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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

Commission File Number 333-42085

TRANSWESTERN PUBLISHING COMPANY LLC

(858) 467-2800
(Registrant’s telephone number, including area code)

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [  ]

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

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TRANSWESTERN PUBLISHING COMPANY LLC
FORM 10-Q INDEX

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TRANSWESTERN PUBLISHING COMPANY LLC
CONSOLIDATED BALANCE SHEETS
(in thousands)

See accompanying notes.

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

See accompanying notes.

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

See accompanying notes.

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

1.

GENERAL

     The accompanying unaudited consolidated financial statements include the accounts of TransWestern Publishing Company LLC (the “Company”) and its wholly owned operating subsidiaries, Target Directories of Michigan, Inc. (“Target”) and WorldPages, Inc. (“WorldPages”) and its subsidiaries. All significant intercompany transactions have been eliminated. The Company is an independent yellow page directory publisher and is a wholly owned subsidiary of TransWestern Holdings L.P. (the “Partnership”).

     These financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and, in the opinion of management, reflect all adjustments necessary to present fairly the financial position, results of operations and cash flows for the periods presented in conformity with accounting principles generally accepted in the United States. All adjustments were of a normal recurring nature. All material intercompany balances and transactions have been eliminated. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Form 10-K for the fiscal year ended December 31, 2002. The 10-K is available on the Internet at http://www.sec.gov.

     Certain amounts in prior period consolidated financial statements have been reclassified to conform to the presentation for the three months ended March 31, 2003.

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

2.

FINANCIAL STATEMENT DETAILS

Property, Equipment and Leasehold Improvements

Acquired Intangibles

Debt issuance costs

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

3.

LONG TERM DEBT

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

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

4.

DIRECTORY ACQUISITIONS

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

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

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

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

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

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

5.

GUARANTEE

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

6.

LEGAL PROCEEDINGS

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

7.

GOODWILL

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

(1)

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

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

8.

NEW ACCOUNTING PRONOUNCEMENTS

     In April 2002, the Financial Accounting Standards Board (“FASB”) issued FAS 145, “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections.” This statement, among other things, changes the way gains and losses from the extinguishment of debt are reported. Previously, all gains and losses from the extinguishment of debt were required to be reported as an extraordinary item, net of related tax effect. Under FAS 145, gains and losses from the extinguishment of debt should be reported as part of on-going operations, unless the extinguishment of debt is both an unusual and infrequent event for the entity. Previously reported extraordinary gains and losses from the extinguishment of debt that are not unusual or infrequent should be reclassified. The Company has reclassified $3.5 million of extraordinary losses recorded during June of the year ended December 31, 2001. The adoption of this statement did not affect reported net income.

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ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (UNAUDITED)

Overview

     As used in this item and throughout this Quarterly Report on Form 10-Q, “we”, “us”, and “our” each refer to the Company, the Partnership and their direct and indirect subsidiaries, collectively.

     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 affected 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 which are recognized based on actual distribution dates of individual directories, our bookings and cash collection activities generally occur at a relatively steady pace throughout the year. The table below demonstrates that quarterly bookings, collection of advance payments and total cash receipts, which includes both advance payments and collections of accounts receivable, generally vary less on a percentage basis than our net revenues or EBITDA.

(a)

“EBITDA” is defined as income (loss) before extraordinary item, discretionary contributions to the Company’s equity compensation plans (such contributions represent special distributions to the Company’s equity compensation plans in connection with refinancing transactions), non-recurring management bonuses and fees in connection with the June 2001 recapitalization of the Partnership, plus interest expense, taxes, 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 accounting principles generally accepted in the United States (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 and is derived as follows (in thousands):

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(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.
(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 revenues for the periods indicated:

(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 MARCH 31, 2003 COMPARED TO THE THREE MONTHS ENDED MARCH 31, 2002

     Net revenues decreased $6.0 million, or 8.6%, from $69.0 million in the three months ended March 31, 2002 to $63.0 million in the same period in 2003. The Company published 56 directories in the three months ended March 31, 2003 compared to 58 in the same period in 2002. The decrease in net revenues was due to $24.3 million of net revenues associated with 22 directories published in the three months ended March 31, 2002 but not in the same period in 2003 (these directories did not meet specific sales objectives in order to publish them in the quarter); offset by $5.2 million from five new directories, $11.0 million from 15 directories for which the publication date moved into the period and growth in the same 36 directories published during both periods of $2.1 million.

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     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 36 directories published in both periods was 4.8%.

     Cost of revenues decreased $2.5 million, or 19.0%, from $13.2 million in the three months ended March 31, 2002 to $10.7 million in the same period in 2003. The decrease was the result of $0.7 million of lower costs associated with the 36 same directories and $4.5 million of costs associated with 22 directories published during the three months ended March 31, 2002, but not in the same period in 2003; offset by $1.4 million of costs associated with five new directories published in the three months ended March 31, 2003 and $1.4 million in costs associated with 15 directories published in the three months ended March 31, 2003, but not in the same period in 2002. Production support costs decreased $0.1 million in the three months ended March 31, 2002.

     As a result of the above, gross profit decreased $3.4 million, or 6.1%, from $55.8 million in the three months ended March 31, 2002 to $52.4 million in the same period in 2003. Gross margin increased from 80.8% in the three months ended March 31, 2002 to 83.0% in the same period in 2003 as a result of lower direct costs on the same 36 directories.

     Selling and marketing expenses increased $1.7 million, or 5.4%, from $30.1 million in the three months ended March 31, 2002 to $31.8 million in the same period in 2003. The increase was attributable to increases of $2.7 million in sales support costs and $0.2 million in provision for bad debt; offset by decreases of $0.6 million in direct sales costs and an increase of $0.6 million in recovered revenue in the three months ended March 31, 2003.

     Of the increase in sales support costs of $2.7 million, $1.3 million was due to employment recruiting costs and training costs, $0.9 million was due to a general increase in costs associated with personnel and other costs associated with our field sales offices, and $0.5 million was due to sales offices acquired since the first quarter of 2002. The decrease in direct sales costs of $0.6 million was as follows: $5.6 million of costs associated with 22 directories that published in the three months ended March 31, 2002 but not in the same period in 2003; offset by $1.4 million of costs for the five new directories, $2.8 million for 15 directories moving into the period, and $0.8 million of higher costs associated with the 36 same directories. Direct sales costs as a percentage of revenue for the same 36 directories published during both periods increased from 19.3% to 20.2% in the three months ended March 31, 2003 compared to the same period in 2002.

     General and administrative expense increased $0.5 million, or 2.7%, from $15.8 million for the three months ended March 31, 2002 to $16.3 million for the same period in 2003. The increase is due to: amortization of acquired customer base and other intangibles of $0.5 million.

     As a result of the above factors, income from operations decreased $5.5 million, or 55.8%, from $9.8 million in the three months ended March 31, 2002 to $4.3 million in the same period in 2003. Income from operations as a percentage of net revenues decreased from 14.2% in the three months ended March 31, 2002 to 6.9% in the same period in 2003.

     Interest expense decreased $0.2 million, or 1.7%, from $8.6 million in the three months ended March 31, 2002 to $8.4 million in the same period in 2003 due to a decrease in the rates of interest paid as a result of decreases in Prime and LIBOR rates.

     The provision for income taxes increased $0.9 million, or 338.2%, from $0.2 million in the three months ended March 31, 2002 to $1.1 million in the same period in 2003 due to a change in the effective tax rate of our wholly-owned subsidiaries. Specifically, we were able to utilize net operating losses during the three months ended March 31, 2002 versus no utilization of net operating losses for the same period in 2003.

     As a result of the above factors, net income decreased $6.2 million, from income of $1.3 million in the three months ended March 31, 2002 to a loss of $4.9 million in the same period in 2003.

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LIQUIDITY AND CAPITAL RESOURCES

     Net cash provided by operating activities was $17.4 million in the three months ended March 31, 2003 compared to $8.5 million provided in the same period in 2002. The increase in cash provided by operations was primarily due to increased collections in trade receivables from published directories of $4.2 million, increased collections of advance payments of $1.8 million, and the change in receivables resulting from moving directories out of the quarter.

     Net cash used for investing activities was $2.3 million in the three months ended March 31, 2003, as compared to $1.5 million in the same period in 2002. Investing activities consist primarily of cash used to acquire directories. In the three months ended March 31, 2003, $2.0 million was spent to acquire directories compared to $1.2 million in the same period in the prior year. Acquisitions made in the three months ended March 31, 2003 are discussed in note 4 of the financial statements included in this Form 10-Q.

     Net cash used for financing activities was $28.1 million in the three months ended March 31, 2003 as compared to $0.1 million in the same period in 2002. The amounts of cash used by financing activities for the three months ended March 31, 2003 were primarily for distributions to the Partnership for the redemption of the Partnership’s 11 7/8% senior discount notes.

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

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

     Our principal sources of funds are cash flows from operating activities and borrowing availability of $60.5 million under our revolving credit facility. 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 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 indirect subsidiaries of the Partnership. We cannot assure you that the agreements governing the indebtedness of the Partnership’s subsidiaries will permit such subsidiaries to distribute funds to the Partnership.

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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. Additional information with respect to these and other factors that could cause our actual results to differ from those projected are included in the “Risk Factors” section of the Company’s Registration Statement on Form S-4, Registration No. 333-70470, filed with the SEC on October 19, 2001.

ITEM 3.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     We are exposed to interest rate risk in connection with the term loans 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 March 31, 2003 there was approximately $29.5 million outstanding under the Term A Loan (at an average interest rate of 4.1% at such time), $196.5 million under the Term B Loan (at an average interest rate of 4.5% at such time), and $4.5 million outstanding under the revolving loan. 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 $2.3 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.

ITEM 4.     CONTROLS AND PROCEDURES

     Based on their most recent evaluation, which was completed within 90 days of the filing of this Form 10-Q, the Company’s Chief Executive Officer and Chief Financial Officer believe the Company’s disclosure controls and procedures are effective. There were no significant changes in internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

PART II.     OTHER INFORMATION

ITEM 1.      LEGAL PROCEEDINGS

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

ITEM 2.      CHANGES IN SECURITIES

                    None

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on May 8, 2003 on its behalf by the undersigned thereunto duly authorized.

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CERTIFICATIONS

I, Joan M. Fiorito, V.P. & Chief Financial Officer, certify that:

1.		I have reviewed this quarterly report on Form 10-Q of TransWestern Publishing Company LLC;
2.		Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3.		Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4.		The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

	a)		designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
	b)		evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
	c)		presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.

The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

	a)		all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
	b)		any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6.

The registrant’s other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

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CERTIFICATIONS

I, Ricardo Puente, President and Chief Executive Officer, certify that:

1.		I have reviewed this quarterly report on Form 10-Q of TransWestern Publishing Company LLC;
2.		Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3.		Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4.		The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

	a)		designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
	b)		evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
	c)		presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.

The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

	a)		all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
	b)		any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6.

The registrant’s other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

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