UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Period Ended March 31, 1996
Transition Report pursuant to Section 14 or 15(d) of the
Securities Exchange Act of 1934
Commission File Number: 1-10991
VALASSIS COMMUNICATIONS, INC.
(Exact Name of Registrant as specified in its charter)
Delaware 38-2760940
(State or Other Jurisdiction of (IRS Employer Identification Number)
Incorporation or Organization)
36111 Schoolcraft
Livonia, Michigan 48150
Telephone Number: (313) 591-3000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and, (2) has been subject to
such filing requirements for the past 90 days:
Yes X No _______
As of April 30, 1996, there were 43,307,500 shares of the Registrant's Common
Stock outstanding.
1
Part I - Financial Information
Item 1. Financial Statements
VALASSIS COMMUNICATIONS, INC.
Condensed Consolidated Balance Sheets
(dollars in thousands)
March 31, December 31,
1996 1995
(unaudited) (note)
Assets
Current assets:
Cash and cash equivalents $ 35,457 $ 34,408
Accounts receivable (less allowance for doubtful
accounts of $834 at March 31,1996 and $810 at
December 31, 1995) 82,033 84,427
Inventories:
Raw materials 19,290 13,840
Work in progress 6,714 14,267
Prepaid expenses and other 3,542 3,686
Deferred income taxes 4,330 4,330
Refundable income taxes 97
------- -------
Total current assets 151,366 155,055
------- -------
Property, plant and equipment, at cost:
Land and buildings 19,627 19,617
Machinery and equipment 108,393 107,615
Office furniture and equipment 17,943 17,215
Automobiles 770 789
Leasehold improvements 1,443 1,443
------- -------
148,176 146,679
Less accumulated depreciation and amortization (113,653) (111,792)
------- -------
Net property, plant and equipment 34,523 34,887
------- -------
Intangible assets:
Goodwill 68,631 68,631
Other intangibles 88,524 88,524
------- -------
157,155 157,155
Less accumulated amortization (95,105) (93,038)
------- -------
Net intangible assets 62,050 64,117
------- -------
Other assets
(primarily debt issuance costs) 5,000 4,873
------- -------
Total assets $252,939 $258,932
======== ========
2
VALASSIS COMMUNICATIONS, INC.
Condensed Consolidated Balance Sheets, Continued
(dollars in thousands, except per share data)
March 31, December 31,
1996 1995
(unaudited) (note)
Liabilities and Stockholders' Deficit
Current liabilities:
Accounts payable $ 74,885 $ 71,936
Accrued interest 8,752 6,425
Income taxes payable 6,915
Accrued expenses 14,844 21,204
Progress billings 34,886 49,209
------- -------
Total current liabilities 140,282 148,774
------- -------
Long-term debt 408,066 416,034
Deferred income taxes 3,029 3,029
Minority interest 329 369
Stockholders' deficit:
Common stock of $.01 par value. Authorized
100,000,000 shares; issued and outstanding
43,305,000 shares at March 31, 1996 and
43,302,500 at December 31, 1995 433 433
Additional paid-in capital 39,617 39,590
Accumulated deficit (338,997) (349,457)
Foreign currency translations 180 160
------- -------
Net stockholders' deficit (298,767) (309,274)
------- -------
Total liabilities and stockholders' deficit $ 252,939 $ 258,932
======== ========
<FN>
NOTE: The balance sheet at December 31, 1995 has been derived from the
audited financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements.
See accompanying notes to condensed consolidated financial statements.
3
VALASSIS COMMUNICATIONS, INC.
Condensed Consolidated Statements of Operations
(dollars in thousands, except per share data)
(unaudited)
Quarter Ended
March 31, March 31,
1996 1995
Revenues:
Net Sales $179,996 $156,614
Other 537 758
------- -------
180,533 157,372
------- -------
Costs and expenses:
Cost of products sold 134,290 115,226
Selling, general and administrative 16,496 14,661
Amortization of intangible assets 2,067 2,347
Interest 10,263 10,206
Minority interest (43) (266)
------- -------
163,073 142,174
------- -------
Earnings before income taxes 17,460 15,198
Income taxes 7,000 6,360
------- -------
Net earnings $ 10,460 $ 8,838
======== =======
Net earnings per common share $ .24 $ .20
======== =======
Shares used in computing net earnings per share 43,304,333 43,301,250
========== ==========
<FN>
See accompanying notes to condensed consolidated financial statements.
4
VALASSIS COMMUNICATIONS, INC.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
Quarter Ended
March 31, March 31,
1996 1995
Cash flows from operating activities:
Net earnings $ 10,460 $ 8,838
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 4,018 4,702
Provision for losses on
accounts receivable 150 150
Minority interest (40) (266)
Changes in assets and liabilities which increase
(decrease) cash flow:
Accounts receivable 2,244 (11,919)
Inventories 2,103 (367)
Prepaid expenses and other 144 (439)
Other assets (127) 97
Accounts payable 2,949 (6,035)
Accrued expenses and interest (4,033) 2,796
Income taxes 7,012 6,429
Progress billings (14,323) 7,275
------- -------
Total adjustments 97 2,423
------- -------
Net cash provided by operating activities 10,557 11,261
------- -------
Cash flows from investing activities:
Additions to property, plant and equipment (1,575) (912)
Contribution to Valcheck by minority shareholder 198
Purchase of McIntyre & Dodd (Valassis of Canada) (6,575)
Other 40 15
------- -------
Net cash used in investing activities (1,535) (7,274)
------- -------
Cash flows from financing activities:
Repayments of long-term debt (8,000)
Proceeds from the issuance of common stock 27 24
------- -----
Net cash provided by (used in) financing activities (7,973) 24
------- -------
Net increase in cash 1,049 4,011
Cash at beginning of period 34,408 21,166
------- -------
Cash at end of period $35,457 $25,177
======= =======
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 7,936 $ 7,890
Cash paid during the period for income taxes $ (12) $ (69)
Dividends declared but unpaid $ --- $ ---
<FN>
See accompanying notes to condensed consolidated financial statements.
5
VALASSIS COMMUNICATIONS, INC.
Notes to Condensed Consolidated Financial Statements
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. In the opinion of management,
the information contained herein reflects all adjustments necessary for a fair
presentation of the information presented. All such adjustments are of a
normal recurring nature. The results of operations for the interim periods
are not necessarily indicative of results to be expected for the fiscal year.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1995.
2. Contingencies
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's financial position.
3. Significant Accounting Policies - Inventories
Inventories are stated at the lower of cost or market (net realized value).
Cost has been principally determined by the last-in, first-out (LIFO) method.
If the first-in, first-out (FIFO) method of determining cost had been used,
inventories would have been $5,025,000 higher than reported at March 31, 1996
and $5,175,000 higher than reported at December 31, 1995.
4. Stock Compensation Plans
The following stock compensation plans have been implemented in 1996,
subject to shareholder approval at the upcoming annual meeting.
Employee and Director Restricted Stock Award Plan
The Employee and Director Restricted Stock Award Plan provides for the grant
of restricted stock to executives in lieu of a cash raise, to non-employee,
non-affiliated directors as a portion of their fee, and to participants in
the Employee Stock Purchase Plan as described in the following paragraph. A
total of 200,000 shares of restricted stock have been reserved for this plan.
Pursuant to an employee agreement between the Company and its Chief Operating
Officer, Alan F. Schultz, 7,500 shares of restricted stock will be issued to
Mr. Schultz annually on each of December 31, 1996, 1997, 1998, and 1999,
respectively, with each grant vesting ratably from date of grant over a
three-year period. The expense related to the aggregate of such restricted
stock will be recognized on the straight-line method over seven years.
Such pre-tax expense was approximately $20,000 for the quarter ended March
31, 1996. In addition, several executives received one-time restricted
stock grants totaling 36,500 shares. Such restricted stock vests ratably
over a three-year period. The related expense will be recognized on the
straight-line method over the vesting period and was approximately $55,000
in the quarter ended March 31, 1996. Also during 1996, one-half of the
annual Director's fee of $40,000, to the four outside directors, will be
paid in restricted stock from this plan.
6
VALASSIS COMMUNICATIONS, INC.
Notes to Condensed Consolidated Financial Statements (Cont.)
Employee Stock Purchase Plan
All full-time employees are eligible to participate in VCI's Employee Stock
Purchase Plan. The plan provides that participants may authorize VCI to
withhold a portion of earnings to be used to purchase VCI's common stock at
prevailing market prices. Under the plan, VCI contributes on behalf of each
participant 15% of the participant's contributions. The Company's
contribution is made in the form of restricted stock with a one-year transfer
restriction and vesting. The value of the Company's stock contributed by
the Company and expensed for the quarter ended March 31, 1996 totaled
approximately $46,000.
Executive Restricted Stock Plan
The Executive Restricted Stock Plan provides for the grant of restricted
stock, with one-year vesting, to certain executive officers. Currently,
the Company's Chief Executive Officer, David A. Brandon, is the only
executive eligible to receive restricted stock under this plan. The maximum
number of restricted shares which may be issued under this plan is
250,000, provided that not more than 60% of such shares are awarded to any
one participant. Pursuant to an employment agreement between the Company,
CPH and Mr. Brandon, Mr. Brandon is eligible to receive 30,000 shares of
restricted stock each year beginning with 1996 through 2000 if 70% or more of
the year's performance target, set by the Compensation/Stock Option
Committee,is met. The remaining 100,000 shares are undesignated as of
March 31, 1996. Compensation expense will be recognized over the vesting
period and will be dependent on the market value of stock at the end of
each quarter. Pre-tax compensation expense related to this plan for the
quarter ended March 31, 1996 was approximately $65,000.
401(k) Plan
The Company has also amended its 401(k) Plan to include a 15% match, payable
in VCI stock, on each participant's annual contributions to the Plan that are
invested in VCI stock at the end of the year. No expense was provided for
the quarter ended March 31, 1996 as the amount of annual contributions
invested in VCI stock cannot be reasonably estimated at the present time,
since contribution investment elections can be changed at any time during the
year, and previously invested funds can be transferred at any time.
7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Results of Operations
For the quarter ended March 31, 1996, revenues increased by 14.7% to $180.5
million versus $157.4 million for the comparable period last year. FSI
revenue increased by 16.5% to $145.2 million this quarter from $124.6 million
during the same quarter last year. Although pricing of the Company's
free-standing insert (FSI) was up significantly for the current period,
revenue was negatively impacted by decreased volume due to a loss of market
share, which resulted from the Company's emphasis on improved pricing. This
weakness in market share is expected to extend at least into the second
quarter. Valassis Impact Promotions (VIP) revenue increased 15.5% to $18.6
million versus $16.1 million a year ago. Management attributes the increase
in VIP sales to expanded capacity provided by its new printing press, along
with the continued development of new VIP formats. Run-of-Press (ROP) sales
were $3.8 million versus $7.9 million for the same quarter last year. This
decrease was partially the result of a single client whose contract expired
during the first quarter of last year. In addition, the Company's new
businesses, including Valassis Sampling, Valassis of Canada and Valassis France,
accounted for $11.6 million in revenues during the first quarter.
Gross profit margin decreased from 26.8% in the first quarter of 1995 to
25.6% in the first quarter of 1996. This decrease was due to the negative
impact of increased paper costs, which offset increases in FSI pricing during
the quarter. The Company has received a decrease in paper prices that will
have a positive impact on earnings during the rest of 1996.
Selling, general and administrative expenses increased 12.2% to $16.5 million
from $14.7 million for the same period last year due primarily to the
acquisition of Valassis of Canada which was not in the prior-year period.
Management expects selling, general and administrative expenses to remain at
current levels.
Net earnings were $10.5 million versus $8.8 million for the same period last
year. The increase in net earnings was primarily attributable to pricing
increases in the FSI business.
Financial Condition, Liquidity and Sources of Capital
Cash flow from operating activities decreased from $11.3 million in the
quarter ended March 31, 1995, to $10.6 million in the first quarter of 1996.
This decrease is primarily due to increased payments for bonus and profit
sharing plans.
Management believes the Company will generate sufficient funds from
operations and will have sufficient lines of credit available to meet
currently anticipated liquidity needs, including interest and required
principal payments on indebtedness.
8
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
The following exhibits are included herein:
(27) Financial Data Schedule
b. Forms 8-K
The Company did not file any reports on Form 8-K during the three months
ended March 31, 1996.
9
Signatures
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.
Valassis Communications, Inc.
(Registrant)
Dated: May 10, 1996
By:/s/Robert L. Recchia
-----------------------
Robert L. Recchia
V.P. of Finance - Chief Financial Officer
Signing on behalf of the Registrant and as principal financial officer.
10