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 SEPTEMBER 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 |
33-0778740 |
|
(State or other jurisdiction of
incorporation or organization) |
(I.R.S. Employer
Identification Number) |
| 8344 CLAIREMONT MESA BOULEVARD SAN DIEGO, CALIFORNIA |
92111 | |
| (Address of principal executive offices) | (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 [ ]
TRANSWESTERN PUBLISHING COMPANY LLC
FORM 10-Q INDEX
| PAGE | ||||||||
PART I. |
FINANCIAL INFORMATION | |||||||
Item 1. |
Financial Statements | |||||||
Consolidated Balance Sheets as of September 30, 2002 (unaudited) and December 31, 2001 |
3 | |||||||
Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2002 (unaudited) and 2001 (unaudited) |
4 | |||||||
Consolidated Statements of Cash Flows for the Nine Months Ended September 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 |
12 | ||||||
Item 3. |
Quantitative and Qualitative Disclosures About Market Risk | 18 | ||||||
Item 4. |
Controls and Procedures | 18 | ||||||
PART II. |
OTHER INFORMATION | |||||||
Item 1. |
Legal Proceedings | 18 | ||||||
Item 2. |
Changes in Securities | 18 | ||||||
Item 3. |
Defaults upon Senior Securities | 18 | ||||||
Item 4. |
Submission of Matters to a Vote of Security Holders | 18 | ||||||
Item 5. |
Other Information | 18 | ||||||
Item 6. |
Exhibits and Reports on Form 8-K | 18 | ||||||
| SIGNATURES | 19 | |||||||
2
TRANSWESTERN PUBLISHING COMPANY LLC
CONSOLIDATED BALANCE SHEETS
(in thousands)
| SEPTEMBER 30, | DECEMBER 31, | |||||||||
| 2002 | 2001 | |||||||||
| (UNAUDITED) | ||||||||||
ASSETS |
||||||||||
Current assets: |
||||||||||
Cash |
$ | 32,482 | $ | 26,913 | ||||||
Trade receivable, (net of allowance for doubtful accounts of $20,721
at September 30, 2002 and $19,444 at December 31, 2001) |
103,428 | 92,714 | ||||||||
Deferred directory costs |
27,173 | 25,617 | ||||||||
Other current assets |
4,774 | 3,245 | ||||||||
Total current assets |
167,857 | 148,489 | ||||||||
Non-current assets: |
||||||||||
Property, equipment and leasehold improvements, net |
5,660 | 6,590 | ||||||||
Acquired intangibles, net |
249,836 | 252,403 | ||||||||
Debt issuance costs, net |
11,574 | 13,192 | ||||||||
Total non-current assets |
267,070 | 272,185 | ||||||||
Total assets |
$ | 434,927 | $ | 420,674 | ||||||
LIABILITIES AND MEMBER DEFICIT |
||||||||||
Current liabilities: |
||||||||||
Accounts payable |
$ | 15,610 | $ | 17,851 | ||||||
Salaries and benefits payable |
10,960 | 9,883 | ||||||||
Accrued acquisition costs |
4,820 | 7,447 | ||||||||
Accrued interest |
9,015 | 4,028 | ||||||||
Other accrued liabilities |
2,017 | 2,249 | ||||||||
Equity trust distribution payable |
— | 2,902 | ||||||||
Customer deposits |
36,406 | 25,420 | ||||||||
Current portion, long-term debt |
5,912 | 5,055 | ||||||||
Total current liabilities |
84,740 | 74,835 | ||||||||
Long-term debt: |
||||||||||
Series F Senior Subordinated Notes |
215,676 | 215,777 | ||||||||
Senior credit facility Term A Loan |
27,388 | 30,545 | ||||||||
Senior credit facility Term B Loan |
195,500 | 197,000 | ||||||||
Other long-term liabilities |
300 | 300 | ||||||||
Total non-current liabilities |
438,864 | 443,622 | ||||||||
Total liabilities |
523,604 | 518,457 | ||||||||
Member deficit |
(88,677 | ) | (97,783 | ) | ||||||
Total liabilities and member deficit |
$ | 434,927 | $ | 420,674 | ||||||
See accompanying notes.
3
TRANSWESTERN PUBLISHING COMPANY LLC
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands)
| THREE MONTHS ENDED | NINE MONTHS ENDED | ||||||||||||||||
| SEPTEMBER 30, | SEPTEMBER 30, | ||||||||||||||||
| 2002 | 2001 | 2002 | 2001 | ||||||||||||||
Net revenues |
$ | 75,036 | $ | 63,634 | $ | 238,552 | $ | 158,765 | |||||||||
Cost of revenues |
14,211 | 14,949 | 43,132 | 34,348 | |||||||||||||
Gross profit |
60,825 | 48,685 | 195,420 | 124,417 | |||||||||||||
Operating expenses: |
|||||||||||||||||
Sales and marketing |
37,080 | 29,015 | 108,007 | 73,331 | |||||||||||||
General and administrative |
19,199 | 26,038 | 52,236 | 51,676 | |||||||||||||
Recapitalization transaction costs |
— | — | — | 15,371 | |||||||||||||
Contribution to equity compensation plan |
— | 616 | — | 5,805 | |||||||||||||
Total operating expenses |
56,279 | 55,669 | 160,243 | 146,183 | |||||||||||||
Income (loss) from operations |
4,546 | (6,984 | ) | 35,177 | (21,766 | ) | |||||||||||
Other income (loss), net |
23 | 343 | (109 | ) | 287 | ||||||||||||
Interest expense |
(8,653 | ) | (10,041 | ) | (25,963 | ) | (23,224 | ) | |||||||||
Net income (loss) before extraordinary loss |
$ | (4,084 | ) | $ | (16,682 | ) | $ | 9,105 | $ | (44,703 | ) | ||||||
Extraordinary loss |
— | — | — | (3,515 | ) | ||||||||||||
Net income (loss) |
$ | (4,084 | ) | $ | (16,682 | ) | $ | 9,105 | $ | (48,218 | ) | ||||||
Net income (loss) per member unit |
$ | (4,084 | ) | $ | (16,682 | ) | $ | 9,105 | $ | (48,218 | ) | ||||||
Basic and diluted member units outstanding |
1 | 1 | 1 | 1 | |||||||||||||
See accompanying notes.
4
TRANSWESTERN PUBLISHING COMPANY LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
| NINE MONTHS ENDED | ||||||||||
| SEPTEMBER 30, | ||||||||||
| 2002 | 2001 | |||||||||
OPERATING ACTIVITIES |
||||||||||
Net income (loss) |
$ | 9,105 | $ | (48,218 | ) | |||||
Adjustments to reconcile net income (loss) to cash provided (used)
by operating activities: |
||||||||||
Loss on early extinguishment of debt |
— | 3,515 | ||||||||
Write-down of investment in Eversave |
— | 250 | ||||||||
Loss on write-off of fixed assets |
606 | — | ||||||||
Depreciation and amortization |
30,563 | 33,425 | ||||||||
Amortization of deferred debt issuance costs |
1,790 | 1,321 | ||||||||
Provision for doubtful accounts |
27,536 | 16,742 | ||||||||
Changes in operating assets and liabilities, excluding the
effects of acquisitions: |
||||||||||
Trade receivables |
(10,628 | ) | (1,350 | ) | ||||||
Write-off of doubtful accounts |
(27,695 | ) | (14,567 | ) | ||||||
Recoveries of doubtful accounts |
1,529 | 1,468 | ||||||||
Deferred directory costs |
(1,291 | ) | (5,932 | ) | ||||||
Other current assets |
(1,529 | ) | (403 | ) | ||||||
Accounts payable |
(3,194 | ) | (4,844 | ) | ||||||
Accrued liabilities |
(4,664 | ) | (13,103 | ) | ||||||
Accrued interest |
4,987 | 7,734 | ||||||||
Customer deposits |
11,696 | 10,005 | ||||||||
Equity trust payable |
(2,902 | ) | 2,902 | |||||||
Cash provided by (used in) operating activities |
35,909 | (11,055 | ) | |||||||
INVESTING ACTIVITIES |
||||||||||
Purchase of property, equipment and leasehold improvements |
(1,112 | ) | (970 | ) | ||||||
Cash paid for acquisition of WorldPages.com, net of cash acquired |
— | (140,299 | ) | |||||||
Acquisition of directories |
(24,046 | ) | (14,748 | ) | ||||||
Deferred financing costs and other assets |
(969 | ) | (7,440 | ) | ||||||
Cash used for investing activities |
(26,127 | ) | (163,457 | ) | ||||||
FINANCING ACTIVITIES |
||||||||||
Borrowings under long-term debt agreements: |
||||||||||
Revolving credit facility |
— | 61,700 | ||||||||
Senior term loans |
— | 235,220 | ||||||||
9 5/8% Senior Subordinated Notes |
— | 74,553 | ||||||||
Repayments of long-term debt: |
||||||||||
Revolving credit facility |
— | (84,200 | ) | |||||||
Senior term loans and note payable |
(3,800 | ) | (107,395 | ) | ||||||
Repayment of debt assumed in acquisition of WorldPages |
— | (73,534 | ) | |||||||
Repayments of debt assumed in WorldPages.com acquisition |
(413 | ) | — | |||||||
Contributions from member |
— | 125,055 | ||||||||
Redemption of member unit |
— | (30,004 | ) | |||||||
Cash provided by (used in) financing activities |
(4,213 | ) | 201,395 | |||||||
Net increase in cash |
5,569 | 26,883 | ||||||||
Cash at beginning of period |
26,913 | 1,961 | ||||||||
Cash at end of period |
$ | 32,482 | $ | 28,844 | ||||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: |
||||||||||
Cash paid for interest |
$ | 19,126 | $ | 14,341 | ||||||
See accompanying notes.
5
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 nine months ended September 30, 2002.
6
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
| SEPTEMBER 30, | DECEMBER 31, | |||||||
| 2002 | 2001 | |||||||
Land and building |
$ | — | $ | 611 | ||||
Computer and office equipment |
11,141 | 10,219 | ||||||
Furniture and fixtures |
2,764 | 2,492 | ||||||
Leasehold improvements |
798 | 660 | ||||||
| 14,703 | 13,982 | |||||||
Less accumulated depreciation and amortization |
(9,043 | ) | (7,392 | ) | ||||
| $ | 5,660 | $ | 6,590 | |||||
Acquired Intangibles
| SEPTEMBER 30, | DECEMBER 31, | ||||||||
| 2002 | 2001 | ||||||||
Customer base |
$ | 222,962 | $ | 209,676 | |||||
Goodwill |
168,191 | 159,689 | |||||||
Licensing agreements |
1,224 | 1,224 | |||||||
Non compete and other |
7,296 | 2,621 | |||||||
| 399,673 | 373,210 | ||||||||
Less accumulated amortization |
(149,837 | ) | (120,807 | ) | |||||
Acquired intangibles, net |
$ | 249,836 | $ | 252,403 | |||||
Debt issuance costs
| SEPTEMBER 30, | DECEMBER 31, | ||||||||
| 2002 | 2001 | ||||||||
Debt issuance costs |
$ | 17,199 | $ | 17,027 | |||||
Less accumulated amortization |
(5,625 | ) | (3,835 | ) | |||||
Debt issuance costs, net |
$ | 11,574 | $ | 13,192 | |||||
7
TRANSWESTERN PUBLISHING COMPANY LLC
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(ALL DOLLAR AMOUNTS ARE IN THOUSANDS)
3. LONG TERM DEBT
As of September 30, 2002 the Company had total outstanding long term indebtedness of $438.9 million, including $215.7 million of Series F 9 5/8% Senior Subordinated Notes due 2007, $27.4 million of outstanding borrowings under the Term A loan due 2007, $195.5 million of outstanding borrowings under the Term B loan due 2008, and $0.3 million in acquisition related debt. As of September 30, 2002 the Company had no outstanding borrowings under its $65.0 million revolving credit facility.
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 $8.1 million. The Company acquired three directories in the north Los Angeles, California area.
Western Directory, Inc. On May 1, 2002, the Company purchased certain tangible and intangible assets of Western Directory, Inc. for a total of $3.1 million. The Company acquired two directories in northern Oregon.
Pennco Publishing, Inc. On June 5, 2002, th