptions, and values reflected in the valuations will be realized, and actual results could vary materially. Any adjustments to the recorded fair values of these assets and liabilities, as related to business combinations, may impact the amount of recorded goodwill.

Reclassification — Certain previous year amounts have been reclassified to conform with current year presentations, as related to the reporting of the Company’s discontinued operations.

Newly Adopted Accounting Principles

In January 2010, an update was issued to the Fair Value Measurements and Disclosures Topic, ASC 820, ASU 2010-06, “Improving Disclosures about Fair Value Measurements,” which requires new disclosures for fair value measurements and provides clarification for existing disclosures requirements. More specifically, this update requires (a) an entity to disclose

PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(UNAUDITED)

separately the amounts of significant transfers in and out of Levels 1 and 2 fair value measurements and to describe the reasons for the transfers; and (b) information about purchases, sales, issuances and settlements to be presented separately (i.e., present the activity on a gross basis rather than net) in the reconciliation for fair value measurements using significant unobservable inputs (Level 3 inputs). This update clarifies existing disclosure requirements for the level of disaggregation used for classes of assets and liabilities measured at fair value and requires disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements using Level 2 and Level 3 inputs. This update was effective for the Company on January 1, 2010, except for Level 3 reconciliation disclosures which went into effect on January 1, 2011. On January 1, 2011 the Company adopted this update and did not have a material impact on the disclosures to the condensed consolidated financial statements.

In December 2010, an update was made to the Intangibles — Goodwill and Other Topic, ASC 350, ASU 2010-28, “Goodwill Impairment Testing in Reporting Units with a Zero or Negative Carrying Amount,” which provides guidance for all entities that have recognized goodwill and have one or more reporting units whose carrying amount for purposes of performing Step 1 of the goodwill impairment test is zero or negative. The update modifies Step 1 so that for those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that a goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating that an impairment may exist. The qualitative factors are consistent with existing guidance, which requires that goodwill of a reporting unit be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. This update became effective for us on January 1, 2011. We do not foresee this accounting update having a material effect on our consolidated financial statements in future periods, although that could change.

On February 28, 2011, the Company adopted changes to the disclosure of pro forma information for business combinations ASU 2010-29, “Business Combinations — Disclosure of Supplementary Pro-Forma Information”, issued by the FASB. These changes clarify that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination, that occurred during the current year, had occurred as of the beginning of the comparable prior annual reporting period only. For the Company, this would be as of January 1, 2010, see Note 2 — “Acquisitions.” Also, the existing supplemental pro forma disclosures were expanded to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings, if any. The adoption of these changes had no impact on our consolidated financial statements.

New Accounting Pronouncements

On January 1, 2011, the Company prospectively adopted the FASB update to revenue recognition for multiple-deliverable arrangements. The update requires the establishment of a selling price hierarchy for determining the selling price of a deliverable. The hierarchy is: vendor specific objective evidence if available, third party evidence if vendor-specific objective evidence is not available or estimated selling price if neither of the aforementioned is available. The residual method of revenue allocation is no longer permissible. We believe that this accounting standard update will not change our units of accounting for bundled arrangements, or the allocation of our products and services. We do not foresee this accounting update having a material effect on our consolidated financials in future periods, although that could change.

4. GOODWILL AND OTHER INTANGIBLE ASSETS

Generally accepted accounting principles in the United States require the Company to perform a goodwill impairment test, a two-step test, annually and more frequently when negative conditions or triggering events arise.

On February 28, 2011 the Company acquired Arbinet for stock consideration of $50.6 million in a stock for stock transaction. See Note 2 — “Acquisitions.” Because the Company’s stock price rose significantly between the signing of the merger agreement on November 10, 2010 and the close of the merger on February 28, 2011 from a closing price of $9.57 per share to $15.60 per share, the fixed-share consideration fair value also rose. Because Arbinet’s enterprise value may not have increased within similar levels over that time period, the Company determined that a goodwill impairment assessment was immediately necessary post-merger. On the day of the merger, Arbinet was a stand-alone business with its own cash flows and management structure, and the Company evaluated it as a separate reporting unit. The Company determined the preliminary enterprise value of Arbinet to be $36.2 million, which was less than the carrying value of $50.6 million. For Step 2 of the testing, the fair value of the assets acquired

PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(UNAUDITED)

and liabilities assumed was deemed to be equal to that which was used for the purchase price allocation. Based on an enterprise value of $36.2 million and the fair value of the assets acquired and liabilities assumed at purchase, the company calculated $4.7 million of implied goodwill. Because the carrying value of goodwill was greater than the implied goodwill, $14.7 million was recorded as goodwill impairment expense in the three months ended March 31, 2011.

The intangible assets not subject to amortization consisted of the following (in thousands):


	June 30, 2011		December 31, 2010
Trade names	$	76,900	$	76,200
Goodwill	$	71,113	$	63,731

The changes in the carrying amount of trade names and goodwill by reporting unit for the six months ended June 30, 2011 are as follows (in thousands):

Goodwill


	United States			Canada		Australia		Brazil		Total
Balance as of December 31, 2010	$	29,960		$	31,775	$	1,950	$	46	$	63,731
Effect of change in foreign currency exchange rates		—			772		84		3		859
Acquisition of business		19,360			1,842		—		—		21,202
Accumulated impairment loss		(14,679	)		—		—		—		(14,679	)

Balance as of June 30, 2011	$	34,641		$	34,389	$	2,034	$	49	$	71,113

Trade Names


	United States		Canada		Australia		Europe		Brazil		Total
Balance as of December 31, 2010	$	76,200	$	—	$	—	$	—	$	—	$	76,200
Acquisition of business		700		—		—		—		—		700

Balance as of June 30, 2011	$	76,900	$	—	$	—	$	—	$	—	$	76,900

PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(UNAUDITED)

Intangible assets subject to amortization consisted of the following (in thousands):


	June 30, 2011							December 31, 2010
	Gross Carrying Amount		Accumulated Amortization			Net Book Value		Gross Carrying Amount		Accumulated Amortization			Net Book Value
Trade names	$	4,122	$	(719	)	$	3,403	$	4,083	$	(593	)	$	3,490
Customer relationships		110,979		(46,851	)		64,128		104,553		(36,494	)		68,059

Total	$	115,101	$	(47,570	)	$	67,531	$	108,636	$	(37,087	)	$	71,549

Amortization expense for trade names and customer relationships for the three months and six months ended June 30, 2011 was $4.9 million and $9.6 million, respectively, compared to $5.7 million and $11.1 million, respectively for the three and six months ended June 30, 2010.

The Company expects amortization expense for trade names and customer relationships for the remainder of 2011, the years ending December 31, 2012, 2013, 2014, 2015, and thereafter to be approximately $10.4 million, $13.7 million, $10.1 million, $7.2 million, $5.5 million and $20.6 million, respectively.

5. LONG-TERM OBLIGATIONS

Long-term obligations consisted of the following (in thousands):


	June 30, 2011			December 31, 2010
Obligations under capital leases and other	$	1,252		$	1,667
13% Senior Secured Notes due 2016		129,968			130,000
14¹/4% Senior Subordinated Secured Notes due 2013		90,000			114,015

Subtotal	$	221,220		$	245,682
Original issue discount on Senior Secured Notes		(1,703	)		(1,791	)

Subtotal	$	219,517		$	243,891
Less: Current portion of long-term obligations		(910	)		(1,143	)

Total long-term obligations	$	218,607		$	242,748

PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(UNAUDITED)

The following table reflects the contractual payments of principal and interest for the Company’s long-term obligations as of June 30, 2011:


Year Ending December 31,	Capital Leases and Other			13% Senior Secured Notes due 2016			14¹/4% Senior Subordinated Secured Notes due 2013			Total
2011 (as of June 30, 2011)	$	645		$	8,448		$	6,413		$	15,506
2012		423			16,896			12,825			30,144
2013		207			16,896			96,413			113,516
2014		31			16,896			—			16,927
2015		—			16,896			—			16,896
Thereafter		—			146,420			—			146,420

Total minimum principal & interest payments		1,306			222,452			115,651			339,409
Less: Amount representing interest		(54	)		(92,484	)		(25,651	)		(118,189	)

Total long-term obligations	$	1,252		$	129,968		$	90,000		$	221,220

13% Senior Secured Notes due 2016

On April 19, 2011, Primus Telecommunications Holding Inc. (“Holding”) and Primus Telecommunications Canada Inc. (“Primus Canada”), both wholly-owned subsidiaries of the Company commenced an offer to purchase (the “Offer to Purchase”) up to 5,200 Units, each such Unit consisting of $1,000 principal amount of 13% Senior Secured Notes due 2016 (the “13% Notes”) issued by Holding and Primus Canada, at a purchase price in cash equal to 100% of the principal amount of 13% Notes validly tendered (and not validly withdrawn) prior to the expiration time, plus accrued but unpaid interest thereon to the settlement date for the Offer to Purchase. The Offer to Purchase was made pursuant to the excess cash flow covenant in the terms of the indenture governing the 13% Notes. The Offer to Purchase expired on May 17, 2011 and $32,000 principal amount of 13% Notes were tendered and repurchased pursuant to the Offer to Purchase.

14¹/4% Senior Subordinated Secured Notes due 2013

On April 15, 2011, the Company redeemed $24.0 million principal amount of 14¹/4% Senior Subordinated Secured Notes due 2013 (the “14¹/4% Notes”) issued by Primus Telecommunications IHC, Inc. (“IHC”). Accrued interest to, but excluding the redemption date, of $1.3 million on the redeemed portion of the 14¹/4% Notes was also paid on the redemption date. There was $90.0 million principal amount of the 14¹/4% Notes remaining outstanding after this redemption.

Exchange Offer

On June 6, 2011, the Company announced the commencement of private offers to exchange new 10.00% Senior Secured Notes due 2017 issued by Holding for outstanding Units of the 13% Notes and 14¹/4% Notes and the commencement of consent solicitations by Holding and Primus Canada to amend the indenture governing the 13% Notes to eliminate most restrictive covenants and certain events of default and to release the collateral securing the 13% Notes. On July 7, 2011, Holding and Primus Canada consummated the exchange offers and consent solicitation. See Note 13 — “Subsequent Events,” for further information.

PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(UNAUDITED)

6. COMMITMENTS AND CONTINGENCIES

Future minimum lease payments under capital leases and other purchase obligations and non-cancellable operating leases as of June 30, 2011 are as follows (in thousands):


Year Ending December 31,	Capital Leases and Other			Purchase Obligations		Operating Leases
2011 (as of June 30, 2011)	$	645		$	17,897	$	9,800
2012		423			8,073		17,791
2013		207			3,162		14,475
2014		31			1,162		10,211
2015		—			54		8,136
Thereafter		—			—		20,003

Total minimum principal & interest payments		1,306			30,348		80,416
Less: Amount representing interest		(54	)		—		—

Total long-term obligations	$	1,252		$	30,348	$	80,416

The Company has contractual obligations to utilize an external vendor for certain customer support functions and to utilize network facilities from certain carriers with terms greater than one year. Generally, the Company does not purchase or commit to purchase quantities in excess of normal usage or amounts that cannot be used within the contract term or at rates below or above market value. The Company made payments under purchase commitments of $17.6 million and $15.3 million for the six months ended June 30, 2011 and 2010, respectively.

The Company’s rent expense under operating leases was $4.6 million and $8.8 million for the three and six months ended June 30, 2011, respectively, and $3.7 million and $7.5 million for the three and six months ended June 30, 2010, respectively.

Litigation

Legal Proceedings

The Company and its subsidiaries are subject to claims and legal proceedings that arise in the ordinary course of business. Each of these matters is inherently uncertain, and there can be no guarantee that the outcome of any such matter will be decided favorably to the Company or its subsidiaries or that the resolution of any such matter will not have a material adverse effect upon the Company’s business, consolidated financial position, results of operations or cash flow. The Company does not believe that any of these pending claims and legal proceedings will have a material adverse effect on its business, consolidated financial position, results of operations or cash flow.

7. SHARE BASED COMPENSATION

The Company follows guidance which addresses the accounting for stock-based payment transactions whereby an entity receives employee services in exchange for either equity instruments of the enterprise or liabilities that are based on the fair value of the enterprise’s equity instruments or that may be settled by the issuance of such equity instruments. The guidance generally requires that such transactions be accounted for using a fair-value based method and share based compensation expense be recorded, based on the grant date fair value, estimated in accordance with the guidance, for all new and unvested stock awards that are ultimately expected to vest as the requisite service is rendered.

The Company typically issues new shares of common stock upon the exercise of stock options, as opposed to using treasury shares.

The Company uses a Black-Scholes option valuation model to determine the fair value of share-based compensation under the accounting guidance. The Black-Scholes model incorporates various assumptions including the expected option life, expected volatility, risk-free interest rates and dividend yield. The expected option life is no less than the award’s vesting period and is based on the Company’s historical experience. Expected volatility is based on historical realized volatility of the stock of the Company and guideline companies. The risk-free interest rate is approximated using rates available on U.S. Treasury securities in effect at the time of grant with a remaining term similar to the award’s expected life. The Company uses a dividend yield of zero in the Black-Scholes option valuation model as it does not anticipate paying cash dividends in the foreseeable future.

PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(UNAUDITED)

No options were granted during the six months ended June 30, 2010, while 2.5 thousand options were granted during the six months ended June 30, 2011. The fair value of each option grant was estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions shown as a weighted average for the year:


	Six Months Ended June 30,
	2011			2010
Expected option life		6 Years			N/A
Risk-free interest rate		1.43	%		N/A
Expected volatility		43	%		N/A
Dividend yield		0.00	%		N/A

Total share-based compensation expense recognized by the Company in the three months ended June 30, 2011 and 2010 was $2.3 million and $0.1 million, respectively, compared to $3.4 million and $0.2 million, respectively, for the six months ended June 30, 2011 and 2010. Most of the Company’s stock options vest ratably during the vesting period. The Company recognizes compensation expense for options using the straight-line basis, reduced by estimated forfeitures.

The Management Compensation Plan, as Amended provides for the grant of incentive stock options, nonqualified stock options, restricted stock, restricted stock units, and other share-based or cash-based performance awards (collectively, “awards”).

At the closing of the acquisition of Arbinet on February 28, 2011, the Company reserved approximately 95,000 additional shares of its common stock for issuance in connection with its assumption of Arbinet’s outstanding options, warrants, stock appreciation rights and restricted stock units. As of June 30, 2011, 208 shares of common stock were reserved for warrants to purchase common stock. These warrants are exercisable at $34.32 per share and will expire in 2012.

Restricted Stock Units (RSUs)

A summary of the Company’s restricted stock units activity during the six months ended June 30, 2011 is as follows:


	Six Months Ended June 30, 2011
	Shares			Weighted Average Grant Date Fair Value
Unvested – December 31, 2010		474,851		$	8.14
Granted		143,390		$	14.27
Vested		(377,629	)	$	9.36
Forfeitures		(6,319	)	$	10.25

Unvested – June 30, 2011		234,293		$	9.87

As of June 30, 2011, the Company had 0.2 million unvested RSU’s outstanding of which $2.0 million of compensation expense is expected to be recognized over the weighted average remaining period of 1.5 years. The number of unvested RSU’s expected to vest is 0.2 million.

PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(UNAUDITED)

Stock Options and Stock Appreciation Rights

A summary of the Company’s stock option and stock appreciation rights activity during the six months ended June 30, 2011 is as follows:


	Six Months Ended June 30, 2011
	Shares			Weighted Average Exercise Price
Outstanding – December 31, 2010		185,300		$	11.34
Granted		2,500		$	13.75
Exercised		(106,779	)	$	12.49
Forfeitures		(3,804	)	$	14.77
Arbinet merger		87,195		$	14.99

Outstanding – June 30, 2011		164,412		$	12.49

Eligible for exercise		110,381		$	13.42

The following table summarizes the intrinsic values and remaining contractual terms of the Company’s stock options and stock appreciation rights:


	Intrinsic Value		Weighted Average Remaining Life in Years
Options outstanding – June 30, 2011	$	648,676		7.86
Options exercisable – June 30, 2011		375,180		7.44

As of June 30, 2011, the Company had 0.1 million unvested stock options and stock appreciation rights outstanding of which $0.2 million of compensation expense is expected to be recognized over the weighted average remaining period of 2.0 years. The number of unvested stock options and stock appreciation rights expected to vest is 0.1 million shares, with a weighted average remaining life of 7.8 years, a weighted average exercise price of $12.52, and an intrinsic value of $0.2 million.

8. INCOME TAXES

The Company conducts business globally, and as a result, the Company or one or more of its subsidiaries files income tax returns in the United States federal jurisdiction and various state and foreign jurisdictions. In the normal course of business the Company is subject to examination by taxing authorities throughout the world.

The following table summarizes the open tax years for each major jurisdiction:


Jurisdiction	Open Tax Years
United States Federal		2002 – 2010
Australia		2002 – 2010
Canada		2004 – 2010
United Kingdom		2004 – 2010
Netherlands		2007 – 2010

PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(UNAUDITED)

The Company is currently under examination in Canada and certain other foreign tax jurisdictions, which, in the aggregate, are individually not material.

The Company adopted the provisions of ASC No. 740, “Income Taxes,” on January 1, 2007. It is expected that the amount of unrecognized tax benefits, reflected in the Company’s financial statements, will change in the next twelve months; however, the Company does not expect the change to have a significant impact on the results of operations or the financial position of the Company. During the three and six months ended June 30, 2011, penalties and interest were immaterial. As of June 30, 2011, the gross unrecognized tax benefit on the balance sheet was $88.4 million.

Pursuant to Section 382 of the Internal Revenue Code (“IRC Sec. 382”), the Company believes that it underwent an ownership change for tax purposes on February 28, 2011, the Arbinet acquisition date. This conclusion is based on the Schedule 13D and Schedule 13G filings concerning Company securities, as filed with the United States Securities and Exchange Commission. A previous ownership change took place on July 1, 2009, as a result of the emergence from bankruptcy under the Reorganization Plan. As a result, the use of the Company’s net operating losses will be subject to an annual limitation under IRC Sec. 382 of approximately $1.6 million.

9. FAIR VALUE OF FINANCIAL INSTRUMENTS AND DERIVATIVES

The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, restricted cash, accounts receivable and accounts payable approximate fair value due to relatively short periods to maturity. The estimated aggregate fair value of the Company’s 13% Senior Secured Notes and 14¹/4% Senior Subordinated Secured Notes, based on quoted market prices, was $224.9 million and $247.8 million at June 30, 2011 and December 31, 2010, respectively. The aggregate carrying value of the Company’s 13% Senior Secured Notes and 14¹/4% Senior Subordinated Secured Notes was $218.3 million and $242.2 million at June 30, 2011 and December 31, 2010, respectively.

See table below for a summary of the Company’s financial instruments accounted for at fair value on a recurring basis:


			Fair Value as of June 30, 2011, using:
	June 30, 2011		Quoted prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Liabilities:
Contingent Value Rights (CVRs)	$	23,387		—	$	23,387		—

Total	$	23,387		—	$	23,387		—


			Fair Value as of December 31, 2010, using:
	December 31, 2010		Quoted prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Liabilities:
Contingent Value Rights (CVRs)	$	19,098		—	$	19,098		—

Total	$	19,098		—	$	19,098		—

PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(UNAUDITED)

The CVRs are marked to fair value at each balance sheet date. The change in value is reflected in our condensed consolidated statements of operations. Estimates of fair value represent the Company’s best estimates based on a Black-Scholes pricing model. During the three months ended June 30, 2011 and 2010, ($0.1) million and $0.4 million, respectively, of (income) expense was recognized as a result of marking the CVRs to their fair value, and $4.3 million and $2.4 million, respectively, of expense during the six months ended June 30, 2011 and 2010.

10. OPERATING SEGMENT AND RELATED INFORMATION

The Company has six reportable operating segments based on management’s organization of the enterprise — United States, Canada, Europe, Australia, the International Carrier Services (“ICS”) business from the United States and Europe, which is managed as a separate global segment, into which Arbinet will be integrated, and Other. The Company evaluates the performance of its segments and allocates resources to them based upon net revenue and income (loss) from operations. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. Net revenue by geographic segment is reported on the basis of where services are provided. The Company has no single customer representing greater than 10% of its revenues. Corporate assets, capital expenditures and property and equipment are included in the United States segment, while corporate expenses are presented separately in income (loss) from operations. The assets of the ICS business are indistinguishable from the respective geographic segments. Therefore, any reporting related to the ICS business for assets, capital expenditures or other balance sheet items is impractical.

PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(UNAUDITED)

Summary information with respect to the Company’s operating segments is as follows (in thousands):


	Three Months Ended June 30, 2011			Three Months Ended June 30, 2010			Six Months Ended June 30, 2011			Six Months Ended June 30, 2010
Net Revenue by Geographic Region
United States	$	59,758		$	29,224		$	99,307		$	56,604
Canada		64,060			58,024			124,896			115,500
Asia-Pacific		73,908			67,487			145,834			137,385
Europe		77,478			32,808			122,119			65,801
Brazil		7,298			7,050			14,069			12,320

Total	$	282,502		$	194,593		$	506,225		$	387,610

Net Revenue by Segment
United States	$	10,736		$	12,840		$	21,919		$	26,706
Canada		64,060			58,024			124,896			115,500
Australia		73,681			67,487			145,413			137,385
International Carrier Services		126,529			49,192			199,551			95,699
Other		7,496			7,050			14,446			12,320

Total	$	282,502		$	194,593		$	506,225		$	387,610

Provision for Doubtful Accounts Receivable
United States	$	230		$	583		$	716		$	1,114
Canada		885			624			1,698			1,469
Australia		622			625			1,319			1,362
International Carrier Services		289			(499	)		455			(989	)
Other		129			110			236			193

Total	$	2,155		$	1,443		$	4,424		$	3,149

Income (Loss) from Operations
United States	$	131		$	881		$	546		$	90
Canada		4,970			3,041			9,497			5,983
Australia		2,793			1,744			6,538			5,880
International Carrier Services		(1,445	)		1,794			(18,023	)		2,645
Other		(19	)		(163	)		281			(181	)

Total From Operating Segments		6,430			7,297			(1,161	)		14,417
Corporate		(5,885	)		(2,523	)		(10,632	)		(6,614	)

Total	$	545		$	4,774		$	(11,793	)	$	7,803

Capital Expenditures
United States	$	296		$	427		$	528		$	618
Canada		2,719			2,723			5,308			4,948
Europe		—			201			—			284
Australia		3,792			2,037			6,844			4,311
International Carrier Services		561			—			837			—
Other		139			436			363			576

Total	$	7,507		$	5,824		$	13,880		$	10,737

PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(UNAUDITED)

The above capital expenditures exclude assets acquired under terms of capital lease and vendor financing obligations.


	June 30, 2011		December 31, 2010
Property and Equipment – Net
United States	$	23,138	$	8,039
Canada		54,849		56,476
Europe		3,363		1,650
Australia		70,044		70,261
Brazil		2,952		2,062

Total	$	154,346	$	138,488


	June 30, 2011		December 31, 2010
Assets
United States	$	142,116	$	107,298
Canada		199,774		206,310
Europe		56,564		52,278
Australia		138,826		137,225
Brazil		12,222		11,348

Total	$	549,502	$	514,459

The Company offers four main products — retail voice, ICS, Data/Internet and retail VoIP. Net revenue information with respect to the Company’s products is as follows (in thousands):


	Three Months Ended June 30, 2011		Three Months Ended June 30, 2010		Six Months Ended June 30, 2011		Six Months Ended June 30, 2010
Retail voice	$	94,581	$	88,922	$	186,291	$	179,855
International carrier services		126,529		49,192		199,551		95,699
Data/Internet		53,012		48,291		103,914		95,154
Retail VoIP		8,380		8,188		16,469		16,902

Total	$	282,502	$	194,593	$	506,225	$	387,610

11. DISCONTINUED OPERATIONS

In the second quarter 2010, the Company sold certain assets of its Spain retail operations. The sale price was $0.3 million. The Company recorded a $0.2 million gain from sale of these retail operations during the second quarter 2010.

During the third quarter 2010, the Company committed to dispose of and began actively soliciting the disposition of its Europe segment, also known as the Company’s remaining European retail operations. The Company sold its Belgian operations, to Webcetra BVBA, for a sale price of approximately $1.3 million during the third quarter and as a result, recorded a $40 thousand gain from the sale. In October 2010 the Company completed the sale of its United Kingdom retail operations customer base and certain of its assets to NewCall Telecom Ltd., for a sale price of approximately $6.8 million, including a note receivable of $2.1 million, and completed the sale of its Italian retail operations customer base for approximately $0.2 million; as a result the Company recorded a gain of $2.4 million and a loss of $0.3 million, respectively, from the sale of these assets. The Company sold its operations located in France, to AFone, during December 2010 for a sale price of approximately $4.0 million. In addition,

PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(UNAUDITED)

AFone assumed all of the existing liabilities of the France operations. Consequently the Company recognized a gain from the sale of these operations of approximately $0.9 million. Consideration received from the sale of the France operations included a note receivable of $1.3 million.

Summarized operating results of the discontinued operations are as follows (in thousands):


	Three Months Ended June 30, 2011			Three Months Ended June 30, 2010
Net revenue	$	(30	)	$	11,638
Operating expenses		174			13,146

Income (loss) from operations		(204	)		(1,508	)
Interest expense		—			(14	)
Interest income and other income		30			234
Foreign currency transaction gain (loss)		86			(350	)

Income (loss) before income tax		(88	)		(1,638	)
Income tax (expense) benefit		(1	)		110

Income (loss) from discontinued operations	$	(89	)	$	(1,528	)


	Six Months Ended June 30, 2011			Six Months Ended June 30, 2010
Net revenue	$	(12	)	$	24,402
Operating expenses		497			26,570

Income (loss) from operations		(509	)		(2,168	)
Interest expense		—			(25	)
Interest income and other income		365			236
Foreign currency transaction gain (loss)		76			(198	)

Income (loss) before income tax		(68	)		(2,155	)
Income tax expense		(1	)		(62	)

Income (loss) from discontinued operations	$	(69	)	$	(2,217	)

12. BASIC AND DILUTED INCOME (LOSS) PER COMMON SHARE

Basic income (loss) per common share is calculated by dividing income (loss) attributable to common stockholders by the weighted average common shares outstanding during the period. Diluted income per common share adjusts basic income per common share for the effects of potentially dilutive common share equivalents.

Potentially dilutive common shares for the Company include the dilutive effects of common shares issuable under our Management Compensation Plan, as amended, including stock options and RSUs, using the treasury stock method, as well as stock warrants and CVRs.

PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(UNAUDITED)

The Company had no dilutive common share equivalents during the three months and six months ended June 30, 2011, due to the results of operations being a net loss. For the three months and six months ended June 30, 2011, the following were potentially dilutive but were excluded from the calculation of diluted loss per common share due to their antidilutive effect:

•

0.4 million shares issuable upon exercise of stock options and RSUs,

•

4.5 million shares issuable upon exercise of stock warrants, and

•

2.7 million shares issuable upon exercise of CVRs.

For the three months and six months ended June 30, 2010, the following could potentially dilute income per common share in the future but was excluded from the calculation of diluted loss per common share due to their antidilutive effect:

•

0.6 million shares issuable upon exercise of stock options and RSUs,

•

4.5 million shares issuable upon exercise of stock warrants, and

•

2.7 million shares issuable upon exercise of CVRs.

A calculation of basic income (loss) per common share to diluted income (loss) per common share is below (in thousands, except per share amounts):


	Three Months Ended June 30, 2011			Three Months Ended June 30, 2010			Six Months Ended June 30, 2011			Six Months Ended June 30, 2010
Income (loss) from continuing operations	$	(6,253	)	$	(11,703	)	$	(25,528	)	$	(12,013	)
Income (loss) from discontinued operations, net of tax		(89	)		(1,528	)		(69	)		(2,217	)
Gain (loss) from sale of discontinued operations, net of tax		—			193			—			193

Net income (loss) attributable to common stockholders – basic and diluted		(6,342	)		(13,038	)		(25,597	)		(14,037	)

Weighted average common shares outstanding – basic and diluted		13,385			9,743			12,273			9,694

Basic and diluted income (loss) per common share:
Income (loss) from continuing operations attributable to common stockholders	$	(0.47	)	$	(1.20	)	$	(2.08	)	$	(1.24	)
Income (loss) from discontinued operations		(0.01	)		(0.16	)		(0.01	)		(0.23	)
Gain (loss) from sale of discontinued operations		—			0.02			—			0.02

Net income (loss) attributable to common stockholders	$	(0.48	)	$	(1.34	)	$	(2.09	)	$	(1.45	)

13. SUBSEQUENT EVENTS

Exchange Offer and Consent Solicitation

On July 7, 2011, Holding in connection with the consummation of the private (i) exchange offers (the “Exchange Offers”) for any and all outstanding Units representing the 13% Notes issued by Holding and Primus Canada, and the 14.25% Notes issued by IHC, and (ii) consent solicitation (the “Consent Solicitation”) to amend the indenture governing the 13% Notes and release the collateral securing the 13% Notes, issued $240.2 million aggregate principal amount of 10.00% Senior Secured Notes due 2017 (the “New Notes”). The New Notes were issued pursuant to an exemption from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), only (i) to “qualified institutional buyers” (as defined in Rule 144A under the Securities Act), (ii) outside the United States, to persons who are not “U.S. persons” (as defined in Regulation S under the Securities Act), and (iii) to “institutional accredited investors” (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act).

PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(UNAUDITED)

The New Notes are governed by an indenture, dated as of July 7, 2011 (the “New Notes Indenture”), by and among Holding, the guarantors of the New Notes named therein, including the Company (the “Guarantors”), and U.S. Bank National Association, as trustee and collateral trustee. The New Notes bear interest at a rate of 10.00% per annum, payable semi-annually in arrears in cash on April 15 and October 15 of each year, commencing October 15, 2011. The New Notes will mature on April 15, 2017.

The New Notes and related guarantees are secured by a pledge of and first lien security interest in (subject to certain exceptions) substantially all of the assets of Holding and the Guarantors, including a first-priority pledge of all of the capital stock held by Holding, the Guarantors and each subsidiary of the Company that is a foreign subsidiary holding company (which pledge, in the case of the capital stock of each non-U.S. subsidiary and each subsidiary of the Company that is a foreign subsidiary holding company is limited to 65% of the capital stock of such subsidiary).

The New Notes rank senior in right of payment to existing and future subordinated indebtedness of Holding and the Guarantors. The New Notes rank equal in right of payment with all existing and future senior indebtedness of Holding and the Guarantors. The New Notes rank junior to any priority lien obligations entered into by Holding or the Guarantors in accordance with the New Notes Indenture.

Prior to March 15, 2013, Holding may redeem up to 35% of the aggregate principal amount of the New Notes at the redemption premium of 110.00% of the principal amount of the New Notes redeemed, plus accrued and unpaid interest, with the net cash proceeds of certain equity offerings. Prior to March 15, 2013, Holding may redeem some or all of the New Notes at a make-whole premium as set forth in the New Notes Indenture. On or after March 15, 2013, Holding may redeem some or all of the New Notes at a premium that will decrease over time as set forth in the New Notes Indenture, plus accrued and unpaid interest.

Upon the occurrence of certain Changes of Control (as defined in the New Notes Indenture) with respect to the Company, Holding must give holders of the New Notes an opportunity to sell their New Notes to Holding at a purchase price of 101% of the principal amount of such New Notes, plus accrued and unpaid interest, if any, to the date of purchase. If the Company or any of its restricted subsidiaries sells certain assets and does not use all of the net proceeds of such sale for specified purposes, Holding may be required to use the remaining net proceeds from such sale to offer to repurchase some of the New Notes at 100% of their principal amount, plus accrued and unpaid interest.

The New Notes Indenture contains covenants that, subject to certain exceptions, limit the ability of each of the Company and its restricted subsidiaries to, among other things: (i) incur additional indebtedness; (ii) pay dividends on, repurchase or make distributions in respect of the Company’s capital stock or make other restricted payments; (iii) make certain investments; (iv) sell, transfer or otherwise convey certain assets; (v) create certain liens; (vi) designate future subsidiaries as unrestricted subsidiaries; (vii) consolidate, merge, sell or otherwise dispose of all or substantially all of its assets; and (viii) enter into certain transactions with affiliates. The New Notes Indenture contains other customary terms, including, but not limited to, events of default, which, if any of them occurs, would permit or require the principal, premium, if any, and interest, if any, on all of the then outstanding New Notes to be due and payable immediately.

Under the New Notes Indenture, either Holding or any Guarantor may incur additional senior secured debt, equal in right of payment to the New Notes, in the future that is subject to security interests in the same collateral as the New Notes and the related guarantees, in an aggregate principal amount outstanding (including the aggregate principal amount outstanding under the New Notes) equal to 2.25 times consolidated EBITDA of the Company for the prior four fiscal quarters.

Holding has no obligation or intention to register the New Notes for resale under the Securities Act or the securities laws of any other jurisdiction or to offer to exchange the New Notes for securities registered under the Securities Act or the securities laws of any other jurisdiction.

Following the completion of the Exchange Offers and Consent Solicitation, Units representing $2.4 million aggregate principal amount of 13% Notes remain outstanding, and the indenture governing the 13% Notes has been amended to eliminate most restrictive covenants and certain events of default and to release the collateral securing the 13% Notes.

Following the completion of the Exchange Offers and Consent Solicitation, $11.6 million aggregate principal of 14¹/4% Notes continued to be outstanding. Holding issued $11.6 million aggregate principal amount of New Notes for cash to certain former holders of 13% Notes. The proceeds of such issuance were used to redeem the remaining 14¹/4% Notes, and as a result IHC has discharged all of its obligations with respect to the 14¹/4% Notes.

PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(UNAUDITED)

Stock Repurchase Program

On August 9, 2011, the Company’s board of directors authorized a stock repurchase program of up to $15 million of its common stock through August 8, 2013.

Under the stock repurchase program, stock will be repurchased from time to time in open-market and privately negotiated transactions and block trades. There is no guarantee as to the exact number of shares, if any, that the Company will repurchase. The share repurchase program may be modified, terminated or extended at any time without prior notice. The Company has established a committee consisting of its lead director, chief executive officer and chief financial officer to oversee the administration of the stock repurchase program.

Globility’s Agreement to Sell Canadian Wireless Spectrum Assets

On August 10, 2011, Globility Communications Corporation (“Globility”), a Canadian local exchange carrier in which the Company indirectly owns a 45.6% interest in compliance with Canadian telecommunication laws, entered into a definitive agreement to sell its fixed wireless spectrum licenses in 29 rural and urban markets across Canada for CAD$15 million (approximately USD$15 million). The license transfer is subject to Industry Canada approval and therefore the closing of the sale is expected to occur following receipt of such approval.

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

You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited condensed consolidated financial statements and the notes thereto included herein, as well as our audited condensed consolidated financial statements and the notes thereto contained in our Annual Report on Form 10-K for the year ended December 31, 2010. You should review the “Risk Factors” section (Part II, Item 1A) for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Introduction and Overview of Operations

We are an integrated facilities-based communications services provider offering a portfolio of international and domestic voice, wireless, Internet, VoIP, data and data center services to customers located primarily in Australia, Canada, the United States and Brazil. Our primary markets are Australia and Canada where we have deployed significant network infrastructure. We classify our services into three categories: Growth Services, Traditional Services and International Carrier Services. Our focus is on expanding our Growth Services, which includes our broadband, IP-based voice, local, wireless, data and data center services, to fulfill the demand for high quality, competitively priced communications services. This demand is being driven, in part, by the globalization of the world’s economies, the global trend toward telecommunications deregulation and the migration of communication traffic to the Internet. We manage our Traditional Services, which includes our domestic and international long-distance voice, prepaid cards, dial-up Internet services and Australian off-network local services for cash flow generation that we reinvest to develop and market our Growth Services, particularly in our primary markets of Australia and Canada. We provide our International Carrier Services voice termination services to other telecommunications carriers and resellers requiring IP or time-division multiplexing access.

Generally, we price our services competitively with the major carriers and service providers operating in our principal service regions. We seek to generate net revenue through sales and marketing efforts focused on customers with significant communications needs, including small and medium enterprises (“SMEs”), multinational corporations, residential customers, and other telecommunications carriers and resellers.

Industry trends have shown that the overall market for domestic and international long-distance voice, prepaid cards and dial-up internet services has declined in favor of Internet-based, wireless and broadband communications. Our challenge concerning net revenue in recent years has been to overcome declines in long-distance voice minutes of use per customer as more customers are using wireless devices and the Internet as alternatives to the use of wireline phones. Also, product substitution (e.g., wireless/Internet for fixed line voice) has resulted in revenue declines in our long-distance voice services. Additionally, we believe that because deregulatory influences have begun to affect telecommunications markets outside the United States, the deregulatory trend is resulting in greater competition from the existing wireline and wireless competitors and from more recent entrants, such as cable companies and VoIP companies, which could continue to affect adversely our net revenue per minute, as well as minutes of use. More recently, adverse global economic conditions have resulted in a contraction of spending by business and residential customers generally which, we believe, has had an adverse effect on our net revenues.

In order to manage our network transmission costs, we pursue a flexible approach with respect to the management of our network capacity. In most instances, we (1) optimize the cost of traffic by using the least expensive cost routing, (2) negotiate lower variable usage based costs with domestic and foreign service providers, (3) negotiate additional and lower cost foreign carrier agreements with the foreign incumbent carriers and others, and (4) continue to expand/reduce the capacity of our network when traffic volumes justify such actions.

Our overall margin may fluctuate based on the relative volumes of international versus domestic long-distance services; international carrier services versus business and residential long-distance services; prepaid services versus traditional post-paid voice services; Internet, VoIP and data services versus fixed line voice services; the amount of services that are resold; and the proportion of traffic carried on our network versus resale of other carriers’ services. Our margin is also affected by customer transfer and migration fees. We generally pay a charge to install and transfer a new customer onto our network and to migrate broadband and local customers. However, installing and migrating customers to our network infrastructure enables us to increase our margin on such services as compared to resale of services using other carriers’ networks.

Selling, general and administrative expenses are comprised primarily of salaries and benefits, commissions, occupancy costs, sales and marketing expenses, advertising, professional fees, and other administrative costs. All selling, general and administrative expenses are expensed when incurred. Emphasis on cost containment and the shift of expenditures from non-revenue producing expenses to sales and marketing expenses has been heightened since growth in net revenue has been under pressure.

Recent Developments

Acquisition of Arbinet Corporation

On February 28, 2011, the Company completed the merger of PTG Investments, Inc. (“Merger Sub”), a Delaware corporation and a wholly-owned subsidiary of the Company with and into Arbinet Corporation (“Arbinet”), pursuant to the Agreement and Plan of Merger dated November 10, 2010, as amended by Amendment No. 1 dated December 14, 2010 (collectively, the “Merger Agreement”) by and among the Company, Merger Sub and Arbinet. As a result of the merger, Arbinet became a wholly-owned subsidiary of the Company.

In connection with the merger, each share of Arbinet’s common stock, par value $0.001 per share, issued and outstanding immediately prior to the effective time of the merger was canceled and converted into the right to receive 0.5817 of a share of Company common stock.

The value of Primus shares issued as merger consideration is based upon the closing price of Primus common stock as of February 25, 2011 of $15.60 per share. The exchange of 5,557,525 eligible Arbinet shares for 3,232,812 Primus common stock equivalents equated to a purchase value of approximately $50.6 million. This includes the issued and outstanding shares of Arbinet and Arbinet’s outstanding warrants, options, stock appreciation rights and other equity awards that were exercised prior to the effective date of the merger or subject to accelerated vesting features due to a change in control.

The Company is in the process of integrating Arbinet’s operations into its International Carrier Services segment. The combined company is expected to be well positioned to capitalize on its long established experience in carrier telecom operations and to expand its global voice and data operations to meet the evolving demands of telecom operators worldwide. With its enhanced scale and market position, the combined company is expected to enable international carrier services customers to access additional networks and termination routes at competitive rates. The combined company is expected to have a diversified product portfolio of international voice and data services across all international carrier services customer segments. The combined company would become the only major global provider to offer international carrier services customers options to either acquire direct international connections through traditional interconnect arrangements or manage their access needs through The Exchange.

The Arbinet acquisition is accounted for under the acquisition method of accounting in accordance with ASC 805, “Business Combinations”. Under the acquisition method of accounting, assets acquired and liabilities assumed are measured at fair value as of February 28, 2011. The fair value of the consideration transferred and the assets acquired and liabilities assumed were determined by the Company and in doing so management relied in part upon a third-party valuation report to measure the identifiable intangible assets, property and equipment acquired. The third-party valuation reports are not final at the time of filing this quarterly report. This means that the assets and liabilities of Arbinet are recorded at their preliminary fair values and added to those of the Company, including an amount for goodwill representing the difference between the purchase price and fair value of the identifiable net assets. The condensed consolidated financial statements of the Company issued after the merger will reflect only the operations of the combined business after the merger and will not be restated retroactively to reflect the historical financial position or results of operations of Arbinet.

The Company’s acquisition of Arbinet was an all stock transaction and the Merger Agreement was based upon a Primus common stock per share price of $9.57. The initial purchase price valuation of Arbinet was based in part upon consultation with a third-party. The Merger Agreement provided that increases in the market price of Primus’s common stock would have the effect of increasing the total fair value of the consideration and therefore would increase the amount of the purchase price allocable to goodwill. The base-exchange formula provided by the Merger Agreement established the number of common shares required to consummate the merger. The number of common shares established by the Merger Agreement remained constant from the execution of the Merger Agreement through the closing date, February 28, 2011, and was not affected by the increase in the value of Primus’s stock which occurred after the Merger Agreement was executed. On February 28, 2011, the final consideration to be allocated to Arbinet’s net assets under ASC No. 805 was valued at approximately $50.6 million and was based upon a Primus common stock per share price of $15.60.

The significant increase in the fair value of the consideration to be allocated to Arbinet’s net assets as compared to the Company’s initial valuation of Arbinet triggered the requirement for the Company to perform a goodwill impairment test upon completion of its acquisition accounting. The Company recorded the preliminary purchase accounting during the first quarter of 2011, see Note 2 — “Acquisitions” and Note 4 — “Goodwill and Other Intangible Assets”.

Given the above, the Company had goodwill arising from the acquisition of Arbinet that was considered impaired upon implementing the purchase accounting of Arbinet’s net assets. The Company performed Step 1 and Step 2 testing for goodwill impairment during the first quarter 2011 and, as a result, recognized an impairment expense $14.7 million during the first quarter 2011.

Recent Developments Involving Existing Notes That May Impact Future Results and Liquidity

On July 7, 2011, Holding in connection with the consummation of the Exchange Offers and the Consent Solicitation, issued $240.2 million aggregate principal amount of New Notes. The New Notes bear interest at a rate of 10.00% per annum, payable semi-annually in arrears in cash on April 15 and October 15 of each year, commencing October 15, 2011. The New Notes will mature on April 15, 2017.

New York Stock Exchange Listing

On June 23, 2011, we began to list our common stock on the New York Stock Exchange under the ticker symbol, “PTGI.” At that time, trading of our common stock on the OTC Bulletin Board under the ticker symbol “PMUG” ceased.

Globility’s Agreement to Sell Canadian Wireless Spectrum Assets

On August 10, 2011, Globility Communications Corporation (“Globility”), a Canadian local exchange carrier in which Primus indirectly owns a 45.6% interest in compliance with Canadian telecommunication laws, entered into a definitive agreement to sell its fixed wireless spectrum licenses in 29 rural and urban markets across Canada for CAD$15 million (approximately USD$15 million). The license transfer is subject to Industry Canada approval and therefore the closing of the sale is expected to occur following receipt of such approval.

Foreign Currency

Foreign currency can have a major impact on our financial results. During 2011, approximately 80% of our net revenue was derived from sales and operations outside the U.S. The reporting currency for our consolidated financial statements is the United States dollar (“USD”). The local currency of each country is the functional currency for each of our respective entities operating in that country. Although the European dispositions and the Arbinet merger should reduce the percentage of our net revenue derived outside the U.S., in the future, we expect to continue to derive the majority of our net revenue and incur a significant portion of our operating costs from outside the U.S. Therefore, changes in exchange rates have had and may continue to have a significant, and potentially adverse, effect on our results of operations. Our primary risk of loss regarding foreign currency exchange rate risk is caused primarily by fluctuations in the following exchange rates: USD/Canadian dollar (“CAD”), USD/Australian dollar (“AUD”), USD/British pound (“GBP”), USD/Brazilian Real (“BRL”) and USD/Euro (“EUR”). Due to the large percentage of our revenue derived outside of the U.S., changes in the USD relative to one or more of the foregoing currencies could have an adverse impact on our future results of operations. We have agreements with certain subsidiaries for repayment of a portion of the investments and advances made to these subsidiaries. As we anticipate repayment in the foreseeable future, we recognize the unrealized gains and losses in foreign currency transaction gain (loss) on the consolidated statements of operations. The exposure of our income from operations to fluctuations in foreign currency exchange rates is reduced in part because a majority of the costs that we incur in connection with our foreign operations are also denominated in local currencies.

We are exposed to financial statement gains and losses as a result of translating the operating results and financial position of our international subsidiaries. We translate the local currency statements of operations of our foreign subsidiaries into USD using the average exchange rate during the reporting period. Changes in foreign exchange rates affect the reported profits and losses and cash flows and may distort comparisons from year to year. By way of example, when the USD strengthens compared to the CAD, there could be a negative or positive effect on the reported results for Canada, depending upon whether Canada is operating profitably or at a loss. It takes more profits in CAD to generate the same amount of profits in USD and a greater loss in CAD to generate the same amount of loss in USD. The opposite is also true. For instance, when the USD weakens there is a positive effect on reported profits and a negative effect on the reported losses for Canada.

In the three and six months ended June 30, 2011, as compared to the three and six months ended June 30, 2010, the USD was weaker on average as compared to the CAD, AUD, GBP, BRL and EUR. The following tables demonstrate the impact of currency fluctuations on our net revenue for the three and six months ended June 30, 2011 and 2010 (in thousands, except percentages):

Net Revenue by Location, including Discontinued Operations — in USD


	For the Three Months Ended June 30,											For the Six Months Ended June 30,
	2011			2010		Variance			Variance%			2011			2010		Variance			Variance%
Canada		64,060			58,024		6,036			10.4	%		124,896			115,500		9,396			8.1	%
Australia		73,681			67,487		6,194			9.2	%		145,413			137,385		8,028			5.8	%
United Kingdom		77,478			24,907		52,571			211.1	%		122,119			45,754		76,365			166.9	%
Europe (1), (2)		(30	)		19,461		(19,491	)		-100.2	%		(12	)		44,284		(44,296	)		-100.0	%
Brazil		7,298			7,050		248			3.5	%		14,069			12,320		1,749			14.2	%

Net Revenue by Location, including Discontinued Operations — in Local Currencies


	For the Three Months Ended June 30,											For the Six Months Ended June 30,
	2011			2010		Variance			Variance%			2011			2010		Variance			Variance%
Canada (in CAD)		61,983			59,630		2,353			3.9	%		121,973			119,475		2,498			2.1	%
Australia (in AUD)		69,375			76,401		(7,026	)		-9.2	%		140,716			153,744		(13,028	)		-8.5	%
United Kingdom (in GBP)		47,496			16,699		30,797			184.4	%		75,228			30,124		45,104			149.7	%
Europe (1) , (2) (in EUR)		(21	)		14,367		(14,388	)		-100.1	%		(7	)		30,882		(30,889	)		-100.0	%
Brazil (in BRL)		11,622			12,709		(1,087	)		-8.6	%		22,909			22,205		704			3.2	%

(1)	Europe includes only subsidiaries whose functional currency is the Euro.

(2)	Includes revenues from discontinued operations which are subject to currency risk.

Critical Accounting Policies

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Form 10-K for the year ended December 31, 2010 for a detailed discussion of our critical accounting policies. These policies include revenue recognition, determining our allowance for doubtful accounts receivable, accounting for cost of revenue, valuation of long-lived assets, goodwill and other intangible assets, and accounting for income taxes.

No significant changes in our critical accounting policies have occurred since December 31, 2010.

Financial Presentation Background

In the following presentations and narratives within this Management’s Discussion and Analysis of Financial Condition and Results of Operations, we compare, pursuant to accounting principles generally accepted in the United States of America (“US GAAP”) and Securities and Exchange Commission disclosure rules, the Company’s results of operations for the three months and six months ended June 30, 2011 as compared to the three months and six months ended June 30, 2010.

We also present detailed changes in results, excluding currency impacts, since a large portion of our revenues are derived outside of the U.S., and currency changes can influence or mask underlying changes in foreign operating unit performance. For purposes of calculating constant currency rates between periods in connection with presentations that describe changes in values “excluding currency effects” herein, we have taken results from foreign operations for a given year (that were computed in accordance with US GAAP using local currency) and converted such amounts utilizing the same U.S. dollar to applicable local currency exchange rates that were used for purposes of calculating corresponding preceding period US GAAP presentations.

Discontinued Operations

2010 Developments — During 2010 the Company classified its Europe segment, which is also known as European retail operations, as discontinued operations. As a result, the Company has applied retrospective adjustments to reflect the effects of the discontinued operations during 2010. Accordingly, revenue, costs, and expenses of the discontinued operations have been excluded from the respective captions in the condensed consolidated statements of operations. The Company did not retrospectively adjust its condensed consolidated balance sheet as held for sale criteria was not met until the third quarter of 2010, as such, financial information for the Europe segment will appear, as applicable, where certain balance sheet information is presented, see Note 11 —“Discontinued Operations,” for further information.

Summarized operating results of the discontinued operations are as follows (in thousands):


	Three Months Ended June 30, 2011			Three Months Ended June 30, 2010
Net revenue	$	(30	)	$	11,638
Operating expenses		174			13,146

Income (loss) from operations		(204	)		(1,508	)
Interest expense		—			(14	)
Interest income and other income		30			234
Foreign currency transaction gain (loss)		86			(350	)

Income (loss) before income tax		(88	)		(1,638	)
Income tax (expense) benefit		(1	)		110

Income (loss) from discontinued operations	$	(89	)	$	(1,528	)


	Six Months Ended June 30, 2011			Six Months Ended June 30, 2010
Net revenue	$	(12	)	$	24,402
Operating expenses		497			26,570

Income (loss) from operations		(509	)		(2,168	)
Interest expense		—			(25	)
Interest income and other income		365			236
Foreign currency transaction gain (loss)		76			(198	)

Income (loss) before income tax		(68	)		(2,155	)
Income tax expense		(1	)		(62	)

Income (loss) from discontinued operations	$	(69	)	$	(2,217	)

Results of Operations

Results of operations for the three months ended June 30, 2011 as compared to the three months ended June 30, 2010

Net revenue: Net revenue, exclusive of the currency effect, increased $64.3 million, or 33.0%, to $258.9 million for the three months ended June 30, 2011 from $194.6 million for the three months ended June 30, 2010. This increase is primarily attributable to the inclusion of Arbinet revenue within ICS, following the merger, offset in part principally by revenue declines in Australia, exclusive of currency effect, and U.S. retail voice and VoIP. Inclusive of the currency effect, which accounted for an increase of $23.6 million, net revenue increased $87.9 million to $282.5 million for the three months ended June 30, 2011 from $194.6 million for the three months ended June 30, 2010.


	Exclusive of Currency Effect																Currency Effect		Inclusive of Currency Effect
	Quarter Ended										Quarter-over-Quarter								Quarter Ended
	June 30, 2011					June 30, 2010													June 30, 2011
(in thousands)	Net Revenue		% of Total			Net Revenue		% of Total			Variance			Variance %					Net Revenue		% of Total
Canada		60,308		23.3	%		58,024		29.8	%		2,284			3.9	%		3,752		64,060		22.7	%
Australia		61,268		23.7	%		67,486		34.7	%		(6,218	)		-9.2	%		12,413		73,681		26.1	%
International Carrier Services		119,905		46.3	%		49,192		25.3	%		70,713			143.7	%		6,624		126,529		44.8	%
United States		10,736		4.1	%		12,841		6.6	%		(2,105	)		-16.4	%		—		10,736		3.8	%
Other		6,660		2.6	%		7,050		3.6	%		(390	)		-5.5	%		836		7,496		2.6	%

Total Revenue		258,877		100.0	%		194,593		100.0	%		64,284			33.0	%		23,625		282,502		100.0	%

Canada: Canada net revenue, exclusive of the currency effect, increased $2.3 million, or 3.9%, to $60.3 million for the three months ended June 30, 2011 from $58.0 million for the three months ended June 30, 2010. The net revenue increase is primarily attributable to an increase of $5.8 million in local services, and an increase of $1.5 million in Internet, VoIP, data and hosting services offset, in part, by a decrease of $2.6 million in retail long distance, a decrease of $2.2 million in prepaid voice services and a decrease of $0.2 million in wireless services. Inclusive of the currency effect, which accounted for a $3.8 million increase, net revenue increased $6.1 million to $64.1 million for the three months ended June 30, 2011 from $58.0 million for the three months ended June 30, 2010.

Australia: Australia net revenue, exclusive of the currency effect, decreased $6.2 million, or 9.2%, to $61.3 million for the three months ended June 30, 2011 from $67.5 million for the three months ended June 30, 2010. The net revenue decrease is primarily attributable to a decrease of $2.7 million in business voice services, a decrease of $1.8 million in residential voice, a decrease of $1.6 million in Internet services, a decrease of $0.3 million in DSL services, and a decrease of $0.1 million in other services offset, in part, by an increase of $0.3 million in data center, wireless and VoIP services. Inclusive of the currency effect, which accounted for a $12.4 million increase, net revenue increased $6.2 million to $73.7 million for the three months ended June 30, 2011 from $67.5 million for the three months ended June 30, 2010.

International Carrier Services: ICS net revenue, exclusive of the currency effect, increased $70.7 million, or 143.7%, to $119.9 million for the three months ended June 30, 2011 from $49.2 million for the three months ended June 30, 2010. The net revenue increase is primarily due to the acquisition of Arbinet, which provided net revenue of $69.1 million, and an increase of $6.6 million in US carrier services offset, in part, by a decrease of $5.0 million in Europe carrier services. Inclusive of the currency effect, which accounted for a $6.6 million increase, net revenue increased $77.3 million to $126.5 million for the three months ended June 30, 2011, from $49.2 million for the three months ended June 30, 2010.

United States: United States net revenue decreased $2.1 million, or 16.4%, to $10.7 million for the three months ended June 30, 2011 from $12.8 million for the three months ended June 30, 2010. The decrease is primarily attributable to a decrease of $1.2 million in retail voice services, a decrease of $0.8 million in VoIP services and a decrease of $0.1 million in Internet services.

Other: Other net revenue, exclusive of the currency effect, decreased $0.4 million, or 5.5%, to $6.7 million for the three months ended June 30, 2011 from $7.1 million for the three months ended June 30, 2010. The revenue decrease is primarily due to a decrease in carrier voice services. Inclusive of the currency effect, which accounted for a $0.8 million increase, net revenue increased $0.4 million to $7.5 million for the three months ended June 30, 2011 from $7.1 million for the three months ended June 30, 2010.

Cost of revenue: Cost of revenue, exclusive of the currency effect, increased $65.2 million to $189.2 million, or 73.1% of net revenue, for the three months ended June 30, 2011 from $124.0 million, or 63.7% of net revenue, for the three months ended June 30, 2010 primarily due to a shift to higher volume lower margin products resulting from the acquisition of Arbinet. Inclusive of the currency effect, which accounted for a $16.3 million increase, cost of revenue increased $81.5 million to $205.5 million for the three months ended June 30, 2011 from $124.0 million for the three months ended June 30, 2010.


	Exclusive of Currency Effect																Currency Effect		Inclusive of Currency Effect
	Quarter Ended										Quarter-over-Quarter								Quarter Ended
	June 30, 2011					June 30, 2010													June 30, 2011
(in thousands)	Cost of Revenue		% of Net Revenue			Cost of Revenue		% of Net Revenue			Variance			Variance %					Cost of Revenue		% of Net Revenue
Canada		28,799		47.8	%		25,939		44.7	%		2,860			11.0	%		1,788		30,587		47.7	%
Australia		36,942		60.3	%		41,303		61.2	%		(4,361	)		-10.6	%		7,415		44,357		60.2	%
International Carrier Services		113,422		94.6	%		45,784		93.1	%		67,638			147.7	%		6,429		119,851		94.7	%
United States		4,865		45.3	%		5,137		40.0	%		(272	)		-5.3	%		—		4,865		45.3	%
Other		5,194		78.0	%		5,797		82.2	%		(603	)		-10.4	%		668		5,862		78.2	%

Total Cost of Revenue		189,222		73.1	%		123,960		63.7	%		65,262			52.6	%		16,300		205,522		72.8	%

Canada: Canada cost of revenue, exclusive of the currency effect, increased $2.9 million to $28.8 million, or 47.8% of net revenue, for the three months ended June 30, 2011 from $25.9 million, or 44.7% of net revenue, for the three months ended June 30, 2010. The increase is primarily attributable to an increase of $3.8 million in the costs of local services, an increase of $0.5 million in the costs of Internet and VoIP services offset, in part, by a decrease of $1.2 million in costs of prepaid services and a decrease of $0.2 million in costs of voice services. Inclusive of the currency effect, which accounted for a $1.8 million increase, cost of revenue increased $4.7 million to $30.6 million for the three months ended June 30, 2011 from $25.9 million for the three months ended June 30, 2010.

Australia: Australia cost of revenue, exclusive of the currency effect, decreased $4.4 million to $36.9 million, or 60.3% of net revenue, for the three months ended June 30, 2011 from $41.3 million, or 61.2% of net revenue, for the three months ended June 30, 2010. The decrease is primarily attributable to a $6.2 million decrease in net revenue. Inclusive of the currency effect, which accounted for a $7.4 million increase, cost of revenue increased $3.0 million to $44.3 million for the three months ended June 30, 2011 from $41.3 million for the three months ended June 30, 2010.

International Carrier Services: ICS cost of revenue, exclusive of the currency effect, increased $67.6 million to $113.4 million, or 94.6% of net revenue, for the three months ended June 30, 2011 from $45.8 million, or 93.1% of net revenue, for the three months ended June 30, 2010. The increase is primarily due to the acquisition of Arbinet, which provided cost of revenue of $64.8 million, and an increase of $7.6 million in US carrier services offset, in part, by a decrease of $4.8 million in Europe carrier services. Inclusive of the currency effect, which accounted for a $6.4 million increase, cost of revenues increased $74.0 million to $119.8 million for the three months ended June 30, 2011 from $45.8 million for the three months ended June 30, 2010.

United States: United States cost of revenue decreased $0.3 million to $4.9 million, or 45.3% of net revenue, for the three months ended June 30, 2011 from $5.1 million, or 40.0% of net revenue, for the three months ended June 30, 2010. The decrease is primarily attributable to a $2.1 million decrease in net revenue.

Other: Other cost of revenue, exclusive of the currency effect, decreased $0.6 million to $5.2 million, or 78.0% of net revenue, for the three months ended June 30, 2011 from $5.8 million, or 82.2% of net revenue, for the three months ended June 30, 2010. The decrease is primarily attributable to a decrease in net revenue of $0.4 million. Inclusive of the currency effect, which accounted for a $0.7 million increase, cost of revenue increased $0.1 million to $5.9 million for the three months ended June 30, 2011 from $5.8 million for the three months ended June 30, 2010.

Selling, general and administrative expenses: Selling, general and administrative expenses, exclusive of the currency effect, increased $6.6 million to $54.4 million, or 21.0% of net revenue, for the three months ended June 30, 2011 from $47.8 million, or 24.6% of net revenue, for the three months ended June 30, 2010. Inclusive of the currency effect, which accounted for a $5.0 million increase, selling, general and administrative expenses increased $11.6 million to $59.4 million for the three months ended June 30, 2011 from $47.8 million for the three months ended June 30, 2010.


	Exclusive of Currency Effect																Currency Effect		Inclusive of Currency Effect
	Quarter Ended										Quarter-over-Quarter								Quarter Ended
	June 30, 2011					June 30, 2010													June 30, 2011
(in thousands)	SG&A		% of Net Revenue			SG&A		% of Net Revenue			Variance			Variance %					SG&A		% of Net Revenue
Canada		19,099		31.7	%		20,183		34.8	%		(1,084	)		-5.4	%		1,189		20,288		31.7	%
Australia		17,336		28.3	%		17,035		25.2	%		301			1.8	%		3,520		20,856		28.3	%
International Carrier Services		6,202		5.2	%		1,605		3.3	%		4,597			286.4	%		107		6,309		5.0	%
United States		4,567		42.5	%		5,367		41.8	%		(800	)		-14.9	%		—		4,567		42.5	%
Other		1,327		19.9	%		1,141		16.2	%		186			16.3	%		129		1,456		19.4	%
Corporate		5,885		—			2,523		—			3,362			133.3	%		—		5,885		—

Total SG&A		54,416		21.0	%		47,854		24.6	%		6,562			13.7	%		4,945		59,361		21.0	%

Canada: Canada selling, general and administrative expenses, exclusive of the currency effect, decreased $1.1 million to $19.1 million, or 31.7% of net revenue, for the three months ended June 30, 2011 from $20.2 million, or 34.8% of net revenue, for the three months ended June 30, 2010. The decrease is attributable to a decrease of $0.8 million in sales and marketing expenses, a decrease of $0.2 million in salaries and benefits, a decrease of $0.2 million in professional fees and a decrease of $0.1 million in general and administrative expense offset, in part, by an increase of $0.2 million in advertising expenses. Inclusive of the currency effect, which accounted for a $1.2 million increase, selling, general and administrative expenses increased $0.1 million to $20.3 million for the three months ended June 30, 2011 from $20.2 million for the three months ended June 30, 2010.

Australia: Australia selling, general and administrative expense, exclusive of the currency effect, increased $0.3 million to $17.3 million, or 28.3% of net revenue, for the three months ended June 30, 2011 from $17.0 million, or 25.2% of net revenue, for the three months ended June 30, 2010. The increase is primarily attributable to an increase of $0.5 million in salaries and benefits, an increase of $0.3 million in advertising expenses offset, in part, by a decrease of $0.3 million in general and administrative expense and a decrease of $0.2 million in sales and marketing expenses. Inclusive of the currency effect, which accounted for a $3.5 million increase, selling, general and administrative expense increased $3.8 million to $20.8 million for the three months ended June 30, 2011 from $17.0 million for the three months ended June 30, 2010.

International Carrier Services: ICS selling, general and administrative expenses, exclusive of the currency effect, increased $4.6 million to $6.2 million, or 5.2% of net revenue, for the three months ended June 30, 2011 from $1.6 million, or 3.3% of net revenue, for the three months ended June 30, 2010. The increase is primarily due to the acquisition of Arbinet, which provided selling, general and administrative expense of $4.0 million, and an increase of $0.6 million in US carrier services. Inclusive of the currency effect, which accounted for a $0.1 million increase, selling, general and administrative expense increased $4.7 million to $6.3 million for the three months ended June 30, 2011 from $1.6 million for the three months ended June 30, 2010. Inclusive within the acquisition of Arbinet has been $0.3 million of integration expenses and $28 thousand in severance expense.

United States: United States selling, general and administrative expenses decreased $0.8 million to $4.6 million, or 42.5% of net revenue, for the three months ended June 30, 2011 from $5.4 million, or 41.8% of net revenue, for the three months ended June 30, 2010. The decrease is attributable to a decrease of $0.5 million in salaries and benefits, a decrease of $0.5 million in general and administrative expenses, a decrease of $0.1 million in professional fees offset, in part, by an increase of $0.3 million in advertising expense.

Other: Other selling, general and administrative expenses, exclusive of the currency effect, increased $0.2 million to $1.3 million, or 19.9% of net revenue, for the three months ended June 30, 2011 from $1.1 million, or 16.2% of net revenue, for the three months ended June 30, 2010. The increase is attributable to an increase of $0.1 million in sales and marketing expenses and an increase of $0.1 million in all other expenses. Inclusive of the currency effect, which accounted for a $0.1 million increase, selling, general and administrative expenses increased $0.3 million to $1.4 million for the three months ended June 30, 2011 from $1.1 million for the three months ended June 30, 2010.

Corporate: Corporate selling, general and administrative expense increased $3.4 million to $5.9 million for the three months ended June 30, 2011 from $2.5 million for the three months ended June 30, 2010. The increase is attributable to an increase of $2.7 million in salaries and benefits, an increase of $0.6 million in professional fees, and an increase of $0.1 million in travel and entertainment expense.

Depreciation and amortization expense: Depreciation and amortization expense decreased $1.1 million to $17.1 million for the three months ended June 30, 2011 from $18.2 million for the three months ended June 30, 2010. The decrease was primarily the result of certain assets revalued at the time of fresh start accounting and depreciated over a one year life which ended on June 30, 2010, offset in part, by additional depreciation and amortization from Arbinet.

Interest expense and accretion (amortization) on debt discount/premium, net: Interest expense and accretion (amortization) on debt discount/premium, net decreased $0.8 million to $7.9 million for the three months ended June 30, 2011 from $8.7 million for the three months ended June 30, 2010. The decrease was due to the $24.0 million principal payment of the 14¹/4% Senior Secured Notes in April 2011.

Gain (loss) from contingent value rights valuation: The change in value of the contingent value rights increased $0.5 million to a gain of $0.1 million for the three months ended June 30, 2011 from a loss of $0.4 million for the three months ended June 30, 2010. This increase is attributable to the change of the fair market value. The Company determined these contingent value rights to be derivative instruments to be accounted for as liabilities and marked to fair value at each balance sheet date. Estimates of fair value represent the Company’s best estimates based on a Black-Scholes pricing model.

Foreign currency transaction gain (loss): Foreign currency transaction gain increased $12.0 million to a gain of $2.4 million for the three months ended June 30, 2011 from a loss of $9.6 million for the three months ended June 30, 2010. The gains are attributable to the impact of foreign currency exchange rate changes on intercompany debt balances and on receivables and payables denominated in a currency other than the subsidiaries’ functional currency.

Income tax benefit (expense): Income tax expense was $1.4 million for the three months ended June 30, 2011 compared to a $1.9 million benefit for the three months ended June 30, 2010. The expense includes withholding tax related to cross-border payments and state income tax expense expected in states without net operating loss coverage.

Results of operations for the six months ended June 30, 2011 as compared to the six months ended June 30, 2010

Net revenue: Net revenue, exclusive of the currency effect, increased $81.9 million, or 21.1%, to $469.5 million for the six months ended June 30, 2011 from $387.6 million for the six months ended June 30, 2010. This increase was due primarily to the inclusion of Arbinet revenue within ICS, following the merger, offset in part principally by revenue declines in Australia, exclusive of currency effect, and U.S. retail voice and VoIP. Inclusive of the currency effect, which accounted for an increase of $36.7 million, net revenue increased $118.6 million to $506.2 million for the six months ended June 30, 2011 from $387.6 million for the six months ended June 30, 2010.


	Exclusive of Currency Effect																Currency Effect		Inclusive of Currency Effect
	Six Months Ended										Year-over-Year								Six Months Ended
	June 30, 2011					June 30, 2010													June 30, 2011
(in thousands)	Net Revenue		% of Total			Net Revenue		% of Total			Variance			Variance %					Net Revenue		% of Total
Canada		117,924		25.1	%		115,500		29.8	%		2,424			2.1	%		6,972		124,896		24.7	%
Australia		125,737		26.8	%		137,386		35.4	%		(11,649	)		-8.5	%		19,676		145,413		28.7	%
International Carrier Services		190,866		40.7	%		95,699		24.7	%		95,167			99.4	%		8,685		199,551		39.4	%
United States		21,919		4.6	%		26,706		6.9	%		(4,787	)		-17.9	%		—		21,919		4.3	%
Other		13,085		2.8	%		12,319		3.2	%		766			6.2	%		1,361		14,446		2.9	%

Total Revenue		469,531		100.0	%		387,610		100.0	%		81,921			21.1	%		36,694		506,225		100.0	%

Canada: Canada net revenue, exclusive of the currency effect, increased $2.4 million, or 2.1%, to $117.9 million for the six months ended June 30, 2011 from $115.5 million for the six months ended June 30, 2010. The net revenue increase is primarily attributable to an increase of $4.3 million in retail voice services, an increase of $2.7 million in Internet, VoIP, data and hosting services offset, in part, by a decrease of $3.8 million in prepaid voice services, a decrease of $0.4 million in wireless services and a decrease of $0.4 million in local services. Inclusive of the currency effect, which accounted for a $7.0 million increase, net revenue increased $9.4 million to $124.9 million for the six months ended June 30, 2011 from $115.5 million for the six months ended June 30, 2010.

Australia: Australia net revenue, exclusive of the currency effect, decreased $11.7 million, or 8.5%, to $125.7 million for the six months ended June 30, 2011 from $137.4 million for the six months ended June 30, 2010. The net revenue decrease is primarily attributable to a decrease of $4.2 million in business voice services, a decrease of $3.6 million in residential voice, a decrease of $3.4 million in Internet services, a decrease of $0.4 million in DSL services, and a decrease of $1.0 million in other services offset, in part, by an increase of $0.7 million in wireless services and an increase of $0.2 million in VoIP services. Inclusive of the currency effect, which accounted for a $19.7 million increase, net revenue increased $8.0 million to $145.4 million for the six months ended June 30, 2011 from $137.4 million for the six months ended June 30, 2010.

International Carrier Services: ICS net revenue, exclusive of the currency effect, increased $95.2 million, or 99.4%, to $190.9 million for the six months ended June 30, 2011 from $95.7 million for the six months ended June 30, 2010. The net revenue increase is primarily due to the acquisition of Arbinet, which provided net revenue of $94.7 million, and an increase of $11.8 million in US carrier services offset, in part, by a decrease of $11.3 million in Europe carrier services. Inclusive of the currency effect, which accounted for an $8.7 million increase, net revenue increased $103.9 million to $199.6 million for the six months ended June 30, 2011, from $95.7 million for the six months ended June 30, 2010.

United States: United States net revenue decreased $4.8 million, or 17.9%, to $21.9 million for the six months ended June 30, 2011 from $26.7 million for the six months ended June 30, 2010. The decrease is primarily attributable to a decrease of $2.7 million due to customer attrition in retail voice services, a decrease of $1.9 million in VoIP services and a decrease of $0.2 million in Internet services.

Other: Other net revenue, exclusive of the currency effect, increased $0.8 million, or 6.2% to $13.1 million for the six months ended June 30, 2011 from $12.3 million for the six months ended June 30, 2010. The revenue increase is primarily due to an increase in wireless services. Inclusive of the currency effect, which accounted for a $1.4 million increase, net revenue increased $2.2 million to $14.5 million for the six months ended June 30, 2011 from $12.3 million for the six months ended June 30, 2010.

Cost of revenue: Cost of revenue, exclusive of the currency effect, increased $87.1 million to $333.1 million, or 71.0% of net revenue, for the six months ended June 30, 2011 from $246.0 million, or 63.5% of net revenue, for the six months ended June 30, 2010 primarily due to a shift to higher volume lower margin products resulting from the acquisition of Arbinet. Inclusive of the currency effect, which accounted for a $24.7 million increase, cost of revenue increased $111.8 million to $357.8 million for the six months ended June 30, 2011 from $246.0 million for the six months ended June 30, 2010.


	Exclusive of Currency Effect																Currency Effect		Inclusive of Currency Effect
	Six Months Ended										Year-over-Year								Six Months Ended
	June 30, 2011					June 30, 2010													June 30, 2011
(in thousands)	Cost of Revenue		% of Net Revenue			Cost of Revenue		% of Net Revenue			Variance			Variance %					Cost of Revenue		% of Net Revenue
Canada		56,289		47.7	%		52,206		45.2	%		4,083			7.8	%		3,327		59,616		47.7	%
Australia		76,020		60.5	%		82,903		60.3	%		(6,883	)		-8.3	%		11,811		87,831		60.4	%
International Carrier Services		180,740		94.7	%		89,772		93.8	%		90,968			101.3	%		8,416		189,156		94.8	%
United States		9,904		45.2	%		11,164		41.8	%		(1,260	)		-11.3	%		—		9,904		45.2	%
Other		10,185		77.8	%		9,906		80.4	%		279			2.8	%		1,086		11,271		78.0	%


Total Cost of Revenue		333,138		71.0	%		245,951		63.5	%		87,187			35.4	%		24,640		357,778		70.7	%

Canada: Canada cost of revenue, exclusive of the currency effect, increased $4.1 million to $56.3 million, or 47.7% of net revenue, for the six months ended June 30, 2011 from $52.2 million, or 45.2% of net revenue, for the six months ended June 30, 2010. The increase is primarily attributable to an increase of $7.0 million in the costs of voice services, an increase of $0.7 million in the costs of Internet services, and an increase of $0.3 million in the costs of VoIP services offset, in part, by a decrease of $2.6 million in costs of prepaid services and a decrease of $1.3 million in the costs of local services. Inclusive of the currency effect, which accounted for a $3.3 million increase, cost of revenue increased $7.4 million to $59.6 million for the six months ended June 30, 2011 from $52.2 million for the six months ended June 30, 2010.

Australia: Australia cost of revenue, exclusive of the currency effect, decreased $6.9 million to $76.0 million, or 60.5% of net revenue, for the six months ended June 30, 2011 from $82.9 million, or 60.3% of net revenue, for the six months ended June 30, 2010. The decrease is primarily attributable to an $11.7 million decrease in net revenue. Inclusive of the currency effect, which accounted for an $11.8 million increase, cost of revenue increased $4.9 million to $87.8 million for the six months ended June 30, 2011 from $82.9 million for the six months ended June 30, 2010.

International Carrier Services: ICS cost of revenue, exclusive of the currency effect, increased $90.9 million to $180.7 million, or 94.7% of net revenue, for the six months ended June 30, 2011 from $89.8 million, or 93.8% of net revenue, for the six months ended June 30, 2010. The increase is primarily due to the acquisition of Arbinet, which provided cost of revenue of $88.8 million, and an increase of $12.9 million in US carrier services offset, in part, by a decrease of $10.8 million in Europe carrier services. Inclusive of the currency effect, which accounted for an $8.4 million increase, cost of revenues increased $99.3 million to $189.1 million for the six months ended June 30, 2011 from $89.8 million for the six months ended June 30, 2010.

United States: United States cost of revenue decreased $1.3 million to $9.9 million, or 45.2% of net revenue, for the six months ended June 30, 2011 from $11.2 million, or 41.8% of net revenue, for the six months ended June 30, 2010. The decrease is primarily attributable to a $4.8 million decrease in net revenue.

Other: Other cost of revenue, exclusive of the currency effect, increased $0.3 million to $10.2 million, or 77.8% of net revenue, for the six months ended June 30, 2011 from $9.9 million, or 80.4% of net revenue, for the six months ended June 30, 2010. The increase is primarily attributable to an increase in net revenue of $0.8 million. Inclusive of the currency effect, which accounted for a $1.1 million increase, cost of revenue increased $1.4 million to $11.3 million for the six months ended June 30, 2011 from $9.9 million for the six months ended June 30, 2010.

Selling, general and administrative expenses: Selling, general and administrative expenses, exclusive of the currency effect, increased $7.3 million to $105.3 million, or 22.4% of net revenue, for the six months ended June 30, 2011 from $98.0 million, or 25.3% of net revenue, for the six months ended June 30, 2010. Inclusive of the currency effect, which accounted for an $8.0 million increase, selling, general and administrative expenses increased $15.3 million to $113.3 million for the six months ended June 30, 2011 from $98.0 million for the six months ended June 30, 2010.


	Exclusive of Currency Effect																Currency Effect		Inclusive of Currency Effect
	Six Months Ended										Year-over-Year								Six Months Ended
	June 30, 2011					June 30, 2010													June 30, 2011
(in thousands)	SG&A		% of Net Revenue			SG&A		% of Net Revenue			Variance			Variance %					SG&A		% of Net Revenue
Canada		37,643		31.9	%		39,795		34.5	%		(2,152	)		-5.4	%		2,225		39,868		31.9	%
Australia		34,584		27.5	%		33,718		24.5	%		866			2.6	%		5,463		40,047		27.5	%
International Carrier Services		10,991		5.8	%		3,264		3.4	%		7,727			236.7	%		142		11,133		5.6	%
United States		9,121		41.6	%		12,333		46.2	%		(3,212	)		-26.0	%		—		9,121		41.6	%
Other		2,315		17.7	%		2,249		18.3	%		66			2.9	%		197		2,512		17.4	%
Corporate		10,632		—			6,613		—			4,019			60.8	%		—		10,632		—

Total SG&A		105,286		22.4	%		97,972		25.3	%		7,314			7.5	%		8,027		113,313		22.4	%

Canada: Canada selling, general and administrative expenses, exclusive of the currency effect, decreased $2.2 million to $37.6 million, or 31.9% of net revenue, for the six months ended June 30, 2011 from $39.8 million, or 34.5% of net revenue, for the six months ended June 30, 2010. The decrease is attributable to a decrease of $1.6 million in sales and marketing expenses, a decrease of $0.5 million in advertising expenses, a decrease of $0.3 million in professional fees, a decrease of $0.1 million in occupancy expenses and a decrease of $0.1 million in other expenses offset, in part, by an increase of $0.4 million in salaries and benefits. Inclusive of the currency effect, which accounted for a $2.3 million increase, selling, general and administrative expense increased $0.1 million to $39.9 million for the six months ended June 30, 2011 from $39.8 million for the six months ended June 30, 2010.

Australia: Australia selling, general and administrative expense, exclusive of the currency effect, increased $0.9 million to $34.6 million, or 27.5% of net revenue, for the six months ended June 30, 2011 from $33.7 million, or 24.5% of net revenue, for the six months ended June 30, 2010. The increase is attributable to an increase of $1.0 million in salaries and benefits, an increase of $0.4 million in advertising expenses and an increase of $0.2 million in occupancy expenses offset, in part, by a decrease of $0.3 million in sales and marketing expenses, a decrease of $0.3 million in general and administrative expenses and a decrease of $0.1 million in professional fees. Inclusive of the currency effect, which accounted for a $5.4 million increase, selling, general and administrative expense increased $6.3 million to $40.0 million for the six months ended June 30, 2011 from $33.7 million for the six months ended June 30, 2010.

International Carrier Services: ICS selling, general and administrative expenses, exclusive of the currency effect, increased $7.7 million to $11.0 million, or 5.8% of net revenue, for the six months ended June 30, 2011 from $3.3 million, or 3.4% of net revenue, for the six months ended June 30, 2010. The increase is primarily due to the acquisition of Arbinet, which provided selling, general and administrative expense of $7.1 million, and an increase of $0.7 million in US carrier services offset, in part, by a decrease of $0.1 million in Europe carrier services. Inclusive of the currency effect, which accounted for a $0.1 million increase, selling, general and administrative expense increased $7.8 million to $11.1 million for the six months ended June 30, 2011 from $3.3 million for the six months ended June 30, 2010. Inclusive within the acquisition of Arbinet has been $0.6 million of integration expenses and $1.1 million in severance expense.

United States: United States selling, general and administrative expenses decreased $3.2 million to $9.1 million, or 41.6% of net revenue, for the six months ended June 30, 2011 from $12.3 million, or 46.2% of net revenue, for the six months ended June 30, 2010. The decrease is attributable to a decrease of $2.0 million in general and administrative expenses, a decrease of $1.1 million in salaries and benefits, a decrease of $0.4 million in occupancy expenses, a decrease of $0.1 million in professional fees and a decrease of $0.1 million in sales and marketing expenses offset, in part, by an increase of $0.5 million in advertising expenses.

Other: Other selling, general and administrative expense, exclusive of the currency effect, increased $0.1 million to $2.3 million, or 17.7% of net revenue, for the six months ended June 30, 2011 from $2.2 million, or 18.3% of net revenue, for the six months ended June 30, 2010. The increase is primarily attributable to an increase of $0.1 million in sales and marketing expenses. Inclusive of the currency effect, which accounted for a $0.2 million increase, selling, general and administrative expense increased $0.3 million to $2.5 million for the six months ended June 30, 2011 from $2.2 million for the six months ended June 30, 2010.

Corporate: Corporate selling, general and administrative expense increased $4.0 million to $10.6 million for the six months ended June 30, 2011 from $6.6 million for the six months ended June 30, 2010. The increase is attributable to an increase of $1.9 million in salaries and benefits, an increase of $0.9 million in professional fees, an increase of $0.7 million in general and administrative expenses, an increase of $0.3 million in occupancy expenses and an increase of $0.2 million in travel and entertainment expense.

Depreciation and amortization expense: Depreciation and amortization expense decreased $3.8 million to $32.2 million for the six months ended June 30, 2011 from $36.0 million for the six months ended June 30, 2010. The decrease was primarily the result of certain assets revalued at the time of fresh start accounting and depreciated over a one year life which ended on June 30, 2010, offset in part, by additional depreciation and amortization from Arbinet.

Goodwill impairment expense: The Company expensed $14.7 million of goodwill in the first quarter of 2011 due to the acquisition price of Arbinet Corporation. See Note 2 — “Acquisitions” and Note 4 —“Goodwill and Other Intangible Assets,” for further information.

Interest expense and accretion (amortization) on debt discount/premium, net: Interest expense and accretion (amortization) on debt discount/premium, net decreased $1.4 million to $16.7 million for the six months ended June 30, 2011 from $18.1 million for the six months ended June 30, 2010. The decrease was due to the $24.0 million principal payment of the 14¹/4% Senior Secured Notes in April 2011.

Gain (loss) from contingent value rights valuation: The change in value of the contingent value rights decreased $1.9 million to a loss of $4.3 million for the six months ended June 30, 2011 from a loss of $2.4 million for the six months ended June 30, 2010. This decrease is attributable to the change of the fair market value. The Company determined these contingent value rights to be derivative instruments to be accounted for as liabilities and marked to fair value at each balance sheet date. Estimates of fair value represent the Company’s best estimates based on a Black-Scholes pricing model.

Foreign currency transaction gain (loss): Foreign currency transaction gain increased $10.2 million to a gain of $6.4 million for the six months ended June 30, 2011 from a loss of $3.8 million for the six months ended June 30, 2010. The gains are attributable to the impact of foreign currency exchange rate changes on intercompany debt balances and on receivables and payables denominated in a currency other than the subsidiaries’ functional currency.

Income tax benefit (expense): Income tax expense was $0.5 million for the six months ended June 30, 2011 compared to a $4.1 million benefit for the six months ended June 30, 2010. The expense includes withholding tax related to cross-border payments and state income tax expense expected in states without net operating loss coverage.

Liquidity and Capital Resources

Changes in Cash Flows

Our principal liquidity requirements arise from cash used in operating activities, purchases of network equipment including switches, related transmission equipment and capacity, development of back-office systems, expansion of data center facilities, interest and principal payments on outstanding debt and other obligations and income taxes. We have financed our growth and operations to date through public offerings and private placements of debt and equity securities, vendor financing, capital lease financing and other financing arrangements.

Net cash provided by operating activities was $15.0 million for the six months ended June 30, 2011. For the six months ended June 30, 2011, net income, net of non-cash operating activity, provided $27.1 million of cash. In addition, cash was increased by an increase in accounts payable of $6.9 million. For the six months ended June 30, 2011, we used $8.6 million to increase accounts receivable, $5.3 million to reduce our accrued expenses, deferred revenue, other current liabilities and other liabilities, net, and $4.8 million to reduce our accrued interconnection costs.

Net cash provided by investing activities was $0.3 million for the six months ended June 30, 2011, which included $13.9 million used for capital expenditures, offset by $9.6 million provided by cash acquired from acquisition of businesses and $4.1 million from sale of marketable securities.

Short- and Long-Term Liquidity Considerations and Risks

As of June 30, 2011, we had $31.5 million of unrestricted cash and cash equivalents. We believe that our existing cash and cash equivalents will be sufficient to fund our debt service requirements, other fixed obligations (such as capital leases), and other cash needs for our operations for at least the next twelve months. The Company and/or its subsidiaries will evaluate and determine on a continuing basis the most efficient use of the Company’s capital and resources, including efforts to invest in the Company’s network, systems and product initiatives and to strengthen its balance sheet through debt repurchase or other means.

As of June 30, 2011, we have $30.3 million in future minimum purchase obligations, $80.4 million in future operating lease payments and $221.2 million of indebtedness. At June 30, 2011, approximately $88 million of unrecognized tax benefits have been recorded as liabilities in accordance with ASC No. 740; however, we are uncertain as to if or when such amounts may be settled, so we have not included these amounts in the table below. Included in the unrecognized tax benefits not included in the table below, we have recorded a liability for potential penalties and interest of $0.2 million for the six months ended June 30, 2011.

Contractual Obligations

The obligations reflected in the table below reflect the contractual payments of principal and interest that existed as of June 30, 2011:


Year Ending December 31,	Capital Leases and Other			13% Senior Secured Notes due 2016			14¹/4% Senior Subordinated Secured Notes due 2013			Purchase Obligations		Operating Leases		Total
2011 (as of June 30, 2011)	$	645		$	8,448		$	6,413		$	17,897	$	9,800	$	43,203
2012		423			16,896			12,825			8,073		17,791		56,008
2013		207			16,896			96,413			3,162		14,475		131,153
2014		31			16,896			—			1,162		10,211		28,300
2015		—			16,896			—			54		8,136		25,086
Thereafter		—			146,420			—			—		20,003		166,423

Total minimum principal & interest payments		1,306			222,452			115,651			30,348		80,416		450,173
Less: Amount representing interest		(54	)		(92,484	)		(25,651	)		—		—		(118,189	)

Total long-term obligations	$	1,252		$	129,968		$	90,000		$	30,348	$	80,416	$	331,984

We have contractual obligations to utilize network facilities from certain carriers with terms greater than one year. We generally do not purchase or commit to purchase quantities in excess of normal usage or amounts that cannot be used within the contract term.

New Accounting Pronouncements

For a discussion of our “New Accounting Pronouncements”, refer to Note 3 to our unaudited condensed consolidated financial statements in Item 1of this Quarterly Report on Form 10-Q.

Special Note Regarding Forward Looking Statements

Certain statements in this Quarterly Report on Form 10-Q and, in particular, our Management’s Discussion and Analysis of Financial Condition and Results of Operations set forth in Part I – Item 2, contain or incorporate a number of “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such statements are based on current expectations, and are not strictly historical statements. In some cases, you can identify forward-looking statements by terminology such as “if,” “may,” “should,” “believe,” “anticipate,” “future,” “forward,” “potential,” “estimate,” “reinstate,” “opportunity,” “goal,” “objective,” “exchange,” “growth,” “outcome,” “could,” “expect,” “intend,” “plan,” “strategy,” “provide,” “commitment,” “result,” “seek,” “pursue,” “ongoing,” “include” or in the negative of such terms or comparable terminology. These forward-looking statements inherently involve certain risks and uncertainties, although they are based on our current plans or assessments which are believed to be reasonable as of the date of this filing. Forward-looking statements in this Quarterly Report on Form 10-Q include statements regarding:

•

our financial condition, Arbinet business integration and synergy efforts, financing requirements, prospects and cash flow;

•

expectations of future growth, creation of shareholder value, revenue, foreign revenue contributions and net income, as well as income from operations, margins, earnings per share, cash flow and cash sufficiency levels, working capital, network development, customer migration and related costs, spending on and success with growth products, including broadband Internet, VoIP, wireless, local, data and hosting services, traffic development, capital expenditures, selling, general and administrative expenses, income tax and withholding tax expense, fixed asset and goodwill impairment charges, service introductions, cash requirements and potential asset sales;

•

increased competitive pressures, declining usage patterns, and our growth products, bundled service offerings, the pace and cost of customer migration onto our networks, the effectiveness and profitability of the growth products;

•

financing, refinancing, debt extension, de-leveraging, restructuring, exchange or tender plans or initiatives, and potential dilution of existing equity holders from such initiatives;

•

liquidity and debt service forecast;

•

assumptions regarding currency exchange rates;

•

timing, extent and effectiveness of cost reduction initiatives and management’s ability to moderate or control discretionary spending;

•

management’s plans, goals, expectations, guidance, objectives, strategies, and timing for future operations, acquisitions, synergies, asset dispositions, product plans, performance and results;

•

management’s assessment of market factors and competitive developments, including pricing actions and regulatory rulings; and

•

the ability to generate net cash proceeds from the disposition of selective assets without material impairment to profitability.

Any or all of our forward-looking statements in this Quarterly Report on Form 10-Q may turn out to be wrong. They can be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties. Many factors mentioned in our discussion in this Quarterly Report on Form 10-Q will be important in determining future results. Consequently, no forward-looking statement can be guaranteed. Actual future results may vary materially from expected results. We also provide a cautionary discussion of risks and uncertainties under “Risk Factors” in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2010, which are updated and supplemented by “Part II—Item 1A—Risk Factors” of our Quarterly Reports on Form 10-Q. These are factors that we think could cause our actual results to differ materially from expected results. Other factors besides those listed could also adversely affect us. In addition, the forward-looking statements contained herein represent our estimate only as of the date of this filing and should not be relied upon as representing our estimate as of any subsequent date. While we may elect to update these forward-looking statements at some point in the future, we specifically disclaim any obligation to do so to reflect actual results, changes in assumptions or changes in other factors affecting such forward-looking statements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our primary market risk exposures relate to changes in foreign currency exchange rates, valuations of derivatives and changes in interest rates.

Foreign currency exchange rates — Foreign currency can have a major impact on our financial results. As of June 30, 2011, approximately 80% of our net revenue is derived from sales and operations outside the United States. The reporting currency for our consolidated financial statements is the USD. The local currency of each country is the functional currency for each of our respective entities operating in that country. In the future, we expect to continue to derive the majority of our net revenue and incur a significant portion of our operating costs outside the U.S., and therefore changes in exchange rates have had and may continue to have a significant, and potentially adverse, effect on our results of operations. Our primary risk of loss regarding foreign currency exchange rate risk is caused primarily by fluctuations in the following exchange rates: USD/CAD and USD/AUD. Due to the large percentage of our revenue derived outside of the U.S., changes in the USD relative to one or more of the foregoing currencies could have an adverse impact on our future results of operations. We have agreements with certain subsidiaries for repayment of a portion of the investments and advances made to these subsidiaries. As we anticipate repayment in the foreseeable future, we recognize the unrealized gains and losses in foreign currency transaction gain (loss) on the consolidated statements of operations. We historically have not engaged in hedging transactions.

We are exposed to financial statement gains and losses as a result of translating the operating results and financial position of our international subsidiaries. We translate the local currency statements of operations of our foreign subsidiaries into USD using the average exchange rate during the reporting period. Changes in foreign exchange rates affect the reported profits and losses and cash flows and may distort comparisons from year to year. By way of example, when the USD strengthens compared to the AUD, there could be a negative or positive effect on the reported results for Australia, depending upon whether our Australia unit is operating profitably or at a loss. It takes more profits in AUD to generate the same amount of profits in USD and a greater loss in AUD to generate the same amount of loss in USD. The opposite is also true. For instance, when the USD weakens there is a positive effect on reported profits and a negative effect on reported losses for Australia.

In the six months ended June 30, 2011, as compared to the six months ended June 30, 2010, the USD was weaker on average as compared to the CAD and AUD. As a result, the revenue of our subsidiaries whose local currency is CAD and AUD increased (decreased) 2.1% and (8.5)%, respectively, in their local currencies compared to the six months ended June 30, 2010, and increased 8.1% and 5.8%, respectively, in USD.

Valuation of derivatives — We issued Contingent Value Rights (CVRs) to certain shareholders pursuant to the terms of the Reorganization Plan. Upon issuance, we estimated the fair value of the CVRs using a Black-Scholes pricing model and consequently recorded a liability of $2.6 million as part of fresh-start accounting. We adjust the estimated fair value of our CVRs quarterly. Our estimates of fair value of the CVRs are correlated to and reflective of our common stock price trends. In general, as the value of the our common stock increases, the estimated fair value of the CVRs also increases and as a result we recognize a change in value of the CVRs as loss from contingent valuation rights valuation, conversely and also in general, as the value of our common stock decreases, the estimated fair value of the CVRs also decreases and as a result we recognize a change in value of the CVRs as gain from contingent rights valuation. Because the value of our common stock fluctuates, the gain or loss recognized in our financial statements may vary from quarter to quarter.

Interest rates — Our 13% Senior Secured Notes and 14¹/4% Senior Subordinated Secured Notes are at a fixed interest rate of 13% and 14¹/4%, respectively. Subsequent to June 30, 2011, we refinanced our debt with 10% Senior Secured Notes at a fixed interest rate of 10%.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures.

Our management, with the participation of our Chief Executive Officer, Chief Financial Officer, and Principal Accounting Officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on this evaluation, and as a result of the material weakness described in the Company’s 2010 Annual Report on Form 10-K, our principal executive officer and our acting principal financial officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were not effective. Disclosure controls and procedures mean our controls and other procedures that are designed to ensure that information required to be disclosed by us in our reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in our reports that we file or submit under the Securities Exchange Act of 1934 is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control.

There were no changes in our internal control over financial reporting that occurred during the quarter ended June 30, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. As a result of the Company’s determination that the controls in place over accounting for income taxes did not operate effectively as of December 31, 2010, we engaged our former Corporate Tax Director as a consultant to coordinate and work with our new Corporate Tax Director to fully document tax processes and controls and to perform a complete knowledge transfer of the existing procedures. We have also hired third party tax consultants to evaluate, document and make recommendations to improve the current tax reporting process and documentation of tax positions. Management believes that once controls have been fully documented and the knowledge transfer has been successfully completed, our new Corporate Tax Director will be able to take on an effective supervisory role and will be well positioned to ensure the effective enhancement and implementation of our tax controls. Notwithstanding the existence of a material weakness in our internal controls over accounting for income taxes, we believe, to the best of our knowledge, our previously filed financial statements (as amended) fairly present, in all material respects, our financial condition and results of operations in conformity with U.S GAAP.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The Company and its subsidiaries are subject to claims and legal proceedings that arise in the ordinary course of its business. Each of these matters is inherently uncertain, and there can be no guarantee that the outcome of any such matter will be decided favorably to the Company or its subsidiaries or that the resolution of any such matter will not have a material adverse effect upon the Company’s business, consolidated financial position, results of operations or cash flow. The Company does not believe that any of these pending claims and legal proceedings will have a material adverse effect on its business, consolidated financial position, resulted of operations or cash flow.

ITEM 1A. RISK FACTORS

There have been no material changes to the risk factors included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010, except as set forth in our Quarterly Report on Form 10-Q for the period March 31, 2011.

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 (see index)

SIGNATURES

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


	PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED

Date: August 15, 2011	By:	/s/ Kenneth D. Schwarz
		Kenneth D. Schwarz
		Chief Financial Officer
		(Principal Financial Officer)

EXHIBIT INDEX


Exhibit Number		Description

10.1		Support Agreement dated as of May 13, 2011 (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the SEC on May 17, 2011).

10.2		Offer letter between the Company and Kenneth D. Schwarz dated June 17, 2011 (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on June 23, 2011).

10.3*		Form of Indemnification Agreement between the Company and its Directors and Executive Officers.

31*		Certifications.

32**		Certifications.

101***		The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011, formatted in XBRL (eXtensible Business Reporting Language); (i) Unaudited Condensed Consolidated Balance Sheets at June 30, 2011 and December 31, 2010, (ii) Unaudited Condensed Consolidated Statements of Operations for the three months ended June 30, 2011 and 2010 and for the six months ended June 30, 2011 and 2010, (iii) Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss) for the three months ended June 30, 2011 and 2010 and for the six months ended June 30, 2011 and 2010, (iv) Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2011 and 2010, and (v) Notes to Unaudited Condensed Consolidated Financial Statements.

*	Filed herewith

These certification are being “furnished” and will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act (15 U.S.C. 78r) and will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that the registrant specifically incorporates it by reference.

***

Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

Exhibit 10.3

Exhibit 10.3

INDEMNIFICATION AGREEMENT

AGREEMENT, dated as of , 2011, by and between Primus Telecommunications Group, Incorporated, a Delaware corporation (the “Company”), and (the “Indemnitee”).

WHEREAS, it is essential to the Company to retain and attract as directors and officers the most capable persons available;

WHEREAS, the Indemnitee is a director and/or officer of the Company;

WHEREAS, the Company and the Indemnitee recognize the increased risk of litigation and other claims being asserted against directors and officers of companies in today’s environment;

WHEREAS, the Company’s Second Amended and Restated Certificate of Incorporation (“Certificate of Incorporation”) and Amended and Restated By-Laws (“By-Laws”) require the Company to indemnify and advance expenses to its directors and officers to the extent provided therein, and the Indemnitee serves as a director and/or officer of the Company, in part, in reliance on such provisions in the Company’s Certificate of Incorporation and By-Laws;

WHEREAS, the Company has determined that its inability to retain and attract as directors and officers the most capable persons would be detrimental to the interests of the Company, and that Company therefore should seek to assure such persons that indemnification and insurance coverage will be available in the future; and

WHEREAS, in recognition of the Indemnitee’s need for substantial protection against personal liability in order to enhance the Indemnitee’s service to the Company in an effective manner and the Indemnitee’s reliance on the Company’s Certificate of Incorporation and By-Laws, and in part to provide the Indemnitee with specific contractual assurance that the protection promised by the Company’s Certificate of Incorporation and By-Laws will be available to the Indemnitee (regardless of, among other things, any amendment to or revocation of the applicable provisions of the Company’s Certificate of Incorporation and By-Laws or any change in the composition of the governing bodies of the Company or any acquisition transaction relating to the Company), the Company wishes to provide in this Agreement for the indemnification of and the advancing of expenses to the Indemnitee to the fullest extent (whether partial or complete) permitted by law and as set forth in this Agreement, and, to the extent insurance is maintained, for the continued coverage of the Indemnitee under the directors’ and officers’ liability insurance policy of the Company.

NOW, THEREFORE, in consideration of the premises and of the Indemnitee serving the Company directly or, on its behalf or at its request, as an officer, director, manager, member, partner, tax matters partner, fiduciary or trustee of, or in any other capacity with, another Person (as defined below) or any employee benefit plan, and intending to be legally bound hereby, the parties hereto agree as follows:

1. Certain Definitions. In addition to terms defined elsewhere herein, the following terms have the following meanings when used in this Agreement:

(a)

Agreement: shall mean this Indemnification Agreement, as amended from time to time hereafter.

(b)

Board of Directors: shall mean the Board of Directors of the Company.

(c)

Claim: means any threatened, asserted, pending or completed civil, criminal, administrative, investigative or other action, suit or proceeding of any kind whatsoever, including any arbitration or other alternative dispute resolution mechanism, or any appeal of any kind thereof, or any inquiry or investigation, whether instituted by the Company, any governmental agency or any other party, that the Indemnitee in good faith believes might lead to the institution of any such action, suit or proceeding, whether civil, criminal, administrative, investigative or other, including any arbitration or other alternative dispute resolution mechanism.

(d)

Indemnifiable Expenses: means (i) all expenses and liabilities, including judgments, fines, penalties, interest, amounts paid in settlement with the approval of the Company, and counsel fees and disbursements (including, without limitation, experts’ fees, court costs, retainers, transcript fees, duplicating, printing and binding costs, as well as telecommunications, postage and courier charges) paid or incurred in connection with investigating, defending, being a witness in or participating in (including on appeal), or preparing to investigate, defend, be a witness in or participate in, any Claim by reason of the fact that Indemnitee is or was or has agreed to serve as a director, officer, employee or agent of the Company, or while serving as a director or officer of the Company, is or was serving or has agreed to serve on behalf of or at the request of the Company as a director, officer, employee or agent (which, for purposes hereof, shall include a trustee, fiduciary, partner or manager or similar capacity) of another corporation, limited liability company, partnership, joint venture, trust, employee benefit plan or other enterprise, or by reason of any action alleged to have been taken or omitted in any such capacity, whether occurring before, on or after the date of this Agreement (any such event, an “Indemnifiable Event”), (ii) any liability pursuant to a loan guaranty or otherwise, for any indebtedness of the Company or any subsidiary of the Company, including, without limitation, any indebtedness which the Company or any subsidiary of the

Company has assumed or taken subject to, and (iii) any liabilities which an Indemnitee incurs as a result of acting on behalf of the Company (whether as a fiduciary or otherwise) in connection with the operation, administration or maintenance of an employee benefit plan or any related trust or funding mechanism (whether such liabilities are in the form of excise taxes assessed by the United States Internal Revenue Service, penalties assessed by the Department of Labor, restitutions to such a plan or trust or other funding mechanism or to a participant or beneficiary of such plan, trust or other funding mechanism, or otherwise).

(e)

Indemnitee-Related Entities: means any corporation, limited liability company, partnership, joint venture, trust, employee benefit plan or other enterprise (other than the Company or any other corporation, limited liability company, partnership, joint venture, trust, employee benefit plan or other enterprise Indemnitee has agreed, on behalf of the Company or at the Company’s request, to serve as a director, officer, employee or agent and which service is covered by the indemnity described in this Agreement) from whom an Indemnitee may be entitled to indemnification or advancement of expenses with respect to which, in whole or in part, the Company may also have an indemnification or advancement obligation (other than as a result of obligations under an insurance policy).

(f)

Jointly Indemnifiable Claim: means any Claim for which the Indemnitee shall be entitled to indemnification from both an Indemnitee-Related Entity and the Company pursuant to applicable law, any indemnification agreement or the certificate of incorporation, by-laws, partnership agreement, operating agreement, certificate of formation, certificate of limited partnership or comparable organizational documents of the Company and an Indemnitee-Related Entity.

(g)

Person: means any individual, corporation, firm, partnership, joint venture, limited liability company, estate, trust, business association, organization, governmental entity or other entity.

2. Basic Indemnification Arrangement; Advancement of Expenses.

(a) In the event that the Indemnitee was, is or becomes subject to, a party to or witness or other participant in, or is threatened to be made subject to, a party to or witness or other participant in, a Claim by reason of (or arising in part out of) an Indemnifiable Event, the Company shall indemnify the Indemnitee, or cause such Indemnitee to be indemnified, to the fullest extent permitted by Delaware law in effect on the date hereof and as amended from time to time; provided, however, that no change in Delaware law shall have the effect of reducing the benefits available to the Indemnitee

hereunder based on Delaware law as in effect on the date hereof or as such benefits may improve as a result of amendments after the date hereof. The rights of the Indemnitee provided in this Section 2 shall include, without limitation, the rights set forth in the other sections of this Agreement. Payments of Indemnifiable Expenses shall be made as soon as practicable but in any event no later than twenty (20) days after written demand is presented to the Company, against any and all Indemnifiable Expenses.

(b) If so requested by the Indemnitee, the Company shall advance, or cause to be advanced (within two business days of such request), any and all Indemnifiable Expenses incurred by the Indemnitee (an “Expense Advance”). The Company shall, in accordance with such request (but without duplication), either (i) pay, or cause to be paid, such Indemnifiable Expenses on behalf of the Indemnitee, or (ii) reimburse, or cause the reimbursement of, the Indemnitee for such Indemnifiable Expenses. The Indemnitee’s right to an Expense Advance is absolute and shall not be subject to any condition that the Board of Directors shall not have determined that the Indemnitee is not entitled to be indemnified under applicable law. However, the obligation of the Company to make an Expense Advance pursuant to this Section 2(b) shall be subject to the condition that, if, when and to the extent that a final judicial determination is made (as to which all rights of appeal therefrom have been exhausted or lapsed) that the Indemnitee is not entitled to be so indemnified under applicable law, the Company shall be entitled to be reimbursed by the Indemnitee (who hereby agrees to reimburse the Company) for all such amounts theretofore paid (it being understood and agreed that the foregoing agreement by the Indemnitee shall be deemed to satisfy any requirement that the Indemnitee provide the Company with an undertaking to repay any Expense Advance if it is ultimately determined that the Indemnitee is not entitled to indemnification under applicable law). The Indemnitee’s undertaking to repay such Expense Advances shall be unsecured and interest-free.

(c) Notwithstanding anything in this Agreement to the contrary, the Indemnitee shall not be entitled to indemnification or advancement of Indemnifiable Expenses pursuant to this Agreement in connection with any Claim initiated by the Indemnitee unless (i) the Company has joined in or the Board of Directors of the Company has authorized or consented to the initiation of such Claim or (ii) the Claim is one to enforce the Indemnitee’s rights under this Agreement (including an action pursued by the Indemnitee to secure a determination that the Indemnitee should be indemnified under applicable law).

(d) The indemnification obligations of the Company under Section 2(a) shall be subject to the condition that the Board of Directors shall not have determined (by majority vote of directors who are not parties to the applicable Claim) that the indemnification of the Indemnitee is not proper in the circumstances because the Indemnitee is not entitled to be indemnified under applicable law. If the Board of Directors determines that the Indemnitee is not entitled to be indemnified in whole or in part under applicable law, the Indemnitee shall have the right to commence litigation in any court in the States of New York or Delaware having subject matter jurisdiction thereof and in which venue is proper, seeking an initial determination by the court or challenging any such determination by the Board of Directors or any aspect thereof,

including the legal or factual bases therefor, and the Company hereby consents to service of process and to appear in any such proceeding. If the Indemnitee commences legal proceedings in a court of competent jurisdiction to secure a determination that the Indemnitee should be indemnified under applicable law, any determination made by the Board of Directors that the Indemnitee is not entitled to be indemnified under applicable law shall not be binding, the Indemnitee shall continue to be entitled to receive Expense Advances, and the Indemnitee shall not be required to reimburse the Company for any Expense Advance, until a final judicial determination is made (as to which all rights of appeal therefrom have been exhausted or lapsed) that the Indemnitee is not entitled to be so indemnified under applicable law. Any determination by the Board of Directors otherwise shall be conclusive and binding on the Company and the Indemnitee.

(e) To the extent that the Indemnitee has been successful on the merits or otherwise in defense of any or all Claims relating in whole or in part to an Indemnifiable Event or in defense of any issue or matter therein, including dismissal without prejudice, the Indemnitee shall be indemnified against all Indemnifiable Expenses actually and reasonably incurred in connection therewith, notwithstanding an earlier determination by the Board of Directors that the Indemnitee is not entitled to indemnification under applicable law.

3. Indemnification for Additional Expenses. The Company shall indemnify, or cause the indemnification of, the Indemnitee against any and all Indemnifiable Expenses and, if requested by the Indemnitee, shall advance such Indemnifiable Expenses to the Indemnitee subject to and in accordance with Section 2(b) and (d), which are incurred by the Indemnitee in connection with any action brought by the Indemnitee, the Company or any other Person with respect to the Indemnitee’s right to: (i) indemnification or an Expense Advance by the Company under this Agreement or any provision of the Company’s Certificate of Incorporation and/or By-Laws and/or (ii) recovery under any directors’ and officers’ liability insurance policies maintained by the Company, regardless of whether the Indemnitee ultimately is determined to be entitled to such indemnification, Expense Advance or insurance recovery, as the case may be; provided that the Indemnitee shall be required to reimburse such Indemnifiable Expenses in the event that a final judicial determination is made (as to which all rights of appeal therefrom have been exhausted or lapsed) that such action brought by the Indemnitee, or the defense by the Indemnitee of an action brought by the Company or any other Person, as applicable, was frivolous or in bad faith.

4. Partial Indemnity, Etc. If the Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of the Indemnifiable Expenses in respect of a Claim but not, however, for all of the total amount thereof, the Company shall nevertheless indemnify the Indemnitee for the portion thereof to which the Indemnitee is entitled.

5. Burden of Proof. In connection with any determination by the Board of Directors, any court or otherwise as to whether the Indemnitee is entitled to be indemnified hereunder, the Board of Directors or court shall presume that the Indemnitee has satisfied the applicable standard of conduct and is entitled to indemnification, and the burden of proof shall be on the Company or its representative to establish, by clear and convincing evidence, that the Indemnitee is not so entitled.

6. Reliance as Safe Harbor. The Indemnitee shall be entitled to indemnification for any action or omission to act undertaken (a) in good faith reliance upon the records of the Company, including its financial statements, or upon information, opinions, reports or statements furnished to the Indemnitee by the officers or employees of the Company or any of its subsidiaries in the course of their duties, or by committees of the Board of Directors, or by any other Person as to matters the Indemnitee reasonably believes are within such other Person’s professional or expert competence, or (b) on behalf of the Company in furtherance of the interests of the Company in good faith in reliance upon, and in accordance with, the advice of legal counsel or accountants, provided such legal counsel or accountants were selected with reasonable care by or on behalf of the Company. In addition, the knowledge and/or actions, or failures to act, of any director, officer, agent or employee of the Company shall not be imputed to the Indemnitee for purposes of determining the right to indemnity hereunder.

7. No Other Presumptions. For purposes of this Agreement, the termination of any claim, action, suit or proceeding, by judgment, order, settlement (whether with or without court approval) or conviction, or upon a plea of nolo contendere or its equivalent, shall not create a presumption that the Indemnitee did not meet any particular standard of conduct or have any particular belief or that a court has determined that indemnification is not permitted by applicable law. In addition, neither the failure of the Board of Directors to have made a determination as to whether the Indemnitee has met any particular standard of conduct or had any particular belief, nor an actual determination by the Board of Directors that the Indemnitee has not met such standard of conduct or did not have such belief, prior to the commencement of legal proceedings by the Indemnitee to secure a judicial determination that the Indemnitee should be indemnified under applicable law shall be a defense to the Indemnitee’s claim or create a presumption that the Indemnitee has not met any particular standard of conduct or did not have any particular belief.

8. Nonexclusivity, Etc. The rights of the Indemnitee hereunder shall be in addition to any other rights the Indemnitee may have under the Company’s Certificate of Incorporation and By-Laws, the laws of the State of Delaware, or otherwise. To the extent that a change in Delaware law or the interpretation thereof (whether by statute or judicial decision) permits greater indemnification by agreement than would be afforded currently under the Company’s Certificate of Incorporation and By-Laws, it is the intent of the parties hereto that the Indemnitee shall enjoy by this Agreement the greater benefits so afforded by such change. To the extent that there is a conflict or inconsistency between the terms of this Agreement and the Company’s Certificate of Incorporation or By-Laws, it is the intent of the parties hereto that the Indemnitee shall enjoy the greater benefits regardless of whether contained herein, in the Company’s Certificate of Incorporation or By-Laws. No amendment or alteration of the Company’s Certificate of Incorporation or By-Laws or any other agreement shall adversely affect the rights provided to Indemnitee under this Agreement.

9. Liability Insurance. The Company shall use its reasonable best efforts to purchase and maintain a policy or policies of insurance with reputable insurance companies with A.M. Best ratings of “A” or better, providing Indemnitee with coverage for any liability asserted against, or incurred by, Indemnitee or on Indemnitee’s behalf by reason of the fact that Indemnitee is or was or has agreed to serve as a director, officer, employee or agent of the Company, or while serving as a director or officer of the Company, is or was serving or has agreed to serve on behalf of or at the request of the Company as a director, officer, employee or agent (which, for purposes hereof, shall include a trustee, fiduciary, partner or manager or similar capacity) of another corporation, limited liability company, partnership, joint venture, trust, employee benefit plan or other enterprise, or arising out of Indemnitee’s status as such, whether or not the Company would have the power to indemnify Indemnitee against such liability under the provisions of this Agreement. Such insurance policies shall have coverage terms and policy limits at least as favorable to Indemnitee as the insurance coverage provided to any other director or officer of the Company. If the Company has such insurance in effect at the time the Company receives from Indemnitee any notice of the commencement of an action, suit or proceeding, the Company shall give prompt notice of the commencement of such action, suit or proceeding to the insurers in accordance with the procedures set forth in the policy. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of Indemnitee, all amounts payable as a result of such proceeding in accordance with the terms of such policy.

10. Period of Limitations. No legal action shall be brought and no cause of action shall be asserted by or in the right of the Company against the Indemnitee, the Indemnitee’s spouse, heirs, executors or personal or legal representatives after the expiration of two years from the date of accrual of such cause of action, and any claim or cause of action of the Company shall be extinguished and deemed released unless asserted by the timely filing of a legal action within such two-year period; provided, however, that if any shorter period of limitations is otherwise applicable to any such cause of action such shorter period shall govern.

11. Amendments, Etc. No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar) nor shall such waiver constitute a continuing waiver. In the event the Company or any of its subsidiaries enters into an indemnification agreement with another director, officer, agent, fiduciary or manager of the Company or any of its subsidiaries containing a term or terms more favorable to the indemnitee than the terms contained herein (as determined by the Indemnitee), the Indemnitee shall be afforded the benefit of such more favorable term or terms and such more favorable term or terms shall be deemed incorporated by reference herein as if set forth in full herein. As promptly as practicable following the execution by the Company or the relevant subsidiary of each indemnity agreement with any such other director, officer or manager (i) the Company shall send a copy of the indemnity agreement to the Indemnitee, and (ii) if requested by the Indemnitee, the Company shall prepare, execute and deliver to the Indemnitee an amendment to this Agreement containing such more favorable term or terms.

12. Subrogation. Subject to Section 13, in the event of payment by the Company under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of the Indemnitee with respect to any insurance policy. Indemnitee shall execute all papers reasonably required and shall do everything that may be reasonably necessary to secure such rights, including the execution of such documents necessary to enable the Company effectively to bring suit to enforce such rights. The Company shall pay or reimburse all expenses actually and reasonably incurred by Indemnitee in connection with such subrogation.

13. Jointly Indemnifiable Claims. Given that certain Jointly Indemnifiable Claims may arise due to the relationship between the Indemnitee-Related Entities and the Company and the service of the Indemnitee as a director and/or officer of the Company at the request of the Indemnitee-Related Entities, the Company acknowledges and agrees that the Company shall be fully and primarily responsible for the payment to the Indemnitee in respect of indemnification and advancement of expenses in connection with any such Jointly Indemnifiable Claim, pursuant to and in accordance with the terms of this Agreement, irrespective of any right of recovery the Indemnitee may have from the Indemnitee-Related Entities. Under no circumstance shall the Company be entitled to any right of subrogation or contribution by the Indemnitee-Related Entities and no right of recovery the Indemnitee may have from the Indemnitee-Related Entities shall reduce or otherwise alter the rights of the Indemnitee or the obligations of the Company hereunder. In the event that any of the Indemnitee-Related Entities shall make any payment to the Indemnitee in respect of indemnification or advancement of expenses with respect to any Jointly Indemnifiable Claim, the Indemnitee-Related Entity making such payment shall be subrogated to the extent of such payment to all of the rights of recovery of the Indemnitee against the Company, and the Indemnitee shall execute all papers reasonably required and shall do all things that may be reasonably necessary to secure such rights, including the execution of such documents as may be necessary to enable the Indemnitee-Related Entities effectively to bring suit to enforce such rights. Each of the Indemnitee-Related Entities shall be third-party beneficiaries with respect to this Paragraph 13, entitled to enforce this Paragraph 13 against the Company as though each such Indemnitee-Related Entity were a party to this Agreement.

14. No Duplication of Payments. Subject to Paragraph 13 hereof, the Company shall not be liable under this Agreement to make any payment in connection with any Claim made against the Indemnitee to the extent the Indemnitee has otherwise actually received payment (under any insurance policy, any provision of the Company’s Certificate of Incorporation and By-Laws, or otherwise) of the amounts otherwise indemnifiable hereunder.

15. Defense of Claims. The Company shall be entitled to participate in the defense of any Claim relating to an Indemnifiable Event or to assume the defense thereof, with counsel reasonably satisfactory to the Indemnitee; provided that if the Indemnitee believes, after consultation with counsel selected by the Indemnitee, that (i) the use of counsel chosen by the Company to represent the Indemnitee would present such counsel with an actual or potential conflict of interest, (ii) the named parties in any such Claim (including any impleaded parties) include the Company or any subsidiary of the

Company and the Indemnitee and the Indemnitee concludes that there may be one or more legal defenses available to him that are different from or in addition to those available to the Company or any subsidiary of the Company or (iii) any such representation by such counsel would be precluded under the applicable standards of professional conduct then prevailing, then the Indemnitee shall be entitled to retain separate counsel (but not more than one law firm plus, if applicable, local counsel in respect of any particular Claim) at the Company’s expense. The Company shall not be liable to the Indemnitee under this Agreement for any amounts paid in settlement of any Claim relating to an Indemnifiable Event effected without the Company’s prior written consent. The Company shall not, without the prior written consent of the Indemnitee, effect any settlement of any Claim relating to an Indemnifiable Event which the Indemnitee is or could have been a party unless such settlement solely involves the payment of money and includes a complete and unconditional release of the Indemnitee from all liability on all claims that are the subject matter of such Claim. Neither the Company nor the Indemnitee shall unreasonably withhold its or his consent to any proposed settlement; provided that the Indemnitee may withhold consent to any settlement that does not provide a complete and unconditional release of the Indemnitee. To the fullest extent permitted by Delaware law, the Company’s assumption of the defense of a Claim pursuant to this Section 15 will constitute an irrevocable acknowledgement by the Company that any Indemnifiable Expenses incurred by or for the account of Indemnitee incurred in connection therewith are indemnifiable by the Company under Section 2 of this Agreement.

16. Binding Effect, Etc. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors, (including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business and/or assets of the Company), assigns, spouses, heirs, executors and personal and legal representatives. The Company shall require and cause any successor(s) (whether directly or indirectly, whether in one or a series of transactions, and whether by purchase, merger, consolidation, or otherwise) to all or a significant portion of the business and/or assets of the Company and/or its subsidiaries (on a consolidated basis), by written agreement in form and substance satisfactory to the Indemnitee and his or her counsel, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place; provided that no such assumption shall relieve the Company from its obligations hereunder and any obligations shall thereafter be joint and several. This Agreement shall continue in effect regardless of whether the Indemnitee continues to serve as a director or officer of the Company and/or on behalf of or at the request of the Company as a director, officer, employee or agent (which, for purposes hereof, shall include a trustee, fiduciary, partner or manager or similar capacity) of another corporation, limited liability company, partnership, joint venture, trust, employee benefit plan or other enterprise. Neither this Agreement nor any duties or responsibilities pursuant hereto may be assigned by the Company to any other person or entity without the prior written consent of the Indemnitee.

17. Security. To the extent requested by the Indemnitee, the Company shall at any time and from time to time provide security to the Indemnitee for the obligations of the Company hereunder through an irrevocable bank line of credit, funded trust or other collateral or by other means. Any such security, once provided to the Indemnitee, may not be revoked or released without the prior written consent of such Indemnitee.

18. Severability. If any provision or provisions of this Agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever, (a) the validity, legality and enforceability of the remaining provisions of this Agreement (including, without limitation, all portions of any paragraph of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that are not themselves invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby and (b) to the fullest extent possible, the provisions of this Agreement (including, without limitation, all portions of any paragraph of this Agreement containing any such provision held to be invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable and to give effect to the terms of this Agreement.

19. Specific Performance, Etc. The parties recognize that if any provision of this Agreement is violated by the parties hereto, the Indemnitee may be without an adequate remedy at law. Accordingly, in the event of any such violation, the Indemnitee shall be entitled, if the Indemnitee so elects, to institute proceedings, either in law or at equity, to obtain damages, to enforce specific performance, to enjoin such violation, or to obtain any relief or any combination of the foregoing as the Indemnitee may elect to pursue.

20. Notices. All notices, requests, consents and other communications hereunder to any party shall be deemed to be sufficient if contained in a written document delivered in person or sent by telecopy, nationally recognized overnight courier or personal delivery, addressed to such party at the address set forth below or such other address as may hereafter be designated on the signature pages of this Agreement or in writing by such party to the other parties:

(a) If to the Company, to:

Primus Telecommunications Group, Incorporated

7901 Jones Branch Drive, Suite 900

McLean, Virginia 22102

Fax: (703) 650-4295

Attn: General Counsel

with a copy (which shall not constitute notice) to:

Skadden, Arps, Slate, Meagher & Flom LLP

300 South Grand Ave., Suite 3400

Los Angeles, California 90071

Fax: (213) 687-5600

Attn: Casey T. Fleck

(b) If to the Indemnitee, to the address set forth on Annex A hereto.

All such notices, requests, consents and other communications shall be deemed to have been given or made if and when received (including by overnight courier) by the parties at the above addresses or sent by electronic transmission, with confirmation received, to the telecopy numbers specified above (or at such other address or telecopy number for a party as shall be specified by like notice). Any notice delivered by any party hereto to any other party hereto shall also be delivered to each other party hereto simultaneously with delivery to the first party receiving such notice.

21. Counterparts. This Agreement may be executed in counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute one and the same agreement. Only one such counterpart signed by the party against whom enforceability is sought needs to be produced to evidence the existence of this Agreement.

22. Headings. The headings of the sections and paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction or interpretation thereof.

23. Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Delaware applicable to contracts made and to be performed in such state without giving effect to the principles of conflicts of laws.

[SIGNATURE PAGE FOLLOWS]

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.


PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED.

By:
Name:
Title:


[Indemnitee]

Annex A


Name and Business Address









Attn:

Tel:

Fax:

Exhibit 31

Exhibit 31

CERTIFICATIONS

I, Peter D. Aquino, certify that:

I have reviewed this quarterly report on Form 10-Q of Primus Telecommunications Group, Incorporated;

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15e and 15d-15e) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15f and 15d-15f) for the registrant and have:

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusion about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.


Dated: August 15, 2011	By:	/s/ Peter D. Aquino
		Name: Peter D. Aquino
		Title: Chairman, President, and Chief Executive Officer
		(Principal Executive Officer)

CERTIFICATIONS

I, Kenneth D. Schwarz, certify that:

I have reviewed this quarterly report on Form 10-Q of Primus Telecommunications Group, Incorporated;

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.


Dated: August 15, 2011	By:	/s/ Kenneth D. Schwarz
		Name: Kenneth D. Schwarz
		Title: Chief Financial Officer
		(Principal Financial Officer)

Exhibit 32

Exhibit 32

CERTIFICATION

Pursuant to Section 906 of the Public Company Accounting Reform and Investor Protection Act of 2002 (18 U.S.C. §1350, as adopted), Peter D. Aquino, the Chief Executive Officer of Primus Telecommunications Group, Incorporated (the “Company”), and Kenneth D. Schwarz, the Chief Financial Officer of the Company, each hereby certifies that, to the best of his knowledge:

The Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2011, to which this Certification is attached as Exhibit 32 (the “Periodic Report”), fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; and

The information contained in the Periodic Report fairly presents, in all material respects, the financial condition of the Company at the end of the period covered by the Periodic Report and results of operations of the Company for the period covered by the Periodic Report.

Dated: August 15, 2011


/s/ Peter D. Aquino		/s/ Kenneth D. Schwarz
Peter D. Aquino		Kenneth D. Schwarz
Chairman, President, and Chief Executive Officer		Chief Financial Officer
(Principal Executive Officer)		(Principal Financial Officer)