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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)

(410) 528-9800
(Registrant's telephone number, including area code)

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

Indicated 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 1—FINANCIAL INFORMATION

Item 1.    UNAUDITED FINANCIAL STATEMENTS

Vertis, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
In thousands, except per share amounts

See Notes to Condensed Consolidated Financial Statements.

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Vertis, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

In thousands

See Notes to Condensed Consolidated Financial Statements.

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Vertis, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

In thousands

See Notes to Condensed Consolidated Financial Statements.

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Vertis, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows
In thousands

See Notes to Condensed Consolidated Financial Statements.

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Vertis, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

1.     GENERAL

        The accompanying unaudited 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"). 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 consolidated 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, 2003.

        The Company is a wholly-owned subsidiary of Vertis Holdings, Inc. ("Vertis Holdings").

        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 in 2004 and 2003, as well as fair value of interest rate swap adjustments in 2003. These items amounted to $2.2 million and $3.9 million of income for the six months ended June 30, 2004 and 2003, respectively.

2.     RESTRUCTURING

        The Company began a restructuring program in the U.S. and the U.K. in the third quarter of 2003, the execution of which is substantially complete as of June 30, 2004. This program includes the closure of facilities, some of which are associated with the consolidation of operations; transfer of certain positions to the corporate office; reductions in work force of approximately 260 employees; and the abandonment of assets associated with vacating these premises. The Company expects the costs associated with the restructuring program to be an estimated $16.7 million (net of estimated sublease income of $6.4 million) of which approximately $3.0 million are non-cash costs. The Vertis Europe portion of this restructuring program was complete as of December 31, 2003.

        In the six months ended June 30, 2004, Vertis North America recorded $0.7 million in severance costs due to headcount reductions of approximately 50 employees, and $0.5 million in facility closure costs. There were no restructuring costs recorded in the first six months of 2003.

        Vertis Europe began a new restructuring program in the second quarter of 2004 that includes planned staffing reductions totaling approximately 180 employees. This program is expected to be complete by the first quarter of 2005, with an estimated total cost of $1.9 million. As of June 30, 2004, 158 employees had been terminated with a severance cost of $1.5 million.

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        The significant components of restructuring charges were as follows:

        The Company expects to pay approximately $5.5 million of the accrued restructuring costs during the next twelve months, and the remainder, approximately $4.4 million, by 2011.

3.     GOODWILL

        In accordance with Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangibles", the Company has elected to test its goodwill in the first quarter of the fiscal year. Each of the Company's reporting units is tested for impairment by comparing the fair value of the reporting unit with the carrying value of that unit. Fair value is determined based on a valuation study performed by an independent third party using the discounted cash flow method and the guideline company method. The annual goodwill test has been completed for 2004, and did not indicate any goodwill impairment.

4.     ACQUISITION

        On June 10, 2003, the Company acquired the sales, marketing and media planning assets of The Newspaper Network, Inc. (collectively, "TNN") by assuming the working capital deficit of approximately $4.3 million. The Newspaper Network, Inc. is a national sales and marketing company that provides a wide variety of print advertising services specializing in the planning, pricing and placement of newspaper advertising throughout the United States. The addition of TNN provides additional media expertise that will better equip the Company to serve large, national clients in key industry markets.

        Goodwill arising in connection with this acquisition was approximately $4.3 million, calculated as the excess of the liabilities assumed over the fair value of the net assets acquired. The financial results of TNN are included in the Company's consolidated financial statements from the date of acquisition.

        The following unaudited pro forma information reflects the Company's results adjusted to include TNN as though the acquisition had occurred at the beginning of 2003.

5.     ACCOUNTS RECEIVABLE

        In December 2002, the Company entered into a three-year agreement (the "A/R Facility"), terminating November 30, 2005, to sell substantially all trade accounts receivable generated by

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subsidiaries in the U.S. through the issuance of $130.0 million of variable rate trade receivable backed certificates.

        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 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 $1.6 million in both the six months ended June 30, 2004 and 2003, respectively. These proceeds are fully offset by servicing costs.

        At June 30, 2004 and December 31, 2003, accounts receivable of $111.1 million and $122.5 million, respectively, had been sold under the facilities and, as such, are reflected as reductions of accounts receivable. At June 30, 2004 and December 31, 2003, the Company retained an interest in the pool of receivables in the form of overcollateralization and cash reserve accounts of $44.4 million and $53.2 million, respectively, which is included in Accounts receivable, net on the consolidated balance sheet at allocated cost, which approximates fair value. The proceeds from collections reinvested in securitizations amounted to $735.4 million and $715.5 million in the first six months of 2004 and 2003, respectively.

        Fees for the program under the facility vary based on the amount of interests sold and the London Inter Bank Offered Rate ("LIBOR") plus an average margin of 90 basis points. The loss on sale, which approximated the fees, totaled $1.3 million and $1.4 million for the six months ended June 30, 2004 and 2003, respectively, and is included in Other, net.

6.     INVENTORIES

        Inventories consisted of the following:

7.     SEGMENT INFORMATION

        The Company operates in two business segments, as follows:

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Vertis North America—provides a full array of targeted advertising, media and marketing services such as advertising insert programs; newspaper products such as TV magazines, Sunday magazines, and color comics; creative services for advertising insert page layout and design; customized one-to-one marketing programs; direct mail production with varying levels of personalization; and media planning and placement.



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Vertis Europe—provides European customers, principally in the United Kingdom, with most of the same products and services offered in North America.

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        Following is information regarding the Company's segments:

8.     NEW ACCOUNTING PRONOUNCEMENTS

        In December 2003, the Financial Accounting Standards Board ("FASB") issued Interpretation No. 46 (revised), "Consolidation of Variable Interests Entities" ("FIN 46R"), which addresses how a business enterprise should evaluate whether it has a controlling financial interest in an entity through means other than voting rights and, accordingly, should consolidate the variable interest entity ("VIE"). FIN 46R replaces FASB Interpretation No. 46 that was issued in January 2003. Companies are required to apply FIN 46R to VIEs generally as of March 31, 2004 and to special-purpose entities as of December 31, 2003. For any VIEs that must be consolidated under FIN 46R that were created before January 1, 2004, the assets, liabilities and non-controlling interest of the VIE initially would be measured at their carrying amounts, and any difference between the net amount added to the balance sheet and any previously recognized interest would be recorded as a cumulative effect of an accounting change. If determining the carrying amounts is not practicable, fair value at the date FIN 46R first applies may be used to measure the assets, liabilities and non-controlling interest of the VIE. The Company has adopted this interpretation, which did not have a material impact on its consolidated financial position or results of operations.

        In December 2003, the FASB issued SFAS No. 132 (revised), "Employers' Disclosures about Pensions and Other Postretirement Benefits" ("SFAS No. 132R"). This standard prescribes employers' disclosures about pension plans and other postretirement benefits plans, but does not change the measurement of recognition of those plans. SFAS No. 132R retains and revises the disclosure requirements contained in the original standard. It also requires additional disclosures about the assets, obligations, cash flows, and net periodic benefit costs of defined benefit pension plans and other postretirement benefit plans. For public companies, SFAS No. 132R is generally effective for fiscal years ending after December 15, 2003. The Company has adopted the provisions of this statement (see Note 10).

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9.     LONG -TERM DEBT

        Long-term debt consisted of the following:

        The revolving credit facility (the "Credit Facility") allows borrowings of up to $250 million, including borrowings in British pounds sterling of up to the equivalent of $160 million. The revolving credit facility matures December 7, 2005 with no repayment of principal until maturity. Interest is payable either (a) at the Prime rate plus a margin of 2.50% or (b) at the LIBOR rate plus a margin of 3.50%. These margins may decline over time in accordance with covenants in the Credit Facility.

        In June 2003, the Company issued $350 million of senior secured second lien notes with an interest rate of 9³/4% and a maturity date of April 1, 2009 (the "9³/4% notes"). The notes pay interest semi-annually on April 1 and October 1 of each year. After deducting the initial purchasers discount and transaction expenses, the net proceeds received by the Company were $330.3 million. The Company used these net proceeds to pay off $267.9 million remaining in term loans outstanding in 2003 and $62.4 million of the Credit Facility. In connection with the payoff of the term loans, the interest rate swap agreement, which was attached to the term loans and converted a portion of variable debt to a fixed rate basis, became an ineffective cash flow hedge. At this time, the remaining fair market value of the agreement, which was previously recorded in stockholders' deficit as a component of other comprehensive income and approximated $1.1 million, was expensed in Other, net in the six months ended June 30, 2003.

        In 2002, the Company issued $350 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.

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        The Company's senior subordinated credit facility is a term loan, which expires on December 7, 2009. The interest rate of the term notes representing this term loan is 13¹/2%. Pursuant to the senior subordinated credit facility, the Company issued an aggregate $272.4 million of 13¹/2% senior subordinated notes due December 7, 2009 (the "Exchange Notes") in 2003 and 2004 in exchange for the term notes held by the holders requesting the exchange. The remaining $21.1 million of outstanding term notes, excluding the discount, 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 June 1 and December 1 of each year.

        The Credit Facility, the senior subordinated credit facility, the 10⁷/8% notes, the 9³/4% notes and the Exchange Notes contain customary covenants including restrictions on capital expenditures, dividends, and investments. In particular, these debt instruments all contain customary high-yield debt covenants imposing limitations on the payment of dividends or other distributions on or in respect of the Company or the capital stock of its restricted subsidiaries. Substantially all of the Company's assets are pledged as collateral for the outstanding debt under the Credit Facility, as well as the Company's other long-term debt. All of the Company's debt has customary provisions requiring prepayment in the event of a change in control and from the proceeds of asset sales, as well as cross-default provisions. In addition, the Credit Facility agreement has provisions requiring prepayment from the proceeds of issuances of debt and equity securities, and financial covenants that require us to maintain specified financial ratios as follows. The consolidated net interest coverage ratio is the ratio of EBITDA to net interest expense, which is required to be, at a minimum, 1.50 to 1.00. At June 30, 2004, the Company's net interest coverage ratio is calculated as 1.55 to 1.00. The leverage ratio is the ratio of consolidated debt to EBITDA, which must not exceed 6.50 to 1.00. At June 30, 2004, the Company's leverage ratio is calculated as 6.31 to 1.00. The senior secured leverage ratio is the ratio of senior secured debt to EBITDA, which must not exceed 2.00 to 1.00. The Company's senior secured leverage ratio, as calculated at June 30, 2004, is 1.30 to 1.00. The amounts of EBITDA and net interest expense used in the preceding ratio calculations are not equivalent to the amounts included in these financial statements, but rather are amounts calculated as set forth in the Credit Facility. If the Company is unable to maintain these financial ratios, the bank lenders could require the Company to repay any amounts owing under the Credit Facility. At June 30, 2004, the Company was in compliance with its debt covenants.

10.   RETIREMENT PLANS

        The following table provides the components of net periodic benefit cost for the Company's defined benefit plans, including pension and supplemental executive retirement plans, for the three and six months ended June 30, 2004 and 2003.

        The Company made contributions of $0.7 million to its pension plans in the first six months of 2004. As previously disclosed in its consolidated financial statements for the year ended December 31, 2003, the Company expects to contribute approximately $3 million to its pension plans in 2004.

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11.   VERTIS HOLDINGS STOCK AWARD AND INCENTIVE PLAN

        Employees of the Company participate in the Vertis Holdings 1999 Equity Award Plan (the "Stock Plan"), which authorizes grants of stock options, restricted stock, performance shares and other stock based awards. On April 6, 2004, the Company extended an offer to all eligible U.S.-based employees holding options under the Stock Plan the opportunity to exchange their outstanding eligible options for restricted common stock on a 4 for 1 basis. The restricted stock will vest immediately prior to a liquidity event, generally defined as a public offering of our common stock (where immediately following such offering, the aggregate number of shares of common stock held by the public, not including affiliates of the Company, represents at least 20% of the total number of outstanding shares), merger or other business combination, or a sale or other disposition of all or substantially all of our assets to another entity for cash and/or publicly traded securities. Of the 782,484 eligible Vertis Holdings options, 774,866 were exchanged. Pursuant to the exchange offer, on June 7, 2004 Vertis Holdings issued 193,739 restricted shares of stock. Additionally, 2,500 restricted shares were issued to a director of Vertis. Upon issuance, unearned compensation was charged to stockholders' equity on Vertis Holdings balance sheet for the fair value of the restricted stock as determined by an independent valuation.

        On June 14, 2004, the Company extended an offer to all eligible U.K.-based employees holding options under the Stock Plan the opportunity to exchange their outstanding eligible options for Nil Cost Options on a 4 for 1 basis. The Nil Cost Options give the holder a right to purchase shares of common stock subject to a nominal fee of £1. The Nil Cost Options will vest immediately prior to a liquidity event, as defined above. There are 42,785 Vertis Holdings options eligible to be exchanged. The offer expired on July 19, 2004, and 28,499 options were elected to be exchanged.

        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. Due to the uncertainty of the timing of a liquidity event, which would trigger the vesting of the restricted stock, and the fact that the number of shares that will actually vest is unknown, compensation expense will not be recorded until a liquidity event takes place, or an event is more probable of occurring. For the 7,618 options not exchanged under the U.S. exchange offer and the 42,785 U.K. options still outstanding as the exchange is not yet effective for those options elected to be exchanged, variable accounting will apply.

        The following table summarizes the effect of accounting for the 50,403 stock option awards outstanding at June 30, 2004, 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.

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12.   INTEREST EXPENSE, NET

        Interest expense, net consists of the following:

        In June 2003, the Company fully amortized deferred financing fees of $11.0 million in connection with the retirement of the term loans (see Note 9).

13.   OTHER, NET

        Other, net for the six months ended June 30, 2004 consists primarily of $1.3 million in fees associated with the A/R Facility (see Note 5), $0.5 million in bank commitment fees and $0.2 million in losses on the sale of property, plant and equipment, offset by $0.7 million in income earned on investments accounted for as leveraged leases.

        Other, net for the six months ended June 30, 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 and $0.8 million in income earned on investments accounted for as leveraged leases. Offsetting this income are $1.4 million in fees associated with the A/R Facility (see Note 5), a $1.1 million adjustment to record the change in the interest rate swap agreement (see Note 9), $0.5 million on the sale of property, plant and equipment and $0.5 million in miscellaneous charges.

14.   INCOME TAXES

        The Company had approximately $306.3 million of net operating losses available to carryforward as of December 31, 2003. These carryforwards expire beginning in 2005 through 2024. During 2003, the Company established an additional valuation allowance of $67.4 million, $48.8 million of which was recorded as of June 30, 2003, against its deferred tax assets. The valuation allowance reserves the net operating losses and tax credit carryovers that may not be offset by reversing taxable temporary differences. The Company intends to maintain a valuation allowance until sufficient positive evidence exists to support its reversal. No additional tax benefit was recorded by the Company in the first six months of 2004.

15.   GUARANTOR/NON-GUARANTOR CONDENSED CONSOLIDATED FINANCIAL INFORMATION

        The Company has senior notes (see Note 9), 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 June 30, 2004 and December 31, 2003, for the three months ended June 30, 2004 and 2003, and for the six months ended June 30, 2004 and 2003 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.

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        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.

Condensed Consolidating Balance Sheet at June 30, 2004

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Condensed Consolidating Balance Sheet at December 31, 2003