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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, 1999.
[ ] 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 (I.R.S. Employer
incorporation or organization) 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 [ ]
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TRANSWESTERN PUBLISHING COMPANY LLC
FORM 10-Q INDEX
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 1999
(unaudited) and December 31, 1998 3
Consolidated Statements of Operations for the Three and Nine
Months Ended September 30, 1999 (unaudited) and 1998 (unaudited) 4
Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 1999 (unaudited) and 1998 (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 and Use of Proceeds 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
</TABLE>
<PAGE> 3
TRANSWESTERN PUBLISHING COMPANY LLC
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
--------- ---------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 1,206 $ 14,067
Trade receivables, (less allowance for doubtful accounts of $9,314
at September 30, and $9,608 at December 31) 32,005 20,931
Deferred directory costs 9,287 8,935
Other current assets 1,385 805
--------- ---------
Total current assets 43,883 44,738
Non-current assets:
Property, equipment and leasehold improvements, net 2,774 2,977
Acquired intangibles, net 70,606 34,486
Other assets, primarily debt issuance costs, net 7,916 8,629
--------- ---------
Total non-current assets 81,296 46,092
--------- ---------
Total assets $ 125,179 $ 90,830
========= =========
LIABILITIES AND MEMBER DEFICIT
Current liabilities:
Accounts payable $ 7,047 $ 4,241
Salaries and benefits payable 5,123 3,980
Accrued acquisition costs 4,464 916
Accrued interest 5,377 1,470
Other accrued liabilities 1,162 1,063
Customer deposits 16,508 16,139
Current portion, long-term debt 1,741 1,741
--------- ---------
Total current liabilities 41,422 29,550
Long-term debt:
Series D 9 5/8% Senior Subordinated Notes 141,633 141,784
Senior Credit Facility 64,858 66,165
Revolving loan 23,000 --
Acquisition debt 2,810 2,000
--------- ---------
Total long-term debt 232,301 209,949
--------- ---------
Member deficit (148,544) (148,669)
--------- ---------
Total liabilities and member deficit $ 125,179 $ 90,830
========= =========
</TABLE>
See accompanying notes.
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TRANSWESTERN PUBLISHING COMPANY LLC
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- ---------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net revenue $ 38,231 $ 28,995 $103,880 $ 84,545
Cost of revenue 7,232 5,557 19,313 15,927
-------- -------- -------- --------
Gross profit 30,999 23,438 84,567 68,618
Operating expenses:
Sales and marketing 15,409 12,188 43,060 34,127
General and administrative 8,814 4,355 24,600 12,853
-------- -------- -------- --------
Total operating expenses 24,223 16,543 67,660 46,980
-------- -------- -------- --------
Income from operations 6,776 6,895 16,907 21,638
Other income, net 97 75 305 244
Interest expense (5,594) (4,571) (16,855) (13,634)
-------- -------- -------- --------
Net income before taxes $ 1,279 $ 2,399 $ 357 $ 8,248
Tax expense 225 - 232 -
-------- -------- -------- --------
Net income $ 1,054 $ 2,399 $ 125 $ 8,248
======== ======== ======== ========
Net income per Member unit $ 1,054 $ 2,399 $ 125 $ 8,248
======== ======== ======== ========
</TABLE>
See accompanying notes.
<PAGE> 5
TRANSWESTERN PUBLISHING COMPANY LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1999 1998
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 125 $ 8,248
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation and amortization 13,844 5,093
Amortization of deferred debt issuance costs 944 865
Provision for doubtful accounts 9,154 8,018
Changes in operating assets and liabilities, excluding the
effects of acquisitions:
Trade receivables (8,940) (5,497)
Write-off of doubtful accounts (10,348) (7,275)
Recoveries of doubtful accounts 654 403
Deferred directory costs 442 2,264
Other current assets (532) 17
Accounts payable 2,806 452
Accrued liabilities (3,416) 523
Accrued interest 3,906 1,740
Customer deposits (965) (3,295)
-------- --------
Cash provided by operating activities 7,674 11,556
INVESTING ACTIVITIES
Purchase of property, equipment and leasehold improvements (576) (611)
Acquisition of directories (39,454) (7,807)
Increase in other assets (233) (5,856)
-------- --------
Cash used for investing activities (40,263) (14,274)
FINANCING ACTIVITIES
Borrowings under long-term debt agreements:
Revolving credit facility 47,700 24,600
Repayments of long-term debt:
Revolving credit facility (24,700) (23,100)
External debt (1,965) (430)
Senior Term Loan (1,307) (3,062)
-------- --------
Cash provided by (used for) financing activities 19,728 (1,992)
-------- --------
Net decrease in cash (12,861) (4,710)
Cash at beginning of period 14,067 6,812
-------- --------
Cash at end of period $ 1,206 $ 2,102
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 12,156 $ 11,029
</TABLE>
See accompanying notes.
<PAGE> 6
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," "we," or "us")
and its wholly owned subsidiary, Target Directories of Michigan, Inc. All
significant inter-company 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 generally accepted accounting principles. All
adjustments were of a normal recurring nature. 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 eight months ended
December 31, 1998. The 10-K is available at the SEC's web-site on the Internet
at http://www.sec.gov.
<PAGE> 7
TRANSWESTERN PUBLISHING COMPANY LLC
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(ALL DOLLAR AMOUNTS ARE IN THOUSANDS)
2. FINANCIAL STATEMENT DETAILS
<TABLE>
<CAPTION>
Property, Equipment and Leasehold Improvements
SEPTEMBER 30, DECEMBER 31,
1999 1998
----------- -----------
<S> <C> <C>
Computer and office equipment.................... $ 6,502 $ 6,122
Furniture and fixtures........................... 1,723 1,636
Leasehold improvements........................... 419 310
----------- -----------
8,644 8,068
Less accumulated depreciation and amortization... (5,870) (5,091)
----------- -----------
$ 2,774 $ 2,977
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
Acquired Intangibles
SEPTEMBER 30, DECEMBER 31,
1999 1998
----------- -----------
<S> <C> <C>
Customer Base.................................. $ 109,368 $ 60,031
Less accumulated amortization.................. (38,762) (25,545)
----------- -----------
$ 70,606 $ 34,486
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
Other Assets
SEPTEMBER 30, DECEMBER 31,
1999 1998
----------- -----------
<S> <C> <C>
Debt issuance costs............................... $ 10,349 $ 10,117
Less accumulated amortization..................... (2,433) (1,488)
----------- -----------
$ 7,916 $ 8,629
=========== ===========
</TABLE>
3. DIRECTORY ACQUISITIONS
United. On January 5, 1999, we purchased 14 directories from United
Directory Services, Inc. for approximately $17.0 million. The purchase price
consisted of $12.3 million in cash, a promissory note for $2.0 million, due in
eighteen months, subject to adjustment based upon the actual collections of
accounts receivable outstanding as of the closing during such period, and
contingent payments paid over a period of three years not to exceed an
additional $2.7 million based upon the contribution margin of a prototype
directory acquired in Austin, Texas. The acquired directories serve the
greater Ft. Worth, San Antonio and Austin, Texas areas.
<PAGE> 8
TRANSWESTERN PUBLISHING COMPANY LLC
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(ALL DOLLAR AMOUNTS ARE IN THOUSANDS)
3. DIRECTORY ACQUISITIONS (CONTINUED)
Lambert. On January 8, 1999, we purchased eight directories from Lambert
Publishing for approximately $11.0 million. The purchase price consisted of
$9.5 million in cash, a promissory note of $1.0 million due in eighteen
months, subject to adjustment based upon the actual collections of accounts
receivable outstanding as of the consummation of the acquisition, and a $0.5
million contingent payment based upon the performance of the subsequent years
directories exceeding a specific revenue forecast. The acquired directories
serve the central Georgia area and central eastern Alabama.
Southern. On January 15, 1999, we purchased seven directories from
Southern Directories Publishing, Inc. for approximately $5.2 million in cash.
The acquired directories serve the central Georgia area. One area sales
manager and approximately five account executives associated with the acquired
directories were retained.
Orange Line. On February 15, 1999, we purchased four directories from
Call It, Inc. (DBA, Orange Line) for approximately $1.1 million in cash and
$0.2 million in cash held in escrow for six months to be released upon the
expiration of the representation and warranty period of the purchase agreement.
The acquired directories serve the northern Ohio area.
YPTexas. On April 1, 1999, we purchased certain tangible and intangible
assets of Yellow Pages of Texas, Inc. ("YPTexas") for a total of approximately
$2.2 million. YPTexas publishes one directory near Ft Worth, Texas.
Golden State. On April 2, 1999, we purchased certain tangible and
intangible assets of Golden State Directory, Corp. ("Golden State") for a
total of approximately $5.5 million. Golden State published six directories
in northern California.
Pioneer. On August 30, 1999 we purchased certain tangible and intangible
assets from Pioneer Telephone Directories Corp. ("Pioneer") for $2.4 million in
cash. Pioneer published three directories in southeastern Alabama.
Stafford. On August 24, 1999 the Company purchased certain tangible and
intangible assets from Greenville News, Inc. (Stafford Communications) for $2.5
million in cash. Greenville News published two directories in western central
Michigan.
The acquisitions have been accounted for as asset purchases and
accordingly the purchase prices have been allocated to the tangible and
intangible assets acquired based on their respective fair values at the date of
acquisition, as follows:
<TABLE>
<S> <C>
Customer List $ 46,146
Deferred directory costs 1,457
Other current and non-current assets 2,361
</TABLE>
<PAGE> 9
TRANSWESTERN PUBLISHING COMPANY LLC
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(ALL DOLLAR AMOUNTS ARE IN THOUSANDS)
3. DIRECTORY ACQUISITIONS (CONTINUED)
Assuming that the above acquisitions had occurred on January 1, 1998, the
unaudited pro forma results of operations would be as follows:
<TABLE>
<CAPTION>
Nine months ended September 30,
-----------------------------
1999 1998
------------ -----------
(Unaudited)
<S> <C> <C>
Net revenues....................................... $ 107,834 $ 98,095
Net income ....................................... 264 1,617
</TABLE>
The above pro forma results give effect to pro forma adjustments for the
amortization of acquired intangibles and interest expense on borrowings that
would have been required to fund the acquisitions.
4. GUARANTEE
Target Directories of Michigan, Inc. ("Target"), which is a direct,
wholly-owned subsidiary of the Company, fully and unconditionally guaranteed
the Company's Series D 9 5/8% Senior Subordinated Notes due 2007 that were
outstanding as of September 30, 1999 on an unsecured senior subordinated basis.
Target is the Company's only direct or indirect subsidiary, other than an
inconsequential subsidiary which is a co-issuer of the notes, and Target has no
debt senior to the Notes. Separate full financial statements and other
disclosures concerning Target have not been presented because, in the opinion
of management, such information is not material to investors. Target was
acquired in July, 1998. Following is summarized financial information
concerning Target for the nine months ended and as of September 30, 1999
(unaudited):
Statement of Operations Data:
Net revenues $ 2,710
Gross profit 1,921
Operating income 313
Net income 88
Balance Sheet:
Current assets $ 1,257
Non-current assets 4,784
Current liabilities 722
Non-current liabilities --
5. SUBSEQUENT EVENTS
ACQUISITIONS
United Multimedia (American Media). On October 15, 1999 we purchased
certain tangible and intangible assets of United Multimedia (American Media)
for a total of $16.0 million. The purchase price consists of $14.4 million in
cash and a note payable of $1.6 million due in 18 months subject to adjustment
based on actual account receivable collections. We will pay a $0.5
million production fee on January 1, 2000 for completion of certain in-process
directories. United Multimedia published six directories in Riverside County
and northern San Diego County, California.
Medina. On November 1, 1999 we purchased certain tangible and intangible
assets of Great Lakes Telephone Directories ("Medina") for approximately $1.5
million in cash. We also paid $0.3 million for a non-compete agreement in the
region. Medina published one directory in Northern Ohio.
<PAGE> 10
TRANSWESTERN PUBLISHING COMPANY LLC
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(ALL DOLLAR AMOUNTS ARE IN THOUSANDS)
5. SUBSEQUENT EVENTS (CONTINUED)
ACQUISITIONS (CONTINUED)
Superior. On November 12, 1999 we purchased certain tangible and
intangible assets of Superior Telephone Directories II ("Superior") for
approximately $1.2 million. Superior publishes one directory in Oklahoma.
SENIOR CREDIT FACILITY AMENDMENT
In November 1997, in conjunction with the Recapitalization of our
Company, the Company entered into an Assumption Agreement and Amended and
Restated Credit Agreement with CIBC and First Union and other lenders, pursuant
to which the Company could borrow up to $125.0 million consisting of a
revolving credit facility of up to $40.0 million (the "Revolving Credit
Facility") and a Senior Term Loan in an aggregate principal amount of $85.0
million (the "Senior Term Loan"). Principal payments on the Senior Term Loan
are due quarterly through maturity, October 1, 2004. The revolving credit
agreement expires on October 1, 2003. Borrowings under this agreement rank
senior to all other indebtedness of the Company and are Secured by all the
assets of the Company.
In October 1999 the Amended and Restated Credit Agreement (the "Credit
Agreement") was amended to increase the Revolving Credit Facility to $70.0
million, increase to $4.0 million the allowable amount of annual lease
commitments, increase to $0.25 million the amount of permitted loans to Officers
and employees, increase to $50.0 million the permitted annual amount of
pre-approved acquisitions, and change the step-down schedule of borrowing
availability. The Revolving Credit commitments shall automatically be
permanently reduced according to the following schedule, commencing on
January 1, 2002, by the amount set forth opposite each date.
<TABLE>
<S> <C>
January 1, 2002............................... $ 5,250
April 1, 2002............................... 5,250
July 1, 2002............................... 5,250
October 1, 2002............................... 5,250
January 1, 2003............................... 12,250
April 1, 2003............................... 12,250
July 1, 2003............................... 12,250
October 1, 2003............................... 12,250
The terms of the Senior Term Loan were not affected by this amendment.
</TABLE>
<PAGE> 11
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (UNAUDITED)
Overview
We recognize net revenues from the sale of advertising placed in
each directory when the completed directory is distributed. Costs directly
related to sales, production, printing and distribution of each directory are
capitalized as deferred directory costs and then matched against related net
revenues upon distribution. All of our other operating costs are recognized
during the period when incurred. As we continue to acquire or produce more
directories, we adjust the publication schedule periodically to accommodate new
books. In addition, changes in distribution dates are affected by market and
competitive conditions and the staffing level required to achieve the
individual directory revenue goals. As a result, we may publish the directories
in periods different than the previous year and related revenues may be
recognized in different fiscal quarters from one year to the next. Year to year
results depend on both timing and performance factors.
Notwithstanding significant monthly fluctuation in net revenues recognized
based on actual distribution dates of individual directories, our bookings and
cash collection activities generally occur at a steady pace throughout the
year. As demonstrated in the following table, our quarterly bookings,
collection of advance payments and total cash receipts vary less than our net
revenues or EBITDA (in millions):
<TABLE>
<CAPTION>
---------------------------------------------------------------
1998 1998 1999 1999 1999
---------------------------------------------------------------
3rd Quarter 4th Quarter 1st Quarter 2nd Quarter 3rd Quarter
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net revenues ............... $ 29.0 $ 24.4 $ 31.5 $ 34.2 $ 38.2
EBITDA (a) ................. $ 8.5 $ 5.5 $ 8.2 $ 11.0 $ 12.0
Bookings (b) ............... $ 26.8 $ 29.3 $ 30.7 $ 34.6 $ 37.8
Advance payments ........... $ 13.3 $ 13.9 $ 14.4 $ 15.7 $ 15.8
Total cash receipts (c) .... $ 25.9 $ 26.0 $ 25.4 $ 28.3 $ 32.6
</TABLE>
(a) "EBITDA" is defined as net income plus interest expense, discretionary
contributions to the Company's Equity Compensation Plan (such contributions
represent special distributions to the Company's Equity Compensation Plan
in connection with refinancing transactions) and depreciation and
amortization and is consistent with the definition of EBITDA in the
indenture relating to our 9 5/8% Senior Subordinated notes and in our
senior credit facility. EBITDA is not a measure of performance under
generally accepted accounting principles (GAAP). EBITDA should not be
considered in isolation or as a substitute for net income, cash flows from
operating activities and other income or cash flow statement data prepared
in accordance with GAAP, or as a measure of profitability or liquidity.
However, management has included EBITDA because it may be used by certain
investors to analyze and compare companies on the basis of operating
performance, leverage and liquidity and to determine a company's ability
to service debt. Our definition of EBITDA may not be comparable to that of
other companies.
(b) "Bookings" is defined as the daily advertising orders received from
accounts during a given period and generally occur at a steady pace
throughout the year.
(c) "Total Cash Receipts" includes both advance payments and collections of
accounts receivable.
<PAGE> 12
RESULTS OF OPERATIONS
The following table summarizes our results of operations as a percentage
of revenue for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
-------------------------- --------------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net revenues .................. 100.0% 100.0% 100.0% 100.0%
Cost of revenues .............. 18.9 19.2 18.6 18.8
--------- --------- --------- ---------
Gross profit .................. 81.1 80.8 81.4 81.2
Sales and marketing ........... 40.3 42.0 41.4 40.4
General and administrative .... 23.1 15.0 23.7 15.2
--------- --------- --------- ---------
Income from operations ........ 17.7% 23.8% 16.3% 25.6%
========= ========= ========= =========
EBITDA Margin (a), (b) ........ 31.5% 29.5% 30.0% 31.9%
========= ========= ========= =========
</TABLE>
(a) For a definition of "EBITDA" see the immediately preceding section.
(b) "EBITDA Margin" is defined as EBITDA as a percentage of net revenues.
Management believes that EBITDA margin also provides a valuable indication
of the Company's ability to generate cash flows available for debt
service.
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 1998
Net revenues increased $9.2 million, or 31.9%, from $29.0 million in the
three months ended September 30, 1998 to $38.2 million in the same period in
1999. We published 48 directories in the three months ended September 30, 1999
compared to 37 in the same period in 1998. The net revenue growth of $9.2
million was due to $7.6 million from twelve new directories, $8.1 million from
eleven directories for which the publication date moved into the period and
growth in the same 25 directories published during both periods of $1.5
million; offset by $8.0 million of net revenues associated with twelve
directories published in the three months ended September 30, 1998 but not in
the same period in 1999.
As a result of a combination of factors, including the addition of new
customers, price increases, increases in the amount of advertising by current
customers and new directory features such as colorization of ads, additional
ad sizes and additional headings, our same book revenue growth for the 25
directories published in both periods was 7.2%.
<PAGE> 13
Cost of revenues increased $1.6 million, or 30.1%, from $5.6 million in
the three months ended September 30, 1998 to $7.2 million in the same period
in 1999. The increase was the result of $1.6 million of costs associated with
twelve new directories published in the three months ended September 30, 1999
and $1.3 million in costs associated with eleven directories published in the
three months ended September 30, 1999, but not in the same period in 1998;
offset by $1.2 million of costs associated with twelve directories published
during the three months ended September 30, 1998, but not in the same period in
1999 and $0.3 million in reductions from the same 25 books published in both
periods. Indirect production support costs increased $0.2 million in the three
months ended September 30, 1999 due to the new directories published in the
third quarter of 1999.
As a result of the above, gross profit increased $7.6 million, or
32.3%, from $23.4 million in the three months ended September 30, 1998 to $31.0
million in the same period in 1999. Gross margin increased from 80.8% in the
three months ended September 30, 1998 to 81.1% in the same period in 1999 as a
result of lower direct costs on directories published in both periods.
Sales and marketing expenses increased $3.2 million, or 26.4%, from
$12.2 million in the three months ended September 30, 1998 to $15.4 million in
the same period in 1999. The increase was attributable to increases of $0.7
million in sales support costs, $2.4 million in direct sales costs and $0.1
million in the provision for bad debt.
The increase in sales support costs of $0.7 million was due to sales
offices acquired since the third quarter of 1998. The increase in direct sales
costs of $2.4 million was as follows: $2.0 million of additional costs were for
the twelve new directories, $1.8 million for eleven directories moving into the
period, and $0.3 million of higher costs associated with the 25 same
directories; offset by $1.7 million of costs associated with twelve directories
that published in the three months ended September 30, 1998 but not in the same
period in 1999. Direct sales costs as a percentage of revenue for the same 25
directories published during both periods decreased from 20.0% to 19.8% in the
three months ended September 30, 1998 compared to the same period in 1999. The
increase in the provision for bad debt of $0.1 million was at a lower rate than
the increase in net revenue due to higher recovered revenue from accounts
previously written off and lower provision rates from new directory titles.
General and administrative expenses increased $4.4 million, or 102.4%,
from $4.4 million for the three months ended September 30, 1998 to $8.8 million
for the same period in 1999. The increase was due to: amortization of acquired
customer base and other intangibles of $3.6 million and an increase in
incentive compensation costs and increases in other professional service costs
totaling $0.8 million.
As a result of the above factors, income from operations decreased $0.1
million, or 1.7%, from $6.9 million in the three months ended September 30,
1998 to $6.8 million in the same period in 1999. Income from operations as a
percentage of net revenues decreased from 23.8% in the three months ended
September 30, 1998 to 17.7% in the same period in 1999.
Interest expense increased $1.0 million, or 22.4%, from $4.6 million in
the three months ended September 30, 1998 to $5.6 million in the same period
in 1999 due to higher levels of debt to fund acquisitions. Tax expense incurred
in the third quarter of 1999 of $0.2 million is for state and federal income
tax expense for Target Directories of Michigan Inc., a wholly owned subsidiary
of TransWestern Publishing Company, LLC.
As a result of the above factors, net income decreased $1.3 million, or
56.1%, from $2.4 million in the three months ended September 30, 1998 to
$1.1 million in the same period in 1999.
<PAGE> 14
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1998
Net revenue increased $19.3 million, or 22.9%, from $84.5 million in the
nine months ended September 30, 1998 to $103.9 million in the same period in
1999. We published 133 directories in the nine months ended September 30, 1999
compared to 112 in the same period in 1998. The net revenue growth was due to
$17.8 million from 28 new directories, $4.8 million from seven directories
for which the publication date moved into the period and growth in the same 98
directories published during both periods of $5.9 million; offset by $9.2
million of net revenues associated with 14 directories published in the
nine months ended September 30, 1998 but not in the same period in 1999.
As a result of a combination of factors, including the addition of new
customers, price increases, increases in the amount of advertising by current
customers and new directory features such as colorization of ads, additional
ad sizes and additional headings, our same book revenue growth for the 98
directories published in both periods was 7.8%.
Cost of revenues increased $3.4 million, or 21.3%, from $15.9 million in
the nine months ended September 30, 1998 to $19.3 million in the same period
in 1999. The increase was the result of $3.9 million of costs associated with
28 new directories published in the nine months ended September 30, 1999, and
$0.8 million in costs associated with seven directories published in the nine
months ended September 30, 1999, but not in the same period in 1998; offset by
$1.5 million of costs associated with 14 directories published during the nine
months ended September 30, 1998, but not in the same period in 1999. Costs for
the same 98 books decreased $0.4 million compared to the prior year. Production
support costs increased $0.6 million in the nine months ended September 30,
1999 due to the new directories published during the period.
As a result of the above, gross profit increased $16.0 million, or
23.2%, from $68.6 million in the nine months ended September 30, 1998 to $84.6
million in the same period in 1999. Gross margin increased from 81.2% in the
nine months ended September 30, 1998 to 81.4% in the same period in 1999 as a
result of lower direct costs as a percentage of revenue on the directories
published in both periods and directories moving into the period.
Sales and marketing expenses increased $9.0 million, or 26.2%, from
$34.1 million in the nine months ended September 30, 1998 to $43.1 million in
the same period in 1999. The increase was attributable to increases of $3.3
million in sales support costs, $4.8 million in direct sales costs and $0.9
million in the provision for bad debt.
The increase in sales support costs of $3.3 million was due to $2.8
million in higher sales costs incurred by offices acquired since the third
quarter of 1998 and $0.5 million due to the reorganization of the sales
management structure in 1998. The increase in direct sales costs of $4.8
million was as follows: $4.5 million of additional costs were for the 28 new
directories, $1.0 million for seven directories moving into the period, and
$1.3 million of higher costs associated with the 98 same directories; offset by
$2.0 million of costs associated with 14 directories that published in the
nine months ended September 30, 1998 but not in the same period in 1999. Direct
sales costs as a percentage of revenue for the same 98 directories published
during both periods increased from 20.1% to 20.3% in the nine months ended
September 30, 1998 compared to the same period in 1999.
General and administrative expenses increased $11.7 million, or 91.4%,
from $12.9 million for the nine months ended September 30, 1998 to $24.6
million for the same period in 1999. The increase was due to: amortization of
acquired customer base and other intangibles of $8.9 million and an increase in
incentive compensation costs and increases in other professional service costs
totaling $2.8 million.
<PAGE> 15
As a result of the above factors, income from operations decreased $4.7
million, or 21.9%, from $21.6 million in the nine months ended September 30,
1998 to $16.9 million in the same period in 1999. Income from operations as a
percentage of net revenues decreased from 25.6% in the nine months ended
September 30, 1998 to 16.3% in the same period in 1999.
Interest expense increased $3.3 million, or 23.6%, from $13.6 million in
the nine months ended September 30, 1998 to $16.9 million in the same period
in 1999 due to higher levels of debt to fund acquisitions. Tax expense incurred
in the nine months ended September 30, 1999 of $0.2 million is for state and
federal income tax expense for Target Directories of Michigan Inc., a wholly
owned subsidiary of TransWestern Publishing Company, LLC.
As a result of the above factors, net income decreased $8.1 million, or
98.5%, from $8.2 million in the nine months ended September 30, 1998 to $0.1
million in the same period in 1999.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $7.7 million in the nine
months ended September 30, 1999 compared to $11.6 million in the same period
in 1998. The decrease in cash provided by operations resulted primarily from an
increase in trade receivables and the write-off rate of doubtful accounts in
the nine months ended September 30, 1999 compared to the same period in the
prior year.
Customer deposits (advance payments) have improved compared to the prior
year due to higher volume of net revenues and our efforts to collect more cash
at contract closing to reduce our exposure to uncollectable accounts. Advance
payments were $38.0 million in the nine months ended September 30, 1999 and
$34.7 million in the same period in 1998 for an increase of $3.3 million or
9.5%.
Net cash used by investing activities was $40.3 million in the nine
months ended September 30, 1999 as compared to $14.3 million in the same period
in 1998. Investing activities consist primarily of cash used to acquire
directories. In the nine months ended September 30, 1999, $39.5 million was
spent compared to $7.8 million in the same period in the prior year. The prior
year's acquisition consisted of Mast Advertising and Publishing, Inc. ($8.4
million) and Target Directories of Michigan, Inc. ($5.4 million). Acquisitions
made in the nine months ended September 30, 1999 are discussed in note 3 of the
financial statements included in this Form 10-Q.
Net cash provided by financing activities was $19.7 million in the nine
months ended September 30, 1999 as compared to $2.0 million used in the same
period in 1998. The increase in borrowings in 1999 is attributed to the funding
of acquisitions during the nine months ended September 30, 1999.
In connection with the recapitalization of our company in October 1997,
we incurred significant debt. As of September 30, 1999 we had total outstanding
long term indebtedness of $232.3 million, including $142 million (including
unamortized premium) of Series D 9 5/8% Senior Subordinated Notes due 2007, and
$64.8 million of outstanding borrowings under the senior credit facility, which
ranks senior to the Series D notes.
As of September 30, 1999 the borrowing capacity under the Company's
revolving loan agreement under its senior credit facility was $40 million and
$23 million was borrowed and $17 million was available under the agreement. In
October 1999, the senior credit facility was amended to provide the Company with
$30 million in additional borrowing capacity on its revolving loan agreement
and to make certain other changes to the senior credit facility. In October
1999, we purchased certain tangible and intangible assets of United Multimedia
(American Media) for a total of $16.0 million. See footnote 5 of the
consolidated financial statements, subsequent events, for additional
information on the amendments to the senior credit facility and the American
Media acquisition.
<PAGE> 16
In May, 1999 we were required to make a semiannual interest payment of
$6.7 million on our Series D 9 5/8% Senior Subordinated Notes. Another, similar
payment is due in November of 1999.
Our principal sources of funds are cash flows from operating activities
and available funds under our revolving credit facility. Based upon the
successful implementation of management's business and operating strategy, we
believe that these funds will provide us with sufficient liquidity and capital
resources to meet our current and future financial obligations, including the
payment of principal and interest on our notes, as well as to provide funds
for our working capital, capital expenditures and other needs. Our future
operating performance will be subject to future economic conditions and to
financial, business and other factors, many of which are beyond our control.
There can be no assurance that such sources of funds will be adequate and that
we will not require additional capital from borrowings or securities offerings
to satisfy such requirements. In addition, we may require additional capital
to fund future acquisitions and there can be no assurance that such capital
will be available.
YEAR 2000 READINESS STATEMENT
Our Year 2000 ("Y2K") project team focused on four key readiness areas:
- business computer systems -- addressed hardware and software used in
our core operations;
- computing infrastructure -- addressed network servers, operating
software, voice networks, and phones;
- end user computing -- addressed hardware and software used in our
ancillary operations; and
- vendors/ suppliers -- addressed the preparedness of our key
suppliers.
For each readiness area, we performed risk assessment, conducted
testing, and remediation, either retirement, replacement or conversion,
developed contingency plans to mitigate known risk, and communicated with
employees, suppliers, and other third parties to raise awareness of the Y2K
problem.
Business Computer Systems, Computing Infrastructure, and End User
Computing Readiness Programs. We, with the assistance of third parties,
conducted an assessment of our internal applications and computer hardware.
Some software applications already were or have been made year 2000 compliant
and resources were assigned to address other applications based on their
importance and the time required to make them Y2K compliant. All of our
software remediation, Y2K compliance evaluation of hardware, including routers,
telecommunication equipment, workstations and other items are substantially
complete.
In addition to applications and information technology hardware, we have
developed remediation/contingency plans for certain business critical systems
such as: embedded systems, facilities and other operations, such as financial
and banking systems. Business critical systems were tested for Y2K compliance
and service agreements for those systems were reviewed to confirm we will have
vendor support for such systems in Y2K.
Vendors/Suppliers Readiness Program. This program focuses on minimizing
the risks associated with key suppliers. We have identified key suppliers and
have contacted them to solicit information on their Y2K readiness. To date, we
have received most responses, which indicate that the suppliers are either in
compliance or are in the process of developing remediation plans. We have also
developed supplier action lists and contingency plans for key suppliers,
including identification of alternative vendors and documentation of plans to
aid in minimizing any impact from the Y2K problem.
<PAGE> 17
We estimate that total Y2K costs will be approximately $0.7 million. Y2K
costs incurred by the end of the third quarter of 1999 were approximately $0.65
million. Although management believes Y2K costs related to the readiness areas
described herein to be substantially complete, there can be no assurance
that there will not be unforeseen additional costs.
Although our Y2K remediation efforts are largely complete, we cannot
assure you that unforseen complications will not arise or that third parties on
which the Company relies in its day to day operations will have adequately
remedied against potential Y2K complications. If computer systems used by us
or our suppliers, the performance of products provided to us by our suppliers,
or the software applications we use to produce our products fail or experience
significant difficulties related to Y2K, our results of operations and
financial condition could be materially adversely affected.
FORWARD LOOKING STATEMENTS
This Quarterly Report on Form 10Q contains forward-looking statements
which are made pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements are based on
the beliefs of our management as well as on assumptions made by and information
currently available to us at the time such statements were made. When used in
this Quarterly Report on Form 10Q, the words "anticipate," "believe,"
"estimate," "expect," "intends" and similar expressions, as they relate to our
company are intended to identify forward-looking statements. Actual results
could differ materially from those projected in the forward-looking statements.
Important factors that could affect our results include, but are not limited
to, (i) our high level of indebtedness; (ii) the restrictions imposed by the
terms of our indebtedness; (iii) the turnover rate amongst our account
executives; (iv) the variation in our quarterly results; (v) risks related to
the fact that a large portion of our sales are to small, local businesses; (vi)
our dependence on certain key personnel; (vii) risks related to the acquisition
and start-up of directories; (viii) risks related to substantial competition in
our markets; (ix) risks related to changing technology and new product
developments; (x) the effect of fluctuations in paper costs;(xi) the
sensitivity of our business to general economic conditions; and (xii) risks
related to the success of our Year 2000 remediation efforts.
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
We are exposed to interest rate risk in connection with the term
loan and the revolving loans outstanding under our senior credit facility,
which bear interest at floating rates based on LIBOR or the prime rate plus an
applicable borrowing margin. As of September 30, 1999, there was approximately
$64.9 million outstanding under the term loan (at an interest rate of 7.8% at
such time) and $23.0 million outstanding under the revolving loans (at the
LIBOR rate of 7.5% at such time). Based on such balances, an immediate increase
of one percentage point in the applicable interest rate would cause an increase
in interest expense of approximately $0.9 million on an annual basis. We do
not attempt to mitigate this risk through hedging transactions. All of our
sales are denominated in U.S. dollars, thus we are not subject to any foreign
currency exchange risks.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are a party to various other litigation matters incidental to the
conduct of our business. Management does not believe that the outcome of any of
these matters in which we are currently involved will have a material adverse
effect on our financial condition or the results of our operations.
<PAGE> 18
On June 15, 1999, TransWestern Holdings, L.P. and TransWestern
Communications Company, Inc. were sued by Lisa McDonnel, Inc. (d/b/a Image
One), a California corporation ("Image One"), with a complaint filed in the
United States District Court for the Southern District of California. On
October 5, 1999 the complaint was settled for an amount that is not material
to the Company's consolidated financial statements.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.11 FIFTH AMENDMENT, dated as of June 29, 1999, to the
Assumption Agreement and Amended and Restated Credit
Agreement, dated as of November 6, 1997, among TransWestern,
the lenders listed therein and Canadian Imperial bank of
Commerce, as administrative agent, and First Union National
Bank, as documentation agent.
10.12 SIXTH AMENDMENT, dated as of October 1, 1999, to the
Assumption Agreement and Amended and Restated Credit
Agreement, dated as of November 6, 1997, among TransWestern,
the lenders listed therein and Canadian Imperial bank of
Commerce, as administrative agent, and First Union National
Bank, as documentation agent.
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None
<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on November 10, 1999 on
its behalf by the undersigned thereunto duly authorized.
TRANSWESTERN PUBLISHING COMPANY LLC
(Registrant)
BY: TransWestern Communications Company, Inc.
(Manager)
BY: /s/ Laurence H. Bloch
--------------------------------------------
Name: Laurence H. Bloch
Title: Chairman, Secretary and Director
BY: /s/ Joan Fiorito
--------------------------------------------
Name: Joan Fiorito
Title: Vice President, Chief Financial
Officer and Assistant Secretary
(Principal Financial and Accounting
Officer)
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JUL-1-1999
<PERIOD-END> SEP-30-1999
<CASH> 1206
<SECURITIES> 0
<RECEIVABLES> 41319
<ALLOWANCES> (9314)
<INVENTORY> 0
<CURRENT-ASSETS> 43883
<PP&E> 8644
<DEPRECIATION> (5870)
<TOTAL-ASSETS> 125179
<CURRENT-LIABILITIES> (41422)
<BONDS> (141633)
0
0
<COMMON> 0
<OTHER-SE> 148544
<TOTAL-LIABILITY-AND-EQUITY> (125179)
<SALES> 38231
<TOTAL-REVENUES> 38231
<CGS> 7232
<TOTAL-COSTS> 31455
<OTHER-EXPENSES> (97)
<LOSS-PROVISION> 2932
<INTEREST-EXPENSE> 5594
<INCOME-PRETAX> 1279
<INCOME-TAX> 225
<INCOME-CONTINUING> 1054
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1054
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
EXECUTION COPY
FIFTH AMENDMENT
FIFTH AMENDMENT (this "Amendment") dated as of June 29, 1999 to the Assumption
Agreement and Amended and Restated Credit Agreement, dated as of November 6,
1997 (as amended, supplemented or otherwise modified from time to time, the
"Credit Agreement"), among TransWestern Publishing Company LLC, a Delaware
limited liability company (the "Company"), TWP Capital Corp. II, a Delaware
corporation and a wholly owned Subsidiary of the Company ("TWP Capital II"; the
Company and TWP Capital II, collectively, the "Borrowers"), the several banks
and other financial institutions from time to time parties thereto (the
"Lenders"), Canadian Imperial Bank of Commerce, New York Agency, as
administrative agent for the Lenders thereunder (in such capacity, the
"Administrative Agent") and First Union National Bank, a national banking
association, as documentation agent for the Lenders thereunder (in such
capacity, the "Documentation Agent" and, together with the Administrative
Agent, the "Agents").
W I T N E S S E T H :
WHEREAS, the Company has requested and the Administrative Agent and the
Required Lenders have agreed to amend a certain provision of the Credit
Agreement in the manner provided below;
NOW, THEREFORE, in consideration of the premises and of the mutual agreements
herein contained, the parties hereto agree as follows:
SECTION 1. Defined Terms. As used in this Amendment, unless otherwise
defined herein, terms defined in the Credit Agreement are used herein as
therein defined. Unless otherwise indicated, all section and subsection
references are to the Credit Agreement.
SECTION 2. Amendment. Subsection 7.1(b) of the Credit Agreement is hereby
amended by deleting such subsection in its entirety and substituting in lieu
thereof the following:
"(b) Total Leverage. Permit the Total Leverage Ratio of the Company at any
time during any period specified below to be greater than the Total Leverage
Ratio set forth opposite such period below:
Period Total
Leverage Ratio
End of Bridge Period to June 30, 1999 6.50:1.00
July 1, 1999 to December 31, 1999 6.00:1.00
January 1, 2000 to December 31, 2000 5.50:1.00
January 1, 2001 to December 31, 2001 5.00:1.00
January 1, 2002 to December 31, 2002 4.00:1.00
January 1, 2003 to the Facilities Termination Date 3.50:1.00.
SECTION 3. Representations and Warranties. After giving effect to this
Amendment, each Borrower hereby confirms, reaffirms and restates the
representations and warranties made by it in the Credit Agreement, provided
that each reference to the Credit Agreement therein shall be deemed to be a
reference to the Credit Agreement after giving effect to this Amendment. Each
Borrower represents and warrants that, after giving effect to this Amendment,
no Default or Event of Default has occurred and is continuing.
SECTION 4. Conditions to Effectiveness. This Amendment shall become
effective as of the date set forth above upon receipt by the Administrative
Agent of counterparts of this Amendment, duly executed and delivered by the
Borrowers, Holdings and the Required Lenders.
<PAGE> 2
SECTION 5. Miscellaneous. Except as expressly amended herein, the Credit
Agreement shall continue to be, and shall remain, in full force and effect in
accordance with its terms. This Amendment may be executed by the parties
hereto in any number of separate counterparts (including by facsimile
transmission), and all of said counterparts taken together shall be deemed to
constitute one and the same instrument. The Company agrees to pay or
reimburse the Administrative Agent for all its reasonable out-of-pocket costs
and expenses incurred in connection with the development, preparation and
execution of this Amendment including, without limitation, the fees and
disbursements of counsel to the Administrative Agent. THIS AMENDMENT AND THE
RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly
executed and delivered in New York, New York by their properly and duly
authorized officers as of the day and year first above written.
TRANSWESTERN PUBLISHING COMPANY LLC
By: /s/ Joan M. Fiorito
Title: Vice President - CFO
TWP CAPITAL CORP. II
By: /s/ Joan M. Fiorito
Title: Vice President - CFO
TRANSWESTERN HOLDINGS L.P.
By: /s/ Joan M. Fiorito
Title: Vice President - CFO
CANADIAN IMPERIAL BANK OF COMMERCE, NEW YORK AGENCY, as Administrative Agent
By: /s/ Tefta Ghilaga
Title: Executive Director
CIBC INC., as a Lender
By: /s/ Tefta Ghilaga
Title: Executive Director
FIRST UNION NATIONAL BANK, as Documentation Agent and as a Lender
By: /s/ Mark Misenheimer
Title: Director
BANK OF HAWAII
By: /s/ James Polk
Title: Vice President
BANKBOSTON, N.A.
By: /s/ Jennifer R. Buras
Title: Director
BANKERS TRUST COMPANY
By: /s/ Jim Reilly
Title: Vice President
FLEET NATIONAL BANK
By: /s/ Garret Komjathy
Title: Vice President
ARCHIMEDES FUNDING, L.L.C.
By: ING Capital Advisors, Inc.,
as Collateral Manager
By: /s/ Michael D. Hatley
Title: Managing Director
KZH CRESCENT LLC
By: /s/ Peter Chin
Title: Authorized Agent
<PAGE> 3
KZH CRESCENT-3 LLC
By: /s/ Peter Chin
Title: Authorized Agent
CRESCENT/MACH I PARTNERS, L.P.
By: /s/ Jonathan Insull
Title: Vice President
VAN KAMPEN AMERICAN SENIOR
INCOME TRUST
By: /s/ Lisa M. Mincheski
Title: Vice President
VAN KAMPEN AMERICAN CAPITAL SENIOR FLOATING RATE FUND
By: /s/ Lisa M. Mincheski
Title: Vice President
ALLIANCE INVESTMENT OPPORTUNITIES FUND, L.L.C.
By: Alliance Investment Opportunities Management, L.L.C., as Managing Member
By: Alliance Capital Management L.P., as Managing Member
By: Alliance Capital Management Corporation, as General Partner
By: /s/ Joel Serebransky
Title: Senior Vice President
MONUMENT CAPITAL, LTD.
By: /s/ Kenneth G. Ostmann
Title: Vice President
EXECUTION COPY
SIXTH AMENDMENT
SIXTH AMENDMENT (this "Amendment") dated as of October 1, 1999 to the
Assumption Agreement and Amended and Restated Credit Agreement, dated as of
November 6, 1997 (as amended, supplemented or otherwise modified from time to
time, the "Credit Agreement"), among TransWestern Publishing Company LLC, a
Delaware limited liability company (the "Company"), TWP Capital Corp. II, a
Delaware corporation and a wholly owned Subsidiary of the Company ("TWP
Capital II"; the Company and TWP Capital II, collectively, the "Borrowers"),
the several banks and other financial institutions from time to time parties
thereto (the "Lenders"), Canadian Imperial Bank of Commerce, New York Agency,
as administrative agent for the Lenders thereunder (in such capacity, the
"Administrative Agent") and First Union National Bank, a national banking
association, as documentation agent for the Lenders thereunder (in such
capacity, the "Documentation Agent" and, together with the Administrative
Agent, the "Agents").
W I T N E S S E T H :
WHEREAS, the Company has requested and the Administrative Agent and each
Lender have agreed to amend certain provisions of the Credit Agreement in the
manner provided below;
NOW, THEREFORE, in consideration of the premises and of the mutual agreements
herein contained, the parties hereto agree as follows:
SECTION 1. Defined Terms. As used in this Amendment, unless otherwise
defined herein, terms defined in the Credit Agreement are used herein as
therein defined. Unless otherwise indicated, all section and subsection
references are to the Credit Agreement.
SECTION 2. Amendments. (a) Subsection 3.4(c) of the Credit Agreement is
hereby amended by deleting such subsection in its entirety and substituting in
lieu thereof the following:
"(c) The Revolving Credit Commitments shall automatically be permanently
reduced according to the following schedule, commencing on January 1, 2002, by
the amount set forth below opposite each such date:
January 1, 2002 $5,250,000
April 1, 2002 $5,250,000
July 1, 2002 $5,250,000
October 1, 2002 $5,250,000
January 1, 2003 $12,250,000
April 1, 2003 $12,250,000
July 1, 2003 $12,250,000
October 1, 2003 $12,250,000
Each such reduction shall be accompanied by prepayment of the Revolving Credit
Loans (together with fees and interest accrued thereon to the date of such
prepayment and any additional amounts owing under subsection 3.18) to the
extent, if any, that the Revolving Credit Loans then outstanding exceed the
amount of the Revolving Credit Commitments as so reduced."
(b) Subsection 7.7 of the Credit Agreement is hereby amended by deleting the
amount "$3,000,000" appearing in such subsection and substituting in lieu
thereof the amount "$4,000,000".
(c) Subsection 7.10(e) of the Credit Agreement is hereby amended by deleting
the amount "$100,000" appearing in such subsection and substituting in lieu
thereof the amount "$250,000".
<PAGE> 2
(d) Subsection 7.10(f)(i) of the Credit Agreement is hereby amended by
deleting such subsection in its entirety and substituting in lieu thereof the
following:
"(i) except for the acquisition by the Company from United Multimedia of
directories servicing certain areas in southern California to be consummated
by October 31, 1999, the Total Amount Expended in connection with which shall
be $16,500,000, the Total Amount Expended in connection with all Permitted
Acquisitions shall not exceed in the aggregate in any fiscal year of the
Company, $50,000,000, provided that after giving effect to such Permitted
Acquisitions, no Default or Event of Default shall have occurred and be
continuing."
(e) Schedule 1.1 of the Credit Agreement is hereby amended by deleting such
Schedule in its entirety and substituting in lieu thereof revised Schedule 1.1
attached hereto as Exhibit A.
SECTION 3. Fees. In consideration of the agreement of the Lenders to consent
to the amendments contained herein, the Borrowers agree to pay to each Lender
which so consents on or prior to October 1, 1999 (by executing and delivering
to the Administrative Agent or its counsel this Amendment on or prior to such
date), (i) an amendment fee in an amount equal to 0.25% of the aggregate
amount of such Lender's Term Loans and Revolving Credit Commitments
outstanding on the date hereof and (ii) in the case of each Lender the
Revolving Credit Commitment of which is increased hereby, an upfront fee in an
amount equal to 0.375% of the increase in such Lender's Revolving Credit
Commitment effected hereby; such fees shall be payable on the Amendment
Effective Date in immediately available funds to the Administrative Agent on
behalf of the applicable Lender.
SECTION 4. Representations and Warranties. After giving effect to this
Amendment, each Borrower hereby confirms, reaffirms and restates the
representations and warranties made by it in the Credit Agreement, provided
that each reference to the Credit Agreement therein shall be deemed to be a
reference to the Credit Agreement after giving effect to this Amendment. Each
Borrower represents and warrants that, after giving effect to this Amendment,
no Default or Event of Default has occurred and is continuing.
SECTION 5. Conditions to Effectiveness. This Amendment shall become
effective on the date (the "Amendment Effective Date") on which all of the
following conditions precedent have been satisfied or waived:
(a) the Borrowers, each Lender and the Administrative Agent shall have
executed and delivered to the Administrative Agent this Amendment; and
TransWestern Holdings L.P. shall have executed and delivered to the
Administrative Agent the Acknowledgment and Consent attached hereto;
(b) the Administrative Agent shall have received a copy of the resolutions,
in form and substance satisfactory to the Administrative Agent, of the Sole
Member or the Board of Directors (or a duly authorized committee thereof) (as
the case may be) of each Borrower authorizing the execution, delivery and
performance of this Amendment, certified by the respective Secretary or an
Assistant Secretary of each Borrower as of the Amendment Effective Date, which
certificate shall be in form and substance reasonably satisfactory to the
Agents and shall state that the resolutions and other actions thereby
certified have not been amended, modified, revoked or rescinded as of the date
of such certificate;
(c) the Administrative Agent shall have received, with a counterpart for each
Lender, an executed legal opinion of Kirkland & Ellis, counsel to the
Borrowers, which shall be in form and substance satisfactory to the
Administrative Agent; and
<PAGE> 3
(d) the Borrowers shall have paid the fees referred to in Section 3 above.
SECTION 6. Miscellaneous. Except as expressly amended pursuant to Section 2
above, the Credit Agreement shall continue to be, and shall remain, in full
force and effect in accordance with its terms. This Amendment may be executed
by the parties hereto in any number of separate counterparts (including by
facsimile transmission), and all of said counterparts taken together shall be
deemed to constitute one and the same instrument. The Company agrees to pay
or reimburse the Administrative Agent for all its reasonable out-of-pocket
costs and expenses incurred in connection with the development, preparation
and execution of this Amendment including, without limitation, the fees and
disbursements of counsel to the Administrative Agent. THIS AMENDMENT AND THE
RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly
executed and delivered by their properly and duly authorized officers as of
the day and year first above written.
TRANSWESTERN PUBLISHING COMPANY LLC
By: /s/ Joan M. Fiorito
Title: Vice President - CFO
TWP CAPITAL CORP. II
By: /s/ Joan M. Fiorito
Title: Vice President - CFO
CANADIAN IMPERIAL BANK OF COMMERCE, NEW YORK AGENCY, as Administrative Agent
By: /s/ Tefta Ghilaga
Title: Executive Director
CIBC INC., as a Lender
By: /s/ Tefta Ghilaga
Title: Executive Director
FIRST UNION NATIONAL BANK, as Documentation Agent and as a Lender
By: /s/ Mark Misenheimer
Title: Director
BANK OF HAWAII
By: /s/ James C. Polk
Title: Vice President
BANKBOSTON, N.A.
By: /s/ Jennifer R. Buras
Title: Director
BANKERS TRUST COMPANY
By: /s/ Jim Reilly
Title: Vice President
FLEET NATIONAL BANK
By: /s/ Garret Komjathy
Title: Vice President
ARCHIMEDES FUNDING, L.L.C.
By: ING Capital Advisors, Inc.,
as Collateral Manager
By: /s/ Michael D. Hatley
Title: Managing Director
KZH CRESCENT LLC
By: /s/ Peter Chin
Title: Authorized Agent
<PAGE> 4
KZH CRESCENT-3 LLC
By: /s/ Peter Chin
Title: Authorized Agent
CRESCENT/MACH I PARTNERS, L.P.
By: /s/ Jonathan Insull
Title: Vice President
VAN KAMPEN
PRIME RATE INCOME TRUST
By: /s/ Darvin D. Pierce
Title: Vice President
VAN KAMPEN
SENIOR FLOATING RATE FUND
By: /s/ Darvin D. Pierce
Title: Vice President
ALLIANCE INVESTMENT OPPORTUNITIES FUND, L.L.C.
By: Alliance Investment Opportunities Management, L.L.C., as Managing Member
By: Alliance Capital Management L.P., as Managing Member
By: Alliance Capital Management Corporation, as General Partner
By: /s/ Kenneth G. Ostmann
Title: Vice President
MONUMENT CAPITAL, LTD.
By: /s/ Kenneth G. Ostmann
Title: Vice President
<PAGE> 5
Exhibit A to Sixth Amendment
Schedule 1.1 to
the Credit Agreement
(as of October 1, 1999)
<TABLE>
<CAPTION>
Bank/Address for Notices Revolving Credit Commitment Term Loans Total Commitment/Loans
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CIBC Inc. $24,000,000.00 $7,245,421.27 $31,245,421.27
425 Lexington Avenue
New York, New York 10017
Attn: Tefta Ghilaga
Fax: (212) 856-3558
with a copy to:
Canadian Imperial Bank of Commerce
425 Lexington Avenue
New York, New York 10017
Attn: Agency Services
Fax: (212) 856-3763
- -------------------------------------------------------------------------------------------------
First Union National Bank $18,000,000.00 $7,783,882.34 $25,783,882.34
One First Union Center
301 S. College Street, DC-5
Charlotte, North Carolina 28288-0735
Attn: Mark Misenheimer
Fax: (704) 374-4092
- -------------------------------------------------------------------------------------------------
Bank of Boston $11,500,000.00 $6,227,105.89 $17,727,105.89
100 Federal Street
Boston, MA 02110
Attn: Sherry Hawkins
Fax: (617) 434-3401
Fleet National Bank $5,500,000.00 $3,891.941.17 $9,391,941.17
1185 Ave. of the Americas
17th Floor
New York, NY 10036
Attn: Garret Komjathy
Fax: (212) 819-6202
Bank of Hawaii $5,500,000.00 $3,891,941.17 $9,391,941.17
130 Merchant Street
20th Floor Honalulu, HI 93813
Attn: James Polk
Fax: (808) 537-8301
Deutsche Bank $5,500,000.00 --- $5,500,000.00
(Bankers Trust Co.)
One Bankers Trust Plaza
34th Floor
New York, NY 10006
Attn: Jim Reilly
Fax: (212) 250-7218
ING Bank (US) Capital Corp. --- $6,227,105.89 $6,227,105.89
Archimedes Funding, LLC
333 S. Grand Avenue
Suite 4250
Los Angeles, CA 90071
Attn: Jonathan David
Fax: (213) 346-3995
<PAGE> 6
Van Kampen --- $6,227,105.89 $6,227,105.89
Prime Rate Income Trust
One Parkview Plaza
Oakbrook Terrace, IL 60181
Attn: Jeff Miallet
Fax: (630) 684-6777
Van Kampen --- $4,162,831.30 $4,162,831.30
Senior Floating Rate Fund
One Parkview Plaza
Oakbrook Terrace, IL 60181
Attn: Jeff Miallet
Fax: (630) 684-6777
Cresent/Mach Partners, L.P. TCW --- $3,113,552.94 $3,113,552.94
200 Park Avenue
Suite 2200
New York, NY 10166
Attn: Jonathan Insull
Fax: (212) 771-4159
KZH Crescent - 3 LLC
c/o Chase Manhattan Bank --- $6,227,105.89 $6,227,105.89
450 West 33rd Street
15th Floor
New York, NY 10166
Attn: Virginia Conway
Fax: (212) 946-7776
KZH Crescent LLC
c/o Chase Manhattan Bank --- $3,113,552.94 $3,113,552.94
450 West 33rd Street
15th Floor
New York, NY 10166
Attn: Virginia Conway
Fax: (212) 946-7776
Alliance Investment Opportunities LLC --- $3,891,941.17 $3,891,941.17
1345 Ave. of the Americas
New York, NY 10105
Attn: Joel Serebransky
Fax: (212) 969-1466
Monument Capital, Ltd. --- $4,159,512.14 $4,159,512.14
c/o Alliance Capital Mgmt., L.P.
1345 Ave. of the Americas
New York, NY 10105
Attn: Scott Van Den Bosch
Fax: (212) 969-6815
TOTAL $70,000,000.00 $66,163,000.00 $136,163,000.00
</TABLE>
<PAGE> 7
ACKNOWLEDGMENT AND CONSENT
The undersigned as Pledgor under the Pledge Agreement, dated as of November 6,
1997 (as amended, supplemented or otherwise modified from time to time, the
"Pledge Agreement"), made by the undersigned in favor of the Administrative
Agent, for the benefit of the Lenders, hereby (a) consents to the transactions
contemplated by this Amendment, and (b) acknowledges and agrees that the pledge
and grants of collateral security contained in such Pledge Agreement are, and
shall remain, in full force and effect after giving effect to this Amendment,
and all prior modifications to the Credit Agreement.
TRANSWESTERN HOLDINGS L.P.
By: TransWestern Communications Company, Inc., its General Partner
By: /s/ Joan M. Fiorito
Title: Vice President - CFO
