<PAGE>
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 March 31, 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
ST. LOUIS, MISSOURI 63017
(Address of principal executive offices) (Zip Code)
(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 May 12, 2000, the registrant had 46,214,336 voting shares of common stock,
$.0001 par value, outstanding.
<PAGE>
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
March 31,
----------------------------------
2000 1999
-------------- --------------
<S> <C> <C>
REVENUES $ 22,793 $ 18,743
OPERATING COSTS:
Printing, distribution and listings 5,192 4,402
Sales and marketing 4,898 3,437
General and administrative 8,132 6,424
Depreciation and amortization 2,038 1,089
-------------- --------------
Income (loss) from continuing operations 2,533 3,391
OTHER INCOME (EXPENSE):
Interest expense (891) (1,089)
Other 13 7
-------------- --------------
Income (loss) from continuing operations
before income taxes and extraordinary item 1,655 2,309
Income tax expense (benefit) 1,042 1,278
-------------- --------------
Net income (loss) from continuing
operations before extraordinary item 613 1,031
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) $ (1,678) $ (56,958)
============== ==============
Basic and diluted earnings (loss) per share:
Continuing operations $ .02 $ .05
Early retirement of debt (.08) ---
Discontinued operations --- (.31)
Sale of discontinued operations --- (2.61)
-------------- --------------
Net loss per share $ (.06) $ (2.87)
============== ==============
Average shares outstanding 30,073 19,859
============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
2
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WORLDPAGES.COM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(In thousands, except share data) (Unaudited)
March 31, Dec. 31,
2000 1999
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 751 $ 1,315
Accounts receivable, net 36,555 14,223
Deferred costs 14,493 4,482
Prepaid expenses and other current assets 2,622 174
------------- -------------
Total current assets 54,421 20,194
------------- -------------
Property, plant and equipment, net 2,809 1,377
Intangible assets, net 251,000 75,413
Deferred taxes 8,221 6,504
Other assets --- 5,571
------------- -------------
Total other assets 262,030 88,865
------------- -------------
Total assets $ 316,451 $ 109,059
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 19,319 $ 9,447
Short-term debt and current maturities of long-term debt 2,049 24,000
Other current liabilities 5,230 3,940
------------- -------------
Total current liabilities 26,598 37,387
Long-term obligations:
Long-term debt 56,222 ---
Deferred tax liabilities 877 ---
------------- -------------
Total liabilities 83,697 37,387
------------- -------------
Commitments and contingencies
Stockholders' equity:
Preferred stock, Series B --- ---
Common stock, $.0001 par value: 180,000,000 shares
authorized; 44,126,003 and 20,426,753 outstanding
4 2
Additional paid-in capital 312,196 149,438
Retained earnings (accumulated deficit) (79,446) (77,768)
------------- -------------
Total stockholders' equity 232,754 71,672
------------- -------------
Total liabilities and stockholders' equity $ 316,451 $ 109,059
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
WORLDPAGES.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
--------------------------------
(In thousands) 2000 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (1,678) $ (56,958)
------------ ------------
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 2,038 1,089
Provision for deferred taxes 1,313 (283)
Changes in operating assets and liabilities:
Decrease (increase) in:
Accounts receivable, net (5,793) (5,061)
Deferred costs 374 (719)
Prepaid expenses and other current assets (1,798) (60)
Other assets (3,782) 402
Increase (decrease) in:
Accounts payable and accrued liabilities 4,689 2,272
Other current liabilities (5,263) (852)
------------ ------------
Cash used in continuing operating activities (7,609) (2,181)
Cash used in discontinued operations --- (9,282)
------------ ------------
Cash used in operations (7,609) (11,463)
------------ ------------
Cash flows from investing activities:
Cash from businesses acquired 238 ---
Additions to property, plant and equipment, net (100) (3,429)
------------ ------------
Cash provided by (used in) investing activities 138 (3,429)
------------ ------------
Cash flows from financing activities:
Borrowings of long-term debt 56,271 4,000
Repayment of long-term debt (50,593) (118)
Proceeds from stock option exercises 1,229 ---
------------ ------------
Cash provided by financing activities 6,907 3,882
------------ ------------
Net decrease in cash and cash equivalents (564) (11,010)
Cash and cash equivalents-beginning of period 1,315 13,734
------------ ------------
Cash and cash equivalents-end of period $ 751 $ 2,724
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
WORLDPAGES.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 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 the Company's filing on Form 8-K related to the acquisition of
YPtel Corporation, Web YP, Inc. and Big Stuff, Inc. 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 financial statements included herein from continuing operations
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 three months ended March 31, 2000 and
1999, amortization expense relating to intangible assets was $1,910,000 and
$1,055,000, respectively.
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
5
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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 periods ended March 31, 2000 and 1999.
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.
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 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
6
<PAGE>
Corporation and Great Western with Web YP and Big Stuff, WorldPages is
vertically integrated with both Internet and 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 2,083,333 newly issued shares of WorldPages common stock
and $5.0 million in cash. Interactive Media is a multimedia content provider
located in Wichita, Kansas.
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) Three Months Ended Year Ended
March 31, 2000 Dec. 31, 1999
--------------------------- -----------------------
<S> <C> <C>
Total revenues from continuing operations $ 37,827 $ 88,966
Net income (loss) from continuing operations $ 72 $(14,498)
Income (loss) per share from continuing operations $ .00 $ (.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 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 March
31, 2000, the Company had $23.8 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% (9.1%
at March 31, 2000). The facility expires in February 2000 and requires
committment 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 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.
Also in connection with the Acquisitions, WorldPages converted its
$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 in the accompanying financial statements.
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.
7
<PAGE>
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, but include
the results of YPtel Corporation, Web YP, Inc. and Big Stuff, Inc. only for
the period after February 23, 2000. 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.
The following table sets forth, for the periods presented, certain actual and
pro forma information relating to the operations of the Company and expressed as
a percentage of revenues:
<TABLE>
<CAPTION>
(Unaudited)
(In thousands, except per share amounts) Three Months Ended March 31,
--------------------------------------------------------------
Pro Forma (1) Actual (2)
------------------------------ ------------------------------
2000 1999 2000 1999
------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C>
REVENUES $ 37,827 $ 32,090 $ 22,793 $ 18,743
OPERATING COSTS:
Printing, distribution and listings 8,148 7,165 5,192 4,402
Sales and marketing 8,825 6,533 4,898 3,437
General and administrative 13,307 11,173 8,132 6,424
Depreciation and amortization 3,789 3,563 2,038 1,089
------------- ------------- ------------- --------------
Income (loss) from continuing operations 3,758 3,656 2,533 3,391
OTHER INCOME (EXPENSE):
Interest expense (1,694) (2,090) (891) (1,089)
Other 45 (372) 13 7
------------- ------------- ------------- --------------
Income (loss) from continuing operations
before income taxes 2,109 1,194 1,655 2,309
Income tax expense (benefit) 2,037 1,678 1,042 1,278
------------- ------------- ------------- --------------
Net income (loss) from continuing
operations 72 (484) 613 1,031
Loss on early retirement of debt, net of
income tax benefit of $1,404 (2,291) --- (2,291) ---
Loss from discontinued operations net
of income tax benefit of $4,111 --- (6,189) --- (6,189)
Loss on sale of discontinued operations, net
of income tax benefit of $4,363 --- (51,800) --- (51,800)
------------- ------------- ------------- --------------
Net income (loss) $ (2,219) $ (58,473) $ (1,678) $ (56,958)
============= ============= ============= ==============
8
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Basic and diluted earnings (loss) per share:
Continuing operations $ .00 $ (.01) $ .02 $ .05
Early retirement of debt (.05) --- (.08) ---
Discontinued operations --- (.14) --- (.31)
Sale of discontinued operations --- (1.19) --- (2.61)
------------- ------------- ------------- --------------
Net loss per share $ (.05) $ (1.34) $ (.06) $ (2.87)
============= ============= ============= ==============
Average shares outstanding 43,743 43,743 30,073 19,859
============= ============= ============= ==============
</TABLE>
<TABLE>
<CAPTION>
Pro forma Three Months Ended
March 31,
--------------------------------
2000 1999
--------------- ---------------
<S> <C> <C>
Revenues 100.0% 100.0%
Cost of services:
Printing, distribution and publishing 21.5 22.3
Sales and marketing 23.3 20.4
General and administrative 35.2 34.8
Depreciation and amortization 10.0 11.1
------------- -------------
Income (loss) from continuing operations 9.9% 11.4%
============= =============
</TABLE>
(1) The pro forma results were prepared giving effect to the acquisitions of
YPtel Corporation, Web YP, Inc., Big Stuff, Inc. and Interactive Media
Services, Inc. as if they had occurred on January 1, 2000.
(2) The Company completed the acquisitions of YPtel Corporation, WebYP, Inc.
and Big Stuff, Inc. on February 23, 2000. Actual results for 2000 include
the operations of the parent company and its yellow pages subsidiary, Great
Western Directories, for the entire three-month period and the results of
these acquired companies only for the period after February 23, 2000.
9
<PAGE>
PRO FORMA RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2000,
COMPARED TO THE PRO FORMA RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH
31, 1999
Pro forma total revenues were $37.8 million in the first quarter of
2000 compared to $32.1 million total pro forma revenues in the first quarter
of 1999, an increase of 17.9%. The Company's print yellow pages operations
account for $36.4 million, or 96.2%, of total pro forma revenues in the three
months ended March 31, 2000, compared to $31.0 million, or 96.6%, of total
pro forma revenues in the comparable period of 1999. The Company's Internet
operations account for the remaining revenues in both 2000 and 1999. The
increase in revenues from the print operation is due primarily to the
distribution of the Spokane, Washington directory in the first quarter of
2000 instead of the fourth quarter of 1999. Excluding the Spokane directory,
the Company distributed directories in the same nine markets in both the
first quarter of 2000 and 1999. Pro forma revenues from these same
directories increased 6.6% in 2000. This increase is due to a combination of
increased advertising revenue from existing customers and incremental sales
from new customers. The Company's pro forma Internet revenues increased 31.8%
to $1.4 million in the first quarter of 2000 from pro forma $1.1 million in
the 1999 first quarter. The Company expects revenues from its Internet
operations to be a larger proportion of total revenues in the future.
Pro forma printing, distribution and listings costs increased $.9
million, or 13.7%, to $8.1 million in the first quarter of 2000 from pro forma
$7.2 million in the 1999 first quarter. Excluding the Spokane directory,
printing, distribution, and listing costs increased $.3 million. The increase in
costs is due to slightly higher printing costs. As a percentage of sales,
printing, distribution and listing costs decreased to 21.5% of sales in 2000
from 22.3% in 1999, reflecting operating efficiencies realized from higher sales
volume.
Pro forma sales and marketing costs increased to $8.8 million from pro
forma $6.5 million in the comparable period of 1999. As a percent of sales, pro
forma sales and marketing increased to 23.3% of sales in 2000 from 20.4% in
1999. Approximately $.8 million of the increase is due to the Spokane directory.
The remainder of the increase is due to higher sales and marketing costs
associated with the Company's Internet operations and other new marketing
programs in 2000.
Pro forma general and administrative expenses increased $2.1 million,
or 19.1%, to $13.3 million for the three months ended March 31, 2000, from pro
forma $11.2 million in 1999. As a percentage of revenues, pro forma general and
administrative expenses were 35.2% of sales in the first quarter of 2000, and
34.8% in the same period of 1999. The increase is due to higher administrative
costs associated with the Company's expansion into new markets and higher
corporate costs.
Pro forma depreciation and amortization was approximately $3.8 million
in the first quarter of 2000 and $3.6 million pro forma in the first quarter of
1999. Depreciation and amortization is principally amortization of goodwill and
customer lists resulting from acquisitions.
Pro forma interest expense for the first quarter was approximately $1.7
million in the first quarter of 2000, a decrease of $.4 million from pro forma
interest expense of $2.1 million in the first quarter of 1999. The decrease is
due to lower debt from borrowings under the Company's revolving credit facility
as a result of the proceeds received from the sale of the Company's
telecommunications segment.
10
<PAGE>
Pro forma income tax expense of $2.0 million was recognized in the
first quarter of 2000 compared to pro forma income tax expense of $1.7
million in 1999. The increase is due to higher pro forma taxable income in
the 2000 first quarter than in the 1999 first 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.
Pro forma net income from continuing operations was $0.1 million, or
$.00 per share, in the three months ended March 31, 2000, compared to a pro
forma net loss from continuing operations of $0.5 million, or $.01 per share, in
the 1999 first quarter.
Pro forma earnings from continuing operations before interest, taxes,
depreciation, amortization, and stock-based compensation expense (EBITDA)
increased 4.5% to $7.5 million for the three months ended March 31, 2000, from
pro forma EBITDA of $7.2 million in the first quarter of 1999. The increase in
pro forma EBITDA is due to the aforementioned increase in revenues offset
partially by higher sales and marketing in the Company's Internet operations.
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.
ACTUAL RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2000
Actual revenues for the first quarter of 2000 increased to $22.8
million from $18.7 million in the first quarter of 1999, an increase of
21.6%. The increase is due to the Acquisitions on February 23, 2000.
Net income form continuing operations for the three months ended
March 31, 2000 was $613,000, or $.02 per share, compared to $1.0 million, or
$.05 per share, in the first three months of 1999. The decrease is due to
higher Internet losses and increased goodwill amortization, both as a result
of the Acquisitions.
Net loss for the first quarter of 2000 decreased to $1.7 million or
$.06 per share compared to $57.0 million, or $2.87 per share, in the first
quarter of 1999. The 2000 first quarter includes a $2.3 million, or $.08 per
share, extraordinary loss on the early retirement of debt, net of a $1.4
million income tax benefit. The 1999 net loss includes losses of $58.0
million, or $2.92 per share, related to the Company's discontinued
telecommunications operations.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital at March 31, 2000 was $27.8 million and
its ratio of current assets to current liabilities was 2.0:1.
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 March
31, 2000, the Company had $23.8 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% (9.1%
at March 31, 2000). The facility expires in February 2000 and requires
committment 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 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.
Also in connection with the Acquisitions, WorldPages converted its
$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.
11
<PAGE>
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, hedging or speculative purposes. Financial
instruments held for other than trading purposes do not impose a material market
risk.
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 March 31, 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. There is no cap on the interest rate payable on WorldPages'
revolving credit facility. If the interest rates on WorldPages' revolving credit
facility were to increase by 10% over March 2000 levels, WorldPages' annual
interest expense would increase by approximately $.3 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 March 31, 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.
On February 23, 2000, and in connection with the refinancing of the
Company's indebtedness, the Company issued an aggregate of $20 million original
principal amount of 5% convertible debentures (the "Debentures"). The Company
also issued warrants (the "Warrants") to purchase up to 572,350 shares of
Company common stock, par value $.0001 per share (the "Common Stock"). The
Company sold the Debentures and Warrants to Halifax Fund, LP, Elliott
Associates, L.P., and Westgate International, L.P. (the "Investors") pursuant to
a convertible debenture purchase agreement (the "Convertible Debenture Purchase
Agreement").
The Company issued the Debentures and Warrants to provide proceeds for
working capital purposes and the repayment of senior indebtedness.
12
<PAGE>
The Company must repay the holders of the Debentures the principal
amount outstanding under each Debenture on February 23, 2006. While outstanding,
each holder is to receive interest payments in the amount of 5% per annum on the
principal amount of their Debenture. Upon the occurrence of any event of
default, interest will begin to accrue at an increased rate of the lower of:
- - the per annum prime interest rate charged by Citibank, plus 6%, or
- - the highest interest rate permitted by law.
The interest payments compound semi-annually and are payable in arrears on the
first day of January and July of each year. Interest payments begin on July 1,
2000.
In lieu of distributing cash to a debenture holder on an interest
payment date, the Company may elect, subject to certain conditions, to add the
amount of the interest payment to the outstanding principal amount of the
holder's Debenture. The Investors may then elect to either receive future
interest payments in cash or to have the payment added to the outstanding
principal amount of their Debenture.
The Debentures are convertible, in whole or in part, into shares of
Company common stock at any time. The number of shares to be received by the
holder upon conversion is determined by the following formula:
P + I +D
----------------
conversion price
- - P=outstanding principal amount of debenture submitted for conversion. As
this number increases, the number of shares issued upon conversion will
increase.
- - I=accrued but unpaid interest on redeemed principal amount, if any. As this
number increases, the number of shares issued upon conversion will
increase.
- - D=Default payments on redeemed principal amount, if any. As this number
increases, the number of shares issued upon conversion will increase.
The initial conversion price is $15.6269, subject to adjustments as
described below. As this number increases, the number of shares issued upon
conversion will decrease.
The following table shows the number of shares of common stock issuable
if the holders converted all of the outstanding debentures as of March 31, 2000,
based on the initial conversion price of $15.6269 (the "Initial Closing Price").
<TABLE>
<CAPTION>
OUTSTANDING NUMBER OF SHARES OF
HOLDER PRINCIPAL AMOUNT COMMON STOCK
- ------ ---------------- ------------
<S> <C> <C>
Halifax Fund, LP $15,000,000 959,883
13
<PAGE>
Elliott Associates, L.P. $2,500,000 159,981
Westgate International, L.P. $2,500,000 159,981
</TABLE>
The Debenture provides that on August 23, 2000, February 23, 2001,
August 23, 2001 and February 23, 2002, but only if the average "Market Price"
(as that term is defined in the Debenture) of Common Stock on the ten trading
days following the above dates is lower than the conversion price then in
effect, the conversion price will reset to the average Market Price.
In the event that (a) the subordination agreement between the Investors
and the Company's Senior Lender prevents the holders from exercising any
conversion rights or receiving any cash payments or (b) the Company fails to
repurchase the Debentures as required or fail to make any cash payments due
under the Debenture, the Convertible Debenture Purchase Agreement or the
Registration Rights Agreement (as that term is hereinafter defined), the
conversion price will adjust to the lesser of the lowest market price for Common
Stock during any of the five days prior to date the holder of the Debenture
submits a conversion notice to the Company, and the then current conversion
price. However, the maximum amount of additional shares issuable due to the
reset of the conversion price under this provision is 400,000 shares of Common
Stock, subject to adjustments in the event of any stock splits, stock dividends
or other dilutive events with respect to shares of Common Stock.
The Debentures also contain customary anti-dilution provisions that
mandate changes in the conversion price of the debentures upon the occurrence of
certain dilutive events.
The terms of the Convertible Debenture Purchase Agreement provide for a
limit on the number of shares available for conversion to 8,785,351 until the
Company receives stockholder approval for the issuance of additional shares
required by the New York Stock Exchange. If the Investors exceed this limit and
the Company has not received the stockholder approval, then the Company must
redeem the remaining unconverted Debentures at the higher of:
- - the cash value that would be received upon the conversion of the Debentures
and the subsequent sale of the common stock received at the then prevailing
market price; and
- - 130% of the outstanding principal amount of the Debentures, plus accrued
and unpaid interest and any default payments then in effect.
If the subordination agreement executed between the Investors and the
Company's senior lenders prevents the redemption as described, the Company must
pay default payments to the affected holders for each 30-day period that the
holders may not redeem additional debentures.
Under the Convertible Debenture Purchase Agreement, the Company has a
one-time option exercisable during the period beginning on the 30th day after
February 23, 2000 (March 24, 2000) and ending on the 120th day after February
23, 2000 (June 22, 2000), to compel the Investors to purchase up to an
additional $5 million of principal amount of 5% Convertible Debentures (the
"Option Debentures"). If the Company exercises this option, the Investors will
pay the Company a cash amount equal to the principal amount of Option Debentures
issued. Additionally, if the Company exercises this option, the Company is
required to issue to the Investors additional warrants to purchase shares of
Common Stock (the "Option Warrants"). The number of shares of Common Stock
potentially issuable upon exercise of the Option Warrants is contingent upon the
principal amount of Option Debentures sold and the average market price of
14
<PAGE>
Common Stock for the ten trading days immediately preceding the closing of the
sale of the Option Debentures. The Company may exercise this option only upon
the satisfaction of certain conditions enumerated in the Convertible Debenture
Purchase Agreement.
The Convertible Debenture Purchase Agreement provides the Investors
with two options to acquire additional 5% Convertible Debentures. First, if the
Company exercises its option to compel the Investors to purchase Option
Debentures, the Investors have a one-time option to compel the Company to sell
up to another $2.5 million of principal amount of 5% Convertible Debentures (the
"Additional Debentures") and issue additional warrants to purchase Common Stock
(the "Additional Warrants"). This option expires 150 days after February 23,
2000 (July 22, 2000). Second, the Investors may also require the Company to sell
up to another $2.5 million in principal amount of 5% Convertible Debentures.
This option is exercisable in the sole discretion of each Investor at any time
within 270 days after February 23, 2000 (November 19, 2000). To exercise either
of these options, the Investors must satisfy certain conditions.
If any Option Debentures and Additional Debentures are issued under the
Convertible Debenture Purchase Agreement, they will have the same terms as the
Debentures, except:
- - the conversion price shall be 110% of the Initial Closing Price as
adjusted;
- - the conversion price shall reset as described above on the 6 month, 12
month, 18 month and 24 month anniversaries of the issuance of any
Additional Debenture; and
- - the maturity date of the Option Debenture and the Additional Debentures
shall be the sixth anniversary of the issuance date of such debentures.
In connection with the issuance of the Debentures, the Company issued
Warrants to purchase up to 572,350 shares of our Common Stock. The Warrants are
exercisable in whole in or in part at an initial exercise price of $18.4681 per
share of Common Stock, and expire on February 23, 2005. The exercise price and
number of shares of Common Stock issuable pursuant to the Warrants may change in
the event of any stock split, stock dividend, reorganization or
reclassification. The number of shares and exercise price may also change if the
Company makes any distributions of its assets, indebtedness or other shares of
its capital stock to holders of Common Stock. Any Option Warrants or Additional
Warrants issued in connection with the exercise of Option Debentures or
Additional Debentures under the Convertible Debenture Purchase Agreement would
have identical terms, except that (a) the initial exercise price will be 130% of
the average market price of the Common Stock on the ten days preceding the
issuance of any Option Debentures or Additional Debentures, and (b) the Option
Warrants will expire five years from the date of issuance.
The Company also signed a registration rights agreement with the
Investors (the "Registration Rights Agreement"). Under the Registration Rights
Agreement, the Company was required to file a registration statement with the
Securities and Exchange Commission (the "SEC") to register the shares of common
stock that the Investors may receive upon the conversion of the aforementioned
debentures and the exercise of the aforementioned warrants, and to use its best
efforts to have the registration statement declared effective by the SEC.
To induce Bank of America, the Company's senior lender, to enter into a
credit agreement with the Company and to make and continue to make from time to
time loans and advances thereunder, the Investors
15
<PAGE>
agreed with Bank of America that all obligations of the Company to the Investors
under the relevant agreements (excluding the right to receive capital stock upon
conversion of the debentures identified in the relevant agreements and upon the
exercise of the warrants identified in the relevant agreements), shall be junior
and subordinated in right of payment to all amounts due and owing upon all
senior indebtedness of the Company from time to time.
- - In issuing the Debentures and the Warrants, the Company relied on the
exemption from the registration requirements of Section 5 of the Securities
Act of 1933 (the "Act") afforded by Section 4(2) of the Act and Regulation
D promulgated thereunder.
In March 2000, the Company filed a Form D with the SEC with respect to
the aforementioned private placement.
Item 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
At the Company's Special Meeting of Stockholders on February 16, 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>
Todd Feist 15,792,785 100,735
Richard O'Neal 15,840,290 50,916
</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
2000 Annual Meeting of Stockholders: Messrs. George Anderson and Rod
Cutsinger. The following directors are continuing current terms
expiring at the 2001 Annual Meeting of Stockholders: Messrs. Robert
Flynn and David Mitchell.
2. Adoption of the change in the business focus, strategy and direction of
the Company by approving the acquisitions of YPtel Corporation, Web YP,
Inc., Big Stuff, Inc. and related transactions.
<TABLE>
<CAPTION>
Votes For Votes Against Votes Abstained
--------- ------------- ---------------
<S> <C> <C>
11,940,868 172,699 52,671
</TABLE>
3. Approval of the benefits accruing to Richard O'Neal, Chairman of the
Board and Chief Executive Officer of WorldPages in connection with the
acquisitions of YPtel Corporation, Web YP, Inc., Big Stuff, Inc. and
related transactions.
<TABLE>
<CAPTION>
Votes For Votes Against Votes Abstained
--------- ------------- ---------------
<S> <C> <C>
11,354,358 480,478 331,402
</TABLE>
16
<PAGE>
Item 6. - 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 March 31, 2000, World Pages filed a Current
Report on Form 8-K dated March 9, 2000, related to the Company's closing of the
acquisitions of YPtel Corporation, Web YP, Inc. and Big Stuff, Inc. and related
transactions.
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.
Advanced Communications Group, Inc.
(Registrant)
Date: May 14, 2000 /s/ Richard O'Neal
--------------------------
Richard O'Neal
Chairman and Chief Executive Officer
Date: May 14, 2000 /s/ Michael A. Pruss
--------------------
Michael A. Pruss
Vice President and
Chief Financial Officer
(Principal Financial and Accounting
Officer)
17
<PAGE>
EXHIBIT 11
WORLDPAGES.COM, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
-----------------------------------------------------------------------------
Pro Forma Actual
------------------------------------ -------------------------------------
(In thousands, except per share data) 2000 1999 2000 1999
------------------ ----------------- ----------------- ------------------
<S> <C> <C> <C> <C>
EARNINGS PER SHARE:
Average number of common shares outstanding for basic
and diluted computation (see Note) 43,742,674 43,742,674 30,073,333 19,859,262
Net income (loss) from continuing operations $ 72 $ (484) $ 613 $ 1,031
Extraordinary item-loss on early
retirement of debt, net (2,291) -- (2,291) ---
Loss from discontinued operations, net --- (6,189 --- (6,189)
Loss on sale of discontinued operations, net --- (51,800) --- (51,800)
----------------- ----------------- ----------------- -----------------
$ (2,219) $ (58,473) $ (1,678) $ (56,958)
================= ================= ================= =================
Basic and diluted earnings (loss) per share from:
Continuing operations $ .00 $ (.01) $ .02 $ .05
Extraordinary item-loss on early retirement of
debt, net (.05) --- (.08) ---
Loss from discontinued operations, net --- (.14) ---- (.31)
Loss on sale of discontinued operations, net --- (1.19) ---- (2.61)
----------------- ----------------- ----------------- -----------------
$ (.05) $ (1.34) $ (.06) $ (2.87)
================= ================= ================= =================
</TABLE>
Note: The effect of the assumed exercise of stock options and the assumed
conversion of the convertible debentures payable have not been included in the
computation of diluted earnings per share for the period after issuance because
to do so would have been anti-dilutive for the periods presented.
See accompanying notes to consolidated financial statements.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEC FORM
10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 751
<SECURITIES> 0
<RECEIVABLES> 42,763
<ALLOWANCES> 6,208
<INVENTORY> 0
<CURRENT-ASSETS> 54,421
<PP&E> 5,658
<DEPRECIATION> 2,849
<TOTAL-ASSETS> 316,451
<CURRENT-LIABILITIES> 26,598
<BONDS> 0
0
0
<COMMON> 4
<OTHER-SE> 232,750
<TOTAL-LIABILITY-AND-EQUITY> 316,451
<SALES> 22,793
<TOTAL-REVENUES> 22,793
<CGS> 20,260
<TOTAL-COSTS> 20,260
<OTHER-EXPENSES> (13)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 891
<INCOME-PRETAX> 1,655
<INCOME-TAX> 1,042
<INCOME-CONTINUING> 613
<DISCONTINUED> 0
<EXTRAORDINARY> (2,291)
<CHANGES> 0
<NET-INCOME> (1,678)
<EPS-BASIC> (.06)
<EPS-DILUTED> (.06)
</TABLE>
