10-Q 1 a2048940z10-q.txt 10-Q 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, 2001 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) 6801 GAYLORD PARKWAY, SUITE 300 75034 DALLAS, TX (Zip Code) (Address of principal executive offices) (972) 731-6600 (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, 2001, the registrant had 47,029,544 voting shares of common stock, $.0001 par value, outstanding. PART I - FINANCIAL INFORMATION Item 1. - FINANCIAL STATEMENTS WORLDPAGES.COM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

~~UNITED~~(In ~~STATES SECURITIES~~thousands, ~~AND~~except ~~EXCHANGE~~share ~~COMMISSION Washington~~and per share amounts) Three Months Ended March 31, D--------------------------------------- 2001 2000 ------------------ ----------------- REVENUES $ 41,995 $ 22,793 OPERATING COSTS: Printing, distribution and listings 10,951 5,192 Sales and marketing 12,790 4,898 General and administrative 14,348 8,132 Depreciation and amortization 4,517 2,038 ------------------ ----------------- Income (loss) from operations (611) 2,533 OTHER INCOME (EXPENSE): Interest expense (1,491) (891) Other --- 13 ------------------ ----------------- Income (loss) from operations before income taxes and extraordinary item (2,102) 1,655 Income tax expense (benefit) 172 1,042 ------------------ ----------------- Net income (loss) before extraordinary item (2,274) 613 Extraordinary item - loss on early retirement of debt, net of income tax benefit of $1,404 --- (2,291) ------------------ ----------------- Net income (loss) $ (2,274) $ (1,678) ================== ================= Basic and diluted earnings (loss) per share: Net income (loss) before extraordinary item $ (.C05) $ .02 ~~20549~~ Early retirement of debt --- (.08) --------------- ----------------- Net loss per share $ (.05) $ (.06) ================== ================= Weighted average shares outstanding 47,029,544 30,073,333 ================== ================= See accompanying notes to consolidated financial statements.

2 WORLDPAGES.COM, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS

~~FORM~~(In 10thousands, except share data) (Unaudited) March 31, Dec. 31, ASSETS 2001 2000 -Q ------------ ------------- Current assets: Cash and cash equivalents $ 799 $ 519 Accounts receivable, net 51,263 38,358 Deferred costs 6,131 11,475 Prepaid expenses and other current assets 610 954 ------------- ------------- Total current assets 58,803 51,306 ------------- ------------- Property, plant and equipment, net 5,815 5,866 Intangible assets, net 258,939 263,004 Deferred taxes 12,964 13,136 Other assets 1,611 1,638 ------------- ------------- Total other assets 279,329 283,644 ------------- ------------- Total assets $ 338,132 $ 334,950 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued liabilities $ 21,193 $ 18,374 Short-term debt and current maturities of long-term debt 852 61 Deposits 3,651 4,338 Other current liabilities 1,932 2,207 ------------- ------------- Total current liabilities 27,628 24,980 Long-term obligations: Long-term debt 71,414 68,606 ------------- ------------- Total liabilities 99,042 93,586 ------------- ------------- Commitments and contingencies Stockholders' equity: Preferred stock, Series B --- ---- Common stock, $.0001 par value: 180,000,000 shares authorized; 47,029,544 and 47,029,545 outstanding 4 4 Additional paid-in capital 333,255 333,255 Retained earnings (accumulated deficit) (94,169) (91,895) ------------- ------------- Total stockholders' equity 239,090 241,364 ------------- ------------- Total liabilities and stockholders' equity $ 338,132 $ 334,950 ============= ============= See accompanying notes to consolidated financial statements.

3 WORLDPAGES.COM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

Three Months Ended March 31, --------------------------------- (~~Mark~~In ~~One~~thousands) 2001 2000 ------------- ------------- Cash flows from operating activities: Net income (loss) $ (2,274) $ (1,678) ------------- ------------- Adjustments to reconcile net loss to net cash: Loss on early retirement of debt, net --- 2,291 Depreciation and amortization 4,517 2,038 Provision for deferred taxes 172 1,313 Changes in operating assets and liabilities: Decrease (increase) in: Accounts receivable, net (12,905) (5,793) Deferred costs 5,344 374 Prepaid expenses and other current assets 344 (1,798) Other assets 27 (3,782) Increase (decrease) in: Accounts payable and accrued liabilities 2,819 4,689 Other current liabilities (962) (5,263) ------------- ------------- Cash used in operating activities (2,918) (7,609) ------------- ------------- Cash flows from investing activities: Cash from businesses acquired --- 238 Additions to property, plant and equipment, net (401) (100) ------------- ------------- Cash provided by (used in) investing activities (401) 138 ------------- ------------- Cash flows from financing activities: Borrowings of long-term debt 3,599 56,271 Repayment of long-term debt --- (50,593) Proceeds from stock option exercises --- 1,229 ------------- ------------- Cash provided by financing activities 3,599 6,907 ------------- ------------- Net increase (decrease) in cash and cash equivalents 280 (564) Cash and cash equivalents-beginning of period 519 1,315 ------------- ------------- Cash and cash equivalents-end of period $ 799 $ 751 ============= ============= See accompanying notes to consolidated financial statements.

4 WORLDPAGES.COM, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS THREE MONTHS ENDED MARCH 31, 2001 AND 2000 (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 that 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, 2000, 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. 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. 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, 2001 and 2000, amortization expense relating to intangible assets was $4,065,000 and $1,910,000, 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 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. 5 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, 2001 and 2000. 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. 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. At March 31, 2001, the Company had $8.6 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% (7.8% at March 31, 2001). The facility expires in February 2005 and requires commitment fees of .5% on the unused portion of the facility. 6 The convertible debentures, which are due in February 2006, are convertible into shares of WorldPages' common stock at a conversion price that is subject to reset 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. On April 26, 2001 WorldPages entered into an Amendment Agreement (the "Amendment Agreement") with holders of its convertible debentures. The Amendment Agreement arises from a dispute (the "Dispute") between the Company and the holders as to the maximum amount of additional shares issuable upon conversion of the Debentures under the conversion price reset provision contained in the Debentures. Pursuant to the Amendment Agreement, the holders and the Company have agreed not to commence litigation (the "Litigation Standstill") in connection with the dispute on or before December 31, 2001 and to waive the August 2001 reset provided for under the debentures in each case unless (i) an Event of Default (under the Debentures, as modified by the Amendment Agreement) has occurred or exists (ii) the Company discontinues active efforts to engage in a transaction that will result in the sale of the Company, (iii) the Company fails to publicly announce on or before October 1, 2001 that it has reached an agreement in principle which will result in the sale of the Company or to consummate such sale by December 31, 2001 or (iv) the Company fails to redeem for cash the full outstanding principal amount of the Debentures on or before December 31, 2001 and satisfy certain related conditions. In addition, the parties agreed that the holders may convert their Debentures into an aggregate of up to 2,679,000 shares (the "Initial Agreed Amount") of the Company's common stock at any time at the conversion price then in effect and that this aggregate amount shall increase to 4,500,000 shares (the "Increased Agreed Amount") of the Company's common stock if the Company fails to satisfy any of the Litigation Standstill conditions. If the Litigation Standstill conditions are not satisfied, the holders would be entitled to assert that they are entitled to convert the Debentures into more shares than the Increased Agreed Amount and the Company would be entitled to defend against such claim. The parties have further agreed that the conversion price currently in effect is $3.875. The Amendment Agreement also provides for a reduction in the redemption/put premium payable to the holders on the outstanding principal amount of debentures (not theretofore converted) upon a sale of the Company on or before December 31, 2001, from 110% to 109% of such outstanding principal amount In addition, the Amendment Agreement provides that the Company may redeem the Debentures, at any time at a redemption price equal to 109% of the outstanding principal amount of the Debentures, subject to the right of the holders to exercise their conversion rights prior to the redemption date and to the satisfaction of certain other conditions. The Amendment Agreement also provides that the holders shall, subject to certain conditions and exceptions, permanently waive their rights to commence litigation for any reason if (i) the Company shall have complied with the original Debenture documents and the Amendment Agreement through December 31, 2001 and no Event of Default has occurred or exists (ii) the Company shall have redeemed in cash the full outstanding principal amount of the Debentures on or before December 31, 2001 and certain related conditions are satisfied. There can be no assurance that the Litigation Standstill conditions will be satisfied. 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 7 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 22, 2000, but include the results of the 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 operating information is presented for comparative purposes as if the Acquisitions had occurred on January 1, 2000. The 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 following table sets forth, for the periods presented, certain information relating to the continuing operations of WorldPages, expressed as a percentage of revenues:

~~/x/~~Three ~~QUARTERLY~~Months ~~REPORT~~Ended ~~PURSUANT~~March TO31, ~~SECTION~~------------------------------------------------- 132001 OR2001(a) 152000 ------------------------------------------------- Revenues 100.0% 100.0% 100.0% Cost of services: Printing, distribution and publishing 26.1 22.3 22.8 Sales and marketing 30.5 27.1 21.5 General and administrative 34.2 37.5 35.7 Depreciation and amortization 10.7 12.1 8.9 ------------------------------------------------- Income (dloss) OFfrom ~~THE~~continuing ~~SECURITIES~~operations ~~EXCHANGE~~(1.5)% ~~ACT~~1.0% OF11.1% ~~1934~~=================================================

(a) 2001 Adjusted results exclude the results of the first year Seattle, Washington directory. RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2001, COMPARED TO THE RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2000 Total revenues were $42.0 million in the first quarter of 2001 as compared to $22.8 million in total revenues in the first quarter of 2000, an increase of 84.2%. The Company's print yellow pages operations accounted for $38.5 million, or 91.7%, of total revenues in the three months ended March 31, 2001, compared to $22.6 million, or 99.1% of total revenues in the comparable period of 2000. The Company's Internet operations accounted for the remaining revenues in the first quarter of both 2001 and 2000. The increase in revenues was due primarily to the following: (1) approximately $10.3 million of the increase was attributable to print sales from directories added through the acquisition of YPtel Corporation in February 2000; 8 (2) approximately $3.3 million of the increase was attributable to higher sales of the Company's Internet products; (3) approximately $4.7 million of the increase was from sales attributable to the new Seattle, Washington directory that had its first publication in the first quarter of 2001; (4) approximately $1.7 million of the increase was from sales attributable to the Monterey, California directory that was published in the first quarter of 2001 but had not been published in 2000. On a pro forma basis, assuming the acquisitions had occurred on January 1, 2000, total revenues for the first quarter of 2001 increased to $42.0 million, or 11.0% over pro forma 2000 total revenues of $37.8 million for the first quarter of 2000. Pro forma print business revenue for the 2001 quarter increased 5.8% to $38.5 million over pro forma print revenue of $36.4 million for the comparable quarter of 2000 and pro forma Internet business revenue increased 162% to $3.5 million for the first quarter of 2001 as compared with pro forma revenue of $1.5 million for the first quarter of the prior year. Including sales of its Internet products, total revenues from same directories in the first quarter of 2001 increased 5.5% over the comparable period of 2000. Excluding Internet sales, revenues from same directories decreased 2.9% from the first quarter of 2000. Printing, distribution and listings costs increased to $11.0 million, or 111%, in the first quarter of 2001 from $5.2 million in the first quarter of the prior year. As a percentage of sales, printing, distribution and listing costs increased to 26.1% of sales in the first quarter of 2001 as compared with 22.8% for the first quarter of 2000. The increase was due primarily to costs associated with the Company's new directory in Seattle, Washington. This first year directory had substantially higher printing and distribution costs as a percentage of sales due to low sales volume typical for new directories. Excluding the impact of the Seattle directory, printing, distribution and listing as a percent of sales decreased to 22.3% of sales as a result of lower paper costs. Sales and marketing costs increased to $12.8 million for the first quarter of 2001 from $4.9 million in the comparable period of 2000. As a percent of sales, sales and marketing increased to 30.5% of sales for the first quarter of 2001 from 21.5% for the first quarter of 2000. The increase was due primarily to costs associated with the Company's new directory in Seattle, Washington. Excluding the impact of the Seattle directory, sales and marketing as a percent of sales increased to 27.1% of sales. The remainder of the increase was due to higher sales and marketing costs associated with the Company's Internet operations and increased spending on marketing programs in the first quarter of 2001. General and administrative expenses increased to $14.3 million, or 76.4%, for the three months ended March 31, 2001, from $8.1 million for the three months ended March 31, 2000. The increase in gross dollars was due to general and administrative costs of companies acquired. As a percentage of revenues, general and administrative expenses were 34.2% of sales in the first quarter of 2001, and 35.7% in the same period of 2000. The decrease was due to operating efficiencies realized from the higher sales volume. Depreciation and amortization was approximately $4.5 million in the first quarter of 2001 as compared with $2.0 million in the first quarter of 2000. Depreciation and amortization consisted principally of amortization of goodwill and customer lists resulting from acquisitions. Amortization of intangibles related to acquisitions was $4.1 of the total depreciation and amortization. Interest expense for the first quarter of 2001 was approximately $1.5 million, an increase of $0.6 million from interest expense of $0.9 million in the first quarter of 2000. The increase was due to higher 9 borrowings under the Company's revolving credit facility as a result of the acquisitions in February and April of 2000. Income tax expense of $0.2 million was recognized in the first quarter of 2001 compared to income tax expense of $1.0 million in the first quarter of 2000. The decrease was due to lower taxable income in the first quarter of 2001 than in the first quarter of 2000.The Company's effective tax rate was substantially higher than statutory tax rates principally because amortization of certain intangible assets is not deductible for tax purposes. Net loss from continuing operations was $2.3 million, or $.05 per share, in the three months ended March 31, 2001, compared to net income from continuing operations of $0.6 million, or $.02 per share, in the first quarter of 2000. Earnings from continuing operations before interest, taxes, depreciation, and amortization, (EBITDA) decreased 14.5% to $3.9 million for the three months ended March 31, 2001, from EBITDA of $4.6 million in the first quarter of 2000. The decrease in EBITDA was due to the aforementioned new Seattle, Washington directory that was launched in the first quarter of 2001 and had an operating loss of $1.0 million. Excluding the impact of the Seattle directory, EBITDA for the first quarter of 2001 increased 6.9% to $4.9 million from $4.6 million in the comparable period of 2000. 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. On a pro forma basis, assuming the acquisitions had occurred at the beginning of 2000, pro forma EBITDA for the quarter ended March 31, 2001 decreased 48.2% to $3.9 million from $7.5 million in the first quarter of 2000. The decrease was due to higher Internet losses, the loss on the Seattle, Washington directory and less EBITDA as a result of the Spokane, Washington directory not publishing in the first quarter of 2001 whereas it was published in the first quarter of 2000. LIQUIDITY AND CAPITAL RESOURCES The Company's working capital at March 31, 2001 was $31.2 million and its ratio of current assets to current liabilities was 2.1:1. 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. At March 31, 2001, the Company had $8.6 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% (7.8% at March 31, 2001). The facility expires in February 2005 and requires commitment fees of .5% on the unused portion of the facility. 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, which has been treated as an extraordinary item for financial reporting purposes. 10 The convertible debentures, which are due in February 2006, are convertible into shares of WorldPages' common stock at a conversion price that is subject to reset 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. On April 26, 2001, WorldPages entered into an Amendment Agreement (the "Amendment Agreement") with holders of its convertible debentures to address the dispute. The Amendment Agreement arises from a dispute (the "Dispute") between WorldPages and the holders as to the maximum amount of additional shares issuable upon conversion of the Debentures under the conversion price reset provision contained in the Debentures. Pursuant to the Amendment Agreement, the holders and the Company have agreed to the Litigation Standstill subject to certain conditions and to certain other understandings as to the shares issuable upon conversion and related matters. See Note 4 to Notes to Consolidated Financial Statements. On April 26, 2001, WorldPages entered into a merger agreement with TransWestern Publishing Company LLC ("TransWestern"), and a wholly owned subsidiary of TransWestern ("Merger Subsidiary"). Subject to the conditions set forth in the merger agreement, at the effective time of the merger, Merger Subsidiary will be merged into WorldPages and each share of WorldPages' common stock issued and outstanding immediately prior to the effective time (excluding shares owned, directly or indirectly, by WorldPages and its subsidiaries or by TransWestern and its subsidiaries or any shareholder exercising dissenter's) rights shall be converted into the right to receive $3.00 a share. The total purchase price is approximately $215 million, including assumed indebtedness. The transaction is expected to close in the third quarter of 2001. Consummation of the transaction is subject to approval of Worldpages' shareholders, receipt of necessary regulatory approvals, receipt by TransWestern of financing proceeds under the commitment letters it has received and certain other conditions. In conjunction with the pending merger, George Anderson, a member of the Board, has been appointed interim chief executive officer. Richard O'Neal will remain as chairman of the board until the transaction is completed. There can be no assurance that the merger will be consummated. If the merger is not consummated, under certain conditions, TransWestern will be entitled to break-up fees and or reimbursement of certain expenses. 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, 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, 2001. Advances against the facility periodically renew, at which point the borrowings are subject to the 11 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 2001 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, 2001 levels, would result in an increase in WorldPages' annual operating costs of approximately $1.0 million. PART II - OTHER INFORMATION Item 1. - LEGAL PROCEEDINGS In November 1999, the Company sold its telecommunications operations to Ionex Telecommunications, Inc. Subsequent to the sale, Ionex has made various claims for indemnification arising principally from alleged breaches of certain representations and warranties made by the Company in the related purchase and sale agreement. The Company has denied responsibility for certain of these claims aggregating approximately $5.0 million and has notified Ionex that it believes such claims to be without merit and that it has counterclaims. Ionex has not taken any legal action against the Company with respect to rejected claims. In the event Ionex takes any legal action, the Company intends to vigorously defend the matter. 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. - CHANGES IN SECURITIES AND USE OF PROCEEDS See Note 4 to Notes to the Consolidated Financial Statements for information concerning an Amendment Agreement with the holders of the Convertible Debentures due February 2006. The agreement affects, among other things, the maximum number of shares of Common Stock issuable upon exercise of the Convertible Debentures. Item 6. - EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Exhibit 10.49 - Letter Agreement between Richard O'Neal and WorldPages.com, Inc. dated April 26, 2001, filed herewith. 12 Exhibit 10.50 - Non-competition Agreement by and among Richard O'Neal, WorldPages.com, Inc. and TransWestern Publishing LLC dated April 26, 2001, filed herewith. Exhibit 11 - Computation of Earnings Per Share, filed herewith. (b) Reports on Form 8-K None 13 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: May 11, 2001 /s/ Richard O'Neal -------------------------- Richard O'Neal Chairman Date: May 11, 2001 /s/ Michael A. Pruss -------------------- Michael A. Pruss Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) 14 EXHIBIT 11 WORLDPAGES.COM, INC. AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE (Unaudited)

~~For~~Three ~~the~~Months ~~Quarterly~~Ended ~~Period~~March ~~Ended~~31, ~~September 30~~------------------------------------------- (In thousands, except share and per share data) 2001 2000 ------------------- ---------------- EARNINGS PER SHARE: Weighted average number of common shares outstanding for basic and diluted computation (see Note) 47,029,544 30,073,333 Net income (loss) from continuing operations $ (2,274) $ 613 Extraordinary item - loss on early retirement of debt, net --- (2,291) ----------------- ----------------- $ (2,274) $ (1,678) ================= ================= Basic and diluted earnings (loss) per share from: Continuing operations $ (.05) $ .02 Extraordinary item - loss on early retirement of debt, net --- (.08) ----------------- ----------------- $ (.05) $ (.06) ================= =================

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. 15

/ / 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 (State or other jurisdiction of incorporation or organization)		76-0549396 (I.R.S Employer Identification Number)
6801 Gaylord Parkway, Suite 300 Dallas, Texas (Address of principal executive offices)		75034 (Zip Code)

(972) 731-6600 (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 November 12, 2000, the registrant had 46,924,545 voting shares of common stock, $.0001 par value, outstanding.

PART I—FINANCIAL INFORMATION

Item 1.—Financial Statements

WorldPages.com, Inc. and Subsidiaries Consolidated Statements of Operations (Unaudited)

		Three Months Ended September 30,						Nine Months Ended September 30,
(In thousands, except per share amounts)		2000			1999			2000			1999
Revenues		$	13,334		$	9,113		$	80,097		$	42,337
Operating costs:
	Printing, distribution and listings		2,762			1,961			17,151			11,946
	Sales and marketing		4,963			2,686			20,757			9,755
	General and administrative		10,495			3,801			33,791			15,386
	Depreciation and amortization		4,479			1,202			10,920			3,522
Operating income (loss) from continuing operations			(9,365	)		(537	)		(2,522	)		1,728
Other income (expense):
	Interest expense		(1,420	)		(1,177	)		(3,918	)		(3,517	)
	Other		36			(6	)		(83	)		1
Income (loss) from continuing operations before income taxes and extraordinary item			(10,749	)		(1,720	)		(6,523	)		(1,788	)
Income tax expense (benefit)			(2,747	)		461			490			612
Net income (loss) from continuing operations before extraordinary item			(8,002	)		(2,181	)		(7,013	)		(2,400	)
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 $8,145			—			—			—			(51,800	)
Net income (loss)		$	(8,002	)	$	(2,181	)	$	(9,304	)	$	(60,389	)
Basic and diluted earnings (loss) per share from:
	Continuing operations	$	(.17	)	$	(.11	)	$	(.17	)	$	(.12	)
	Early retirement of debt		—			—			(.06	)		—
	Discontinued operations		—			—			—			(.31	)
	Sale of discontinued operations		—			—			—			(2.60	)
	Net loss per share	$	(.17	)	$	(.11	)	$	(.23	)	$	(3.03	)
Average shares outstanding			46,780			19,968			41,075			19,896

See accompanying notes to consolidate financial statements.

WorldPages.com, Inc. and Subsidiaries Consolidated Balance Sheets

(In thousands, except share data)			Sept. 30, 2000			Dec. 31, 1999
			(Unaudited)
Assets
Current assets:
	Cash and cash equivalents		$	305		$	1,315
	Accounts receivable, net			39,554			14,223
	Deferred costs			9,939			4,482
	Prepaid expenses and other current assets			2,043			174
		Total current assets		51,841			20,194
Property, plant and equipment, net				5,995			1,377
Intangible assets, net				268,383			75,413
Deferred taxes				7,773			6,504
Other assets				—			5,571
		Total other assets		282,151			88,865
		Total assets	$	333,992		$	109,059
Liabilities and Stockholders' Equity
Current liabilities:
	Accounts payable and accrued liabilities		$	19,694		$	9,447
	Short-term debt and current maturities of long-term debt			167			24,000
	Other current liabilities			5,827			3,940
		Total current liabilities		25,688			37,387
Long-term obligations:
	Long-term debt			64,543			—
		Total liabilities		90,231			37,387
Commitments and contingencies
Stockholders' equity:
	Preferred stock, Series B			—			—
	Common stock, $.0001 par value: 180,000,000 shares authorized; 46,889,545 and 20,426,753 outstanding			4			2
	Additional paid-in capital			330,829			149,438
	Retained earnings (accumulated deficit)			(87,072	)		(77,768	)
		Total stockholders' equity		243,761			71,672
	Total liabilities and stockholders' equity		$	333,992		$	109,059

See accompanying notes to consolidated financial statements.

WorldPages.com, Inc. and Subsidiaries Consolidated Statements of Cash Flows (Unaudited)

					Nine Months Ended September 30,
(In thousands)					2000			1999
Cash flows from operating activities:
	Net income (loss)				$	(9,304	)	$	(60,389	)
	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				10,920			3,522
		Provision for deferred taxes				884			(998	)
		Changes in operating assets and liabilities:
			Decrease (increase) in:
				Accounts receivable, net		(7,005	)		(4,364	)
				Deferred costs		4,928			1,652
				Prepaid expenses and other current assets		(792	)		(195	)
				Other assets		(7,866	)		(2,280	)
			Increase (decrease) in:
				Accounts payable and accrued liabilities		3,958			1,860
				Other current liabilities		(5,767	)		(326	)
			Cash used in continuing operating activities			(7,753	)		(3,529	)
			Cash used in discontinued operations			—			(26,624	)
			Cash used in operations			(7,753	)		(30,153	)
Cash flows from investing activities:
	Cash (paid for) from businesses acquired (disposed), net					(6,196	)		500
	Additions to property, plant and equipment, net					(1,823	)		(3,524	)
			Cash used in investing activities			(8,019	)		(3,024	)
Cash flows from financing activities:
	Borrowings of long-term debt					64,597			45,883
	Repayment of long-term debt					(53,486	)		(25,118	)
	Proceeds from stock option exercises					3,651			86
			Cash provided by financing activities			14,762			20,851
Net decrease in cash and cash equivalents						(1,010	)		(12,326	)
Cash and cash equivalents—beginning of period						1,315			13,734
Cash and cash equivalents—end of period					$	305		$	1,408

See accompanying notes to consolidated financial statements.

WorldPages.com, Inc. and Subsidiaries Notes to Consolidated Financial Statements Nine months Ended September 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/A dated April 21, 2000, filed with the Securities and Exchange Commission.

2. BASIS OF PRESENTATION

WorldPages.com, Inc. ("WorldPages" or the "Company"), a Delaware corporation, operates a worldwide Internet directory, provides Internet services and publishes yellow pages directories 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 telecommunications operations. The acquisitions were completed as purchase business combinations in February 2000, and the telecommunications operating subsidiaries were sold in November 1999. As such, the 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 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 the date of their respective acquisition (see Note 4). The telecommunications operations are presented as discontinued operations. 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 of customer lists and goodwill. The value of customer lists and their estimated useful lives were determined using independent appraisals and management analysis. 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 nine months ended September 30, 2000 and 1999, amortization expense relating to intangible assets was $10.0 million and $3.2 million, 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 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 September 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 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

In February 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., an 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 these companies with Great Western, WorldPages operates a worldwide Internet directory and produces print yellow pages 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 $138.2 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.

	Nine Months Ended
(In thousands, except per share data)	2000			1999
Total revenues from continuing operations	$	95,131		$	78,106
Net income (loss) from continuing operations	$	(7,420	)	$	(8,175	)
Income (loss) per share from continuing operations	$	(.16	)	$	(.18	)

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 was used to refinance existing indebtedness. The additional $27.0 million will be used for working capital needs and other general corporate purposes. At September 30, 2000, the Company had $15.5 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 September 30, 2000). The facility expires in February 2005 and requires commitment fees of .5% on the unused portion of the facility. The senior revolving facility contains various restrictive covenants including the maintenance of certain financial ratios and restrictions on additional indebtedness, investments in Internet operations, asset dispositions, dividends and other restricted payments and prepayment and amendments of subordinated indebtedness.

The convertible debentures, which are due in February 2006, are convertible into shares of WorldPages' common stock at a conversion price that is 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 Company has provided to the debenture holders its calculation of the adjustment applicable to the six month period ended August 23, 2000, which provides for the maximum adjustment or 1,679,884 shares issuable upon conversion. Holders of the debentures have asserted that the maximum adjustment provision is not applicable to this calculation and therefore the first adjustment should result in approximately 5,096,000 shares issued upon conversion. The Company believes that the interpretation of the holders is incorrect. There can be no assurance that this disagreement, which would also affect the calculation of future resets, can be resolved amicably.

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.

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:

		Three Months Ended September 30,				Nine Months Ended September 30, (1)
		2000		1999 (1)		2000 (1)		1999 (1)
Revenues		100.0	%	100.0	%	100.0	%	100.0	%
Cost of services:
	Printing, distribution and publishing	20.7		21.5		21.4		28.2
	Sales and marketing	37.2		29.5		25.9		23.0
	General and administrative	78.7		41.7		42.2		36.3
	Depreciation and amortization	33.6		13.2		13.6		8.3
Income (loss) from continuing operations		(70.2	)%	(5.9	)%	(3.1	)%	4.2	%

results for 2000 include the operations of the parent company and its yellow pages subsidiary, Great Western Directories, for the entire nine-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 September 30, 2000, compared to the results of operations for the three months ended September 30, 1999

Total revenues were $13.3 million in the third quarter of 2000 compared to total revenues of $9.1 million in the third quarter of 1999, an increase of 46.3%. The Company's print yellow pages operations account for $10.2 million, or 76.6%, of total revenues in the three months ended September 30, 2000, compared to $9.1 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 $1.8 million of the increase is due to sales from the Company's new directories from the acquisition of YPtel Corporation in February 2000; approximately $3.1 million of the increase is from Internet businesses acquired in February and April 2000; and $1.0 million of the increase is due to a combination of increased advertising revenue from existing customers and incremental sales from new customers. These increases are partially offset by the loss of $1.7 million of revenue relating to the Monterey, California directory which was not distributed in the 2000 third quarter but was distributed in the third quarter of 1999. This directory was moved to the first quarter of 2001 for competitive reasons. The Company's Internet revenues increased to $3.1 million in the third quarter of 2000, whereas the Company had no Internet revenues in the 1999 third quarter. The Company expects revenues from its Internet operations to be a larger portion of total revenues in the future.

On a pro forma basis, assuming the acquisitions occurred on January 1, 1999, third quarter total revenues increased 6.8%. Third quarter of 2000 revenues from the Company's print directory business decreased 9.4% due to the aforementioned Monterey directory which was not published in the 2000 third quarter but was included in 1999. Excluding the impact of the Monterey directory, print revenues for the third quarter of 2000 increased 6.4% from 1999. Revenues from the Company's Internet business increased 157% from pro forma revenues in 1999.

Printing, distribution and listings costs increased $0.8 million, or 40.8%, to $2.8 million in the third quarter of 2000 from $2.0 million in the 1999 third 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 20.7% of sales in 2000 from 21.5% in 1999. The decrease in the percentage is due to lower costs of sales as a percentage of revenue from the Company's Internet division sales which represents a larger portion of total revenues in 2000.

Sales and marketing costs increased to $5.0 million in the third quarter of 2000 from $2.7 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 increased to 37.2% of sales in the third quarter 2000 from 29.5% in the third quarter of 1999. The increase is due to higher sales and marketing costs associated with the Company's Internet operations.

General and administrative expenses increased $6.7 million, or 176%, to $10.5 million for the three months ended September 30, 2000, from $3.8 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 78.7% of sales in the third quarter of 2000, compared to 41.7% in the same period of 1999. The increase is a result of the lower sales volume that the newly acquired print business has historically experienced in the third quarter. Additionally, the Company experienced higher administrative costs relating to the Company's expansion into new markets.

Depreciation and amortization increased to $4.5 million in the third quarter of 2000 from $1.2 million in the third quarter of 1999. Depreciation and amortization is principally amortization of goodwill and customer lists resulting from acquisitions. The increase in the third quarter of 2000 is due to the amortization of goodwill associated with the businesses acquired in February and April 2000.

Interest expense for the third quarter of 2000 was approximately $1.4 million, an increase of $.2 million from interest expense of $1.2 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 benefit was $2.7 million for the third quarter of 2000 compared to income tax expense of $0.5 million in the third quarter of 1999. The decrease is due to lower taxable income in the 2000 third quarter than in the 1999 third quarter. The Company's effective tax rate is substantially higher than statutory tax rates principally because amortization of goodwill and customer lists is not deductible for tax purposes.

Net loss was $8.0 million, or $.17 per share, in the three months ended September 30, 2000, compared to a net loss of $2.2 million, or $.11 per share, in the 1999 third quarter.

Earnings from continuing operations before interest, taxes, depreciation and amortization (EBITDA) decreased to negative $4.9 million for the three months ended September 30, 2000, from positive EBITDA of $0.7 million in the third quarter of 1999. The decrease in EBITDA is due to EBITDA losses from the print yellow pages business acquired in February 2000 and due to EBITDA losses from the Company's Internet operations. On a pro forma basis, after giving effect to the acquisitions, pro forma EBITDA loss for the third quarter ended September 30, 2000, increased 19.3% to $4.9 million from $4.1 million. The increase in EBITDA loss is due to higher losses from the Company's Internet operations in 2000. 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 nine months ended September 30, 2000, compared to the results of operations for the nine months ended September 30, 1999

Total revenues were $80.1 million in the first nine months of 2000 compared to $42.3 million total revenues in the first nine months of 1999, an increase of 89.2%. The Company's print yellow pages operations account for $74.0 million, or 92.4%, of total revenues in the nine months ended September 30, 2000, compared to $42.3 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 is due primarily to the following: (1) approximately $24.0 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 $6.1 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) $1.9 million of the increase is due to a combination of increased advertising revenue from existing customers and incremental sales from new customers. These increases are partially offset by the loss of $1.7 million of revenue relating to the Monterey, California directory which was not distributed in the nine months ended September 30, 2000, for competitive reasons. The Company's Internet revenues increased to $6.1 million in the first nine months of 2000, whereas the Company had no Internet revenues in the first nine months of 1999. The Company expects revenues from its Internet operations to be a larger portion of total revenues in the future.

On a pro forma basis, assuming the acquisitions occurred on January 1, 1999, pro forma total revenues increased 20.3% over pro forma 1999 total revenues for the nine month period. Pro forma

print business revenues increased 15.6% to $87.8 million and revenues from WorldPages' Internet business increased 137% to $7.3 million for the pro forma nine month period.

Printing, distribution and listings costs increased $5.2 million, or 43.6%, to $17.2 million in the first nine months of 2000 from $11.9 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 21.4% of sales in 2000 from 28.2% in the same period of 1999. The decrease in the percentage is due to operating efficiencies realized from higher sales volume.

Sales and marketing costs for the first nine months of 2000 increased to $20.8 million from $9.8 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 26.0% of sales in 2000 from 23.0% in the first nine months of 1999. The increase in the percentage is due to higher commissions, selling and marketing costs associated with the Company's Internet operations in 2000.

General and administrative expenses increased $18.4 million, or 120%, to $33.8 million for the nine months ended September 30, 2000, from $15.4 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 increased to 42.2% of sales in the first nine months of 2000 from 36.3% in the same period of 1999. The expense rate is higher due to less operating efficiencies realized as a result of the lower sales volume and 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 $10.9 million in the first nine months of 2000 compared to $3.5 million in the first nine 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 nine months was approximately $3.9 million in the first nine months of 2000, an increase of $.4 million from interest expense of $3.5 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 entities up until the acquisitions.

Income tax expense was $0.5 million for the first nine months of 2000 compared to income tax expense of $0.6 million in the comparable period of 1999. The decrease is due to lower taxable income in the first nine months of 2000 than in the first nine months of 1999. The Company's effective tax rate is substantially higher than statutory tax rates principally because amortization of goodwill and customer lists is not deductible for tax purposes.

Net loss from continuing operations was $7.0 million, or $.17 per share, in the nine months ended September 30, 2000, compared to a net loss from continuing operations of $2.4 million, or $.12 per share, in the first nine months of 1999.

Earnings from continuing operations before interest, taxes, depreciation and amortization (EBITDA) increased 60.0% to $8.4 million for the nine months ended September 30, 2000, from EBITDA of $5.3 million in the first nine 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 nine months ended September 30, 2000 increased

37.2% to $11.4 million from $8.2 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.

Liquidity and Capital Resources

The Company's working capital at September 30, 2000 was $26.2 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 September 30, 2000, the Company had $15.5 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 September 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 that is 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 upon reset of the conversion price is 400,000 shares, subject to adjustments in the event of any stock splits, stock dividends, or other dilutive events with respect to shares of 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 Company has provided to the debenture holders its calculation of the adjustment applicable to the six month period ended August 23, 2000, which provides for the maximum adjustment of 1,679,884 shares issuable upon conversion. Holders of the debentures have asserted that the maximum adjustment provision is not applicable to this calculation and therefore the first adjustment should result in approximately 5,096,000 shares issued upon conversion. The Company believes that the interpretation of the holders is incorrect. There can be no assurance that this disagreement, which would also affect the calculation of future resets, can be resolved amicably.

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.

On November 6, 2000, the Company announced that its board of directors has hired the investment banking firm of Morgan Stanley Dean Witter as its financial advisor to assist WorldPages in exploring strategic alternatives for maximizing shareholder value, which could include, among other things, the possible sale of WorldPages.

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.

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 September 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 and October 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 6.9% 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 September 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 September 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

None.

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
		None.

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: November 14, 2000		/s/ RICHARD O'NEAL Richard O'Neal Chairman and Chief Executive Officer
Date: November 14, 2000		/s/ MICHAEL A. PRUSS Michael A. Pruss Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)

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