<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 MARCH 31, 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 333-42117
TRANSWESTERN HOLDINGS L.P.
(Exact name of registrant as specified in its charter)
DELAWARE 33-0560667
(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)
(619) 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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<PAGE> 2
TRANSWESTERN HOLDINGS L.P.
FORM 10-Q INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 1999 (unaudited) and
December 31, 1998 3
Consolidated Statements of Operations for the Three Months Ended
March 31, 1999 (unaudited) and 1998 (unaudited) 4
Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 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 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 15
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
</TABLE>
<PAGE> 3
TRANSWESTERN HOLDINGS L.P.
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
--------- ---------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 2,590 $ 14,067
Trade receivable, (less allowance for doubtful accounts of
$10,256 at March 31, 1999 and $9,608 at December 31, 1998) 26,239 20,931
Deferred directory costs 10,109 8,935
Other current assets 880 625
--------- ---------
Total current assets 39,818 44,558
Non-current assets:
Property, equipment and leasehold improvements, net 2,962 2,977
Acquired intangibles, net 66,460 34,486
Other assets, primarily debt issuance costs, net 9,532 9,746
--------- ---------
Total non-current assets 78,954 47,209
--------- ---------
Total assets $ 118,772 $ 91,767
========= =========
LIABILITIES AND PARTNERSHIP DEFICIT
Current liabilities:
Accounts payable $ 4,961 $ 4,241
Salaries and benefits payable 3,559 3,980
Accrued acquisition costs 1,883 450
Accrued interest 5,183 1,470
Other accrued liabilities 948 1,068
Customer deposits 17,524 16,139
Current portion, long-term debt 3,207 2,207
--------- ---------
Total current liabilities 37,265 29,555
Long-term debt:
Series B and C 9 5/8% Senior Subordinated Notes 141,734 141,784
Series B 11 7/8% Senior Discount Notes, net 38,138 37,060
Senior Credit Facility 65,730 66,165
Revolving loan 16,000 --
Acquisition payables 7,050 2,000
--------- ---------
Total long-term debt 268,652 247,009
Partnership deficit:
General Partner (3,182) (3,141)
Limited Partner (183,963) (181,656)
--------- ---------
Total Partner deficit: (187,145) (184,797)
--------- ---------
Total liabilities and partner deficit $ 118,772 $ 91,767
========= =========
</TABLE>
See accompanying notes.
<PAGE> 4
TRANSWESTERN HOLDINGS L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
---------------------
1999 1998
-------- --------
<S> <C> <C>
Net revenue $ 31,513 $ 26,761
Cost of revenues 6,106 4,929
-------- --------
Gross profit 25,407 21,832
Operating expenses:
Sales and marketing 13,785 10,456
General and administrative 7,731 4,547
-------- --------
Total operating expenses 21,516 15,003
-------- --------
Income from operations 3,891 6,829
Other income, net 110 79
Interest expense (6,432) (5,509)
-------- --------
Net income (loss) $ (2,431) $ 1,399
======== ========
Net income (loss) allocated
to General Partner units $ (41) $ 24
======== ========
Net income (loss) allocated
to Limited Partner units $ (2,390) $ 1,375
======== ========
Net income (loss) per
General Partner unit $ (4.2) $ 2.5
======== ========
Net income (loss) per
Limited Partner unit $ (1.0) $ 0.5
======== ========
</TABLE>
See accompanying notes.
<PAGE> 5
TRANSWESTERN HOLDINGS L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1999 1998
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net (loss) income $ (2,431) $ 1,399
Adjustments to reconcile net (loss) income to cash provided by
operating activities:
Depreciation and amortization 4,149 1,962
Amortization of deferred debt issuance costs 345 307
Amortization of Senior Note discount 1,078 960
Provision for doubtful accounts 2,805 2,403
Changes in operating assets and liabilities, excluding the effects of
acquisitions:
Trade receivables (4,116) (3,324)
Write-off of doubtful accounts (2,496) (1,752)
Recoveries of doubtful accounts 93 81
Deferred directory costs (456) (72)
Other current assets (124) (259)
Accounts payable 723 (828)
Accrued liabilities (1,942) 239
Accrued interest 3,713 1,988
Customer deposits 153 (1,122)
-------- --------
Cash provided by operating activities 1,494 1,982
INVESTING ACTIVITIES
Purchase of property, equipment and leasehold improvements (238) (198)
Acquisition of directories (28,251) (7,807)
Increase in other assets (131) (36)
-------- --------
Cash used for investing activities (28,620) (8,041)
FINANCING ACTIVITIES
Borrowings under long-term debt agreements:
Revolving credit facility 20,300 7,300
Repayments of long-term debt
Revolving credit facility (4,300) (3,900)
Senior Term Loan (435) (2,000)
Partnership contribution 84 --
-------- --------
Cash provided by financing activities 15,649 1,400
-------- --------
Net decrease in cash (11,477) (4,659)
Cash at beginning of period 14,067 6,812
-------- --------
Cash at end of period $ 2,590 $ 2,153
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 1,346 $ 2,253
</TABLE>
See accompanying notes.
<PAGE> 6
TRANSWESTERN HOLDINGS L.P.
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 Holdings L.P. (Holdings) and its wholly owned
subsidiary, TransWestern Publishing Company, LLC (TransWestern). All
significant inter-company transactions have been eliminated. Holdings only
assets consist of TransWestern's Member Units (as defined). Holdings has
formed TWP Capital Corp. ("Capital") as a wholly-owned subsidiary and the
Company has formed TWP Capital Corp. II ("Capital II") as a wholly-owned
subsidiary. Neither Capital nor Capital II has any significant assets or
operations.
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 just
ended. As of the date of filing this document the 10-K is available on the
Internet at http://www.sec.gov.
<PAGE> 7
TRANSWESTERN HOLDINGS L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(ALL DOLLAR AMOUNTS ARE IN THOUSANDS)
2. FINANCIAL STATEMENT DETAILS
Property, Equipment and Leasehold Improvements
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
----------- -----------
<S> <C> <C>
Computer and office equipment.................... $ 6,301 $ 6,122
Furniture and fixtures........................... 1,674 1,636
Leasehold improvements........................... 330 310
----------- -----------
8,305 8,068
Less accumulated depreciation and amortization... (5,343) (5,091)
----------- -----------
$ 2,962 $ 2,977
=========== ===========
</TABLE>
Acquired Intangibles
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
----------- -----------
<S> <C> <C>
Customer Base.................................. $ 95,953 $ 60,031
Less accumulated amortization.................. (29,493) (25,545)
----------- -----------
$ 66,460 $ 34,486
=========== ===========
</TABLE>
Other Assets
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
----------- -----------
<S> <C> <C>
Debt issuance costs............................... $ 11,498 $ 11,367
Less accumulated amortization..................... (1,966) (1,621)
----------- -----------
$ 9,532 $ 9,746
=========== ===========
</TABLE>
<PAGE> 8
3. DIRECTORY ACQUISITIONS
United. On January 5, 1999, TransWestern 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 HOLDINGS L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(ALL DOLLAR AMOUNTS ARE IN THOUSANDS)
3. DIRECTORY ACQUISITIONS (CONTINUED)
Lambert. On January 8, 1999, TransWestern 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, TransWestern 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, TransWestern purchased four directories
from Call It, Inc. (DBA) 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.
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 (in thousands):
<TABLE>
<S> <C>
Customer List $ 34,260
Deferred directory costs 1,380
Other current and non-current assets 1,741
</TABLE>
Assuming that the above acquisitions had occurred on the first day of
the Company's three month period ended March 31, 1998 the unaudited pro forma
results of operations would be as follows:
<TABLE>
<CAPTION>
Three months ended March 31,
-----------------------------
1999 1998
------------ -----------
(Unaudited)
<S> <C> <C>
Net revenues....................................... $31,513 $30,283
Net income (loss).................................. (2,431) 35
</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 HOLDINGS L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(ALL DOLLAR AMOUNTS ARE IN THOUSANDS)
4. GUARANTEE
Target Directories of Michigan, Inc. ("Target"), which is a direct,
wholly-owned subsidiary of TransWestern, fully and unconditionally guaranteed
TransWestern's Series B and Series C 9 5/8% Senior Subordinated Notes due 2007
that were outstanding as of March 31, 1999 on an unsecured senior subordinated
basis. Target is TransWestern's only direct or indirect, other than an
inconsequential subsidiary, and TransWestern 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 three months ended
and as of March 31, 1999:
Statement of Operations:
Net revenues $ 933
Gross profit 624
Operating income 118
Net income (58)
Balance Sheet:
Current assets $ 1,100
Non-current assets 5,430
Current liabilities 1,071
Non-current liabilities 895
5. SUBSEQUENT EVENTS
On April 1, 1999, the Company completed the purchase of 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.
On April 2, 1999, the Company completed the purchase of certain tangible
and intangible assets of Golden State Directory, Corp. ("Golden State") for a
total of approximately $5.5 million. Golden State publishes six directories
in northern California.
<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 TransWestern continues 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 a month earlier or later 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:
<TABLE>
<CAPTION>
---------------------------------------------------------------
1998 1998 1998 1998 1999
---------------------------------------------------------------
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter 1st Quarter
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net revenues ............... $ 26.8 $ 28.7 $ 29.0 $ 24.4 $ 31.5
EBITDA (a) ................. $ 8.9 $ 9.6 $ 8.5 $ 5.5 $ 8.2
Bookings (b) ............... $ 25.0 $ 22.8 $ 26.8 $ 29.3 $ 30.7
Advance payments ........... $ 11.5 $ 11.5 $ 13.3 $ 13.9 $ 14.4
Total cash receipts (c) .... $ 21.7 $ 25.8 $ 25.9 $ 26.0 $ 25.4
</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) Includes both advance payments and collections of accounts receivable.
<PAGE> 11
RESULTS OF OPERATIONS
The following table summarizes our results of operations as a percentage
of revenue for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
--------------------------
1999 1998
--------- ---------
<S> <C> <C>
Net revenues .................. 100.0% 100.0%
Cost of revenues .............. 19.4 18.4
--------- ---------
Gross profit .................. 80.6 81.6
Sales and marketing ........... 43.8 39.1
General and administrative .... 24.5 17.0
--------- ---------
Income from operations ........ 12.3% 25.5%
========= =========
EBITDA Margin (a), (b) ........ 26.0% 33.2%
========= =========
</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 also provides a valuable indication
of the Company's ability to generate cash flows available for debt
service.
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THE THREE MONTHS ENDED
MARCH 31, 1998
Net revenues increased $4.7 million, or 17.8%, from $26.8 million in the
three months ended March 31, 1998 to $31.5 million in the same period in
1999. We published 43 directories in the three months ended March 31, 1999
compared to 39 in the same period in 1998. The net revenue growth was due to
$5.2 million from eight new directories, $2.4 million from four directories
for which the publication date moved into the period and; growth in the same 31
directories published during both periods of $1.4 million; offset by $4.3
million of net revenues associated with eight directories published in the
three months ended March 31, 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 31
directories published in both periods was 6.4%.
<PAGE> 12
Cost of revenues increased $1.2 million, or 23.9%, from $4.9 million in
the three months ended March 31, 1998 to $6.1 million in the same period
in 1999. The increase was the result of $1.4 million of costs associated with
eight new directories published in the three months ended March 31, 1999, and
$0.4 million in costs associated with four directories published in the three
months ended March 31, 1999, but not in the same period in 1998; offset by $0.8
million of costs associated with eight directories published during the three
months ended March 31, 1998, but not in the same period in 1999. Production
support costs increased $0.2 million in the three months ended March 31, 1999
due to the directories acquired since the first quarter of 1998.
As a result of the above, gross profit increased $3.6 million, or
16.4%, from $21.8 million in the three months ended March 31, 1998 to $25.4
million in the same period in 1999. Gross margin decreased from 81.6% in the
three months ended March 31, 1998 to 80.6% in the same period in 1999 as a
result of higher direct costs on newly acquired directories.
Selling and marketing expenses increased $3.3 million, or 31.8%, from
$10.5 million in the three months ended March 31, 1998 to $13.8 million in
the same period in 1999. The increase was attributable to increases of $1.6
million in sales support costs, $1.3 million in direct sales costs and $0.4
million in provision for bad debt (which was consistent with the increase in
net revenues).
Of the increase in sales support costs of $1.6 million, $0.9 million was
due to sales offices acquired since the first quarter of 1998 and $0.7 million
was due to the reorganization of the sales management structure in May
1998. The increase in direct sales costs of $1.3 million was as follows:
$1.4 million of additional costs were for the eight new directories, $0.5
million for four directories moving into the period, and $0.4 million of higher
costs associated with the 31 same directories; offset by $1.0 million of costs
associated with eight directories that published in the three months ended
March 31, 1998 but not in the same period in 1999. Direct sales costs as a
percentage of revenue for the same 31 directories published during both periods
decreased from 15.9% to 14.8% in the three months ended March 31 1999 compared
to the same period in 1998.
General and administrative expense increased $3.2 million, or 70.1%, from
$4.5 million for the three months ended March 31, 1998 to $7.7 million
for the same period in 1999. The increase is due to: amortization of acquired
customer base and other intangibles of $2.2 million and an increase in
incentive compensation costs and increases in other professional service costs
totaling $1.0 million.
As a result of the above factors, income from operations decreased $2.9
million, or 43.0%, from $6.8 million in the three months ended March 31,
1998 to $3.9 million in the same period in 1999. Income from operations as a
percentage of net revenues decreased from 25.5% in the three months ended
March 31, 1998 to 12.3% in the same period in 1999.
Interest expense increased $0.9 million, or 16.8%, from $5.5 million in
the three months ended March 31, 1998 to $6.4 million in the same period
in 1999 due to higher levels of debt.
As a result of the above factors, net income decreased $3.8 million, or
273.8%, from income of $1.4 million in the three months ended March 31, 1998 to
a loss of $2.4 million in the same period in 1999.
<PAGE> 13
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $1.5 million in the three
months ended March 31, 1999 compared to $2.0 million provided in the same
period in 1998, exclusive of the effects of acquired directories. The decrease
in cash provided resulted primarily due to lower net income, net of adjustments
to reconcile net income to cash provided by operating activities in the three
months ended March 31, 1999 compared to the same period in the prior year.
Customer deposits (advance payments) have continued to improve over the
past four quarters and is attributed to both higher volume of net revenues and
our efforts to collect more cash at contract closing to reduce our exposure to
uncollectable accounts.
Net cash used by investing activities was $28.6 million in the three
months ended March 31, 1999 as compared to $8.0 million in the same period in
1998. Investing activities consist primarily of cash used to acquire
directories. In the three months ended March 31, 1999 $28.3 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. which was
acquired for total consideration of $8.4 million. The Mast directories serve
Nashville, Tennessee and the surrounding area, Northern Ohio and Southern
Michigan. Acquisitions made in the three months ended March 31, 1999 are
discussed in note 3 of the financial statements included in this Form 10-Q.
Net cash provided by financing activities was $15.6 million in the three
months ended March 31, 1999 as compared to $1.4 million in the same period
in 1998. These borrowings were undertaken to aid in the funding of acquisitions
during the quarters.
In connection with the recapitalization of our company in October 1997,
we incurred significant debt. As of March 31, 1999 we had total
outstanding long term indebtedness of $272 million, including TransWestern's
$140 million of Series B and C 9 5/8% Senior Subordinated Notes due 2007, $38
million of Holding's 11 7/8% Senior Discount Notes due 2008 and $66 million of
outstanding borrowings under the senior credit facility, which ranks senior
to the Series B and C notes. Of the $40.0 million senior credit facility, $16.0
million was borrowed and $24.0 million was available at March 31, 1999.
In May, 1999 we will be required to make a semiannual interest payment of
$6.7 million on our Series D 9 5/8% Senior Subordinated Notes (which were
exchanged for our Series B and Series C Notes in April 1999).
Our principal sources of funds are cash flows from operating activities
and $40.0 million of 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.
The senior credit facility and the indentures governing TransWestern's
notes significantly restrict the distribution of funds by TransWestern and the
other subsidiaries of Holdings. We cannot assure you that the agreements
governing the indebtedness of Holdings' subsidiaries will permit such
subsidiaries to distribute funds to Holdings in amounts sufficient to pay the
accreted value or principal or interest on Holdings' Discount Notes when the
same becomes due, whether at maturity, upon acceleration or redemption or
otherwise. Holdings' Discount Notes will be effectively subordinated in right
of payment to all existing and future claims of creditors of subsidiaries of
Holdings, including the lenders under the senior credit facility, the holders
of TransWestern's notes and trade creditors.
<PAGE> 14
YEAR 2000 READINESS STATEMENT
We have a Year 2000 ("Y2K") project team focusing on four key readiness
areas:
- business computer systems -- addressing hardware and software used in
our core operations;
- computing infrastructure -- addressing network servers, operating
software, voice networks, and phones;
- end user computing -- addressing hardware and software used in our
ancillary operations; and
- vendors/ suppliers -- addressing the preparedness of our key
suppliers.
For each readiness area, we are performing risk assessment, conducting
testing, and remediation, either retirement, replacement or conversion,
developing contingency plans to mitigate known risk, and communicating 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, are
conducting an assessment of internal applications and computer hardware. Some
software applications already are or have been made year 2000 compliant and
resources have been assigned to address other applications based on their
importance and the time required to make them Y2K compliant. All software
remediation, Y2K compliance evaluation of hardware, including routers,
telecommunication equipment, workstations and other items is expected to be
completed by August 1999.
In addition to applications and information technology hardware, we are
developing remediation/contingency plans for certain business critical systems
such as: embedded systems, facilities and other operations, such as financial
and banking systems.
Vendors/Suppliers Readiness Program. This program focuses on minimizing
the risks associated with key suppliers. We have identified key suppliers and
are in the process of contacting them to solicit information on their Y2K
readiness. To date, we have received some responses, most of which indicate
that the suppliers are in the process of developing remediation plans. We are
also developing supplier action lists and contingency plans for key
suppliers.
We estimate that total Y2K costs will be approximately $0.7 million. Y2K
costs incurred by the end of the first quarter of 1999 were approximately $0.5
million. Management intends to periodically refine these estimates over time as
it continues to assess and develop alternatives. There can be no assurance,
however, that there will not be a delay in or increased costs associated with,
the programs described in this section.
Since the programs described in this section are ongoing, management has
not yet identified all potential Y2K complications. Therefore, the potential
impact of these complications on our financial condition and results of
operations cannot be determined at this time. 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.
<PAGE> 15
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
Not applicable
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 the
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
ITEM 5. OTHER INFORMATION
None
<PAGE> 16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibit Index
27.1 Consolidated Financial Data Schedule
(B) Reports on Form 8-k.
(1) On January 14, 1999 Holdings filed a report on form 8-K
reporting to Item 2 thereof that on January 5, 1999,
TransWestern acquired 14 directories (and related accounts
receivable) in Texas from United Directory Services, Inc.
(2) On February 16, 1999 Holdings filed a report on form 8-K
reporting pursuant to:
Item 7. Financial Statements and Exhibits. Holdings
filed the required financial statements for the assets
acquired by TransWestern from Universal Phone Books,
Inc. as reported on our 8-K filed November 30, 1998 and
the required pro forma financial information.
(3) On March 9, 1999 Holdings filed a report on form 8-K
reporting pursuant to:
Item 7. Financial Statements and Exhibits. Holdings
filed the required financial statements for the assets
acquired by TransWestern from United Directory
Services, Inc. as reported on form 8-K filed January
14, 1999 and the required pro forma financial
information.
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrants have duly caused this report to be signed on May 12, 1999 on
their behalf by the undersigned thereunto duly authorized.
TRANSWESTERN HOLDINGS L.P.
(Registrant)
BY: TransWestern Communications Company, Inc.
(General Partner)
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)
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