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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ___________
Commission File Number 001-13875
WORLDPAGES.COM, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 76-0549396
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
390 S. WOODS MILL RD, SUITE 260 63017
ST. LOUIS, MISSOURI (Zip Code)
(Address of principal executive offices)
(314) 205-8668
(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 twelve months, and (2) has been subject to such filing
requirements for the past 90 days. YES /X/ NO / /
---- ----
As of August 12, 2000, the registrant had 46,780,764 voting shares of common
stock, $.0001 par value, outstanding.
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PART I - FINANCIAL INFORMATION
Item 1. - FINANCIAL STATEMENTS
WORLDPAGES.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
(In thousands, except per share amounts) Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUES $ 43,970 $ 14,481 $ 66,763 $ 33,224
OPERATING COSTS:
Printing, distribution and listings 9,197 5,583 14,389 9,985
Sales and marketing 10,896 3,632 15,794 7,069
General and administrative 15,164 5,161 23,296 11,585
Depreciation and amortization 4,403 1,231 6,441 2,320
-------- -------- -------- --------
Income (loss) from continuing operations 4,310 (1,126) 6,843 2,265
OTHER INCOME (EXPENSE):
Interest expense (1,607) (1,251) (2,498) (2,340)
Other (132) -- (119) 7
-------- -------- -------- --------
Income (loss) from continuing operations
before income taxes and extraordinary item 2,571 (2,377) 4,226 (68)
Income tax expense (benefit) 2,196 (1,127) 3,238 151
-------- -------- -------- --------
Net income (loss) from continuing
operations before extraordinary item 375 (1,250) 988 (219)
Extraordinary item - loss on early retirement
of debt, net of income tax benefit of $1,404 -- -- (2,291) --
Loss from discontinued operations net
of income tax benefit of $4,111 -- -- -- (6,189)
Loss on sale of discontinued operations, net
of income tax benefit of $4,363 -- -- -- (51,800)
-------- -------- -------- --------
Net income (loss) $ 375 $ (1,250) $ (1,303) $(58,208)
======== ======== ======== ========
Basic and diluted earnings (loss) per share from:
Continuing operations $ .01 $ (.06) $ .03 $ (.01)
Early retirement of debt -- -- (.06) --
Discontinued operations -- -- -- (.31)
Sale of discontinued operations -- -- -- (2.61)
-------- -------- -------- --------
Net loss per share $ .01 $ (.06) $ (.03) $ (2.93)
======== ======== ======== ========
Average shares outstanding 46,082 19,859 37,116 19,859
======== ======== ======== ========
</TABLE>
See accompanying notes to consolidate financial statements.
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WORLDPAGES.COM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(In thousands, except share data) (Unaudited)
June 30, Dec. 31,
2000 1999
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 808 $ 1,315
Accounts receivable, net 50,326 14,223
Deferred costs 5,661 4,482
Prepaid expenses and other current assets 1,908 174
-------- --------
Total current assets 58,703 20,194
-------- --------
Property, plant and equipment, net 4,715 1,377
Intangible assets, net 272,117 75,413
Deferred taxes 5,889 6,504
Other assets -- 5,571
-------- --------
Total other assets 282,721 88,865
-------- --------
Total assets $341,424 $109,059
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 19,124 $ 9,447
Short-term debt and current maturities of long-term debt 165 24,000
Other current liabilities 4,444 3,940
-------- --------
Total current liabilities 23,733 37,387
Long-term obligations:
Long-term debt 65,554 --
Deferred tax liabilities 865 --
-------- --------
Total liabilities 90,152 37,387
-------- --------
Commitments and contingencies
Stockholders' equity:
Preferred stock, Series B -- --
Common stock, $.0001 par value: 180,000,000 shares
authorized; 46,724,536 and 20,426,753 outstanding 4 2
Additional paid-in capital 330,339 149,438
Retained earnings (accumulated deficit) (79,071) (77,768)
-------- --------
Total stockholders' equity 251,272 71,672
-------- --------
Total liabilities and stockholders' equity $341,424 $109,059
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
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WORLDPAGES.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-----------------------
(In thousands) 2000 1999
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (1,303) $(58,208)
Adjustments to reconcile net loss to net cash:
Loss on early retirement of debt, net 2,291 --
Loss on sale of discontinued operations, net -- 51,800
Loss from discontinued operations, net -- 6,189
Depreciation and amortization 6,441 2,320
Provision for deferred taxes 3,633 (686)
Changes in operating assets and liabilities:
Decrease (increase) in:
Accounts receivable, net (17,777) (6,347)
Deferred costs 9,206 1,855
Prepaid expenses and other current assets (657) (162)
Other assets (7,866) (2,371)
Increase (decrease) in:
Accounts payable and accrued liabilities 5,658 867
Other current liabilities (9,420) (1,411)
-------- --------
Cash used in continuing operating activities (9,794) (6,154)
Cash used in discontinued operations -- (13,391)
-------- --------
Cash used in operations (9,794) (19,545)
-------- --------
Cash flows from investing activities:
Cash (paid for) from businesses acquired (disposed), net (5,899) 500
Additions to property, plant and equipment, net (95) (3,524)
-------- --------
Cash used in investing activities (5,994) (3,024)
-------- --------
Cash flows from financing activities:
Borrowings of long-term debt 64,597 40,383
Repayment of long-term debt (52,477) (25,118)
Proceeds from stock option exercises 3,161 --
-------- --------
Cash provided by financing activities 15,281 15,265
-------- --------
Net decrease in cash and cash equivalents (507) (7,304)
Cash and cash equivalents-beginning of period 1,315 13,734
-------- --------
Cash and cash equivalents-end of period $ 808 $ 6,430
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
4
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WORLDPAGES.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(Unaudited)
1. INTERIM RESULTS
The financial statements contained herein are unaudited. In the opinion of
management, these financial statements reflect all adjustments, consisting only
of normal recurring adjustments, which are necessary for fair presentation of
the results of the interim periods presented. Reference is made to the footnotes
to the consolidated financial statements contained in the Company's Annual
Report on Form 10-K for the year ended December 31, 1999, and Form 8-K, filed
with the Securities and Exchange Commission.
2. BASIS OF PRESENTATION
WorldPages.com, Inc. ("WorldPages" or the "Company"), a Delaware
corporation, is an independent yellow pages directory publisher in selected
markets in Arizona, California, Oklahoma, Oregon, Texas, Utah and Washington.
WorldPages was formerly incorporated under the name Advanced Communications
Group, Inc. In February 2000, the Company changed its name to WorldPages.com,
Inc. All references to WorldPages or the Company include its operations prior to
the name change.
In April 1999, the Company announced certain strategic acquisitions and its
intent to divest its competitive local exchange carrier operations. The
telecommunications operating subsidiaries were sold in November 1999. Therefore,
the telecommunications operations are presented herein as discontinued
operations.
The actual financial statements included herein relate only to the
operations of the parent company and Great Western Directories, the Company's
yellow pages advertising subsidiary, prior to February 22, 2000, and include the
results of YPtel Corporation, Web YP, Inc., Big Stuff, Inc. and Interactive
Media Services, Inc. (the "Acquisitions" or the "Acquired Companies") only for
the period after the date of their respective acquisition (see Note 4). All
inter-company accounts have been eliminated in consolidation.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INTANGIBLE ASSETS FROM BUSINESS ACQUISITIONS -- Intangible assets resulting
from the cost of businesses acquired exceeding the fair value of net assets
acquired consist principally of the customer lists and goodwill. The value of
customer lists and their estimated useful lives were determined using
independent appraisals. Customer lists and goodwill are amortized on a
straight-line basis over their estimated useful lives ranging from 10 years and
10 to 40 years, respectively. For the six months ended June 30, 2000 and 1999,
amortization expense relating to intangible assets was $5.7 million and $2.2
million, respectively.
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REVENUE RECOGNITION -- Directory revenues are derived from the sale of
advertising space in telephone directories and are recognized on the date that
the directory is published and substantially delivered. If the estimate of total
directory costs exceeds advertising revenues for a specific region's telephone
directory, a provision is made for the entire amount of such estimated loss.
Directory costs are deferred until the date that the directory is published and
substantially delivered. Directory costs include all direct costs related to the
publishing of a region's telephone directory, such as publishing and
distribution expenses and commissions on sales, and other sales expenses.
General and administrative costs are charged to expense as incurred.
Costs incurred with the expansion into new markets include all direct costs
related to the publishing of a first-year telephone directory (prototype
directory). Advertising space in prototype directories is typically provided to
advertisers at no cost; therefore, minimal advertising revenues are generally
derived from prototype directories. Because the future economic benefit of the
direct costs related to prototype directories cannot be determined, such direct
costs are charged to expense as incurred. The Company had no prototype
directories for the period ended June 30, 2000; however one prototype directory
was distributed in May 1999 in Austin, Texas.
Internet revenues are derived from Web site advertising, Internet
infrastructure services and licensing fees. Advertising revenues are derived
from contracts for advertising or sponsorships for a fixed fee or fees from
contracts based on the number of impressions displayed or clicks through
provided. Advertising revenues are recognized as services are rendered.
Licensing revenues are derived from WorldPages licensing its content, including
to its directory, to customers for use on their Web sites. Guaranteed minimum
payments are recognized ratably over the term of the agreements. Revenue earned
above the guaranteed minimum payments is recognized ratably over the remaining
term of the agreement.
The Company's Internet infrastructure services include Web site design,
production, hosting and other Internet services. Revenues from the design and
production of Web sites are recognized when the construction of the customer's
web site is complete. Revenues from Web site hosting are recognized over the
hosting period.
WorldPages routinely trades or barters advertising space on its web site or
its print products in exchange for Internet or traditional media advertising.
The Company recognizes revenues and expenses from trade or barter transactions
at the estimated fair market value of the goods or services received.
Additionally, the Company partners with other companies to represent WorldPages
to sell WorldPages' Internet infrastructure services under revenue sharing
agreements. Under such programs, the Company records only its portion of the
total revenues generated by its partners according to the terms of the agreement
and in accordance with its other revenue recognition policies.
USE OF ESTIMATES -- The preparation of the consolidated financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
6
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4. ACQUISITIONS
On February 23, 2000, WorldPages.com acquired all of the outstanding stock
of YPtel Corporation, Web YP, Inc. and Big Stuff, Inc. for 20,606,363 newly
issued shares of common stock. YPtel Corporation is the parent of Pacific Coast
Publishing, Ltd., a leading independent yellow pages publisher located in
Tacoma, Washington. Web YP maintains and operates the Web site
WWW.WORLDPAGES.COM, an Internet directory. Big Stuff provides graphics and
production services to independent yellow pages publishers. By combining the
yellow pages customers of YPtel Corporation and Great Western with Web YP and
Big Stuff, WorldPages maintains a worldwide Internet directory and produces
print directories in 41 markets in 7 states. The acquisitions are accounted for
using the purchase method of accounting. The aggregate purchase price of $151.2
million has been preliminarily allocated to the estimated fair value of assets
and liabilities acquired, and the excess of $137.2 million has been allocated to
goodwill.
In connection with the acquisitions, Richard O'Neal, WorldPages' chairman
and chief executive officer, and the other 5% note holders, converted their
$15.8 million of notes and accrued interest owed by WorldPages into 2,863,637
shares of WorldPages' common stock in exchange for the indebtedness. The
conversion resulted in a loss of $2.3 million, net of a $1.4 million income tax
benefit, and has been treated as an extraordinary loss on the early retirement
of debt in the accompanying financial statements.
In April 2000, WorldPages acquired all of the outstanding common stock of
Interactive Media Services, Inc., including its operating subsidiary
Choicecontent.com, for 2,083,311 newly issued shares of WorldPages common stock
valued at $16.2 million and $5.0 million in cash. Interactive Media is a
multimedia content provider located in Wichita, Kansas. The purchase price has
been preliminarily allocated to the estimated fair value of assets and
liabilities acquired and the excess of $21.4 million has been allocated to
goodwill.
The following pro forma information presents the results of operations as
if the Acquisitions had occurred as of January 1, 1999. This pro forma
information is based on historical information and does not necessarily reflect
the actual results that would have occurred nor is it necessarily indicative of
the future results of operations.
<TABLE>
<CAPTION>
(In thousands, except per share data) Six Months Ended Year Ended
June 30, 2000 Dec. 31, 1999
------------- -------------
<S> <C> <C>
Total revenues from continuing operations $81,798 $ 88,966
Net income (loss) from continuing operations $ 447 $(14,498)
Income (loss) per share from continuing operations $ .01 $ (.34)
</TABLE>
5. LONG-TERM DEBT
In February 2000, in connection with the closing of its acquisitions of
YPtel Corporation, Big Stuff, Inc. and WebYP, Inc., WorldPages replaced its
prior credit facility with a financing package consisting of $60.0 million of a
senior revolving loan with Bank of America, N.A. and $20.0 million of 5%
convertible debentures issued to institutional investors led by funds managed by
Palladin
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Group, L.P. Approximately $53.0 million of the financing package was used to
refinance existing indebtedness. The additional $27.0 million will be used for
working capital needs and other general corporate purposes. At June 30, 2000,
the Company had $14.5 million available under its senior revolving loan
facility. The senior revolving credit facility bears interest at LIBOR plus a
spread of 1.5% to 3.5% or the prime rate plus a spread of up to 1.25% (9.9% at
June 30, 2000). The facility expires in February 2005 and requires commitment
fees of .5% on the unused portion of the facility.
The convertible debentures, which are due in February 2006, are convertible
into shares of WorldPages'common stock at a current conversion price of $15.63
per share, subject to adjustment at the end of every six-month period during the
first two years of the term of the debentures. The holders of the debentures
also received warrants to purchase 572,350 shares of WorldPages' common stock
at an exercise price of $18.47 per share. The convertible debentures also
provide for options to issue up to an additional $10 million of convertible
debentures under similar terms and conditions.
Item 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The statements contained in this Report that are not historical facts
(including statements as to the Company's plans, beliefs or expectations) are
forward-looking statements within the meaning of the federal securities laws
that involve certain risks and uncertainties. Management wishes to caution the
reader that these forward-looking statements such as the Company's expectations
that it will be able to meet its short-term working capital and capital
requirements from cash provided by operations and its existing credit
facilities, are plans and predictions regarding future events and circumstances.
Actual events or results may differ materially as a result of risks facing the
Company.
RESULTS OF OPERATIONS
GENERAL
Prior to February 2000, the Company's only continuing operations were those
of its yellow pages advertising subsidiary, Great Western Directories.
Consequently, the financial statements included herein relate to the parent
company and Great Western prior to February 23, 2000, and include the results of
YPtel Corporation, Web YP, Inc., Big Stuff, Inc. and Interactive Media Services,
Inc. (the "Acquisitions" or the "Acquired Companies") only for the period after
their respective acquisition. Certain pro forma operating information is
presented for comparative purposes as if the Acquisitions had occurred on
January 1, 1999. The pro forma operating information does not purport to
represent the Company's results of operations that would have actually occurred
if the Acquisitions had in fact occurred on that date. Since the Acquired
Companies were not under common control or management, historical combined
results of operations may not be comparable to, or indicative of, future
performance. The pro forma consolidated results of operations reflect the
historical results of operations of the Acquired Companies and were derived from
the respective Acquired Companies' financial statements.
8
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The interim operating results of WorldPages reflect its historical
seasonality from quarter to quarter and between periods due to the timing of
production and distribution of directories. As a result, the interim results are
not indicative of the results of operations for a full year. WorldPages does not
recognize net revenues with respect to bookings or cash receipts for any given
directory or the costs directly related to sales, production, printing and
distribution of that directory until the month in which it is printed and
distributed. The sizes of directories distributed in each market and the
corresponding revenues recognized vary significantly from quarter to quarter.
Further, the actual production and distribution dates of individual directories
may not be consistent and are subject to change, therefore individual
directories may not be produced during the same month each year, which may
result in significant quarterly fluctuations.
The following table sets forth, for the periods presented, certain results
of operations and other information relating to the Company expressed as a
percentage of revenues:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,(1)
------------------- -------------------
2000 1999(1) 2000(1) 1999(1)
------ ------- ------- -------
<S> <C> <C> <C> <C>
Revenues 100.0% 100.0% 100.0% 100.0%
Cost of services:
Printing, distribution and publishing 20.9 38.6 21.6 30.0
Sales and marketing 24.8 25.1 23.6 21.3
General and administrative 34.5 35.6 34.9 34.9
Depreciation and amortization 10.0 8.5 9.6 7.0
----- ----- ----- -----
Income (loss) from continuing operations 9.8% (7.8)% 10.3% 6.8%
===== ===== ===== =====
</TABLE>
(1) The Company completed the acquisitions of YPtel Corporation, WebYP, Inc.
and Big Stuff, Inc. on February 23, 2000, and the acquisition of
Interactive Media Services, Inc. on April 6, 2000. Actual results for 2000
include the operations of the parent company and its yellow pages
subsidiary, Great Western Directories, for the entire six-month period and
the results of these acquired companies only for the period after their
respective acquisition dates.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2000, COMPARED TO THE
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1999
Total revenues were $44.0 million in the second quarter of 2000 compared to
total revenues of $14.5 million in the second quarter of 1999, an increase of
204%. The Company's print yellow pages operations account for $41.2 million, or
93.8%, of total revenues in the three months ended June 30, 2000, compared to
$14.5 million, or 100% of total revenues in the comparable period of 1999. The
Company's Internet operations account for the remaining revenues in 2000.
Approximately $19.3 million of the increase is due to sales from the Company's
new directories from the acquisition of YPtel Corporation in February 2000;
approximately $2.7 million of the increase is from Internet businesses acquired
February and April 2000; approximately $6.5 million of the increase in revenues
from the print operations is due to the new Austin, Texas directory that had its
first sales year in the second quarter of 2000; and the remaining increase is
due to a combination of increased advertising revenue from existing customers
and incremental sales from new customers. The Company's Internet revenues
increased to $2.7 million in the second quarter of 2000, whereas
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the Company had no Internet revenues in the 1999 second quarter. The Company
expects revenues from its Internet operations to be a larger proportion of total
revenues in the future.
On a pro forma basis, assuming the acquisitions occurred on January 1,
1999, second quarter total revenues increased 27.4%. Second quarter of 2000
revenues from the Company's print directory business increased 22.3% and
revenues from its Internet business increased 255% from pro forma revenues in
1999.
Printing, distribution and listings costs increased $3.6 million, or 64.7%,
to $9.2 million in the second quarter of 2000 from $5.6 million in the 1999
second quarter. The increase in costs is due to printing costs associated with
the Company's new directories from the acquisition of YPtel Corporation. As a
percentage of sales, printing, distribution and listing costs decreased to 20.9%
of sales in 2000 from 38.6% in 1999. The significant decrease in the
percentage is due to efficiencies realized from applying approximately the same
printing and distribution costs for the Austin directory to significantly higher
sales from Austin.
Sales and marketing costs increased to $10.9 million from $3.6 million in
the comparable period of 1999. The increase in gross dollars is due to sales and
marketing associated with the new businesses acquired in 2000. As a percent of
sales, sales and marketing expenses decreased to 24.8% of sales in the second
quarter 2000 from 25.1% in the second quarter 1999. The decrease is due to
operating efficiencies realized as a result of higher sales volume that is
offset by higher sales and marketing costs associated with the Company's
Internet operations.
General and administrative expenses increased $10.0 million, or 194%, to
$15.2 million for the three months ended June 30, 2000, from $5.2 million in the
comparable period of 1999. The increase in gross dollars is due to general and
administrative costs of the new businesses acquired in 2000. As a percentage of
revenues, general and administrative expenses were 34.5% of sales in the second
quarter of 2000, compared to 35.6% in the same period of 1999. The decrease is
due to economies of scale realized from higher sales which is partially offset
by higher bad debt provision and other administrative costs relating to the
Company's expansion into new markets.
Depreciation and amortization increased to $4.4 million in the second
quarter of 2000 from $1.2 million in the second quarter of 1999. Depreciation
and amortization is principally amortization of goodwill and customer lists
resulting from acquisitions. The increase in the second quarter of 2000 is due
to the amortization of goodwill associated with the businesses acquired in
February and April 2000.
Interest expense for the second quarter was approximately $1.6 million in
the second quarter of 2000, an increase of $.3 million from interest expense of
$1.3 million in the comparable period of 1999. The increase is due to higher
debt as a result of the acquisitions made in February and April 2000.
Income tax expense of $2.2 million was recognized in the second quarter of
2000 compared to an income tax benefit of $1.1 million in the second quarter of
1999. The increase is due to higher taxable income in the 2000 second quarter
than in the 1999 second quarter. The Company's effective tax rate is
substantially higher than statutory tax rates principally because amortization
of certain intangible assets is not deductible for tax purposes.
10
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Net income was $0.4 million, or $.01 per share, in the three months ended
June 30, 2000, compared to a net loss of $1.3 million, or $.06 per share, in the
1999 second quarter.
Earnings from continuing operations before interest, taxes, depreciation
and amortization (EBITDA) increased to $8.7 million for the three months ended
June 30, 2000, from EBITDA of $0.1 million in the second quarter of 1999. The
increase in EBITDA is due to positive EBITDA from the first sales year for the
Austin directory compared to negative EBITDA from the Austin directory in 1999,
and positive EBITDA from the print yellow pages business acquired in February
2000. These improvements in EBITDA are partially offset by negative EBITDA from
the Company's Internet operations. On a pro forma basis, after giving effect to
the acquisitions in 1999, pro forma EBITDA for the second quarter ended June 30,
2000, increased 138% to $8.7 million from $3.7 million. EBITDA is a measure
commonly used in industry and is presented to assist in an understanding of the
Company's operating results and is not intended to represent cash flow or
results of operations in accordance with generally accepted accounting
principles. EBITDA is not necessarily comparable to other similarly titled
measures of other companies.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2000, COMPARED TO THE
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1999
Total revenues were $66.8 million in the first six months of 2000 compared
to $33.2 million total revenues in the first six months of 1999, an increase of
101%. The Company's print yellow pages operations account for $63.8 million, or
95.6%, of total revenues in the six months ended June 30, 2000, compared to
$33.2 million, or 100%, of total revenues in the comparable period of 1999. The
Company's Internet operations account for the remaining revenues in 2000. The
increase in revenues from the print operations is due primarily to the
following: (1) approximately $22.2 million of the increase is due to sales from
the Company's new directories from the acquisition of YPtel Corporation in
February 2000; (2) approximately $3.0 million of the increase is from Internet
businesses acquired in February and April 2000; (3) approximately $6.5 million
of the increase in revenues is due to the new Austin, Texas directory that had
its first sales year in the second quarter of 2000; and (4) the remaining
increase is due to a combination of increased advertising revenue from existing
customers and incremental sales from new customers. The Company's Internet
revenues increased to $3.0 million in the first six months of 2000, whereas the
Company had no Internet revenues in the first six months of 1999. The Company
expects revenues from its Internet operations to be a larger proportion of total
revenues in the future.
On a pro forma basis, assuming the acquisitions occurred on January 1,
1999, pro forma total revenues increased 22.9% over pro forma 1999 total
revenues. Pro forma print business revenues increased 20.0% to $77.6 million and
revenues from WorldPages' Internet business increased 124% to $4.2 million for
the pro forma six month period.
Printing, distribution and listings costs increased $4.4 million, or 44.1%,
to $14.4 million in the first six months of 2000 from $10.0 million in the
comparable period of 1999. The increase in costs is due to printing costs
associated with the Company's new directories from the acquisition of YPtel
Corporation. As a percentage of sales, printing, distribution and listing costs
decreased to 21.6% of sales in 2000 from 30.0% in the same period of 1999. The
decrease in the percentage is due to operating efficiencies realized from
higher sales volume.
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Sales and marketing costs for the first six months of 2000 increased to
$15.8 million from $7.1 million in the comparable period of 1999. The increase
in costs is due primarily to sales and marketing costs of acquired businesses.
As a percent of sales, sales and marketing increased to 23.6% of sales in 2000
from 21.3% in the first six months of 1999. The remainder of the increase is due
to higher commissions, selling and marketing costs associated with the Company's
Internet operations in 2000.
General and administrative expenses increased $11.7 million, or 101%, to
$23.3 million for the six months ended June 30, 2000, from $11.6 million in the
same period of 1999. The increase in costs is due primarily to general and
administrative cost of acquired businesses. As a percentage of revenues, general
and administrative expenses were 34.9% of sales in both the first six months of
2000 and 1999. The expense rate reflects a lower rate due to economies of scale
realized from higher sales volume which is offset by higher bad debt provision
and other administrative costs associated with the Company's expansion into new
markets and higher corporate costs.
Depreciation and amortization was approximately $6.4 million in the first
six months of 2000 and $2.3 million in the first six months of 1999.
Depreciation and amortization is principally amortization of goodwill and
customer lists resulting from acquisitions. The increase is due to the
amortization of goodwill associated with the businesses acquired in February and
April 2000.
Interest expense for the first six months was approximately $2.5 million in
the first six months of 2000, an increase of $.2 million from interest expense
of $2.3 million in the comparable period of 1999. The increase is due increased
borrowings and interest due to the acquisitions that occurred in February and
April 2000 which is partially offset by lower borrowings under the Company's
revolving credit facility after the sale of the Company's telecommunications
until the acquisitions.
Income tax expense of $3.2 million was recognized in the first six months
of 2000 compared to income tax expense of $.2 million in the comparable period
of 1999. The increase is due to higher taxable income in the first six months of
2000 than in the first six months of 1999. The Company's effective tax rate is
substantially higher than statutory tax rates principally because amortization
of certain intangible assets is not deductible for tax purposes.
Net income from continuing operations was $1.0 million, or $.03 per share,
in the six months ended June 30, 2000, compared to a net loss from continuing
operations of $0.2 million, or $.01 per share, in the first six months of 1999.
Earnings from continuing operations before interest, taxes, depreciation
and amortization (EBITDA) increased 190% to $13.3 million for the six months
ended June 30, 2000, from EBITDA of $4.6 million in the first six months of
1999. The increase in EBITDA is due to the aforementioned EBITDA from the first
sales year for the Austin directory compared to negative EBITDA from the Austin
directory in 1999, and positive EBITDA from the print yellow pages business
acquired in February 2000. These improvements in EBITDA are partially offset by
negative EBITDA from the Company's Internet operations. On a pro forma basis,
assuming the acquisitions occurred at the beginning of 1999, pro forma EBITDA
for the six months ended June 30, 2000 increased 49.3% to $16.3 million from
$10.9 million. EBITDA is a measure commonly used in industry and is presented to
assist in an understanding of the Company's operating results and is not
intended to
12
<PAGE>
represent cash flow or results of operations in accordance with generally
accepted accounting principles. EBITDA is not necessarily comparable to other
similarly titled measures of other companies.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital at June 30, 2000 was $35.0 million and its
ratio of current assets to current liabilities was 2.5:1.
In February 2000, in connection with the closing of its acquisitions of
YPtel Corporation, Big Stuff, Inc. and WebYP, Inc., WorldPages replaced its
prior credit facility with a financing package consisting of $60.0 million of a
senior revolving loan with Bank of America, N.A. and $20.0 million of 5%
convertible debentures issued to institutional investors led by funds managed by
Palladin Group, L.P. Approximately $53.0 million of the financing package has
been used to refinance existing indebtedness. The additional $27 million will be
used for working capital needs and other general corporate purposes. At June 30,
2000, the Company had $14.6 million available under its senior revolving loan
facility. The senior revolving credit facility bears interest at LIBOR plus a
spread of 1.5% to 3.5% or the prime rate plus a spread of up to 1.25% (9.9% at
June 30, 2000). The facility expires in February 2005 and requires commitment
fees of .5% on the unused portion of the facility.
The convertible debentures, which are due in February 2006, are
convertible into shares of WorldPages' common stock at a conversion price of
$15.63 per share, subject to adjustment at the end of every six-month period
during the first two years of the term of the debentures. The maximum amount
of additional shares issuable due to each reset of the conversion price is
400,000 shares, subject to adjustment in the event of any stock splits, stock
dividends, or other dilutive events with respect to common stock. The holders
of the debentures also received warrants to purchase 572,350 shares of
WorldPages' common stock at an exercise price of $18.47 per share. The
convertible debentures also provide for options to issue up to an additional
$10.0 million of convertible debentures under similar terms and conditions.
Also in connection with the Acquisitions, WorldPages converted $15.8
million of 5% notes payable and accrued interest into 2,863,637 shares of common
stock. This early retirement of debt resulted in a loss of $2.3 million, net of
a $1.4 million income tax benefit that has been treated as an extraordinary item
for financial reporting purposes.
WorldPages' management believes that its cash flows from its print yellow
pages operations and the remaining cash available under its revolving line of
credit, as amended, will be sufficient to fund its current operations.
Item 3. - Quantitative and Qualitative Disclosures About Market Risk
WorldPages is exposed to minimal market risks based on its current
holdings and use of financial instruments. WorldPages does not hold or issue
any financial instruments for trading, or speculative purposes. Financial
instruments held for other than trading purposes do not impose a material
market risk.
13
<PAGE>
WorldPages is exposed to interest rate risk, as additional financing is
periodically needed due to the operating losses and capital expenditures
associated with establishing and expanding WorldPages' business. WorldPages is
exposed to interest rate risk on amounts borrowed against its credit facility as
of June 30, 2000. Advances against the facility periodically renew, at which
point the borrowings are subject to the then current market interest rates,
which may differ from the rates WorldPages is currently paying on its
borrowings. In April 2000, the Company entered into a two-year interest rate
swap, which fixed the LIBOR rate on $25.0 million of amounts borrowed under its
revolving credit facility at 7.1% plus the applicable spread. There is no cap on
the interest rate payable on amounts borrowed in excess of $25.0 million under
WorldPages' revolving credit facility. If the interest rates on WorldPages'
revolving credit facility were to increase by 10% over June 30, 2000 levels,
WorldPages' annual interest expense would increase by approximately $.2 million.
WorldPages' business and operations are also exposed to market risks
resulting from changes in commodity prices for paper, WorldPages' principal raw
material. Certain commodity grades of paper, including the grade WorldPages uses
for its yellow pages directories, may be volatile. A 10% increase in the cost of
directory grade paper used by WorldPages over June 30, 2000 levels, would result
in an increase in WorldPages' annual operating costs of approximately $1.0
million.
PART II - OTHER INFORMATION
Item 1. - LEGAL PROCEEDINGS
As is the case with many companies, the Company faces exposure to actual
and potential claims and lawsuits involving its business and assets. The Company
is currently a party to various lawsuits consisting of ordinary, routine
litigation that is incidental to the business of the Company. The Company
believes that any liabilities resulting from such claims should not have a
material adverse effect on the Company's financial position, liquidity or
results of operations.
Item 2. - ISSUANCE OF SECURITIES
In connection with the Agreement and Plan of Merger, which closed during
the quarter ended June 30, 2000 (the "Agreement"), by and among the Company,
WorldPages.com Acquisition Corporation, a Delaware corporation and wholly-owned
subsidiary of the Company, Interactive Media Services, Inc. ("IMS"), a Kansas
corporation, Michael D. Shell, Thomas F. Patten, and David V. Martin, the
Company issued an aggregate of 2,083,311 shares (the "Shares") of the Company
common stock, par value $.0001 per share to the parties listed in the table
below. The Shares were issued in exchange for all outstanding shares of the
common stock and preferred stock of IMS as consideration for the transactions
contemplated by the Agreement. The issuance of the Shares was exempt from
registration pursuant to Section 4(2) of the Securities Act of 1933, as amended.
14
<PAGE>
The following table illustrates the number of Shares issued pursuant to the
Agreement:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES ISSUED
---- -------------
<S> <C>
Michael D. Shell & Sandra D. Shell, Co-Trustees of the
Michael D. Shell Revocable Trust 376,499
Sandra D. Shell & Michael D. Shell, Co-Trustees of the Sandra
D. Shell Revocable Trust 376,499
Larry P. Shell, Jr., Trustee of the Michael D. Shell Grantor
Retained Annuity Trust 81,344
Larry P. Shell, Jr., Trustee of the Sandra D. Shell Grantor
Retained Annuity Trust 81,344
David V. Martin & Nancy B. Martin, Co-Trustees of the David
V. Martin Revocable Trust 102,168
Nancy B. Martin & David V. Martin, Co-Trustees of the Nancy
B. Martin Revocable Trust 102,168
Michael L. Martin, Trustee of the David V. Martin Grantor
Retained Annuity Trust 23,380
Michael L. Martin, Trustee of the Nancy B. Martin Grantor
Retained Annuity Trust 23,380
Thomas F. Patten 206,965
HV-IMS, L.P. 81,719
Stanley G. Brannan 77,462
Christopher J. Brannan 19,367
Ronald S. Atteberry 79,526
John R. Pfister 72,863
David A. Raehpour 63,375
Daniel Michael O'Neal Exempt Trust #1997 20,395(1)
Gail Victoria Scott Exempt Trust #1997 20,395(1)
Kathleen Ann O'Neal Exempt Trust #1997 20,395(1)
Norvel C. Holeman 54,321
William A. Pickens 23,177
Geneva H. Pickens 23,177
Robert A. Pickens 3,621
Klenda, Mitchell, Austerman & Zuercher, L.L.C 33,896
Larry P. Shell 19,324
Carole B. Garretson 9,683
Danny P. Creed 7,242
Terry D. Allred 20,280
15
<PAGE>
Burton J. Tims 1,955
Deborah K. Ingrim 8,691
Michael B. Tims 14,485
Dianna K. Ramsey 7,242
Tammy B. Koch-Williams 3,621
Brian T. Yourdan 3,621
Brian C. Fabian 3,621
Kevin L. Nikkel 1,810
Michele E. McCammon 1,810
Anthony A. Grandle 1,810
Andrea L. Knighton 1,810
Lorie K. Wagner 1,810
John A. Snarenberger 1,810
Troy E. Tabor II 1,810
Michael D. Shell 3,440
---------
TOTAL 2,083,311
=========
</TABLE>
----------
(1) Trust for the benefit of the children of Richard O'Neal, Chairman and CEO
of WorldPages. Mr. O'Neal disclaims beneficial ownership of these shares
and accordingly, none of the shares beneficially owned by Mr. O'Neal are
included in the table above.
Item 3. - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 11 - Computation of Earnings Per Share
Exhibit 27 - Financial Data Schedule (filed with the Securities
and Exchange Commission only)
(b) Reports on Form 8-K
During the quarter ended June 30, 2000, WorldPages filed a Current Report
on Form 8-K dated May 18, 2000, relating to certain of the Company's estimates
regarding its fiscal year 2000 financial performance.
16
<PAGE>
Item 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
At the Company's Annual Meeting of Stockholders on June 6, 2000, the
following matters were submitted to a vote of the Company's stockholders:
1. The following directors were elected, each to hold office until the
Annual Meeting to be held in 2002 or until a successor is elected and
has qualified or until his or her earlier death, resignation or
removal. Votes were cast as follows:
<TABLE>
<CAPTION>
Names Votes For Votes Withheld
----- --------- --------------
<S> <C> <C>
George D. Anderson 31,434,650 252,603
Rod K. Cutsinger 31,384,167 303,086
</TABLE>
Brokers were permitted to vote on the election of directors in the
absence of instructions from street-name holders; broker non-votes did
not occur in those matters. The following directors are continuing
current terms expiring at the 2001 Annual Meeting of Stockholders:
Messrs. Robert Flynn and David Mitchell. The following directors are
continuing current terms expiring at the 2002 Annual Meeting of
Stockholders: Messrs. Wilmot Matthews and Richard O'Neal.
2. Approval of the issuance of shares of the Company's common stock upon
conversion of the Company's 5% convertible debentures and the exercise
of warrants issued in connection therewith. Votes were cast as
follows:
<TABLE>
<CAPTION>
Votes For Votes Against Votes Abstained
--------- ------------- ---------------
<S> <C> <C>
22,165,251 105,052 108,932
</TABLE>
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WorldPages.com, Inc.
(Registrant)
Date: August 14, 2000 /s/ Richard O'Neal
------------------
Richard O'Neal
Chairman and Chief Executive Officer
Date: August 14, 2000 /s/ Michael A. Pruss
--------------------
Michael A. Pruss
Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
18
