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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

Commission File Number: 333-97721

Vertis, Inc.
(Exact Names of Registrants as Specified in Their Charters)

        Indicate by check mark whether the Registrants (1) have 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 Registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days    Yes ý    No o

        Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act)     Yes o    No ý

INDEX

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Part I—FINANCIAL INFORMATION

Item 1: Financial Statements

Vertis, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets

In thousands, except share amounts

See Notes to Condensed Consolidated Financial Statements.

2

Vertis, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations

In thousands

See Notes to Condensed Consolidated Financial Statements.

3

Vertis, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows

In thousands

See Notes to Condensed Consolidated Financial Statements.

4

VERTIS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1.     GENERAL

        The accompanying condensed consolidated financial statements of Vertis, Inc. and Subsidiaries (collectively, "Vertis" or the "Company") have been prepared in accordance with accounting principles generally accepted in the United States of America ("generally accepted accounting principles") and are unaudited. The financial statements include all normal and recurring adjustments that management of the Company considers necessary for the fair presentation of its financial position and operating results. The Company prepared the condensed consolidated financial statements following the requirements of the Securities and Exchange Commission for interim reporting. As permitted under those rules, the Company condensed or omitted certain footnotes or other financial information that are normally required by the generally accepted accounting principles for annual financial statements. As these are condensed financial statements, one should also read the consolidated financial statements and notes in the Company's annual report on Form 10-K for the year ended December 31, 2002.

        Revenues, expenses, assets and liabilities can vary during each quarter of the year. Therefore, the results and trends in these interim financial statements may not be the same as those for the full year.

        Certain amounts for prior periods have been reclassified to conform to the current period presentation.

        The difference between net loss and total comprehensive loss is comprised of foreign currency translation and fair value of interest rate swap adjustments, which amounted to $0.1 million of loss and $0.7 million of income for the three months ended March 31, 2003 and 2002, respectively.

2.     RESTRUCTURING CHARGES

        In the first quarter of 2002, Vertis Europe combined two facilities and recorded $1.7 million in restructuring charges comprised mainly of severance and facility closure costs. Offsetting these charges is an adjustment to the estimate of 2001 restructuring costs made in 2002. During the remainder of 2002, the Company recorded an additional $18.4 million in restructuring costs related to the closure of five facilities and the termination of approximately 400 employees in the Advertising Technology Services segment and the consolidation of production capabilities, including the termination of 133 employees, within the Direct Marketing Services segment.

        There were no restructuring costs incurred in the first quarter of 2003. As of March 31, 2003, the restructuring programs are complete. The Company expects to pay approximately $6.3 million of the accrued restructuring costs during the next year, and the remainder, approximately $4.0 million, by 2007.

3.     GOODWILL AND OTHER INTANGIBLES

        On January 1, 2002, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 142 ("SFAS 142"), "Goodwill and Other Intangibles." Under this statement, goodwill and intangible assets with indefinite lives are no longer amortized. The Company stopped amortizing its existing goodwill as of January 1, 2002. Additionally, under the transitional provisions of SFAS 142, the Company's goodwill was tested for impairment as of January 1, 2002. Each of the Company's reporting units was tested for impairment by comparing the fair value of the reporting unit with the carrying value of that unit. Fair value was determined based on a valuation study performed by an independent third party using the discounted cash flow method and the guideline company method. As a result of the Company's impairment test completed in the third quarter of 2002, the Company recorded an impairment loss of $86.6 million at the Vertis Advertising Technology Services segment and

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$21.8 million at the Vertis Europe segment to reduce the carrying value of goodwill to its implied fair value. Impairment in both cases was due to a combination of factors including operating performance and acquisition price. In accordance with SFAS 142, the impairment charge was reflected as a cumulative effect of accounting change in the accompanying 2002 condensed consolidated statements of operations and cash flows. The amount of the impairment charge includes the effect of taxes of $6.8 million, which had not been initially recorded in the Company's September 30, 2002 financial statements. As a result, the operating results and cash flows for the quarter ended March 31, 2002 have been restated, net of tax.

        Goodwill is now reviewed for impairment on an annual basis, or more frequently if events or circumstances indicate that the carrying value may not be recoverable. The Company has completed its annual goodwill impairment test for 2003, which did not indicate any goodwill impairment.

4.     ACCOUNTS RECEIVABLE

        In 1996, the Company entered into a six-year agreement to sell certain trade accounts receivable of certain subsidiaries (as amended, the "1996 Facility") through the issuance of $130.0 million of variable rate trade receivable backed certificates. In April 2002, the revolving period for these certificates was extended and the certificates were refinanced. In December 2002, the 1996 Facility expired and the Company entered into a new three-year agreement terminating in December 2005 (the "A/R Facility") through the issuance of $130.0 million variable rate trade receivable backed notes. The proceeds from the A/R Facility were used to retire the certificates issued under the 1996 Facility.

        The A/R Facility allows for a maximum of $130.0 million of trade accounts receivable to be sold at any time based on the level of eligible receivables. Under the 1996 Facility and the A/R Facility, the Company sells its trade accounts receivable through a bankruptcy-remote wholly-owned subsidiary. However, the Company maintains an interest in the receivables and has been contracted to service the accounts receivable. The Company received cash proceeds for servicing of $0.9 million in both the three months ended March 31, 2003 and 2002, respectively.

        At March 31, 2003 and December 31, 2002, accounts receivable of $112.6 million and $125.9 million, respectively, had been sold under the facilities and, as such, are reflected as reductions of accounts receivable. At March 31, 2003 and December 31, 2002, the Company retained an interest in the pool of receivables in the form of overcollateralization and cash reserve accounts of $43.4 million and $46.3 million, respectively, which is included in Accounts receivable, net on the balance sheet at allocated cost, which approximates fair value. The proceeds from collections reinvested in securitizations amounted to $336.5 million and $379.1 million in the first quarter of 2003 and 2002, respectively.

        Fees for the program under the facilities vary based on the amount of interests sold and the London Inter Bank Offered Rate ("LIBOR") plus an average margin of 90 basis points in 2003 and 37 basis points in 2002. These fees, which totaled $0.7 million in the first quarter of 2003 and $0.8 million in the first quarter of 2002, are included in Other, net.

5.     INVENTORY

        Inventories are summarized as follows:

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6.     SEGMENT INFORMATION

        The Company operates in four business segments. Each segment offers different products or services requiring different production and marketing strategies. The four segments are:

•

Vertis Retail and Newspaper Services—includes advertising inserts and circulation-building newspaper products such as Sunday comics, TV listing guides, Sunday magazine sections and special supplements.



•

Vertis Direct Marketing Services—includes highly customized direct mail products and direct marketing services such as fragrance samplers, coatings and chemical production, commercial printing, and specialized digital printing.



•

Vertis Advertising Technology Services—includes outsourced digital premedia and image content management, response management services and newspaper ad development.



•

Vertis Europe—includes direct marketing and advertising technology products and services provided in Europe, principally the United Kingdom.

        The following is unaudited information regarding the Company's segments:

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        EBITDA represents the sum of operating income, depreciation and amortization of intangibles. For a reconciliation of EBITDA to operating income by segment, see "Management's Discussion and Analysis of Financial Condition and Results of Operations."

7.     NEW ACCOUNTING PRONOUNCEMENTS

        In June 2002, the FASB issued Statement No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." This statement requires recording costs associated with exit or disposal activities at their fair value when a liability has been incurred. Under previous guidance, certain exit costs were accrued upon management's commitment to an exit plan, which is generally before an actual liability has been incurred. In the first quarter of 2003, the Company adopted the provisions of this statement, which did not have an impact on the condensed consolidated financial statements.

        In November 2002, the FASB issued Interpretation No. 45, "Guarantors Accounting and Disclosure Requirements for Guarantees." The disclosure requirements are effective for financial statements issued after December 15, 2002, and the recognition/measurement requirements are effective on a prospective basis for guarantees issued or modified after December 31, 2002. In the first quarter of 2003, the Company adopted the provisions of this statement, which did not have an impact on the condensed consolidated financial statements.

        In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation—Transition and Disclosure." This statement amends SFAS No. 123 to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this statement amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based compensation and the effect of the method used on reporting results. The disclosure provisions of this standard are effective for fiscal years ended after December 15, 2002 and have been incorporated into these condensed consolidated financial statements and accompanying notes (see Note 9).

        In January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities" to provide new guidance with respect to the consolidation of all previously unconsolidated entities, including special-purpose entities. The Company believes that the adoption of this interpretation, required for fiscal periods beginning after June 15, 2003, will not have a material impact on the Company's condensed consolidated financial position or results of operations.

8.     LONG TERM DEBT

        Long-term debt consisted of the following:

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        The credit facility (the "Credit Facility") consists of three components:

•

A revolving credit facility which allows borrowings of up to $250.0 million, including borrowings in British pounds sterling of up to the equivalent of $160.0 million. The revolving credit facility matures December 7, 2005 with no repayment of principal until maturity. Interest is payable at the Company's option either (a) at the Prime rate plus a margin of 2.00% or (b) at the LIBOR rate plus a margin of 3.00%. These margins may decline over time in accordance with covenants in the Credit Facility;



•

Term Loan A, which requires periodic principal payments through December 7, 2005, as well as mandatory repayments in the event of specified asset sales and certain other events. A portion of this term loan, $73.1 million, was repaid in 2002 in connection with the issuance of the 10⁷/8% notes, hereinafter defined, discussed below. Interest is payable at the Company's option either (a) at the Prime rate plus a margin of 2.00% or (b) at the LIBOR rate plus a margin of 3.00%. These margins may decline over time in accordance with covenants in the Credit Facility; and



•

Term Loan B, which requires periodic principal payments through December 7, 2008, as well as repayments at the lenders' option in the event of specified asset sales. A portion of this term loan, $108.4 million, was repaid in 2002 in connection with the issuance of the 10⁷/8% notes discussed below. Interest is payable at the Company's option either (a) at the Prime rate plus a margin of 2.75% or (b) at the LIBOR rate plus a margin of 3.75%.

        In 2002, the Company issued $350.0 million of senior unsecured notes with an interest rate of 10⁷/8% and maturity date of June 15, 2009 (the "10⁷/8% notes"). The notes pay interest semi-annually on June 15 and December 15 of each year. After deducting the initial purchasers discount and transaction expenses, the net proceeds received by the Company was $338.0 million. The Company used such net proceeds to repay $181.5 million of the Term A and B loans and $156.5 million of the senior subordinated credit facility.

        The senior subordinated credit facility, which was originally issued as a bridge facility, was converted into a term loan in December 2000, expiring on December 7, 2009. The interest rate of the term notes representing such term loan is 13¹/2%. In connection with the issuance of the 10⁷/8% notes, $156.5 million was repaid under the senior subordinated credit facility. Pursuant to the senior subordinated credit facility, the Company issued $111.2 million 13¹/2% senior subordinated notes due December 7, 2009 (the "Exchange Notes") in the first quarter of 2003 and $89.7 million Exchange Notes on April 23, 2003 in exchange for some of the term notes. The remaining $79.2 million of outstanding term notes can be exchanged at the election of the holder in accordance with the senior subordinated credit facility. The Exchange Notes pay interest semi-annually on May 15 and November 15 of each year.

        The Credit Facility, the senior subordinated credit facility, the 10⁷/8% notes and the Exchange Notes contain certain covenants including, among other things, restrictions on capital expenditures, dividends, investments and indebtedness and maintenance of specified levels of interest coverage and leverage. All of the Company's assets are pledged as collateral for the outstanding debt under the Credit Facility. At March 31, 2003, the Company is in compliance with its debt covenants.

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        At March 31, 2003, the aggregated maturities of long-term debt were:

9.     VERTIS HOLDINGS STOCK AWARD AND INCENTIVE PLAN

        Employees of the Company participate in Vertis' parent company, Vertis Holdings, Inc.'s 1999 Equity Award Plan (the "Stock Plan"), which authorizes grants of stock options, restricted stock, performance shares and other stock based awards. As of March 31, 2003, only options have been granted under the Stock Plan.

        The Company accounts for the Stock Plan under the intrinsic value method, which follows the recognition and measurement principles of Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees." No stock-based employee compensation cost is reflected in net income. The following table summarizes the effect of accounting for these awards as if the fair value recognition provisions of SFAS No. 123, "Accounting for Stock Based Compensation," as amended by SFAS No. 148, "Accounting for Stock-Based Compensation—Transition and Disclosure, an amendment of FASB Statement No. 123," had been applied.

10.   OTHER, NET

        Other, net for the three months ended March 31, 2003 consists primarily of a $10.1 million recovery from a settlement to the legal proceeding arising from a life insurance policy which covered the former Chairman of Vertis Holdings, Inc. Offsetting this income are the fees associated with the A/R Facility (see Note 4).

        Other, net for the three months ended March 31, 2002 consists primarily of $0.8 million in fees associated with the 1996 Facility (see Note 4), offset by gains on the sale of property, plant and equipment.

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11.   GUARANTOR/NON-GUARANTOR CONDENSED CONSOLIDATED FINANCIAL INFORMATION

        The Company has 10⁷/8% notes (see Note 8), which are general unsecured obligations of Vertis, Inc., and guaranteed by certain of Vertis, Inc.'s domestic subsidiaries. Accordingly, the following condensed consolidated financial information as of March 31, 2003 and December 31, 2002, and for the three months ended March 31, 2003 and 2002 are included for (a) Vertis, Inc. (the "Parent") on a stand-alone basis; (b) the guarantor subsidiaries; (c) the non-guarantor subsidiaries; and (d) the Company on a consolidated basis.

        Investments in subsidiaries are accounted for using the equity method for purposes of the consolidating presentation. The principal elimination entries eliminate investments in subsidiaries, intercompany balances and intercompany transactions. Separate financial statements and other disclosures with respect to the subsidiary guarantors have not been made because the subsidiaries are wholly-owned and the guarantees are full and unconditional and joint and several.

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Condensed Consolidating Balance Sheet at March 31, 2003

In thousands