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 MARCH 31, 2003.

[ ]		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 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 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 [ ]

Indicate by check mark whether the registrant is an accelerated filer. Yes [ ] No [X]

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
	ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
	ITEM 4. CONTROLS AND PROCEDURES
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 March 31, 2003 (unaudited) and December 31, 2002		3
	Consolidated Statements of Operations for the Three Months Ended March 31, 2003 (unaudited) and 2002 (unaudited)		4
	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2003 (unaudited) and 2002 (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		15
Item 4.	Controls and Procedures		15
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings		15
Item 2.	Changes in Securities		15
Item 3.	Defaults upon Senior Securities		16
Item 4.	Submission of Matters to a Vote of Security Holders		16
Item 5.	Other Information		16
Item 6.	Exhibits and Reports on Form 8-K		16
SIGNATURES			17

TRANSWESTERN PUBLISHING COMPANY LLC
CONSOLIDATED BALANCE SHEETS
(in thousands)


		MARCH 31,			DECEMBER 31,
		2003			2002

		(UNAUDITED)
ASSETS
Current assets:
	Cash	$	4,392		$	17,408
	Trade receivable, (net of allowance for doubtful accounts of $19,450 at March 31, 2003 and $19,694 at December 31, 2002)		93,525			104,257
	Deferred directory costs		27,993			24,312
	Other current assets		3,727			3,433

	Total current assets		129,637			149,410
Non-current assets:
	Property, equipment and leasehold improvements, net		5,280			5,444
	Acquired intangibles, net		227,204			235,121
	Debt issuance costs, net		10,402			10,987
	Deferred tax asset		7,795			8,295

	Total non-current assets		250,681			259,847

Total assets		$	380,318		$	409,257

LIABILITIES AND MEMBER DEFICIT
Current liabilities:
	Accounts payable	$	13,392		$	17,118
	Salaries and benefits payable		9,940			10,034
	Accrued acquisition costs		466			2,165
	Accrued interest		8,778			3,660
	Other accrued liabilities		4,028			4,333
	Customer deposits		37,496			32,642
	Current portion, long-term debt		6,772			6,343

	Total current liabilities		80,872			76,295
Long-term debt:
	Series F Senior Subordinated Notes		215,610			215,643
	Senior credit facility Term A Loan		24,728			26,057
	Senior credit facility Term B Loan		194,500			195,000
	Revolving loan		4,500			—
	Other long-term liabilities		200			200

	Total non-current liabilities		439,538			436,900

	Total liabilities		520,410			513,195

Member deficit			(140,092	)		(103,938	)

Total liabilities and member deficit		$	380,318		$	409,257

See accompanying notes.

TRANSWESTERN PUBLISHING COMPANY LLC
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands except for per member unit and member units outstanding)


		THREE MONTHS ENDED
		MARCH 31

		2003			2002

Net revenues		$	63,048		$	68,970
Cost of revenues			10,701			13,214

Gross profit			52,347			55,756
Operating expenses:
	Sales and marketing		31,768			30,140
	General and administrative		16,253			15,820

Total operating expenses			48,021			45,960

Income from operations			4,326			9,796
Other income, net			212			283
Interest expense			(8,431	)		(8,577	)

Income (loss) before taxes			(3,893	)		1,502
Income tax provision			(1,056	)		(241	)

Net income (loss)		$	(4,949	)	$	1,261

Net income (loss) per Member unit		$	(4,949	)	$	1,261

Member units outstanding			1,000			1,000

See accompanying notes.

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


		THREE MONTHS ENDED
		MARCH 31,

		2003			2002

OPERATING ACTIVITIES
Net income (loss)		$	(4,949	)	$	1,261
Adjustments to reconcile net income (loss) to cash provided by operating activities:
	Depreciation and amortization		10,243			9,754
	Amortization of deferred debt issuance costs		585			567
	Provision for doubtful accounts		7,567			7,423
	Deferred tax asset		500			—
	Changes in operating assets and liabilities, excluding the effects of acquisitions:
	Trade receivables		11,557			152
	Write-off of doubtful accounts		(9,240	)		(10,870	)
	Recoveries of doubtful accounts		998			407
	Deferred directory costs		(3,681	)		(2,261	)
	Other current assets		(294	)		(522	)
	Accounts payable		(806	)		(4,912	)
	Accrued liabilities		(5,019	)		(3,522	)
	Accrued interest		5,118			4,969
	Customer deposits		4,854			6,181
	Other current liabilities		—			(88	)

Cash provided by operating activities			17,433			8,539
INVESTING ACTIVITIES
Purchase of property, equipment and leasehold improvements			(339	)		(318	)
Acquisition of directories			(2,005	)		(1,216	)

Cash used for investing activities			(2,344	)		(1,534	)
FINANCING ACTIVITIES
Borrowings under long-term debt agreements:
	Revolving credit facility		24,250			—
Repayments of long-term debt:
	Revolving credit facility		(19,750	)		—
	Senior term loans		(1,400	)		—
Repayments of debt acquired			—			(83	)
Distributions to TransWestern Holdings			(31,205	)		—

Cash used for financing activities			(28,105	)		(83	)

Net increase (decrease) in cash			(13,016	)		6,922
Cash at beginning of period			17,408			26,913

Cash at end of period		$	4,392		$	33,835

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest		$	3,332		$	3,036

Cash paid for taxes		$	286		$	262

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, 2002. 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 months ended March 31, 2003.

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


	MARCH 31,			DECEMBER 31,
	2003			2002

Computer and office equipment	$	14,289		$	14,033
Furniture and fixtures		3,385			3,323
Leasehold improvements		820			802

		18,494			18,158
Less accumulated depreciation and amortization		(13,214	)		(12,714	)

	$	5,280		$	5,444

Acquired Intangibles


		MARCH 31,			DECEMBER 31,
		2003			2002

Customer base		$	223,044		$	222,174
Goodwill			165,768			164,983
Licensing agreements			1,224			1,224
Non-competes			5,896			5,696

			395,932			394,077
Less accumulated amortization			(168,728	)		(158,956	)

	Acquired intangibles, net	$	227,204		$	235,121

Debt issuance costs


		MARCH 31,			DECEMBER 31,
		2003			2002

Debt issuance costs		$	17,200		$	17,200
Less accumulated amortization			(6,798	)		(6,213	)

	Debt issuance costs, net	$	10,402		$	10,987

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

3. LONG TERM DEBT

On January 15, 2003, the Partnership redeemed the remaining $28.9 million in aggregate principal amount of Partnership’s Discount Notes. In order to fund the redemption, the Company distributed $31.2 million to the Partnership. The Company borrowed $15.0 million of the available $65.0 million on its revolving line of credit and used cash on hand to fund the remaining distribution to the Partnership.

As of March 31, 2003 the Company had total outstanding long term indebtedness of $439.5 million, including $215.6 million of Series F 9 5/8% Senior Subordinated Notes due 2007, $24.7 million of outstanding borrowings under the Term A Loan due 2007, $194.5 million of outstanding borrowings under the Term B Loan due 2008, $4.5 million of outstanding borrowings under its $65.0 million revolving credit facility, and $0.2 million in acquisition related debt.

4. DIRECTORY ACQUISITIONS

TelFax, Inc. On February 6, 2003, the Company purchased certain tangible and intangible assets of TelFax, Inc. for $2.0 million. The Company acquired two directories in Oregon and one in Washington.

The purchase price for the acquisition above has been allocated on a preliminary basis to the tangible and intangible assets acquired based on their respective fair values at the date of acquisition, as follows (in thousands):


Customer list	$	870
Goodwill		785
Non-compete		200
Other current and non-current net assets		150

Total consideration	$	2,005

Total consideration paid in the purchase acquisitions is as follows (in thousands):


Cash paid for acquisition	$	1,950
Merger fees incurred		55

Total consideration	$	2,005

Assuming that the above acquisition had occurred on the first day of the Company’s three month period ended March 31, 2003 and March 31, 2002, the unaudited pro forma results of operations would be as follows:


	Three months ended March 31,

	2003			2002

	(Unaudited)
Net revenues	$	63,572		$	69,523
Net income (loss)		(4,723	)		1,457
Net income (loss) per member unit		(4,723	)		1,457

These results give effect to pro forma adjustment for the amortization of acquired intangibles and for the additional interest expense on the debt incurred to fund the acquisitions.

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

5. GUARANTEE

Target Directories of Michigan, Inc., WorldPages, Inc., and TransWestern’s other material wholly-owned subsidiaries, fully and unconditionally guaranteed the Company’s outstanding 9 5/8% Series F Senior Subordinated Notes due 2007 on an unsecured senior subordinated basis. Target and WorldPages, Inc, and its subsidiaries are the Company’s only consolidated operating subsidiaries, other than an inconsequential subsidiary which is a co-issuer of such notes, and has no debt senior to the Notes. The following includes summarized financial data for the Company’s unconditional guarantors:


	Three months ended March 31,

	2003		2002

	(Unaudited)
Statement of Operations:
Net revenues	$	24,318	$	37,256
Gross profit		20,565		30,494
Operating income		4,134		17,624
Net income		842		8,397

	March 31,		December 31,
	2003		2002

	(Unaudited)
Balance Sheet:
Current assets	$	66,212	$	63,962
Non-current assets		187,153		190,605
Current liabilities		20,821		21,756
Non-current liabilities		205,804		206,912

6. LEGAL PROCEEDINGS

The Company and/or its subsidiaries are parties to various litigation matters incidental to the conduct of their business. Management does not believe that the outcome of any of these matters will have a material adverse effect on the Company’s financial condition or the results of its operations.

7. GOODWILL

A summary of changes in the Company’s goodwill for the three month period ended March 31, 2003 is as follows:


	January 1,						Balance at
	2003		Acquisitions (1)		Impairments		March 31, 2003

Goodwill	$	164,983	$	785		—	$	165,768

(1) Acquisition relates to the Company’s preliminary purchase price allocation for TelFax, Inc.

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

8. NEW ACCOUNTING PRONOUNCEMENTS

In April 2002, the Financial Accounting Standards Board (“FASB”) issued F

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