TRANSWESTERN PUBLISHING CO LLC - 10-Q Quarterly Report

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

FORM 10-Q

(Mark one)


[X]		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002.
[ ]		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 333-42085

TRANSWESTERN PUBLISHING COMPANY LLC
(Exact name of registrant as specified in its charter)


DELAWARE (State or other jurisdiction of incorporation or organization)		33-0778740 (I.R.S. Employer Identification Number)


8344 CLAIREMONT MESA BOULEVARD SAN DIEGO, CALIFORNIA (Address of principal executive offices)		92111 (Zip Code)

(858) 467-2800
(Registrant’s telephone number, including area code)

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

TABLE OF CONTENTS


		CONSOLIDATED BALANCE SHEETS
		CONSOLIDATED STATEMENTS OF OPERATIONS
		CONSOLIDATED STATEMENTS OF CASH FLOWS
		NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
	ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (UNAUDITED)
	ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
PART II. OTHER INFORMATION
	ITEM 1. LEGAL PROCEEDINGS
	ITEM 2. CHANGES IN SECURITIES
	ITEM 3. DEFAULTS UPON SENIOR SECURITIES
	ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
	ITEM 5. OTHER INFORMATION
	ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES
EXHIBIT 99.1

TRANSWESTERN PUBLISHING COMPANY LLC
FORM 10-Q INDEX


		PAGE

PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Balance Sheets as of June 30, 2002 (unaudited) and December 31, 2001		3

	Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2002 (unaudited) and 2001 (unaudited)		4

	Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2002 (unaudited) and 2001 (unaudited)		5

	Notes to Unaudited Consolidated Financial Statements		6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		11

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		17

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings		17

Item 2.	Changes in Securities		17

Item 3.	Defaults upon Senior Securities		17

Item 4.	Submission of Matters to a Vote of Security Holders		17

Item 5.	Other Information		17

Item 6.	Exhibits and Reports on Form 8-K		17

SIGNATURES			18

TRANSWESTERN PUBLISHING COMPANY LLC
CONSOLIDATED BALANCE SHEETS
(in thousands)


			JUNE 30,			DECEMBER 31,
			2002			2001

			(UNAUDITED)
ASSETS
Current assets:
	Cash		$	25,295		$	26,913
	Trade receivable, (net of allowance for doubtful accounts of $20,332 at June 30, 2002 and $19,444 at December 31, 2001)			105,656			92,714
	Deferred directory costs			26,652			25,617
	Other current assets			4,709			3,245

		Total current assets		162,312			148,489
Non-current assets:
	Property, equipment and leasehold improvements, net			5,825			6,590
	Acquired intangibles, net			251,687			252,403
	Debt issuance costs, net			12,019			13,192

		Total non-current assets		269,531			272,185

Total assets			$	431,843		$	420,674

LIABILITIES AND MEMBER DEFICIT
Current liabilities:
	Accounts payable		$	16,750		$	17,851
	Salaries and benefits payable			7,085			9,883
	Accrued acquisition costs			4,809			7,447
	Accrued interest			3,875			4,028
	Other accrued liabilities			1,617			2,249
	Equity trust distribution payable			3,036			2,902
	Customer deposits			31,855			25,420
	Current portion, long-term debt			6,681			5,055

		Total current liabilities		75,708			74,835
Long-term debt:
	Series F Senior Subordinated Notes			215,710			215,777
	Senior credit facility Term A Loan			28,719			30,545
	Senior credit facility Term B Loan			196,000			197,000
	Other long-term liabilities			300			300

		Total non-current liabilities		440,729			443,622

		Total liabilities		516,437			518,457

Member deficit				(84,594	)		(97,783	)

Total liabilities and member deficit			$	431,843		$	420,674

See accompanying notes.

TRANSWESTERN PUBLISHING COMPANY LLC
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands)


		THREE MONTHS ENDED						SIX MONTHS ENDED
		JUNE 30,						JUNE 30,

		2002			2001			2002			2001

Net revenues		$	94,546		$	54,453		$	163,516		$	95,131
Cost of revenues			15,707			11,072			28,922			19,399

Gross profit			78,839			43,381			134,594			75,732
Operating expenses:
	Sales and marketing		40,787			24,853			70,927			44,316
	General and administrative		17,217			13,846			33,037			25,639
	Recapitalization transaction costs		—			15,371			—			15,371
	Contribution to equity compensation plan		—			5,189			—			5,189

Total operating expenses			58,004			59,259			103,964			90,515

Income (loss) from operations			20,835			(15,878	)		30,630			(14,783	)
Other income (loss), net			(174	)		(150	)		(132	)		(56	)
Interest expense			(8,733	)		(6,805	)		(17,309	)		(13,182	)

Net income (loss) before extraordinary items		$	11,928		$	(22,833	)	$	13,189		$	(28,021	)
Extraordinary loss			—			(3,515	)		—			(3,515	)

Net income (loss)		$	11,928		$	(26,348	)	$	13,189		$	(31,536	)

Net income (loss) per member unit		$	11,928		$	(26,348	)	$	13,189		$	(31,536	)

Basic and diluted member units outstanding			1			1			1			1

See accompanying notes.

TRANSWESTERN PUBLISHING COMPANY LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)


			SIX MONTHS ENDED
			JUNE 30,

			2002			2001

OPERATING ACTIVITIES
Net income (loss)			$	13,189		$	(31,536	)
Adjustments to reconcile net income (loss) to cash provided (used) by operating activities:
	Loss on early extinguishment of debt			—			3,515
	Depreciation and amortization			20,172			15,349
	Amortization of deferred debt issuance costs			1,152			637
	Provision for doubtful accounts			18,293			10,811
	Changes in operating assets and liabilities, excluding the effects of acquisitions:
		Trade receivables		(10,910	)		(4,806	)
		Write-off of doubtful accounts		(24,456	)		(8,455	)
		Recoveries of doubtful accounts		911			690
		Deferred directory costs		(1,035	)		(2,747	)
		Other current assets		(1,464	)		(12,475	)
		Accounts payable		(3,597	)		(3,734	)
		Accrued liabilities and other current liabilities		(2,932	)		(5,032	)
		Accrued interest		(153	)		151
		Customer deposits		6,435			7,375
		Equity trust payable		134			5,189
		Other current liabilities		(272	)		—

Cash provided (used) by operating activities				15,467			(25,068	)
INVESTING ACTIVITIES
Purchase of property, equipment and leasehold improvements				(341	)		(722	)
Cash paid for acquisition of WorldPages.com, net of cash acquired				—			(140,299	)
Acquisition of directories				(14,693	)		(14,748	)
Deferred financing costs and other assets				(484	)		(7,440	)

Cash used for investing activities				(15,518	)		(163,209	)
FINANCING ACTIVITIES
Borrowings under long-term debt agreements:
	Revolving credit facility			—			61,700
	Senior term loans			—			235,000
	9 5/8% Senior Subordinated Notes			—			74,553
Repayments of long-term debt:
	Revolving credit facility			—			(84,200	)
	Senior term loans and note payable			(1,200	)		(106,020	)
	Repayment of debt assumed in acquisition of WorldPages			—			(73,414	)
Repayments of debt acquired				(367	)		—
Contributions from member				—			125,055
Redemption of member unit				—			(30,004	)

Cash provided (used) by financing activities				(1,567	)		202,670

Net increase (decrease) in cash				(1,618	)		14,393
Cash at beginning of period				26,913			1,961

Cash at end of period			$	25,295		$	16,354

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest			$	16,204		$	12,325

See accompanying notes.

TRANSWESTERN PUBLISHING COMPANY LLC
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(ALL DOLLAR AMOUNTS ARE IN THOUSANDS)

1. GENERAL

The accompanying unaudited consolidated financial statements include the accounts of TransWestern Publishing Company LLC (the “Company”) and its wholly owned operating subsidiaries, Target Directories of Michigan, Inc. (“Target”) and WorldPages, Inc. (“WorldPages”) and its subsidiaries. All significant intercompany transactions have been eliminated. The Company is an independent yellow page directory publisher and is a wholly owned subsidiary of TransWestern Holdings L.P. (the “Partnership”).

These financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and, in the opinion of management, reflect all adjustments necessary to present fairly the financial position, results of operations and cash flows for the periods presented in conformity with accounting principles generally accepted in the United States. All adjustments were of a normal recurring nature. All material intercompany balances and transactions have been eliminated. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Form 10-K for the fiscal year ended December 31, 2001. The 10-K is available on the Internet at http://www.sec.gov.

Certain amounts in prior period consolidated financial statements have been reclassified to conform to the presentation for the three and six months ended June 30, 2002.

TRANSWESTERN PUBLISHING COMPANY LLC
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(ALL DOLLAR AMOUNTS ARE IN THOUSANDS)

2. FINANCIAL STATEMENT DETAILS

Property, Equipment and Leasehold Improvements


	JUNE 30,			DECEMBER 31,
	2002			2001

Land and building	$	68		$	611
Computer and office equipment		10,995			10,219
Furniture and fixtures		2,693			2,492
Leasehold improvements		395			660

		14,151			13,982
Less accumulated depreciation and amortization		(8,326	)		(7,392	)

	$	5,825		$	6,590

Acquired Intangibles


		JUNE 30,			DECEMBER 31,
		2002			2001

Customer base		$	218,595		$	209,676
Goodwill			165,261			159,689
Licensing agreements			1,224			1,224
Non compete and other			6,546			2,621

			391,626			373,210
Less accumulated amortization			(139,939	)		(120,807	)

	Acquired intangibles, net	$	251,687		$	252,403

Debt issuance costs


		JUNE 30,			DECEMBER 31,
		2002			2001

Debt issuance costs		$	17,027		$	17,027
Less accumulated amortization			(5,008	)		(3,835	)

	Debt issuance costs, net	$	12,019		$	13,192

TRANSWESTERN PUBLISHING COMPANY LLC
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(ALL DOLLAR AMOUNTS ARE IN THOUSANDS)

3. LONG TERM DEBT

As of June 30, 2002 the Company had total outstanding long term indebtedness of $440.7 million, including $215.7 million of Series F 9 5/8% Senior Subordinated Notes due 2007, $28.7 million of outstanding borrowings under the Term A loan, $196.0 million of outstanding borrowings under the Term B loan, and $0.3 million in acquisition related debt. As of June 30, 2002 the Company had no outstanding borrowings under its revolving credit facility, with total borrowing availability of $65.0 million.

4. DIRECTORY ACQUISITIONS

Brazos Valley Telephone Directory Company. On February 26, 2002, the Company purchased certain tangible and intangible assets of Brazos Valley Telephone Directory Company for a total of $0.5 million. The Company acquired one directory in the Mansfield/Kennedale area of Texas.

Phone Directories Company, Inc. On March 22, 2002, the Company purchased certain tangible and intangible assets of Phone Directories Company, Inc. for a total of $0.8 million. The Company acquired four directories in the Tucson, Arizona area.

Arnold Advertising, Inc. On April 11, 2002, the Company purchased the outstanding common stock of Arnold Advertising, Inc. for a total of $7.9 million. The Company acquired three directories in the north Los Angeles, California ar

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