<PAGE>
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, 2000 or
[ ] 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: 333-23519
VESTCOM INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
New Jersey 22-3477425
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5 Henderson Drive
West Caldwell, New Jersey 07006
(Address of principal executive office, including zip code)
973-882-7000
(Registrant's telephone number, including area code)
Indicate by check mark whether 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 [ ]
The number of shares of common stock outstanding as of May 1, 2000 was 9,056,806
shares.
<PAGE>
VESTCOM INTERNATIONAL, INC. AND SUBSIDIARIES
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2000
INDEX
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<CAPTION>
<S> <C>
Part I: Financial Information
Page(s)
-------
Item 1: Financial Statements
Condensed Consolidated Balance Sheets - as of December 31, 1999 and
March 31, 2000 (unaudited) 3
Condensed Consolidated Statements of Operations - For the Three Months
Ended March 31, 1999 (unaudited) and 2000 (unaudited) 4
Condensed Consolidated Statements of Cash Flows - For the Three Months Ended
March 31, 1999 (unaudited) and 2000 (unaudited) 5
Notes to Condensed Consolidated Financial Statements (unaudited) 6
Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations
Overview; Disclosures Regarding Forward Looking Statements; Results of Operations 7
Liquidity and Capital Resources 8
Impact of the Year 2000 Issue 9
Item 3: Quantitative and Qualitative Disclosures About Market Risk 9
Part II: Other Information
Item 6: Exhibits and Reports on Form 8-K 9
Signature 9
</TABLE>
2
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VESTCOM INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
As of December 31, 1999 and March 31, 2000
ASSETS
<TABLE>
<CAPTION>
December 31, March 31,
1999 2000
------------ ------------
(note 1) (unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,458,613 $ 683,884
Accounts receivable, net 27,228,690 28,234,768
Other current assets 14,613,707 12,726,925
------------ ------------
Total current assets 43,301,010 41,645,577
PROPERTY AND EQUIPMENT, net 37,518,273 38,198,940
GOODWILL, net 77,894,965 77,196,764
OTHER ASSETS 665,345 538,486
------------ ------------
Total assets $159,379,593 $157,579,767
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt and capital lease obligations $ 5,421,376 $ 5,107,167
Accounts payable 15,067,563 14,661,438
Other liabilities 14,948,004 12,662,968
------------ ------------
Total current liabilities 35,436,943 32,431,573
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS 27,506,522 28,240,189
OTHER NONCURRENT LIABILITIES 6,637,579 6,234,530
------------ ------------
Total liabilities $ 69,581,044 $ 66,906,292
------------ ------------
STOCKHOLDERS' EQUITY:
Preferred Stock
Class B, 1 share authorized, issued and outstanding at
December 31, 1999 and March 31, 2000 $ 2,651,867 $ 2,651,867
Common stock, no par value; 20,000,000 shares authorized;
9,056,806 shares issued and outstanding at
December 31, 1999 and March 31, 2000 88,888,863 88,888,863
(Accumulated deficit) (1,475,638) (603,822)
Accumulated other comprehensive (loss) (266,543) (263,433)
------------ ------------
Total stockholders' equity $ 89,798,549 $ 90,673,475
------------ ------------
Total liabilities and stockholders' equity $159,379,593 $157,579,767
============ ============
</TABLE>
The accompanying notes to condensed consolidated financial statements
are an integral part of these balance sheets.
3
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VESTCOM INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended March 31, 1999 and 2000
(unaudited)
Three Months Ended
----------------------------------
March 31, 1999 March 31, 2000
-------------- --------------
REVENUES $31,923,061 $35,743,083
COST OF REVENUES 21,803,846 24,983,138
----------- -----------
Gross profit 10,119,215 10,759,945
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 7,850,099 8,328,160
----------- -----------
Income from operations 2,269,116 2,431,785
OTHER INCOME (EXPENSE)
Interest expense (367,022) (751,527)
Interest and other income 73,718 63,375
----------- -----------
Income before provision for
income taxes 1,975,812 1,743,633
PROVISION FOR INCOME TAXES 918,311 871,817
----------- -----------
Net income $ 1,057,501 $ 871,816
=========== ===========
Net income per share - basic $ .12 $ .10
=========== ===========
Net income per share - diluted $ .12 $ .10
=========== ===========
The accompanying notes to condensed consolidated financial statements
are an integral part of these statements.
4
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VESTCOM INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 1999 and 2000
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
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March 31, 1999 March 31, 2000
-------------- --------------
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,057,501 $ 871,816
Adjustments to reconcile net income to net cash
provided by operating activities-
Depreciation and amortization 1,785,254 2,293,305
Loss on disposal of equipment - 20,868
Changes in operating assets (increase) decrease in-
Accounts receivable (1,763,808) (1,006,078)
Other current assets 240,531 1,886,782
Other assets (732,487) (68,866)
Changes in operating liabilities (decrease) increase in-
Accounts payable (2,326,772) (406,126)
Other current liabilities (2,826,520) (2,281,256)
Other non-current liabilities 191,653 (403,049)
----------- -----------
Net cash provided by (used in) operating activities (4,374,648) 907,395
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment (3,523,424) (2,110,693)
Acquisition of businesses, net of cash acquired (1,258,806) -
Proceeds from sale of assets - 6,000
----------- -----------
Net cash used in investing activities (4,782,230) (2,104,693)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) of long term debt 4,903,332 419,458
Issuance of common stock 2,106,848 -
----------- -----------
Net cash provided by financing activities 7,010,180 419,458
----------- -----------
EFFECTS OF EXCHANGE RATES ON CASH BALANCES 25,044 3,110
Net decrease in cash and cash equivalents (2,121,654) (774,729)
----------- -----------
CASH, beginning of period 3,887,971 1,458,613
----------- -----------
CASH, end of period $ 1,766,317 $ 683,884
=========== ============
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Capital lease obligations - 127,513
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest 325,170 514,330
Cash paid (refunded) for income taxes $ 364,370 $ (534,235)
</TABLE>
The accompanying notes to condensed consolidated financial statements
are an integral part of these statements.
5
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VESTCOM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(1) BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. The financial statements
include the accounts of Vestcom International, Inc. (a New Jersey
corporation) ("Vestcom" or the "Company"), seven document management service
companies acquired simultaneously with the Company's initial public offering
(collectively, the "Founding Companies"), and all subsequent acquisitions
since their respective acquisition dates. The balance sheet at December 31,
1999 has been derived from the audited financial statements at that date. In
the opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation have been
included. Certain prior year amounts have been reclassified in order to
conform with the 2000 presentation. Operating results for the three-month
period ended March 31, 2000 are not necessarily indicative of the results
that may be expected for the year ending December 31, 2000. The condensed
consolidated financial statements should be read in conjunction with the
consolidated financial statements of the Company and the related notes
thereto contained in Vestcom's Annual Report on Form 10-K for the year ended
December 31, 1999.
(2) EARNINGS PER SHARE
Basic EPS is calculated by dividing income available to common shareholders
by the weighted average number of shares of common stock outstanding during
the period. The weighted average number of shares of common stock used in
determining basic EPS was 9,056,806 for the three months ended March 31,
2000 and 1999, respectively.
Diluted EPS is calculated by dividing income available to common
shareholders, adjusted to reflect the effects of earnouts and stock options,
by the weighted average number of shares of common stock outstanding, plus
additional common shares that could be issued in connection with potentially
dilutive securities. The weighted average number of shares of common stock
used in determining diluted EPS was 9,106,232 and 9,057,073 for the three
months ended March 31, 2000 and 1999, respectively; and reflects 49,426 and
267 additional shares issuable in connection with stock options, for the
three months ended March 31, 2000 and 1999, respectively.
Options to purchase approximately 710,557 and 432,148 shares of common stock
were not included in the computation of diluted earnings per share for the
three months ended March 31, 2000 and 1999, respectively, because the
effects would have been antidilutive.
(3) COMPREHENSIVE INCOME (LOSS):
The comprehensive income includes foreign currency translation gains and
losses. The balance sheet translation adjustment was $3,110 and $25,044 for
the periods ending March 31, 2000 and 1999, respectively.
(4) SUBSEQUENT EVENT:
On May 8, 2000, the Company and Summit Bank entered into a Fifth Amendment
to the Company's Equipment Facility and Revolving Credit Agreement, which,
among other things, increases the Company's revolving loan facility from
$25,000,000 to $26,500,000 and permits the Company to increase its current
6
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VESTCOM INTERNATIONAL, INC. AND SUBSIDIARIES
availability by approximately $1,000,000 on the equipment loan facility to
its original $5,000,000 level.
Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The following discussion of the financial condition and results of operations of
the Company should be read in conjunction with the Company's Condensed
Consolidated Financial Statements and the related notes thereto appearing
elsewhere herein.
DISCLOSURES REGARDING FORWARD LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended that are based on
the beliefs of Vestcom's management as well as assumptions made by and
information currently available to Vestcom's management. Such statements reflect
the current views of Vestcom with respect to future events based on currently
available information and are subject to risks and uncertainties that could
cause actual results to differ materially from those contemplated in such
forward-looking statements. Factors that could cause actual results to differ
materially from Vestcom's expectations include, but are not limited to, the
following: the ability of the Company to execute and manage its renewed
profitability and growth strategy, the results of the Company's investment
spending, the ability to effectively consolidate production facilities and
functions as part of the Company's integration program, the ability to realize
reduced overhead costs, increased production capacity and operating
efficiencies, improved financial results, operational synergies and enhanced
services at the newly consolidated facilities, acceptance of Vestcom's products
and services, including Internet related services, in the marketplace, the entry
of new competitors in the marketplace, the ability to attract and retain key
customers, the ability to positively modify its revenue mix, variations in
quarterly results, the sufficiency of the Company's working capital, changes in
the business document outsourcing industry, the availability of suitable
acquisition candidates and the assimilation of new acquisitions with existing
business. Other factors are described from time to time in Vestcom's public
filings with the Securities and Exchange Commission, news releases and other
communications. Also, when Vestcom uses the words "believes", "expects",
"anticipates," "estimates," "plans," "intends," "objectives," "goals," "aims,"
"projects" or similar words or expressions, Vestcom is making forward-looking
statements. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof. Vestcom does
not undertake any obligation to release publicly any revisions to these
forward-looking statements to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.
RESULTS OF OPERATIONS
Three Months Ended March 31, 2000 Compared to Three Months Ended March 31, 1999
Revenues increased $3,820,000, or 12%, to $35,743,000 for the three months ended
March 31, 2000, from $31,923,000 for the three months ended March 31, 1999. This
increase was primarily attributable to increased sales to new and existing
customers resulting from a change in sales strategy, refining of our business
mix and an increased capacity of our newly upgraded facilities.
Certain 1999 expenses have been reclassified from selling, general and
administrative expenses to cost of sales in order to conform to the 2000
presentation. The Company believes these expenses relate more directly to
revenue generation activities and have been reclassified to more accurately
reflect gross margins.
7
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VESTCOM INTERNATIONAL, INC. AND SUBSIDIARIES
Gross profit increased $641,000, or 6%, to $10,760,000 for the three months
ended March 31, 2000, from $10,119,000 for the three months ended March 31,
1999. The increase in gross profit was primarily attributable to the increased
sales activity over the prior year. The gross profit margin decreased from 32%
for the three months ended March 31, 1999 to 30% for the same period in 2000.
The decrease in the gross profit margin was due to increased costs related to
the operations of the Company's upgraded facilities, which has provided the
Company a platform for future growth and profitability.
Selling, general and administrative expenses increased $478,000, or 6%, to
$8,328,000 for the three months ended March 31, 2000, from $7,850,000 for the
three months ended March 31, 1999. As a percentage of revenues, selling general
and administrative expenses decreased from 25% in 1999 to 23% in 2000. The
increase in selling, general and administrative expenses was primarily due to
increased compensation expense including increased commissions on higher sales,
increased staffing of new technical and administrative personnel to support the
greater volume of business and increased spending in sales and marketing
programs.
Interest expense increased $385,000, to $752,000 for the three months ended
March 31, 2000, from $367,000 for the three months ended March 31, 1999. This
increase was attributable to higher interest rates and increased borrowings on
the Company's credit facility to finance equipment purchases, leasehold
improvements and payments relating to earnout agreements.
Interest and other income decreased $11,000, to $63,000 for the three months
ended March 31, 2000, from $74,000 for the three months ended March 31, 1999.
This decrease was due to reduced interest income resulting from the utilization
of cash to pay for equipment purchases and earnout agreements.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2000, Vestcom had working capital of approximately $9,214,000
compared to approximately $7,864,000 at December 31, 1999. The increase was
primarily attributable to increased accounts receivable and the reduction in
other current liabilities. Net cash provided by operating activities for the
three months ended March 31, 2000, was approximately $907,000 which consisted of
net income plus approximately $2,293,000 generated primarily from depreciation
and amortization charges, offset by increases in accounts receivable and
decreases in current liabilities. Net cash used in investing activities for the
three months ended March 31, 2000, was approximately $2,105,000 which consisted
primarily of purchases of property and equipment and leasehold improvements. Net
cash provided by financing activities for the three months ended March 31, 2000,
was approximately $419,000 from net borrowings of long-term debt.
On August 13, 1997, the Company and Summit Bank entered into an Equipment Loan
and Revolving Credit Agreement ("the Credit Facility") in the amount of
$30,000,000. On March 31, 2000, $24,036,000 was outstanding and $4,266,000
remained available under the Credit Facility. On May 8, 2000 the Company and
Summit Bank entered into an amendment to the Credit Facility, which, among other
things, increases the Credit Facility by $1,500,000 and increases the equipment
loan availibility by approximately $1,000,000.
The Company incurs postage costs on behalf of customers of approximately
$4,000,000 to $6,000,000 each month. The Company seeks to collect such postage
costs from its customers in advance. At March 31, 2000, the Company had postage
advances from customers in the amount of approximately $4,342,000 and had
prepaid postage and postage receivables of approximately $4,132,000. To the
extent the Company is unsuccessful in obtaining postage costs in advance, cash
flow is negatively affected and Vestcom may be required to utilize its working
capital or credit facility to cover the cash outlay.
Capital expenditures of approximately $10,000,000 are expected in 2000. However,
as additional revenue generating opportunities arise the Company may be required
to expend additional capital to support those opportunities. The anticipated
8
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VESTCOM INTERNATIONAL, INC. AND SUBSIDIARIES
expenditures relate to technology and production equipment needs of the
business. As of March 31, 2000, the Company had incurred approximately
$2,105,000 of such anticipated expenditures.
While no assurance can be given, management believes that its anticipated cash
flow from operations combined with existing cash and the availability of funds
under the Credit Facility, and potential additional credit capacity, will be
sufficient to meet its working capital, capital expenditure and debt service
requirements for the foreseeable future. The immediately preceding sentence
constitutes a forward-looking statement under the Private Securities Litigation
Reform Act of 1995.
IMPACT OF THE YEAR 2000 ISSUE
Vestcom has not experienced any significant problems associated with year 2000
issues to date. Similarly, to management's knowledge, Vestcom suppliers, vendors
and other third parties with whom Vestcom conducts business have not experienced
material year 2000 problems to date.
Item 3: - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable - no significant change from Annual Report on Form 10-K.
Part II: Other Information
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits:
27.1 Financial Data Schedule (For Electronic Submission Only)
(b) Reports on Form 8-K:
None
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VESTCOM INTERNATIONAL, INC.
By: /s/ Michael D. Helfand
-------------------------------------------
Michael D. Helfand, Chief Financial Officer
Dated: May 12, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 658,064
<SECURITIES> 0
<RECEIVABLES> 29,454,138
<ALLOWANCES> (1,219,370)
<INVENTORY> 5,435,021
<CURRENT-ASSETS> 41,645,577
<PP&E> 48,427,235
<DEPRECIATION> (10,228,295)
<TOTAL-ASSETS> 157,579,767
<CURRENT-LIABILITIES> 32,431,573
<BONDS> 0
0
2,651,867
<COMMON> 88,888,863
<OTHER-SE> (867,255)
<TOTAL-LIABILITY-AND-EQUITY> 90,673,475
<SALES> 35,743,083
<TOTAL-REVENUES> 35,743,083
<CGS> 24,983,138
<TOTAL-COSTS> 8,328,160
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 751,527
<INCOME-PRETAX> 1,743,633
<INCOME-TAX> 871,817
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 871,816
<EPS-BASIC> .10
<EPS-DILUTED> .10
</TABLE>
