1 ================================================================================ 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, 2001. [ ] 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) (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 [ ] =============================================================================== 2 TRANSWESTERN HOLDINGS L.P. FORM 10-Q INDEX

PAGE ---- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets as of ~~September~~March 3031, ~~2000~~2001 (unaudited) and December 31, ~~1999~~2000 3 ~~Unaudited~~ Consolidated Statements of Operations for the Three ~~and Nine~~ Months Ended ~~September~~March 3031, ~~2000~~2001 (unaudited) and ~~1999~~2000 (unaudited) 4 ~~Unaudited~~ Consolidated Statements of Cash Flows for the ~~Nine~~Three Months Ended ~~September~~March 3031, ~~2000~~2001 (unaudited) and ~~1999~~2000 (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 1514 PART II. OTHER INFORMATION Item 1. Legal Proceedings 1614 Item 2. Changes in Securities ~~and~~14 ~~Use of Proceeds 16~~ Item 3. Defaults upon Senior Securities 1614 Item 4. Submission of Matters to a Vote of Security Holders 1614 Item 5. Other Information 1615 Item 6. Exhibits and Reports on Form 8-K 1615 SIGNATURES 1716

3 TRANSWESTERN HOLDINGS L.P. CONSOLIDATED BALANCE SHEETS (in thousands)

~~SEPTEMBER~~MARCH 3031, DECEMBER 31, 2001 2000 ~~1999~~ --------- ------------ (UNAUDITED) ASSETS Current assets: Cash $ 13,~~815~~285 $ 1,~~167~~961 Trade ~~receivables~~receivable, (less allowance for doubtful accounts of $810,~~426~~233 at ~~Sept.~~March 3031, ~~2000~~2001 and $10,~~394~~419 at December 31, ~~1999~~2000) 4047,~~201~~584 3648,~~188~~988 Deferred directory costs 1314,~~500~~213 1011,~~037~~848 Other current assets 1,~~300~~358 1,~~198~~334 --------- --------- Total current assets 5666,~~816~~440 4864,~~590~~131 Non-current assets: Property, equipment and leasehold improvements, net 4,~~344~~064 34,~~423~~238 Acquired intangibles, net 9789,~~243~~477 8590,~~879~~033 Other assets, primarily debt issuance costs, net 98,~~246~~233 98,~~454~~627 --------- --------- Total non-current assets ~~110~~101,~~833~~774 98102,~~756~~898 --------- --------- Total assets $ ~~167~~168,~~649~~214 $ ~~147~~167,~~346~~029 ========= ========= LIABILITIES AND PARTNERSHIP DEFICIT Current liabilities: Accounts payable $ 87,~~846~~307 $ 89,~~323~~908 Salaries and benefits payable 4,~~906~~000 5,~~735~~378 Accrued acquisition costs 21,~~892~~585 42,~~915~~095 Accrued interest 65,~~161~~951 2,~~131~~715 Other accrued liabilities ~~1,059~~971 ~~1,011~~812 Customer deposits 2220,~~184~~131 1617,~~313~~449 Current portion, long-term debt 12,~~941~~141 12,~~741~~041 --------- --------- Total current liabilities 4742,~~989~~086 40,~~169~~398 Long-term debt: Series D 9 5/8% Senior Subordinated Notes 141,~~431~~331 141,~~583~~381 Series B 11 7/8% Senior Discount Notes, 45net 48,~~339~~035 4146,~~588~~677 Senior ~~credit~~Credit ~~facility~~Facility 63Term A Loan 62,~~114~~242 6462,~~422~~678 Senior Credit Facility Term B ~~loan~~Loan 39,~~800~~600 ~~-0-~~39,700 Revolving loan 2427,~~200~~800 4022,~~100~~500 Acquisition payables 1,595 41,~~910~~595 --------- --------- Total long-term debt ~~315~~320,~~479~~603 ~~292~~314,~~603~~531 --------- --------- Total liabilities 362,689 354,929 --------- --------- Partnership deficit (~~195~~194,~~819~~475) (~~185~~187,~~426~~900) --------- --------- Total liabilities and ~~partner~~partners deficit $ ~~167~~168,~~649~~214 $ ~~147~~167,~~346~~029 ========= =========

See accompanying notes. 4 TRANSWESTERN HOLDINGS L.P. STATEMENTS OF OPERATIONS (unaudited, in thousands)

THREE MONTHS ENDED ~~NINE~~MARCH ~~MONTHS~~31 ~~ENDED SEPTEMBER 30, SEPTEMBER 30,~~ --------------------- ~~---------------------~~2001 2000 ~~1999 2000 1999~~ -------- -------- ~~-------- --------~~ Net revenue $ 4340,~~117~~678 $ 3834,~~231~~936 ~~$116,611 $103,880~~ Cost of ~~revenue~~revenues 8,~~436~~327 7,~~232~~004 ~~22,490 19,313~~ -------- -------- ~~-------- --------~~ Gross profit 3432,~~681~~351 3027,~~999~~932 ~~94,121 84,567~~ Operating expenses: Sales and marketing 1819,~~155~~463 15,~~409~~708 ~~49,718 43,060~~ General and administrative 11,~~428~~793 810,~~817~~306 ~~32,100 24,609~~ -------- -------- ~~-------- --------~~ Total operating expenses 2931,~~583~~256 2426,~~226~~014 ~~81,818 67,669~~ -------- -------- ~~-------- --------~~ Income from operations 51,~~098~~095 61,~~773~~918 ~~12,303 16,898~~ Other income, ~~net 251 97 529 305 Interest expense~~ (~~8,051~~expense) (6,~~771)~~ ~~(22,945)~~net ~~(20,279)~~66 ~~-------- -------- -------- -------- Net income~~ (~~loss~~18) ~~before~~Interest ~~taxes~~expense $ (27,~~702~~735) ~~$ 99 $~~(107,~~113~~417) ~~$ (3,076) Tax Expense 129 225 241 233~~ -------- -------- ~~-------- --------~~ Net ~~Income (~~loss) $ (26,~~831~~574) $ (~~126) $(10~~5,~~354~~517) ~~$ (3,309)~~ ======== ======== ~~======== ========~~ Net ~~income (~~loss) allocated to General Partner units $ (49113) $ (295) ~~$ (178) $ (57)~~ ======== ======== ~~======== ========~~ Net ~~income (~~loss) allocated to Limited Partner units $ (26,~~782~~461) $ (~~124) $(10~~5,~~176~~422) ~~$ (3,252)~~ ======== ======== ~~======== ========~~ Net ~~income (~~loss) per General Partner unit $ (511.05) $ (09.27) ~~$ (18.2) $ (5.8)~~ ======== ======== ~~======== ========~~ Net ~~income (~~loss) per Limited Partner unit $ (13.541) $ (02.186) ~~$ (5.4) $ (1.7)~~ ======== ======== ~~======== ========~~

See accompanying notes. 5 TRANSWESTERN HOLDINGS L.P. CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited, in thousands)

~~NINE~~THREE MONTHS ENDED ~~SEPTEMBER~~MARCH 3031, 2001 2000 ~~1999~~ -------- -------- OPERATING ACTIVITIES Net (loss) $ (106,~~354~~574) $ (35,~~309~~517) Adjustments to reconcile net (loss) to cash provided by operating activities: Depreciation and amortization 207,~~627~~527 136,~~995~~385 Amortization of deferred debt issuance costs ~~868~~393 ~~1,029~~353 Amortization of ~~premium (152) (151) Amortization of~~ senior note discount 31,~~751~~358 31,~~339~~216 Provision for doubtful accounts 114,~~434~~291 93,~~154~~510 Changes in operating assets and liabilities, excluding the effects of acquisitions: Trade receivables (21,~~934)~~300 ~~(8,940)~~293 Write-off of doubtful accounts (134,~~402~~477) (103,~~348~~440) Recoveries of doubtful accounts ~~888~~290 ~~654~~299 Deferred directory costs (32,~~463~~365) ~~442~~(694) Other current assets (~~102~~24) ~~(589)~~144 Accounts payable (~~306~~2,601) 2(1,~~812~~175) Accrued liabilities (1,~~975~~729) (3,~~416~~658) Accrued interest 43,~~030~~236 3,~~906~~346 Customer deposits 52,~~871~~682 ~~(965)~~1,522 -------- -------- Cash provided by operating activities 143,~~781~~307 72,~~613~~584 INVESTING ACTIVITIES Purchase of property, equipment and leasehold improvements (~~1,826~~143) (~~576~~215) Acquisition of directories (306,~~626~~704) (3910,~~454~~044) Increase in other assets ~~(1,121)~~-- (~~233~~714) -------- -------- Cash used for investing activities (336,~~573~~847) (4010,~~263~~973) FINANCING ACTIVITIES Borrowings under long-term debt agreements: Revolving credit facility 4915,~~500~~300 4714,~~700~~200 ~~Term B loan 40,000 -0-~~ Repayments of long-term debt Revolving credit facility (6510,~~400~~000) (244,~~700~~500) ~~External debt payments (3,315) (1,965)~~ Senior term ~~loan~~loans (~~1,308~~436) (~~1,307~~436) Partnership contribution ~~(37)~~-- 61- -------- -------- Cash provided by ~~(used for)~~ financing activities 194,~~440~~864 199,~~789~~264 -------- -------- Net increase ~~(decrease)~~ in ~~cas~~cash ~~648 (12~~1,~~861)~~324 875 Cash at beginning of period 1,~~167~~961 141,~~067~~167 -------- -------- Cash at end of period $ 13,~~815~~285 $ 12,~~206~~042 ======== ======== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for interest $ 142,~~211~~825 $ 122,~~156~~490 ======== ========

See accompanying notes. 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 all of TransWestern's outstanding Member Units. Holdings has formed TWP Capital Corp. ("Capital") as a wholly-owned subsidiary and TransWestern has formed TWP Capital Corp. II ("Capital II") as a wholly-owned subsidiary. Neither Capital nor Capital II has any significant assets or operations. Target Directories of Michigan is the only other subsidiary of TransWestern. 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 Holdings' Form 10-K for the fiscal year ended December 31, 2000. The 10-K is available on the Internet at http://www.sec.gov. 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

~~Property,~~MARCH ~~Equipment and Leasehold Improvements SEPTEMBER 30~~31, DECEMBER 31, 2001 2000 ~~1999~~ ----------- ----------- Land and building................................ $ 183 $ 183 Computer and office equipment.................... ~~$ 8~~7,~~880~~390 $ 7,~~342~~310 Furniture and fixtures........................... 1,~~879~~936 1,~~789~~881 Leasehold improvements........................... ~~445~~466 ~~430~~458 ~~Building 183~~ -0- -------~~----~~ ----------- 119,~~387~~775 9,~~561~~832 Less accumulated depreciation and amortization... (75,~~043~~911) (65,~~138~~594) ----------- ----------- ~~Net property, equipment, and leasehold~~ $ 4,~~344~~064 $ 34,~~423~~238 =========== ===========

Acquired Intangibles

~~Acquired~~MARCH ~~Intangibles SEPTEMBER 30~~31, DECEMBER 31, 2001 2000 ~~1999~~ ----------- ------------ Customer ~~Base~~base.................................. $ ~~155~~164,~~565~~375 $ ~~128~~158,~~074~~021 Non- compete and licensing agreements 53,~~519~~334 2,~~160~~984 ----------- ----------- ~~161,084 130,234~~ Less accumulated amortization.................. (6378,~~841~~232) (4470,~~355~~972) ----------- ----------- Acquired intangibles, net.................... $ 9789,~~253~~477 $ 8590,~~879~~033 =========== ===========

Other Non-Current Assets

~~Other~~MARCH ~~Assets SEPTEMBER 30~~31, DECEMBER 31, 2001 2000 ~~1999~~ ----------- ----------- Debt issuance costs............................... $ 12,~~892~~893 $ 1112,~~994~~893 Less accumulated amortization..................... (4,~~146~~910) (34,~~040~~516) ----------- ----------- Debt issuance costs, net........................ $ 87,~~746~~983 $ 8,~~954~~377 Investment in Eversave,............................ ~~carried~~250 at250 ~~cost 500 500~~ ----------- ----------- Other assets, net................................. ~~$ 9~~8,~~246~~233 $ 98,~~454~~627 =========== ===========

8 3. DIRECTORY ACQUISITIONS BRI Publishing, Inc. On January 22, 2001, we purchased certain tangible and intangible assets of BRI Publishing, Inc. for a total of $0.7 million. We acquired one directory in the Lafayette, Louisiana area. Pacific West Yellow Pages. On February 9, 2001, we purchased certain tangible and intangible assets of Pacific West Yellow Pages for a total of $1.2 million. We acquired three directories in the Sacramento, California area. Silver Pages, Inc. On March 2, 2001, we purchased certain tangible and intangible assets of Silver Pages, Inc. for a total of $2.6 million. We acquired one directory in Northern California and one directory in Nevada. Rutter Directories, LLC. On March 30, 2001, we purchase certain tangible and intangible assets of Rutter Directories, LLC for a total of $2.1 million. We acquired five directories in Indiana. 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): Customer List $ 6,216 Non-compete 350 Deferred directory costs 536 Other current and non-current assets 159

Assuming that the above acquisitions had occurred on the first day of Holdings' three month period ended March 31, 2001 and March 31, 2000 the unaudited pro forma results of operations would be as follows:

~~Nine~~Three months ended ~~Sept~~March 3031, ----------------------------- 2001 2000 ~~1999~~ -------~~-----~~ -------~~----~~ (Unaudited) Net revenues....................................... $~~121~~41,~~887~~177 $~~110~~35,~~151~~435 Net (loss)........................................... (86,~~147~~668) (45,~~851~~811)

The above pro forma results give effect to pro forma adjustments for the revenue and related costs, the amortization of acquired intangibles and interest expense on borrowings that would have been required to fund the acquisitions. 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 wholly-owned by TransWestern, fully and unconditionally guaranteed TransWestern's outstanding 9 5/8% Series D Senior Subordinated Notes due 2007 on an unsecured senior subordinated basis. Target is TransWestern's only consolidated operating subsidiary, other than an inconsequential subsidiary which is a co-issuer of such notes, and has no debt senior to such 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.

~~------------------------------------------------------------------------------~~Three ~~1999~~months ~~1999~~ended ~~2000~~March ~~2000~~31, ~~2000 % Change~~ ---------------------------~~---------------------------------------------------~~ ~~3rd~~2001 ~~Quarter~~2000 ~~4th Quarter 1st Quarter 2nd Quarter 3rd Quarter 2Q~~-~~99 to 2Q~~-00 --------~~----~~ --------~~---~~ ~~-----------~~(Unaudited) ~~-----------~~Statement ~~-----------~~of ~~-----------~~Operations: Net revenues ~~...............~~ $ ~~38.2 $ 42.6 $ 34.9 $ 38.6 $ 43.~~1,104 ~~12.8% EBITDA (a) .................~~ $976 ~~12.0~~Gross $profit ~~15.5~~995 $869 ~~8.5~~Operating $income ~~12.0~~131 $36 ~~12.8~~Net 6.7% Bookings (b) ............... $ 37.8 $ 35.1 $ 34.9 $ 43.7 $ 44.1 16.7% Advance payments ........... $ 17.6 $ 18.7 $ 17.0 $ 19.7 $ 21.4 21.6% Total cash receipts (c) .... $ 32.6 $ 34.6 $ 34.3 $ 38.7 $ 39.8 22.1% (a) "EBITDA" is defined as income (loss) ~~plus~~15 interest expense, and depreciation and amortization and is consistent with the definition of EBITDA in the indentures relating to TransWestern's notes and in TransWestern's senior credit facility. EBITDA is not a measure of performance under generally accepted accounting principles (~~"GAAP"~~54). ~~EBITDA~~March ~~should not be considered in isolation or as a substitute for net income~~31, ~~cash~~2001 ~~flows~~2000 ~~from~~---------- ~~operating~~-------- ~~activities~~Current ~~and~~assets ~~other income or cash flow statement data prepared in accordance with GAAP~~$1,371 or$843 asNon-current aassets ~~measure of profitability or liquidity. However~~2,866 ~~management has included EBITDA because it may be used by certain investors to analyze and compare companies on the basis of operating performance~~4,141 ~~leverage~~Current ~~and~~liabilities ~~liquidity~~281 ~~and~~524 toNon-current ~~determine~~liabilities a-- company's ability to service debt. TransWestern's definition of EBITDA may not be comparable to that of other companies. 11 (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 revenue for the periods indicated:--

5. SUBSEQUENT EVENT Alliance Media Group, Inc. On April 9, 2001, we purchased certain tangible and intangible assets of Alliance Media Group for a total of $6.0 million. We acquired two directories in Kentucky and six directories in Texas. WorldPages.com, Inc. On April 27, 2001, we agreed to purchase the outstanding stock and assume the debt of WorldPages.com for approximately $215.0 million. WorldPages.com is a leading provider of print and internet telephone directories in 42 markets. The purchase is subject to WorldPages.com shareholder and government approval. The Alliance Media acquisition has been accounted for as an asset purchase and accordingly the purchase price has been allocated to the tangible and intangible assets acquired, with predominately all of the purchase price being allocated to intangible assets - customer base. 10 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 Holdings and TransWestern 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 increase, 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 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:

~~THREE MONTHS NINE MONTHS ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,~~ -------------------------- ------------------------------------- 2000 ~~1999~~2000 2000 ~~1999~~2000 2001 --------- --------- --------- ------------------------------------ ~~Net~~1st ~~revenues~~Quarter ~~..................~~2nd ~~100.0%~~Quarter ~~100.0%~~3rd ~~100.0%~~Quarter ~~100.0%~~4th ~~Cost~~Quarter of1st ~~revenues~~Quarter ~~..............~~----------- ~~19.6 18.9 19.3 18.6~~ ----------- ----------- ----------- ----------- ~~Gross~~Net ~~profit~~revenues ............... $ 34...9 80$ 38.46 81$ 43.1 80$ 60.7 81$ 40.47 ~~Sales~~EBITDA ~~and~~(a) ~~marketing~~ ................. 42$ 8.15 40$ 12.30 42$ 12.68 41$ 23.47 ~~General~~$ ~~and~~8.9 ~~administrative~~Bookings (b) .... 26.~~5 23~~.1......... 27$ 34.59 23$ 43.7 ~~---------~~$ ~~---------~~44.1 ~~---------~~$ ~~---------~~44.3 ~~Income~~$ ~~from~~49.7 ~~operations~~Advance payments ........ 11.8%.. $ 17.7%0 10$ 19.6%7 16$ 21.3%4 ~~=========~~$ ~~=========~~20.2 ~~=========~~$ ~~=========~~19.8 ~~EBITDA~~Total ~~Margin~~cash ~~(a),~~receipts (bc) .... $ 34.~~...~~3 29$ 38.7% ~~31.5%~~$ 2839.6%8 29$ 41.57 ~~=========~~$ ~~========= ========= =========~~41.2

---------- (a) "EBITDA" is defined as income (loss) before extraordinary item plus interest expense, and depreciation and amortization and is consistent with the definition of EBITDA in the indentures relating to TransWestern's notes and TransWestern'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. 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. Bookings generated by predecessor owners of acquired directories are excluded. (c) Total cash receipts includes both advance payments and collections of accounts receivable. 11 RESULTS OF OPERATIONS The following table summarizes our results of operations as a percentage of revenue 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, 2001 COMPARED TO THE THREE MONTHS ENDED MARCH 31, 2000 Net revenues increased $5.8 million, or 16.4%, from $34.9 million in the three months ended March 31, 2000 to $40.7 million in the same period in 2001. We published 55 directories in the three months ended March 31, 2001 compared to 51 in the same period in 2000. The net revenue growth was due to $3.1 million from six new directories, $3.3 million from six directories for which the publication date moved into the period and growth in the same 43 directories published during both periods of $3.0 million; offset by $3.6 million of net revenues associated with eight directories published in the three months ended March 31, 2000 but not in the same period in 2001. 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 43 directories published in both periods was 9.7%. 12 Cost of revenues increased $1.3 million, or 18.9%, from $7.0 million in the three months ended March 31, 2000 to $8.3 million in the same period in 2001. The increase was the result of $1.0 million of costs associated with six new directories published in the three months ended March 31, 2001, $0.5 million in costs associated with six directories published in the three months ended March 31, 2001, but not in the same period in 2000, and $0.4 million of higher costs associated with the 43 same directories; offset by $0.7 million of costs associated with eight directories published during the three months ended March 31, 2000, but not in the same period in 2001. Production support costs increased $0.1 million in the three months ended March 31, 2001 due to the directories acquired over the past twelve months. As a result of the above, gross profit increased $4.4 million, or 15.8%, from $27.9 million in the three months ended March 31, 2000 to $32.3 million in the same period in 2001. Gross margin decreased from 80.0% in the three months ended March 31, 2000 to 79.5% in the same period in 2001 as a result of higher direct costs on newly acquired directories. Selling and marketing expenses increased $3.7 million, or 23.9%, from $15.7 million in the three months ended March 31, 2000 to $19.4 million in the same period in 2001. The increase was attributable to increases of $0.9 million in sales support costs, $2.0 million in direct sales costs and $0.8 million in provision for bad debt (which was consistent with the increase in net revenues). Of the increase in sales support costs of $0.9 million, $0.7 million was due to sales offices acquired since the first quarter of 2000 and $0.2 million was due to a general increase in costs associated with personnel and other costs associated with our field sales offices. The increase in direct sales costs of $2.0 million was as follows: $1.0 million of additional costs were for the six new directories, $0.9 million for six directories moving into the period, and $1.1 million of higher costs associated with the 43 same directories; offset by $0.9 million of costs associated with eight directories that published in the three months ended March 31, 2000 but not in the same period in 2001. Direct sales costs as a percentage of revenue for the same 43 directories published during both periods increased from 21.1% to 22.4% in the three months ended March 31, 2001 compared to the same period in 2000. General and administrative expense increased $1.5 million, or 14.4%, from $10.3 million for the three months ended March 31, 2000 to $11.8 million for the same period in 2001. The increase is due to: amortization of acquired customer base and other intangibles of $1.2 million, an increase in professional service costs of $0.2 million and an increase in incentive compensation costs of $0.1 million. As a result of the above factors, income from operations decreased $0.8 million, or 42.9%, from $1.9 million in the three months ended March 31, 2000 to $1.1 million in the same period in 2001. Income from operations as a percentage of net revenues decreased from 5.5% in the three months ended March 31, 2000 to 2.7% in the same period in 2001. Interest expense increased $0.3 million, or 4.3%, from $7.4 million in the three months ended March 31, 2000 to $7.7 million in the same period in 2001 due to higher levels of debt partially offset by a decrease in the rates of interest paid as a result of decreases in Prime and LIBOR rates. As a result of the above factors, net income decreased $1.1 million, or 19.2%, from a loss of $5.5 million in the three months ended March 31, 2000 to a loss of $6.6 million in the same period in 2001. 13 LIQUIDITY AND CAPITAL RESOURCES Net cash provided by operating activities was $3.3 million in the three months ended March 31, 2001 compared to $2.6 million provided in the same period in 2000. The increase in cash provided by operations was primarily due to higher collections of accounts receivable. Net cash used by investing activities was $6.8 million in the three months ended March 31, 2001, as compared to $11.0 million in the same period in 2000. Investing activities consist primarily of cash used to acquire directories. In the three months ended March 31, 2001 $6.7 million was spent to acquire directories compared to $10.0 million in the same period in the prior year. Acquisitions made in the three months ended March 31, 2001 are discussed in note 3 of the financial statements included in this Form 10-Q. Net cash provided by financing activities was $4.9 million in the three months ended March 31, 2001 as compared to $9.3 million in the same period in 2000. These amounts are borrowings for acquisitions during the quarters, and decreased as a result of fewer acquisitions during the three months ended March 31, 2001. In connection with the recapitalization of Holdings in October 1997, we incurred significant debt. As of March 31, 2001 we had total outstanding long term indebtedness of $320.6 million, including $141.3 million of TransWestern's Series D 9 5/8% Senior Subordinated Notes due 2007, (excluding unamortized premium), $48.0 million of Holdings' 11 7/8% Senior Discount Notes due 2008, and $101.8 million of outstanding borrowings under the senior credit facility, $27.8 million of outstanding borrowings under the revolving loan facility, $1.6 million in acquisition related debt, all of which rank senior to TransWestern's Series D notes. As of March 31, 2001 there was $42.2 million of additional borrowing availability under the senior credit facility. 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 of 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 Holdings, or its subsidiaries including the lenders under the senior credit facility, the holders of TransWestern's notes and trade creditors. 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 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. 14 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 loans and 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, 2001 there was approximately $64.0 million outstanding under the term A loan (at an interest rate of 7.08% at such time), $40.0 million under the term B loan (at an interest rate of 8.71% at such time), and $27.8 million outstanding under the revolving loans ($21.4 million at the LIBOR rate of 6.83% and $6.4 million at the prime based rate of 8.625% 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 $1.3 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. 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 15 ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (A) Exhibits. None (B) Reports on Form 8-K. None 16 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on May 10, 2001 on its 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 (Principal Executive Officer) 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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