<PAGE> 1
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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 JUNE 30, 2000.
[ ] 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 June 30, 2000 (unaudited) and
December 31, 1999 3
Consolidated Statements of Operations for the Three and Six Months
Ended June 30, 2000 (unaudited) and 1999 (unaudited) 4
Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 2000 (unaudited) and 1999 (unaudited) 5
Notes to Unaudited Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities and Use of Proceeds 15
Item 3. Defaults upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
</TABLE>
<PAGE> 3
TRANSWESTERN PUBLISHING COMPANY LLC
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
--------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 4,226 $ 1,167
Trade receivables, (less allowance for doubtful accounts of $8,489
at June 30, 2000 and $10,394 at December 31, 1999) 35,742 36,188
Deferred directory costs 12,196 10,037
Other current assets 2,090 1,191
--------- ---------
Total current assets 54,254 48,583
Non-current assets:
Property, equipment and leasehold improvements, net 3,521 3,423
Acquired intangibles, net 87,353 85,879
Other assets, primarily debt issuance costs, net 7,801 8,450
--------- ---------
Total non-current assets 98,675 97,752
--------- ---------
Total assets $ 152,929 $ 146,335
========= =========
LIABILITIES AND MEMBER DEFICIT
Current liabilities:
Accounts payable $ 7,433 $ 8,322
Salaries and benefits payable 4,536 5,735
Accrued acquisition costs 4,611 4,915
Accrued interest 2,920 2,131
Other accrued liabilities 823 996
Customer deposits 20,778 16,313
Current portion, long-term debt 1,741 1,741
--------- ---------
Total current liabilities 42,842 40,153
Long-term debt:
Series D 9 5/8% Senior Subordinated Notes 141,482 141,583
Senior Credit Facility 63,550 64,422
Revolving loan 52,500 40,100
Acquisition payables 2,394 4,910
--------- ---------
Total long-term debt 259,926 251,015
--------- ---------
Member deficit (149,839) (144,833)
--------- ---------
Total liabilities and member deficit $ 152,929 $ 146,335
========= =========
</TABLE>
See accompanying notes.
<PAGE> 4
TRANSWESTERN PUBLISHING COMPANY LLC
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------- ---------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net revenue $ 38,558 $ 34,136 $ 73,494 $ 65,649
Cost of revenue 7,050 5,975 14,055 12,081
-------- -------- -------- --------
Gross profit 31,508 28,161 59,439 53,568
Operating expenses:
Sales and marketing 15,854 13,866 31,562 27,651
General and administrative 10,309 8,058 20,616 15,786
-------- -------- -------- --------
Total operating expenses 26,163 21,924 52,178 43,437
-------- -------- -------- --------
Income from operations 5,345 6,237 7,261 10,131
Other income, net 153 98 277 208
Interest expense (6,232) (5,935) (12,432) (11,261)
-------- -------- -------- --------
Net income (loss) before taxes (734) $ 400 $ (4,894) $ (922)
Tax expense - 7 112 7
-------- -------- -------- --------
Net income (loss) $ (734) $ 393 $ (5,006) $ (929)
======== ======== ======== ========
Net income (loss) per Member unit $ (734) $ 393 $ (5,006) $ (929)
======== ======== ======== ========
</TABLE>
See accompanying notes.
<PAGE> 5
TRANSWESTERN PUBLISHING COMPANY LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
2000 1999
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (5,006) $ (929)
Adjustments to reconcile net loss to cash provided by
operating activities:
Depreciation and amortization 12,851 8,733
Amortization of deferred debt issuance costs 649 631
Provision for doubtful accounts 7,125 5,811
Changes in operating assets and liabilities, excluding the
effects of acquisitions:
Trade receivables 1,756 (6,176)
Write-off of doubtful accounts (9,030) (6,391)
Recoveries of doubtful accounts 595 243
Deferred directory costs (2,159) (234)
Other current assets (899) (160)
Accounts payable (4,604) 1,420
Accrued liabilities (477) (2,251)
Accrued interest 789 728
Customer deposits 4,465 (406)
-------- --------
Cash provided by operating activities 6,055 1,019
INVESTING ACTIVITIES
Purchase of property, equipment and leasehold improvements (687) (386)
Acquisition of directories (13,837) (34,554)
Increase in other assets - (356)
-------- --------
Cash used for investing activities (14,524) (35,296)
FINANCING ACTIVITIES
Borrowings under long-term debt agreements:
Revolving credit facility 25,900 38,100
Repayments of long-term debt:
Revolving credit facility (13,500) (13,300)
Senior Term Loan (872) (871)
-------- --------
Cash provided by financing activities 11,528 23,929
-------- --------
Net increase (decrease) in cash 3,059 (10,348)
Cash at beginning of period 1,167 14,067
-------- --------
Cash at end of period $ 4,226 3,719
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 11,005 $ 10,002
======== ========
</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) 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. 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, 1999. The 10-K is available 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
JUNE 30, DECEMBER 31,
2000 1999
----------- -----------
<S> <C> <C>
Computer and office equipment.................... $ 7,965 $ 7,342
Furniture and fixtures........................... 1,850 1,789
Leasehold improvements........................... 433 430
----------- -----------
10,248 9,561
Less accumulated depreciation and amortization... (6,727) (6,138)
----------- -----------
Net property, equipment, and leasehold $ 3,521 $ 3,423
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
Acquired Intangibles
JUNE 30, DECEMBER 31,
2000 1999
----------- -----------
<S> <C> <C>
Customer Base.................................. $ 138,708 $ 128,074
Non compete and licensing agreements 5,364 2,160
----------- -----------
144,072 130,234
Less accumulated amortization.................. (56,719) (44,355)
----------- -----------
Acquired intangibles, net $ 87,353 $ 85,879
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
Other Assets
JUNE 30, DECEMBER 31,
2000 1999
----------- -----------
<S> <C> <C>
Debt issuance costs............................... $ 10,744 $ 10,744
Less accumulated amortization..................... (3,443) (2,794)
----------- -----------
Debt issuance costs, net $ 7,301 $ 7,950
Investment in Eversave, carried at cost 500 500
----------- -----------
Other Assets, net $ 7,801 $ 8,450
=========== ===========
</TABLE>
<PAGE> 8
TRANSWESTERN PUBLISHING COMPANY LLC
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(ALL DOLLAR AMOUNTS ARE IN THOUSANDS)
3. DIRECTORY ACQUISITIONS
Desert Pages. On January 14, 2000 we purchased certain tangible and
intangible assets of Desert Pages, Inc. for a total of $8.0 million.
The purchase price consists of $7.2 million in cash and a promissory
note of $0.8 million due eighteen months from the date of purchase, subject
to adjustment based upon the actual collections of accounts receivable
outstanding as of the closing during such period. Desert Pages published one
directory in Palm Springs, California. As part of the acquisition, we acquired
the rights to publish a second, new directory that has not yet been published.
Direct Media Corp. On February 15, 2000 we purchased certain tangible
and intangible assets of Direct Media Corp. for a total of $3.4 million in
cash. Direct media publishes eight directories serving southeastern Georgia
and the northeastern Florida area. As part of the acquisition, we acquired
the rights to publish a new directory in Georgia that has not yet been
published.
Coastal Pages. On June 15, 2000 we purchased certain tangible and
intangible assets of Coastal Pages, LLC. for a total of $3.5 million.
The purchase price consists of $3.2 million in cash and $0.3 million
non-interest promissory note due in approximately 7 months from the date of
purchase subject to achieving a net revenue target with respect to the December
2000 San Luis Obispo edition. Coastal Pages published three directories in
the Central California Coast area.
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 dates
of acquisition, as follows (in thousands):
<TABLE>
<S> <C>
Customer List $ 11,920
Non-compete 2,980
Deferred directory costs 145
Other current and non-current assets 364
</TABLE>
Assuming that the above acquisitions had occurred on the first day of
the Company's six month periods ended June 30, 2000 and June 30, 1999,
the unaudited pro forma results of operations would be as follows:
<TABLE>
<CAPTION>
Six months ended June 30,
-----------------------------
2000 1999
------------ -----------
(Unaudited)
<S> <C> <C>
Net revenues................... $74,541 $67,909
Net income (loss)........... .. (5,411) (2,526)
</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.
<PAGE> 9
TRANSWESTERN PUBLISHING COMPANY LLC
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(ALL DOLLAR AMOUNTS ARE IN THOUSANDS)
4. GUARANTEE
Target Directories of Michigan, Inc. ("Target"), which is wholly-owned
by the Company, fully and unconditionally guaranteed the Company's outstanding
9 5/8% Series D Senior Subordinated Notes due 2007 on an unsecured senior
subordinated basis. Target is the Company's only consolidated operating
subsidiary, other than an inconsequential subsidiary which is a co-issuer of
such notes, and 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 or
meaningful to investors. Target was acquired in July, 1998. Following is
summarized financial information concerning Target as of June 30, 2000 and for
the six months ended June 30, 2000:
Statement of Operations Data:
Net revenues $ 975
Gross profit 668
Operating (loss) (550)
Net loss (639)
Balance Sheet:
Current assets $ 1,342
Non-current assets 3,821
Current liabilities 1,286
Non-current liabilities -
5. Senior Credit Facility
On July 3, 2000 the Company and its lenders agreed to amend our
November 6, 1997 credit agreement to allow the Company to obtain a $40
million Tranche B Term Loan due in April 2005. The proceeds of the loan will
be used to pay down our existing revolving credit loan in order to provide the
Company with additional funds for future acquisitions.
<PAGE> 10
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 the number of directories that we publish
increases, the publication schedule is periodically adjusted to accommodate new
books. In addition, changes in distribution dates are caused by market and
competitive conditions and the staffing level required to achieve the
individual directory revenue goals. As a result, our directories may be
published in a month earlier or later than the previous year which may
move recognition of related revenues from one fiscal quarter or year to
another. Year to year results depend on both timing and performance factors.
Notwithstanding significant monthly fluctuation in net revenues and EBITDA
recognized based on actual distribution dates of individual directories,
quarterly recognition of net revenues and EBITDA generally occurs at a steadier
pace throughout the year and typically increase at a slower rate than bookings,
advance payments and total cash receipts when the Company is growing. This is
primarily the result of the fact that revenues and the associated EBITDA
related to a directory are only recognized when a directory is distributed. Our
bookings and cash collection activities generally occur at a steady pace
throughout the year and reflect the growth of our portfolio of directories and
business more rapidly as we add additional account executives from acquired
companies as a result of recognizing bookings and cash activities as they
occur. The table below demonstrates that quarterly bookings, collection of
advance payments and total cash receipts have grown at a higher rate than
net revenues and EBITDA from the 2nd quarter of 1999 to the 2nd quarter of
2000.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
1999 1999 1999 2000 2000 % Change
------------------------------------------------------------------------------
2nd Quarter 3rd Quarter 4th Quarter 1st Quarter 2nd Quarter 2Q-99 to
2Q-00
------------ ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net revenues ............... $ 34.1 $ 38.2 $ 42.6 $ 34.9 $ 38.6 13.0%
EBITDA (a) ................. $ 11.0 $ 12.0 $ 15.5 $ 8.5 $ 12.0 9.5%
Bookings (b) ............... $ 32.1 $ 37.8 $ 35.1 $ 34.9 $ 43.7 36.1%
Advance payments ........... $ 15.7 $ 17.6 $ 18.7 $ 17.0 $ 19.7 25.5%
Total cash receipts (c) .... $ 28.3 $ 32.6 $ 34.6 $ 34.3 $ 38.7 36.7%
</TABLE>
(a) "EBITDA" is defined as income (loss) plus interest expense, and
depreciation and amortization and is consistent
with the definition of EBITDA in the indentures relating to the
Company's notes and in the Company's 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. The Company's 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. Bookings generated by predecessor owners of acquired
directories are excluded.
<PAGE> 11
(c) "Total cash receipts" includes both advance payments and collections of
accounts receivable.
RESULTS OF OPERATIONS
The following table summarizes our results of operations as a percentage
of revenue for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
-------------------------- --------------------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net revenues .................. 100.0% 100.0% 100.0% 100.0%
Cost of revenues .............. 18.3 17.5 19.1 18.4
--------- --------- --------- ---------
Gross profit .................. 81.7 82.5 80.9 81.6
Sales and marketing ........... 41.1 40.6 42.9 42.1
General and administrative .... 26.7 23.6 28.1 24.1
--------- --------- --------- ---------
Income from operations ........ 13.9% 18.3% 9.9% 15.4%
========= ========= ========= =========
EBITDA Margin (a), (b) ........ 31.2% 32.1% 27.9% 29.2%
========= ========= ========= =========
</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 provides a valuable indication
of the Company's ability to generate cash flows available for debt
service.
THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THE THREE MONTHS ENDED
JUNE 30, 1999
Net revenues increased $4.4 million, or 13.0%, from $34.1 million in the
three months ended June 30, 1999 to $38.6 million in the same period in
2000. We published 50 directories in the three months ended June 30, 2000
compared to 42 in the same period in 1999. The net revenue growth was due to
$1.7 million from eight new directories, $4.4 million from five directories
for which the publication date moved into the period and growth in the same 37
directories published during both periods of $2.0 million; offset by $3.7
million of net revenues associated with five directories published in the
three months ended June 30, 1999 but not in the same period in 2000.
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 additional ad sizes and additional
headings, our same book revenue growth for the 37 directories published in both
periods was 6.7%.
Cost of revenues increased $1.1 million, or 18.0%, from $6.0 million in
the three months ended June 30, 1999 to $7.1 million in the same period
in 2000. The increase was the result of $0.4 million of costs associated with
eight new directories published in the three months ended June 30, 2000, and
$1.0 million in costs associated with five directories published in the three
months ended June 30, 2000, but not in the same period in 1999; offset by $0.6
million of costs associated with five directories published during the three
months ended June 30, 1999, but not in the same period in 2000. Production
support costs increased $0.3 million in the three months ended June 30, 2000
due to the directories acquired since the second quarter of 1999.
<PAGE> 12
As a result of the above, gross profit increased $3.3 million, or
11.9%, from $28.2 million in the three months ended June 30, 1999 to $31.5
million in the same period in 2000. Gross margin decreased from 82.5% in the
three months ended June 30, 1999 to 81.7% in the same period in 2000 as a
result of higher direct costs on newly acquired directories and lower margin
directories moving into the 2000 period.
Sales and marketing expenses increased $2.0 million, or 14.3%, from
$13.9 million in the three months ended June 30, 1999 to $15.9 million in
the same period in 2000. The increase was attributable to increases of $0.8
million in sales support costs, $0.7 million in direct sales costs and $0.5
million in the provision for bad debt (which was consistent with the increase
in net revenues).
The increase in sales support costs of $0.8 million was due to $0.4
million in higher sales costs incurred by offices acquired and established
for new directories since the second quarter of 1999 and $0.4 million due to
increased costs of running existing sales offices. The increase in direct
sales costs of $0.7 million was as follows: $0.5 million of additional costs
related to eight new directories, $1.0 million related to five directories
moving into the period, and $0.1 million of higher costs associated with the 37
same directories published in both periods, offset by $0.9 million of costs
associated with five directories that were published in the three months ended
June 30, 1999 but not in the same period in 2000. Direct sales costs as a
percentage of revenue for the same 37 directories published during both periods
decreased from 20.3% to 19.4% for the three months ended June 30, 2000 compared
to the same period in 1999.
General and administrative expenses increased $2.3 million, or 28.0%,
from $8.1 million for the three months ended June 30, 1999 to $10.3 million
for the same period in 2000. The increase was due to: amortization of acquired
customer base and other intangibles of $1.9 million and other increases in
costs totaling $0.4 million.
As a result of the above factors, income from operations decreased $0.9
million, or 14.3%, from $6.2 million in the three months ended June 30,
1999 to $5.3 million in the same period in 2000. Income from operations as a
percentage of net revenues decreased from 18.3% in the three months ended
June 30, 1999 to 13.9% in the same period in 2000.
Interest expense increased $0.3 million, or 5.0%, from $5.9 million in
the three months ended June 30, 1999 to $6.2 million in the same period
in 2000 due to higher levels of debt to fund acquisitions and increased rates.
As a result of the above factors, net income decreased $1.1 million, or
286.6%, from net income of $0.4 million in the three months ended June 30, 1999
to a net loss of ($0.7) million in the same period in 2000.
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO THE SIX MONTHS ENDED
JUNE 30, 1999
Net revenues increased $7.8 million, or 12.0%, from $65.6 million in the
six months ended June 30, 1999 to $73.5 million in the same period in
2000. We published 101 directories in the six months ended June 30, 2000
compared to 85 in the same period in 1999. The net revenue growth was due to
$5.4 million from 17 new directories, $5.0 million from eight directories
for which the publication date moved into the period and growth in the same 76
directories published during both periods of $4.0 million; offset by $6.5
million of net revenues associated with nine directories published in the
six months ended June 30, 1999 but not in the same period in 2000.
<PAGE> 13
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 additional ad sizes and additional
headings, our same book revenue growth for the 76 directories published in both
periods was 6.9%.
Cost of revenues increased $2.0 million, or 16.3%, from $12.1 million in
the six months ended June 30, 1999 to $14.1 million in the same period
in 2000. The increase was the result of $1.6 million of costs associated with
17 new directories published in the six months ended June 30, 2000, and
$1.2 million in costs associated with eight directories published in the six
months ended June 30, 2000, but not in the same period in 1999; offset by $0.9
million of costs associated with nine directories published during the six
months ended June 30, 1999, but not in the same period in 2000. Costs for the
same 76 directories published in both periods decreased $0.3 million for the
2000 period compared to the prior year. Production support costs increased $0.4
million in the six months period ended June 30, 2000 due to the directories
acquired since the second quarter of 1999.
As a result of the above, gross profit increased $5.9 million, or
11.0%, from $53.6 million in the six months ended June 30, 1999 to $59.4
million in the same period in 2000. Gross margin decreased from 81.6% in the
six months ended June 30, 1999 to 80.9% in the same period in 2000 as a
result of higher direct costs on newly acquired directories and lower margin
directories moving into the period.
Sales and marketing expenses increased $3.9 million, or 14.1%, from
$27.7 million in the six months ended June 30, 1999 to $31.6 million in
the same period in 2000. The increase was attributable to increases of $1.3
million in sales support costs, $1.6 million in direct sales costs and $1.0
million in the provision for bad debt (which was consistent with the increase
in net revenues).
The increase in sales support costs of $1.3 million was due to $0.7
million in higher sales costs incurred by offices acquired since the second
quarter of 1999 and $0.6 million due to increased costs of running existing
sales offices. The increase in direct sales costs of $1.6 million was as
follows: $1.4 million of additional costs were for the 17 new directories,
$1.2 million for eight directories moving into the period, and $0.3
million of higher costs associated with the 76 same directories published in
both periods, offset by $1.3 million of costs associated with nine directories
that were published in the six months ended June 30, 1999 but not in the same
period in 2000. Direct sales costs as a percentage of revenue for the same 76
directories published during both periods decreased from 20.9% to 20.1% in the
six months ended June 30, 1999 compared to the same period in 2000.
General and administrative expenses increased $4.8 million, or 30.6%, from
$15.8 million for the six months ended June 30, 1999 to $20.6 million
for the same period in 2000. The increase was due to increased amortization of
acquired customer base and other intangibles of $4.1 million and other
increases in costs totaling $0.7 million.
As a result of the above factors, income from operations decreased $2.9
million, or 28.3%, from $10.1 million in the six months ended June 30,
1999 to $7.3 million in the same period in 2000. Income from operations as a
percentage of net revenues decreased from 15.4% in the six months ended
June 30, 1999 to 9.9% in the same period in 2000.
Interest expense increased $1.2 million, or 10.4%, from $11.3 million in
the six months ended June 30, 1999 to $12.4 million in the same period
in 2000 due to higher levels of debt to fund acquisitions and increased rates.
As a result of the above factors, net income decreased $4.1 million, or
443.1%, from a net loss of ($0.9) million in the six months ended June 30, 1999
to a net loss of ($5.0) million in the same period in 2000.
<PAGE> 14
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $6.1 million in the six
months ended June 30, 2000 compared to $1.0 million in the same period in
1999. The increase in cash provided by operations resulted primarily from
reduced receivables and increased customer deposits compared to the same
period in the prior year.
Customer deposits (advance payments) increased $6.5 million in the six
months ended June 30, 2000 compared to the same period in the prior year.
The increase is primarily related to the increased size of our directory
portfolio.
Net cash used by investing activities was $14.5 million in the six
months ended June 30, 2000 as compared to $35.3 million in the same period in
1999. Investing activities consist primarily of cash used to acquire
directories. In the six months ended June 30, 2000, $13.8 million was spent
compared to $34.6 million in the same period in the prior year. The prior
year's acquisitions are discussed in note 3 of our Quarterly Report on Form
10-Q for the quarter ended June 30, 1999 which is available on the Internet
at http:www.sec.gov. Acquisitions made in the six months ended June 30, 2000
are discussed in note 3 of the financial statements included in this Form 10-Q.
Net cash provided by financing activities was $11.5 million in the six
months ended June 30, 2000 as compared to $23.9 million used in the same period
in 1999. These amounts are borrowings for acquisitions during the quarters, and
decreased as a result of fewer acquisitions during the six months ended
June 30, 2000.
In connection with the recapitalization of our Company in October 1997,
we incurred significant debt. As of June 30, 2000 we had total outstanding
long term indebtedness of $259.9 million, including $140 million of Series D
9 5/8% Senior Subordinated Notes due 2007, (excluding unamortized premium of
$1.5 million), $63.5 million of outstanding borrowings under our senior
credit facility, $52.5 million of outstanding borrowings under our revolving
credit facility, and $2.4 million in acquisition related debt, all of which
ranks senior to the Series D notes. As of June 30, 2000 the Company had $17.5
million of additional borrowing availability under its senior credit facility.
On July 3, 2000 the Company and its lenders agreed to amend our November
6, 1997 credit agreement to allow the Company to obtain a $40 million Tranche
B Term Loan due in April 2005. The proceeds of the loan will be used to pay
down our existing revolving credit facility in order to provide the Company
with additional funds for future acquisitions.
Our principal sources of funds are cash flows from operating activities
and available funds under our revolving credit facility. Assuming 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 for the next
twelve months, including the payment of principal and interest on our notes,
as well as to provide funds for our working capital, capital expenditures
and other operating 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.
<PAGE> 15
FORWARD LOOKING STATEMENTS
This Quarterly Report on Form 10-Q 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 10-Q, 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; and (xi) the
sensitivity of our business to general economic conditions.
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 June 30, 2000, there was approximately $65.3
million outstanding under the term loan (at an interest rate of 8.8% at such
time) and $52.5 million outstanding under the revolving loans (at an interest
rate of 8.6% 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 $1.2 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 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.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
Not applicable
<PAGE> 16
ITEM 5. OTHER INFORMATION
On July 3, 2000 the Company and its lenders agreed to amend our
November 6, 1997 credit agreement to allow the Company to obtain a $40 million
Tranche B Term Loan due in April 2005. The proceeds of the loan will be used
to pay down our existing revolving credit loan in order to provide the Company
with additional funds for future acquisitions.
On July 7, 2000, the Company acquired one directory in California
from E&L Han Publishing for cash in the amount of approximately $0.3 million,
which was funded with borrowings under the Company's revolving credit
facility. The acquisition was accounted for as a purchase and accordingly
the purchase price was allocated to the tangible and intangible assets
acquired based on their respective fair values at the date of acquisition.
On July 18, 2000, the Company acquired 9 directories in Florida and
Louisiana from The New York Times Company for cash in the amount of
approximately $16.6 million, which was funded with borrowings under the
Company's revolving credit facility. The Company assumed certain liabilities
of The New York Times Company totaling approximately $0.3 million. The
acquisition was accounted for as a purchase and accordingly the purchase price
was allocated to the tangible and intangible assets acquired based on their
respective fair values at the date of acquisition.
On July 18, 2000, the Company acquired 2 directories in California
from American West Publishing, Inc. for cash in the amount of approximately
$1.25 million, which was funded with borrowings under the Company's
revolving credit facility. The acquisition was accounted for as a purchase
and accordingly the purchase price was allocated to the tangible and
intangible assets acquired based on their respective fair values at the date
of acquisition.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on July 31, 2000 on
its behalf by the undersigned thereunto duly authorized.
TRANSWESTERN PUBLISHING COMPANY LLC
(Registrant)
BY: TransWestern Communications Company, Inc.
(Manager)
BY: /s/ Ricardo Puente
--------------------------------------------
Name: Ricardo Puente
Title: President, Chief Executive Officer
and Director
BY: /s/ Joan Fiorito
--------------------------------------------
Name: Joan Fiorito
Title: Vice President, Chief Financial
Officer and Assistant Secretary
(Principal Financial and Accounting
Officer)
