SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________________________________
FORM 10-K
______________________________________
(Mark One)
/X/ Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 31, 1996
Transition Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission File Number: 1-10991
VALASSIS COMMUNICATIONS, INC.
(Exact Name of Registrant)
DELAWARE 38-2760940
(State of Incorporation) (IRS Employer Identification Number)
19975 VICTOR PARKWAY
LIVONIA, MI 48152
TELEPHONE NUMBER: (313) 591-3000
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Securities registered pursuant to Section 12(b) of the Act:
TITLE Exchange
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Common Stock, par value $.01 per share New York Stock Exchange
8-3/8% Senior Notes Due 1997 Not Applicable
8-7/8% Senior Notes Due 1999
9-3/8% Senior Subordinated Notes Due 1999
9.55% Senior Notes Due 2003
Securities registered pursuant to Section 12(g) of the Act: None
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
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ X ]
As of February 28, 1997, there were 41,802,000 shares of the
Registrant's Common Stock outstanding. As of such date, the aggregate
market value of the voting stock held by non-affiliates* of the
registrant was $396,886,000.
The applicable portions of the Company's Proxy Statement for the 1997
Annual Meeting of Stockholders are incorporated by reference herein into
Part III of this Annual Report on Form 10-K.
*Without acknowledging that any individual director or executive officer
of the Company is an affiliate, the shares over which they have voting
control have been included as owned by affiliates solely for purposes
of this computation.
PART I
ITEM 1. BUSINESS
OVERVIEW
Valassis Communications, Inc. ("VCI" or the "Company") is a leading
print media company in the field of sales promotion. The Company
generates most of its revenues by printing and publishing cents-off
coupons and other consumer purchase incentives primarily for package
goods manufacturers. The Company is one of the country's largest
printers and publishers of these coupons.
Most of the consumer purchase incentives published by the Company are
featured in cooperative free-standing inserts ("FSIs"), which are four-
color promotional booklets printed by the Company at its own facilities.
Valassis produced its first FSI in 1972. The Company's cooperative FSIs
were inserted in the Sunday edition of over 400 newspapers with a
combined average paid circulation of over 56 million, on 46 publishing
dates in calendar year 1996. By comparison, there were approximately
93.3 million households in the United States, based upon information
published in 1990 by the U.S. Census Bureau.
In addition to FSIs, the Company arranges for the publication of its
customers' consumer promotions directly on the pages of newspapers
through its run-of-press ("ROP") division begun in 1986, which has the
capacity to place promotions in any newspaper. Another division of the
Company, Valassis Impact Promotions ("VIP"), established in 1989 in
response to growing demand from its customers for customized solo
printed promotions, offers customized design, printing and distribution
services primarily for solo promotional programs.
The Company expanded its product line in 1994 by introducing newspaper
delivered sampling products ("Newspac" and "Newspouch"). In addition,
during the six-month period ended December 31, 1994, the Company
announced its first entries into international markets with a 50% joint
venture interest in Valassis de Mexico, and the purchase of an 80%
interest in GAPP, a promotion company in France, now 100% owned and
known as Valassis France. In 1995, the Company continued its
international expansion with the purchase of McIntyre & Dodd, a Canadian
sales promotion company, now known as Valassis of Canada.
BACKGROUND OF THE COMPANY
The Company is the successor to a business founded in 1970 and operated
under the names George F. Valassis & Company and GFV Communications,
Inc. In December 1986, the assets of this business were acquired by
Valassis Inserts, Inc. ("Valassis"), a corporation indirectly owned by
Consolidated Press Holdings, Ltd. ("CPH"), a privately owned Australian
holding company. In March 1992, the Company sold 22,100,000 shares to
the public. In March 1993, Valassis was merged into its corporate
parent, Valassis Communications, Inc.
THE COMPANY'S PRODUCTS
The Company offers its customers a variety of consumer promotion
alternatives. Depending upon the particular promotion goal, a customer
can choose to include its promotional materials in cooperative FSIs or
ROP, or can elect to distribute a customized printed solo insert.
Approximately 20% of each cooperative FSI program is sold to direct mail
marketers who purchase space (referred to as "remnant space") at reduced
costs in exchange for accepting such space on a space-available basis.
The Company prints and publishes cents-off coupons, refund offers,
premiums, sweepstakes and contests distributed to households throughout
the United States. The Company relies, to a significant extent, on
repeat business. The Company markets its products through its own sales
force. Account managers personally call on existing customers to
maintain relationships and on potential customers to describe the
advantages afforded by the Company's products compared to other
promotion alternatives.
FREE-STANDING INSERTS (FSIs)
The Company's FSIs are distributed 46 to 48 times per year, depending
upon the number of Sundays in any particular year that the Company
considers viable publishing dates (generally, any non-holiday weekend).
The Company printed and published approximately 76.1 billion cooperative
FSI pages during the year ended December 31, 1996, representing over 46%
of the estimated 165 billion cooperative FSI pages printed and
distributed nationally. During that period, the Company's cooperative
FSIs were inserted in the Sunday edition of over 400 newspapers with a
combined average paid circulation of 56.5 million. Cooperative FSI sales
during the year ended December 31, 1996 were $504.1 million, which
represented approximately 76.5% of the Company's net sales.
Many sales are made significantly in advance of program dates. The
Company typically announces its annual publication schedule
approximately 18 months in advance of the first publication date and
customers may reserve categories at any time thereafter. Account
managers work closely with customers to select their FSI publication
dates from the Company's schedule and coordinate all aspects of FSI
printing and publication, as well as to obtain commitments from
customers in the form of signed contracts. The Company's proprietary
order entry and ad placement software allows it to produce as many
different FSI versions as customers require, typically over 270
different layout versions per publication date. By offering different
versions in different markets, the Company offers its customers greater
flexibility to target precise geographic areas or tailor promotional
offers to particular markets by varying coupon values, promotion copy
and terms of the promotional offer.
No single customer accounted for more than 10% of FSI sales during the
year ended December 31, 1996. The top ten FSI customers accounted for
approximately 33% of FSI sales during the same period.
REMNANT SPACE
At the end of the selling cycle for each cooperative FSI program, there
is generally space in the booklet that has not been sold. This space,
which typically accounts for 15% to 20% of an FSI program, is referred
to as "remnant space" and is sold at a discount, primarily to direct
mail marketers, who place themselves on a waiting list for space that
may become available. Remnant space sales are included in total
cooperative FSI sales for financial reporting purposes.
The Company selects direct mail marketers as remnant space customers on
the basis of a number of factors, including price, circulation,
reputation and credit-worthiness. Remnant space customers are subject to
being "bumped" in favor of a regular price customer in need of space at
the last minute.
VALASSIS IMPACT PROMOTIONS (VIP)
VIP offers its customers specialty print promotion products in multiple,
customized formats such as die- cuts, posters and calendars, as well as
traditional FSI formats. Because these promotions feature only one
manufacturer (referred to as "solos"), the customer has the ability to
create a completely individualized promotion. While VIP does, on
occasion, produce printed material for direct mail programs or for
shipment to store locations, its primary product is newspaper-delivered
promotions. VIP offers customers the flexibility to run promotions any
day of the year in any newspaper throughout the United States. VIP
specializes in producing turnkey promotions for franchise and retail
marketers (e.g., fast food chains) allowing orders to be placed on a
national, regional or local basis.
VIP sales during the year ended December 31, 1996 were $89.4 million.
VIP sales are subject to greater volatility than either FSI or ROP sales
due to the current limited number of VIP customers. VIP customers are
made up of package goods manufacturers, fast food chain accounts, food
brokers and retailers. VIP customers include retailers who are generally
excluded from the cooperative format. Three VIP customers accounted for
40% of VIP sales for the year ended December 31, 1996, with the top ten
customers accounting for approximately 68% of total VIP sales.
RUN-OF-PRESS (ROP)
The Company arranges for the publication of ROP promotions in either a
cooperative or solo format. Cooperative programs, which group the
promotions of several customers together, are sold on a product
exclusive basis, and usually run each week when a newspaper runs its
food section. Solo programs (featuring a single advertiser) offer the
marketer the flexibility to run in any newspaper throughout the United
States (including newspapers targeted to specific demographic groups),
on any day of the year and in any section of the newspaper. The
Company's total ROP sales were $25.5 million during the year ended
December 31, 1996.
Media (newspaper placement fees) is the major cost component of ROP
distribution, accounting for approximately 99.0% of the Company's total
direct ROP costs during the year ended December 31, 1996. Management
believes that its customers use the Company to place ROP because of the
Company's ability to negotiate favorable media rates, its well-developed
production and placement capabilities, and its capacity to execute
integrated FSI and ROP programs.
ROP customers include primarily package goods manufacturers, and their
advertising and promotion agencies. The top four customers accounted for
24%, 13%, 13% and 12% of ROP sales during 1996, respectively. The top
ten ROP customers accounted for approximately 83% of the total ROP sales
during the same period.
VALASSIS SAMPLING
In August 1993, Valassis began offering a newspaper-delivered sampling
product that gives manufacturers the ability to reach up to 50 million
households in one day, cost-effectively. Samples can either be machine-
inserted into newspapers (Newspac), placed in a polybag alongside the
newspaper, or pre-sealed in a pouch that forms part of the polybag
(Newspouch).
In 1996, Valassis Sampling produced total revenue of $14.3 million. One
customer accounted for 27% of Sampling sales during 1996. The top 10
customers accounted for approximately 92% of total Sampling sales during
the same period.
VALASSIS INTERNATIONAL
In September 1994, VCI purchased an 80% interest in GAPP, a sales
promotion company in France, which specializes in cooperative refund and
couponing programs, and customized consumer print promotions. VCI now
owns 100% of the company which is now known as Valassis France. During
1995, Valassis France distributed the first national FSI program in
France, which was delivered via direct mail. Competition in the French
marketplace is currently very intense, and the Company continues to
evaluate its position in this market for its long-term viability.
In March 1995, Valassis acquired McIntyre & Dodd Marketing (now renamed
Valassis of Canada), a leader in consumer promotion and direct response
merchandising in Canada. Several challenges were faced in 1995 including
an industry price/market share battle, poor economy, and mail order
volume decline. Since then, the Company has streamlined or repositioned
existing products, dropped unprofitable offerings, and added new
products and services to better meet the needs of our customers.
DISPOSITIONS
VCI has a 50% joint venture interest in Valassis de Mexico. This company
was expected to capitalize on the growth of the Mexican retail industry
by offering a wide variety of promotion marketing services. However, due
to the current state of the economy and less-than-desirable test
results, the Company has decided to exit this business in the first
quarter of 1997. The disposal of the business will involve minimal costs
and will not have a material effect on Company earnings.
The Company sold the assets of its personal check direct marketing
division, Valcheck, in 1995. In addition, a decision was made at the end
of 1995 to discontinue the in-store electronic sign network, Valassis
In-Store Marketing. The assets of Valassis In-Store Marketing were
subsequently sold in April 1996. Neither of these product lines
demonstrated the profit potential necessary to warrant continued
investment and marketing support.
COMPETITION
The Company currently competes in the cooperative FSI business
principally with News America FSI, Inc. The Company competes for
business primarily on the basis of category availability; frequency and
availability of publication dates; customer service and sales
relationships; and accuracy and price. In addition, the Company competes
with in-store advertising and other forms of coupon delivery.
Several times in the past, new competitors have attempted to establish
themselves in the FSI market. This has resulted in periods of intense
price competition. Furthermore, the increase in the number of FSI
programs published has led to a decrease in the number of pages per FSI
program and the average price per page with a consequent material
adverse effect on the Company's financial performance. The Company's
results for the fiscal year ended June 30, 1994 and the six months ended
December 31, 1994 were severely impacted by business booked under
competitive pricing conditions, which accompanied the efforts of
Sullivan Marketing, Inc. to enter the FSI market. Sullivan withdrew from
the FSI market in February 1994. Some FSI price recovery took place
during 1995 with further increases in FSI prices in 1996.
The VIP division competes with News America for package goods and fast
food business and with commercial printers. VIP continues to add new
services and product formats to meet the needs of an expanding customer
base.
The Company competes with several newspaper network groups in the ROP
market. As there are no significant capital investments associated with
that business, other competitors could easily enter the ROP market. An
increase in the number of ROP competitors could result in a loss of
market share for the Company's ROP division.
BUSINESS STRATEGY
The Company's strategy is to remain focused on the FSI segment of its
business and improve pricing, while offering its customers other
products and services which complement its FSI expertise. In order to
accomplish the foregoing, the Company will continue its commitment to
minimize costs through the use of computerized information systems and
state-of-the-art production facilities, while providing high levels of
product quality and customer service. In addition, the Company will
attempt to capitalize on its expertise in consumer promotion by further
developing its existing VIP, Sampling and International divisions.
Regarding new businesses, the strategy has been one of investigating
opportunities, while minimizing financial risk. The Company will divest
of new businesses that do not show the potential to grow into
substantial profit centers within the foreseeable future. The Company
expects to investigate strategic acquisitions that enhance shareholder
value.
The Company has made a commitment to print all of its own promotional
products and continue development of its proprietary software systems.
The Company continues to invest in the further training of its personnel
to maintain high levels of customer service.
EMPLOYEES
At December 31, 1996, the Company had approximately 1,200 employees.
Approximately 407 of these employees are on the Company's sales, sales
operations and marketing staff; approximately 700 are involved in
manufacturing; approximately 27 are on its management information
systems staff; and approximately 66 are involved with administration.
None of the Company's employees are represented by a labor union. The
Company considers labor relations with employees to be good and has not
experienced any interruption of its operations due to labor
disagreements.
ITEM 2. PROPERTIES
The principal executive offices of the Company are located in a leased
office complex in Livonia, Michigan. The Company has entered into a
lease commencing in April 1997 for a new executive office building
replacing the former lease which expires on April 30, 1997. The Company
also leases sales offices in Los Angeles (Seal Beach), Chicago
(Schaumburg), Atlanta, Dallas, Boston, Minneapolis, Wilton, Connecticut,
and various other localities.
The Company operates three printing facilities. The Livonia printing
facility is owned by the Company and consists of approximately 225,000
square feet and includes VIP, printing and warehouse facilities. The
Company owns a printing facility in Durham, North Carolina and leases
(with an option to purchase for a nominal amount at the end of the lease
term) a printing facility in Wichita, Kansas, consisting of
approximately 110,000 square feet and 138,000 square feet, respectively.
In addition, the Company leases a facility in Plymouth, Michigan which
houses its pre-press operations. These facilities generally have
sufficient capacity to handle present volumes although, during periods
of unusual demand, the Company may require services of a contract
printer.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in various routine litigation arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material effect on the
Company's financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
The Company's common stock is traded on the New York Stock Exchange
(ticker symbol VCI). The approximate number of record holders of the
Company's common stock at December 31, 1996 was 340.
High and low stock prices and dividends during the twelve months ended
December 31, 1996 and 1995 were:
1996 1995
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CASH CASH
SALES PRICE DIVIDENDS SALES PRICE DIVIDENDS
QUARTER ENDED HIGH LOW DECLARED HIGH LOW DECLARED
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March 31 $17 5/8 $15 1/2 $--- $18 5/8 $14 1/2 $---
June 30 19 3/8 14 5/8 --- 18 1/2 16 1/8 ---
September 30 18 3/8 14 7/8 --- 17 1/4 14 ---
December 31 21 1/8 14 5/8 --- 17 7/8 13 5/8 ---
On June 21, 1993, the Company suspended its policy of paying quarterly
cash dividends in light of the Company's earnings outlook. There is no
assurance as to the payment of future dividends because they are
dependent on future earnings, capital requirements and financial
condition. In addition, the payment of future dividends is subject to
the restrictions described in Note 4 to the financial statements.
ITEM 6. SELECTED FINANCIAL DATA
(in thousands of dollars, except per share data)
SIX MONTHS
YEAR ENDED ENDED YEAR ENDED JUNE 30
DECEMBER 31 DECEMBER 31
1996 1995 1994 1994 1993 1992
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Net sales and other
operating revenues.... $659,108 $613,752 $279,034 $542,609 $661,378 $684,029
Earnings from
continuing operations
(before extraordinary
loss)................. 42,902 9,574 1,923 5,173 81,934 74,416
Total assets........... 273,734 258,932 234,330 239,709 275,165 292,718
Long-term debt, less
current portion....... 395,865 416,034 417,927 419,000 418,741 462,883
Earnings per share before
extraordinary loss.... 1.00 .22 .04 .12 1.89 ---
Net earnings (loss) per
share................. 1.00 .22 (.05) .12 1.89 ---
Pro Forma net earnings
per share from con-
tinuing operations.... --- --- --- --- --- 1.62
Cash dividends declared
per share............. --- --- --- --- .42^ .1075*
^Dividends were paid for the first three quarters of fiscal year 1993 only.
*Declared for the quarter ended June 30, 1992, which was the first full quarter after
the initial public offering.
This information should be read in conjunction with the Consolidated
Financial Statements of the Company and the notes thereto appearing elsewhere
in this Report. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Certain statements under the caption "Management's Discussion and
Analysis of Financial Conditions and Results of Operations," including
specifically "Business Outlook" and elsewhere in this report on Form 10-
K constitute "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Such forward-looking
statements involve known and unknown risks and uncertainties and other
factors which may cause the actual results, performance or achievements
of the Company to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements. Such factors include, among others, the following: a new
competitor in the Company's core free-standing insert business and
consequent price war; new technology that would make free-standing
inserts less attractive; a shift in customer preference for different
promotional materials, promotional strategies or coupon delivery modes,
including in-store advertising systems and other forms of coupon
delivery; an increase in the Company's paper costs; or general business
and economic conditions.
GENERAL
Valassis Communications, Inc. ("VCI" and the "Company") derives revenues
primarily from the sale of space in promotional materials printed on the
Company's printing presses. The Company's prime cost components include
paper, payments to newspapers for insertion of promotional materials
(media), printing costs (including labor) and shipping.
As a result of the acquisition of Valassis in 1986, the Company incurred
approximately $332.0 million in debt. The acquisition included
significant amounts of tangible and intangible assets. As a consequence,
the Company's results of operations include a significant level of non-
cash expenses related to the amortization of intangible assets,
including goodwill.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated, certain income
and expense items from continuing operations and the percentages that
such items bear to revenues.
SIX MONTHS FISCAL YEAR
YEAR ENDED YEAR ENDED ENDED ENDED
DEC. 31, DEC. 31, DEC. 31, JUNE 30,
1996 1995 1994 1994
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% OF % OF % OF % OF
($ IN MILLIONS) ACTUAL REVENUES ACTUAL REVENUES ACTUAL REVENUES ACTUAL REVENUES
- -----------------------------------------------------------------------------------------
FSI sales......... $504.1 76.5% $480.7 78.3% $211.9 75.9% $447.9 82.5%
VIP sales......... 89.4 13.6 76.8 12.5 37.3 13.4 58.6 10.8
ROP sales......... 25.5 3.9 19.4 3.2 20.2 7.2 28.4 5.2
Other............. 40.1 6.0 36.9 6.0 9.6 3.5 7.7 1.5
_________________________________________________________________________________________
Revenues.......... 659.1 100.0 613.8 100.0 279.0 100.0 542.6 100.0
Cost of products
sold............. 473.1 71.8 466.1 75.9 223.5 80.1 432.5 79.7
_________________________________________________________________________________________
Gross profit...... 186.0 28.2 147.7 24.1 55.5 19.9 110.1 20.3
Selling, general
and administra-
tive expenses.... 67.1 10.2 59.5 9.7 27.5 9.9 62.6 11.5
Amortization of
intangibles...... 8.2 1.2 9.6 1.5 4.7 1.7 10.9 2.0
Minority interest. --- --- (1.4) (.2) (.3) (.1) --- ---
Write-downs/sale of
business........ --- --- 16.9 2.8 --- --- --- ---
_________________________________________________________________________________________
Operating earnings 110.7 16.8 63.1 10.3 23.6 8.4 36.6 6.8
Interest expense.. 39.6 6.0 40.5 6.6 19.6 7.0 38.2 7.1
_________________________________________________________________________________________
Earnings (loss)
before income
taxes and extra-
ordinary loss.... 71.1 10.8 22.6 3.7 4.0 1.4 (1.6) (.3)
Income taxes...... 28.2 4.3 13.0 2.1 2.1 .7 (6.8) (1.3)
_________________________________________________________________________________________
Earnings before
extraordinary
loss............. $42.9 6.5% $ 9.6 1.6% $ 1.9 .7% $ 5.2 1.0%
=========================================================================================
CALENDAR 1996 COMPARED TO CALENDAR 1995
Net earnings increased 347% to $42.9 million in 1996 from $9.6 million
in 1995. This increase was due primarily to improved pricing in the core
business of FSIs. In addition, 1995 earnings included an after-tax
charge of $12.5 million due to writedowns of assets related to the
discontinuance of Valassis In-Store Marketing and the goodwill of
Valassis of Canada.
Revenues for calendar 1996 were $659.1 million up 7.4% from $613.8
million in calendar 1995. FSI revenue increased 4.9% to $504.1 million
in 1996. Again this increase was primarily attributable to higher FSI
pricing. Volume was down slightly as the result of fewer publishing
dates; however, the Company's market share increased. Management expects
FSI page volume to be relatively flat in 1997. A significant increase in
VIP revenue was experienced, with $89.4 million in 1996 versus $76.8
million in 1995. This 16.4% increase was due to increased promotional
activity by core customers and new customers, as well as strong demand
for VIP's expanded product line. ROP revenue rose 31.4% to $25.5 million
in 1996 as the result of increased activity by retail accounts and the
pharmaceutical industry. Although ROP is not expected to be an area of
growth, the Company continues to look for ways to make it more
efficient. Revenue from other businesses also increased particularly in
the area of sampling. Management expects this growth to continue in
1997.
Gross profit as a percentage of revenue increased to 28.2% in 1996
compared to 24.1% in 1995. The increase was due to improved FSI pricing.
Paper costs began to fall during 1996 after the dramatic increases seen
in 1995; however, the average cost for 1996 was up slightly from the
1995 average. The declining paper prices experienced throughout 1996
will have an even greater positive effect in 1997. Management believes
paper costs will flatten and remain stable in 1997.
Selling, general and administrative expenses increased to $67.1 million
in 1996 versus $59.5 million in 1995. A $1 million insurance refund was
netted against 1995 SG&A expenditures. The remaining increase was due in
part to increased selling cost associated with higher revenues and a
full year of operations for Valassis of Canada in 1996.
Interest expense was down in 1996 to $39.6 million from $40.5 million.
The Company purchased $13 million and $2 million of its public
subordinated debt in 1996 and 1995, respectively.
CALENDAR 1995 COMPARED TO CALENDAR 1994
Net earnings increased to $9.6 million in 1995 from $3.8 million (before
extraordinary loss of $4.2 million) in the comparable twelve-month
period ended December 31, 1994. This increase was due primarily to
improved pricing in the core business of FSIs as the negative impact of
the 1993-1994 industry price war began to lessen. Earnings for 1995 were
negatively affected, however, due to dramatic increases in the cost of
paper, as well as write-downs associated with the discontinuance of
Valassis In-Store Marketing and the goodwill of Valassis of Canada.
Revenues for calendar 1995 were $613.8 million, up 9.1% from $562.8
million in calendar 1994. Again, this increase was primarily
attributable to higher FSI pricing in 1995. FSI revenue rose 7.7% to
$480.7 million in 1995. Although price recovery was substantial, pages
produced were down nearly 7% as a result of decreased market share and
fewer publishing dates in 1995 versus 1994. A significant increase in
VIP revenue was experienced, with $76.8 million in 1995 versus $61.8
million in 1994. Growth is attributed to expanded printing capacity,
increased spending by traditional customers, and new product offerings.
ROP revenue declined in 1995 to $19.4 million compared with $38.3
million in 1994. This decrease was due to the loss of a large contract
which expired in early 1995. New businesses, including sampling and
international ventures contributed nearly $36 million in revenue in
1995, compared with $13.5 million in 1994. This increase was primarily
due to the acquisition of Valassis of Canada in 1995 and growth in the
sampling division.
Gross profit as a percentage of revenue increased to 24.1% in 1995
compared with 19.8% in 1994. The increase was due to higher pricing
offset somewhat by unprecedented increases in the cost of paper, the
Company's largest cost component. Improved media and printing
efficiencies were also experienced in 1995, due to increased book sizes.
Selling, general and administrative expenses decreased to $59.4 million
in 1995 compared with $69.9 million in 1994. The 1994 figure includes a
one-time charge of $14.0 million to settle a lawsuit with Sullivan
Marketing, Inc.
Interest expense increased slightly to $40.5 million in 1995 from $39.4
million in 1994. Debt refinancing done at the end of 1994, resulted in
extended maturities and a higher interest rate. During 1995, $2 million
of public debt was extinguished, through an open-market purchase of
subordinated debt.
The assets of Valcheck were sold in May of 1995 resulting in a pre-tax
loss of $1 million. Valcheck accounted for $6.2 million and $3.9 million
of revenue in 1995 and 1994, respectively.
In 1995, the Company decided to discontinue its in-store electronic sign
network resulting in a pre-tax charge of $9.7 million to restate the
assets to net realizable value. In addition, the goodwill recorded as a
result of the purchase of Valassis of Canada was written down in
accordance with the requirements of FAS 121-Impairment of Long-Lived
Assets, resulting in a charge of $6.2 million. There was no income tax
effect related to the write-down of Canadian goodwill. Based on the
competitive climate, the Canadian economy and changes in the mail order
business, the projected future cash flows from the acquired business
were not sufficient to justify the carrying value of the intangible
assets. Valassis of Canada generated a pre-write-down net loss of $1.5
million in its nine months of operations in 1995, with $12.7 million of
revenue.
SIX MONTHS ENDED DECEMBER 31, 1994 COMPARED TO SIX MONTHS ENDED DECEMBER
31, 1993
Earnings before the extraordinary loss related to the extinguishment of
debt for the six months ended December 31, 1994 decreased to $1.9
million from $3.3 million in the same period a year earlier. This
decrease was due to the effects of an industry oversupply of available
FSI programs, caused by the entrance of a new competitor, which resulted
in substantial downward pressure on prices.
Although the oversupply situation ended in February, 1994, due to the
exit of a competitor, most calendar 1994 business was already booked at
these lower prices.
Revenues increased from $258.8 million in the year-ago period to $279.0
million, an increase of 7.8%. FSI revenue decreased to $211.9 million
for the six months ended December 31, 1994, from $213.5 million for the
same period a year earlier. Although pricing of the core product was
down for the December 31, 1994 period as described earlier, increases in
pages produced virtually offset the lower pricing. VIP revenue increased
to $37.3 million during the period from $34.2 million a year earlier, an
increase of 9%. VIP added a new press during the six months ended
December 31, 1994, to increase its press capacity and take advantage of
new business opportunities. ROP revenue increased by 96% to $20.2
million during the six-month period ended December 31, 1994, versus
$10.3 million in the same period a year earlier. This increase was
attributable to a single new client whose contract expired in early
1995. New businesses, including Valassis Sampling, Valassis In-Store
Marketing, Valcheck and two international ventures contributed $8.6
million in revenue during the six months ended December 31, 1994.
Gross profit as a percentage of revenues decreased from 21.0% for the
year-ago period to 19.9% for the six months ended December 31, 1994.
This decrease was primarily the result of the deeply discounted FSI
prices experienced due to the competitive situation described above. The
pricing effect was offset somewhat by media efficiencies gained by
larger book sizes, as well as favorable pricing of paper.
Selling, general and administrative expenses increased by almost 36% to
$27.5 million in the six months ended December 31, 1994, from $20.2
million during the same period a year earlier. This increase was
primarily due to the expenses associated with new business ventures,
staffing and sales.
Interest expense increased from $18.5 million in the year-ago period to
$19.6 million in the six-month period ended December 31, 1994, an
increase of 6.1%. During the quarter ended December 31, 1994, the
Company purchased $256.1 million of existing debt and issued new debt of
$255.0 million. This refinancing resulted in extended maturities and a
higher interest rate.
New business ventures, including Valassis Sampling, Valassis In-Store
Marketing, Valcheck and international businesses had a negative impact
on the Company's results for the six months ended December 31, 1994 of
approximately 5 cents per share.
The six months ended December 31, 1994 also included an extraordinary
loss of $4.2 million, net of tax, as a result of the debt restructuring
described above.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity requirements arise mainly from its working capital
needs, primarily accounts receivable and inventory. The Company does not
offer financing to its customers. FSI customers are billed for 75% of each
order eight weeks in advance of the publication date and are billed for the
balance immediately prior to the publication date. The Company inventories
its work in progress at cost while it accrues progress billings at full sales
value. Therefore, the progress billings on the balance sheet include the
amount of the gross margin. Because these practices are consistent, and
receivables and payables are reasonably predictable, the Company can operate
with low, or even negative, working capital, and under normal circumstances,
does not need to generate additional funds to cover the shortfall.
Management believes that the Company will generate sufficient funds from
operations and have sufficient lines of credit available to meet its
currently anticipated liquidity requirements, including interest expense
under the Notes and the Credit Facility. Restrictions as to the amount
of dividends which may be paid exist under the Credit Facility and the
indenture covering the Notes. At December 31, 1996, the Company had
lines of credit in the amount of $40 million available and unused under
its Credit Facility. (See Note 4 to Financial Statements)
CASH FLOW - CALENDAR 1996 AND 1995
The Company experienced a significant improvement in cash flow during
1996, due to increased earnings. Cash provided by operating activities
was $65.8 million in 1996 compared with $26.2 million in 1995. The
Company used a portion of this excess cash flow to purchase $13.0
million of its outstanding subordinated debt and $21.6 million of its
common stock in 1996. The Company intends to continue its share and debt
repurchase programs in 1997.
CASH FLOW - CALENDAR 1995 AND 1994
The Company experienced a significant improvement in cash flow during
1995 based on the FSI price recovery described earlier. Cash provided by
operating activities was $26.2 million in 1995 compared with cash used
of $1.0 million in 1994. This improvement was primarily due to the
improvement in earnings in 1995.
CASH FLOW - SIX MONTHS ENDED DECEMBER 31, 1994 AND 1993
Net cash used in operating activities was $.2 million during the six
months ended December 31, 1994, compared with cash used of $.1 million
in the six months ended December 31, 1993. Cash used in investing
activities during the six months ended December 31, 1994 was
significantly higher than the same period a year earlier due to the
addition of a new press to increase print capacity for specialized VIP
promotions. The Company also purchased an 80% interest in both Valcheck
and GAPP (Valassis France) during this period.
During the six months ended December 31, 1994, the Company retired
$256.1 million of its existing long-term public debt and issued $255
million in new public debt with an extended maturity and a higher
interest rate.
CAPITAL EXPENDITURES - The Company operates three printing facilities.
Capital expenditures were $7.1 million for the year ended December 31,
1996. Management expects future capital expenditure requirements of
approximately $5.0 million to $15.0 million over each of the next three
to five years to meet increased capacity needs and to replace or rebuild
equipment as required. It is expected that equipment will be obtained
from funds provided by operations.
INFLATION - The results of operations and financial condition are
presented based upon historical cost. While it is difficult to
accurately measure the impact of inflation because of the nature of the
estimates required, management believes that the effect of inflation on
the results of the Company's operations and financial condition has not
been significant.
BUSINESS OUTLOOK
The following statements are based on current expectations. These
statements are forward looking and actual results may differ materially.
- --Price recovery for the Company's principal product, the free-standing
insert, is expected to level off during 1997.
- --The price of paper, which is a major cost factor in the Company's
business, escalated sharply in 1995 and decreased nearly as fast in
1996. Paper prices are expected to level off in 1997 at a substantially
lower average cost than experienced in 1996. The Company expects that
this will have a positive impact on 1997 earnings.
- --FSI page volume is expected to be relatively flat in 1997.
The above expectations are forward looking statements that involve a
number of risks and uncertainties. Among the factors that could affect
expectations are the following: a new competitor in the Company's core
free-standing insert business and consequent price war; new technology
that would make free-standing inserts less attractive; a shift in
customer preference for different promotional materials, promotional
strategies or coupon delivery methods, including in-store advertising
systems; an increase in the Company's paper costs; or general business
and economic conditions.
The following is a summary of the quarterly results of operations for the years
ended December 31, 1996, December 31, 1995.
THREE MONTHS ENDED
Thousands of dollars,
except per share data MAR. 31 JUNE 30 SEPT. 30 DEC. 31
- ----------------------------------------------------------------------------------
FISCAL YEAR ENDED DECEMBER 31, 1996
Revenue...................... $180,533 $162,651 $151,835 $164,089
Cost of products sold........ 134,290 116,994 107,009 114,831
Net earnings................. 10,460 10,006 10,763 11,674
Net earnings per common share .24 .23 .25 .28
THREE MONTHS ENDED
Thousands of dollars,
except per share data MAR. 31 JUNE 30 SEPT. 30 DEC. 31
- -----------------------------------------------------------------------------------
FISCAL YEAR ENDED DECEMBER 31, 1995
Revenue...................... $157,372 $155,510 $138,031 $162,839
Cost of products sold........ 115,226 116,356 106,564 127,974
Net earnings (loss).......... 8,838 6,695 3,328 (9,287)*
Net earnings (loss) per
common share................ .20 .16 .08 (.22)*
*Includes a $12.5 million after-tax charge relating to the discontinuance of
the Valassis In-Store Marketing business and the write-down of goodwill of
Valassis of Canada.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
VALASSIS COMMUNICATIONS, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, DECEMBER 31,
(IN THOUSANDS) 1996 1995
- ----------------------------------------------------------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............ $ 60,172 $ 34,408
Accounts receivable (less allowance
for doubtful accounts of $684 at
December 31, 1996 and $810 at
December 31, 1995).................. 92,745 84,427
Inventories:
Raw materials........................ 6,091 13,840
Work in process...................... 14,734 14,267
Prepaid expenses and other........... 1,931 3,686
Deferred income taxes (Note 6)....... 2,088 4,330
Refundable income taxes.............. --- 97
- -----------------------------------------------------------------------
TOTAL CURRENT ASSETS................. 177,761 155,055
- -----------------------------------------------------------------------
PROPERTY, PLANT, AND EQUIPMENT, AT COST:
Land and buildings................... 19,991 19,617
Machinery and equipment.............. 108,800 107,615
Office furniture and equipment....... 17,782 17,215
Automobiles.......................... 887 789
Leasehold improvements............... 1,458 1,443
- -----------------------------------------------------------------------
148,918 146,679
Less accumulated depreciation and
amortization........................ (114,100) (111,792)
- -----------------------------------------------------------------------
NET PROPERTY, PLANT AND EQUIPMENT.... 34,818 34,887
- -----------------------------------------------------------------------
INTANGIBLE ASSETS (NOTE 3):
Goodwill............................. 68,594 68,631
Other intangibles.................... 83,706 88,524
- -----------------------------------------------------------------------
152,300 157,155
Less accumulated amortization........ (96,396) (93,038)
- -----------------------------------------------------------------------
NET INTANGIBLE ASSETS................ 55,904 64,117
- -----------------------------------------------------------------------
OTHER ASSETS (PRIMARILY DEBT
ISSUANCE COSTS)..................... 5,251 4,873
- -----------------------------------------------------------------------
TOTAL ASSETS......................... $273,734 $258,932
=======================================================================
VALASSIS COMMUNICATIONS, INC.
CONSOLIDATED BALANCE SHEETS, CONTINUED
DECEMBER 31, DECEMBER 31,
(in thousands, except share data) 1996 1995
- ----------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable...................... $67,251 $71,936
Accrued interest...................... 6,066 6,425
Accrued expenses...................... 22,435 21,204
Progress billings..................... 57,234 49,209
Current portion, long-term debt....... 7,290 ---
Income taxes payable.................. 1,124 ---
- -----------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES............. 161,400 148,774
- -----------------------------------------------------------------------------
LONG-TERM DEBT (Note 4).............. 395,865 416,034
Deferred income taxes (Note 6)....... 2,565 3,029
Minority interests................... 498 369
STOCKHOLDERS' DEFICIT (Notes 9 and 10):
Common stock of $.01 par value. Authorized
100,000,000 shares; issued 43,407,906 at
December 31, 1996 and 43,302,500 at
December 31, 1995; outstanding 42,077,196
at December 31, 1996 and 43,302,500 at
December 31, 1995.................... 434 433
Additional paid-in capital........... 41,337 39,590
Accumulated deficit.................. (306,555) (349,457)
Foreign currency translations........ (260) 160
Treasury stock, at cost (1,330,800 shares
at December 31, 1996)............... (21,550) ---
- -----------------------------------------------------------------------------
TOTAL STOCKHOLDERS' DEFICIT.......... (286,594) (309,274)
- -----------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS'
DEFICIT............................. $273,734 $258,932
=============================================================================
See accompanying notes to consolidated financial statements.
VALASSIS COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS
YEAR ENDED ENDED YEAR ENDED
- -----------------------------------------------------------------------------
(in thousands, except for DEC. 31, DEC. 31, DEC. 31, JUNE 30,
per share data) 1996 1995 1994 1994
- -----------------------------------------------------------------------------
REVENUES:
Net sales......................... $656,602 $609,969 $277,944 $539,737
Other............................. 2,506 3,783 1,090 2,872
- -----------------------------------------------------------------------------
659,108 613,752 279,034 542,609
- -----------------------------------------------------------------------------
COST AND EXPENSES:
Cost of products sold............. 473,123 466,120 223,456 432,492
Selling, general and administrative 67,139 59,445 27,473 62,625
Amortization of intangible assets. 8,181 9,626 4,672 10,902
Interest.......................... 39,625 40,451 19,623 38,217
Minority interests................ (12) (1,374) (262) ---
Write downs/sale of business...... --- 16,870 --- ---
(Note 3 and 13)
- -----------------------------------------------------------------------------
588,056 591,138 274,962 544,236
- -----------------------------------------------------------------------------
Earnings (loss) before income taxes
and extraordinary loss........... 71,052 22,614 4,072 (1,627)
Income taxes (Note 6)............. 28,150 13,040 2,149 (6,800)
- -----------------------------------------------------------------------------
EARNINGS BEFORE EXTRAORDINARY LOSS 42,902 9,574 1,923 5,173
Extraordinary loss (net of tax
benefit of $2,694)............... --- --- (4,176) ---
(Note 4)
- -----------------------------------------------------------------------------
NET EARNINGS (LOSS)...............$ 42,902 $ 9,574 $ (2,253) $ 5,173
=======================================================================================
NET EARNINGS PER COMMON SHARE
BEFORE EXTRAORDINARY LOSS $ 1.00 $ .22 $ .04 $ .12
=======================================================================================
NET EARNINGS (LOSS) PER
COMMON SHARE $ 1.00 $ .22 $ (.05) $ .12
=======================================================================================
See accompanying notes to consolidated financial statements.
VALASSIS COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
ADDITIONAL FOREIGN TOTAL
COMMON PAID-IN ACCUMULATED TREASURY CURRENCY STOCKHOLDERS'
(in thousands) STOCK CAPITAL DEFICIT STOCK TRANSLATION DEFICIT
- -----------------------------------------------------------------------------------------
BALANCES AT JUNE 30, 1993...$433 $39,566 $(361,951) $ --- $ --- $(321,952)
Net earnings................ 5,173 5,173
- -----------------------------------------------------------------------------------------
BALANCES AT JUNE 30, 1994... 433 39,566 (356,778) --- --- (316,779)
Net loss.................... (2,253) (2,253)
- -----------------------------------------------------------------------------------------
BALANCES AT DEC. 31, 1994... 433 39,566 (359,031) --- --- (319,032)
Net earnings................ 9,574 9,574
Exercise of stock options... 24 24
Foreign currency translation 160 160
- -----------------------------------------------------------------------------------------
BALANCES AT DEC. 31, 1995... 433 39,590 (349,457) --- 160 (309,274)
Net earnings................ 42,902 42,902
Stock repurchase............ (21,550) (21,550)
Exercise of stock options... 1 851 852
Stock grants................ 896 896
Foreign currency translation (420) (420)
- -----------------------------------------------------------------------------------------
BALANCES AT DEC. 31, 1996...$434 $41,337 $(306,555) $(21,550) $(260) $(285,594)
=========================================================================================
See accompanying notes to consolidated financial statements.
VALASSIS COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
YEAR SIX MONTHS YEAR
(in thousands) ENDED ENDED ENDED
- ---------------------------------------------------------------------------------------
DEC. 31, DEC. 31, DEC. 31, JUNE 30,
1996 1995 1994 1994
- ---------------------------------------------------------------------------------------
Cash flows from operating activities:
Net earnings (loss).................. $42,902 $9,574 $(2,253) $ 5,173
Adjustments to reconcile net earnings
(loss) to net cash provided by
(used in) operating activities:
Depreciation......................... 6,864 9,251 5,050 12,798
Amortization of intangibles and
bond discount....................... 8,334 9,733 4,672 11,161
Provision for losses on accounts
receivable.......................... 600 675 50 600
Loss (gain) on sale of property, plant
and equipment....................... 54 82 (169) (1,048)
Deferred income taxes................ 1,778 (3,202) (549) (1,333)
Minority interest.................... 129 (1,374) (262) ---
Write-down of assets................. --- 15,920 --- ---
Changes in assets and liabilities
which increase (decrease) cash flow:
Accounts receivable.................. (8,918) (21,659) 1,447 (5,479)
Inventories.......................... 7,282 (6,206) (5,581) 2,947
Prepaid expenses and other........... 1,755 (732) (608) 225
Other assets......................... (378) 1,252 (786) 658
Accounts payable..................... (4,685) 133 (5,836) 10,830
Accrued interest and expenses........ 872 1,957 (5,731) (1,389)
Income taxes......................... 1,221 980 3,319 (27,918)
Progress billings.................... 8,025 9,776 7,003 (8,088)
- ---------------------------------------------------------------------------------------
TOTAL ADJUSTMENTS.................... 22,933 16,586 2,019 (6,036)
- ---------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES................ 65,835 26,160 (234) (863)
=======================================================================================
VALASSIS COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW, CONTINUED
YEAR SIX MONTHS YEAR
(in thousands) ENDED ENDED ENDED
- ---------------------------------------------------------------------------------------
DEC. 31, DEC. 31, DEC. 31, JUNE 30,
1996 1995 1994 1994
- ---------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and
equipment............................ $ (7,104) $ (6,530) $ (9,173) $ (4,069)
Proceeds from sale of property, plant
and equipment........................ 255 207 227 1,124
Purchase of McIntyre & Dodd........... --- (6,575) --- ---
Purchase of EMARC..................... --- --- --- (3,450)
Purchase of Valcheck.................. --- --- (1,160) ---
Sale of Valcheck...................... --- 950 --- ---
Purchase of GAPP...................... --- --- (453) ---
Contribution to Valcheck by minority
shareholder.......................... --- 846 757 ---
Foreign currency translation.......... (420) 160 --- ---
- ---------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES. (7,269) (10,942) (9,802) (6,395)
- ---------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 1,748 24 --- ---
Repurchase of common stock............ (21,550) --- --- ---
Proceeds from long-term debt.......... --- --- 255,000 ---
Repayments on long-term debt.......... (13,000) (2,000) (256,135) ---
- ---------------------------------------------------------------------------------------
NET CASH USED IN FINANCING ACTIVITIES. (32,802) (1,976) (1,135) ---
- ---------------------------------------------------------------------------------------
Net increase (decrease) in cash and
cash equivalents..................... 25,764 13,242 (11,171) (7,258)
Cash and cash equivalents at beginning
of the period........................ 34,408 21,166 32,337 39,595
- ---------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF
THE PERIOD........................... $60,172 $34,408 $21,166 $32,337
=======================================================================================
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $39,984 $40,781 $23,682 $38,293
=======================================================================================
Cash paid (refunded) during the period
for income taxes..................... $25,151 $15,171 $ (3,315) $22,451
=======================================================================================
See accompanying notes to consolidated financial statements.
VALASSIS COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) THE COMPANY
Valassis Communications, Inc. (VCI or the Company) became a publicly-
held company upon completion of its initial public offering on March 18,
1992. The Company is 50% owned by Consolidated Press Holdings Ltd. The
Company operates in a single industry segment and principally produces
free-standing inserts for customers in the package goods industry
throughout the United States. No single customer accounted for more than
10 percent of the Company's sales during the fiscal periods ending in
1994, 1995, or 1996.
Effective July 1, 1994, VCI elected to change its reporting year end
from June 30 to December 31.
(2) SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Valassis
Communications, Inc. and its majority- owned subsidiaries. All
significant intercompany balances and transactions have been eliminated
in consolidation.
REVENUE RECOGNITION
Sales and earnings are recognized in the period the product is inserted
for distribution. Progress billings represent customer billings in
advance of the insertion date.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those
estimates.
CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
INVENTORIES
Inventories are stated at the lower of cost or market (net realizable
value). Cost has been determined by the last-in, first-out (LIFO) method
for the material component which represents 76% and 84% of total
inventory at December 31, 1996 and December 31, 1995, respectively. As a
result of decreases in material costs compared to prior years, LIFO
inventories at December 31, 1996 were written down by $1,701,000, which
represents the excess of LIFO costs over market. If the first-in, first-
VALASSIS COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
out (FIFO) method of determining cost had been used, inventories would
have been $5,175,000 higher than reported at December 31, 1995.
During 1996, inventory quantities were reduced. This reduction resulted
in a liquidation of LIFO inventory quantities carried at higher costs
prevailing in prior years, as compared with the cost of 1996 purchases;
the effect of which decreased net income by approximately $1,402,000 for
the year ended December 31, 1996.
ADVERTISING
The Company expenses the cost of advertising as incurred, except for
Valcheck's direct-response advertising, which was capitalized and
amortized over its expected period of future benefits. Direct-response
advertising consisted of the costs of direct mail order forms in FSI
newspaper inserts. The capitalized costs were amortized over a three-
month period following the distribution date of the insert. The assets
and operations of Valcheck were sold during 1995.
At December 31, 1994, advertising costs totaling $537,000 were reported
as assets. Advertising expense for the years ended December 31, 1996 and
1995, for the six-month period ended December 31, 1994, and the year
ended June 30, 1994 were $180,000, $5,037,000, $2,926,000 and $221,000,
respectively.
PROPERTY, PLANT AND EQUIPMENT
Property, plant, and equipment are stated at cost. Expenditures and
improvements which add significantly to the productive capacity or
extend the useful life of an asset are capitalized. Depreciation is
computed using the straight-line method over the estimated useful lives
of the related assets. Leasehold improvements are amortized over the
estimated life of the related asset or the lease-term using the
straight-line method. The useful lives of the major classes of property,
plant and equipment are as follows:
CLASS RANGE
----------------------------- -------------
Buildings 5 - 20 years
Machinery and equipment 5 - 10 years
Office furniture and fixtures 3 - 5 years
Automobiles 3 years
Leasehold improvements 3 - 10 years
INTANGIBLE ASSETS
Intangible assets are amortized using the straight-line method over
their estimated useful lives, which range from 5 to 20 years. Fully
amortized intangible assets are removed from the cost and accumulated
amortization accounts. The Company adopted FAS-121, "Accounting for
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of" in 1995. The carrying value of goodwill is reviewed if circumstances
VALASSIS COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
suggest that it may be impaired. If this review indicates that goodwill
will not be recoverable, as determined based on the undiscounted cash
flows of the entity acquired over the remaining amortization period, the
Company's carrying value of the goodwill will be reduced by the
estimated shortfall of discounted cash flows. The effects of the
adoption of FAS-121 are discussed in Note 3.
INCOME TAXES
The Company adopted Statement of Financial Accounting Standards (SFAS)
109 "Accounting for Income Taxes" effective July 1, 1993. The adoption
of SFAS 109 changed the Company's method of accounting for income taxes
from the deferred method (Accounting Principles Board Opinion No. 11
"Accounting for Income Taxes") to the asset and liability method.
Previously, the Company deferred the past tax effects of timing
differences between financial reporting and taxable income. The asset
and liability method requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of temporary
differences between tax bases and financial reporting bases of assets
and liabilities. The effect of adopting SFAS 109 was recorded in the
results of operations of the fiscal year ended June 30, 1994 and was not
material.
STOCK BASED COMPENSATION
The Company grants stock options for a fixed number of shares to
employees with an exercise price at least equal to or greater than the
fair value of the shares at the date of grant. The Company accounts for
stock option grants in accordance with APB Opinion No. 25, Accounting
for Stock Issued to Employees, and, accordingly, recognizes no
compensation expense for the stock option grants.
CONCENTRATION OF CREDIT RISK AND FINANCIAL INSTRUMENTS
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of temporary cash
investments and accounts receivable. The Company places its temporary
cash investments ($12.9 million and $29.7 million at December 31, 1996
and 1995, respectively) with high credit quality financial institutions.
The carrying value of the cash and temporary investments approximates
fair value. Concentrations of credit risk with respect to accounts
receivable are limited due to the large number of customers comprising
the Company's customer base and their dispersion across many different
industries and geographies. Generally, the Company does not require
collateral or other security to support customer receivables.
The Company's debt is also a financial instrument with an excess of fair
market value over stated value of $17.6 million and $10.9 million at
December 31, 1996 and 1995, respectively. See Note 4 for additional fair
value disclosure.
VALASSIS COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOREIGN CURRENCY TRANSLATION
The financial statements of foreign subsidiaries have been translated
into U.S. dollars in accordance with FASB Statement No. 52, Foreign
Currency Translation. All balance sheet accounts have been translated
using the exchange rates in effect at the balance sheet date. Income
statement amounts have been translated using the average exchange rate
for the year. The gains and losses resulting from the changes in
exchange rates from year to year have been reported separately as a
component of shareholders' deficit.
Summarized financial information for the foreign operations is not
presented herein, since revenues and assets of the foreign operations
are each less than 10% of the respective consolidated amounts and,
accordingly, are not considered material in relation to the consolidated
financial statements. Additionally, foreign translation gains and losses
have been insignificant for all years presented.
(3) INTANGIBLE ASSETS (dollars in thousands)
Intangible assets which principally arose from the 1986 acquisition of
specific net assets from GFV Communications, Inc., and its related
affiliates, as well as the purchase of other businesses, consist of the
following:
REMAINING
AMORTIZABLE
ORIGINAL UNAMORTIZED UNAMORTIZED LIFE IN
AMORTIZABLE FAIR VALUE AT BALANCE AT BALANCE AT YEARS AT
INTANGIBLE LIFE IN YEARS ACQUISITION DEC. 31, 1995 DEC. 31, 1996 DEC. 31, 1996
- ---------------------------------------------------------------------------------------
Goodwill 15 - 20 $68,594 $29,993 $26,716 10 to 13
The Valassis name
and other 20 32,100 17,521 15,916 10.0
Pressroom operating
systems 13.375 50,000 15,848 12,088 3.375
Other 5 - 20 1,606 755 1,184 up to 10.67
- ---------------------------------------------------------------------------------------
$152,300 $64,117 $55,904
=======================================================================================
Valassis adopted FAS-121, "Accounting for the Impairment of Long-Lived
Assets" in the fourth quarter of 1995. FAS-121 requires impairment
losses to be recorded on long-lived assets when indicators of impairment
are present. It was determined based on undiscounted projected cash
flows currently estimated to be generated by Valassis of Canada, that
the carrying amount of goodwill was overstated and a write-down of $6.2
million was recorded. The writedown was related to the deterioration of
pricing in the Canadian FSI market and in the mail order business.
VALASSIS COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In addition, as a result of the Company's decision to discontinue its
in-store division, goodwill of $5.3 million associated with that
business was also written down in fiscal year 1995.
(4) LONG-TERM DEBT
Long-term debt is summarized as follows:
<CAPTION?
DEC. 31, DEC. 31,
(in thousands) 1996 1995
- ------------------------------------------------------------------------
Credit Facility................................ $ ---- $ ----
GAPP Debt Facility............................. 10 19
8 3/8% Senior Notes due 1997................... 7,290 7,284
8 7/8% Senior Notes due 1999................... 6,142 6,139
9 3/8% Senior Subordinated Notes due 1999...... 134,833 147,729
9.55% Senior Notes due 2003.................... 254,880 254,863
- ------------------------------------------------------------------------
403,155 416,034
Less current portion........................... 7,290 ----
- ------------------------------------------------------------------------
$ 395,865 $ 416,034
========================================================================
Minimum long-term debt maturities by year are as follows:
DECEMBER 31,
- ---------------------------------------------------------------
1997................................................ $ 7,290
1998................................................ 0
1999................................................ 140,975
2000................................................ 0
2001................................................ 0
Thereafter.................... ..................... 254,890
- ---------------------------------------------------------------
$403,155
===============================================================
CREDIT FACILITY
The Company has a $40 million Revolving Credit Agreement with Comerica
Bank, Westpac Banking Corporation, and The Long-Term Credit Bank of
Japan, Ltd. Chicago Branch (collectively, the "Banks') with Comerica
acting as Agent for the Banks. The Agreement matures on August 1, 1998.
The floating-rate interest is calculated on either a Eurocurrency-based
rate or a prime rate.
VALASSIS COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
There were no amounts outstanding on the Revolving Line at December 31,
1996 or 1995.
The Banks have a first-priority security interest in all of VCI's, and
its subsidiaries', real and personal property.
The Credit Facility requires the Company to meet certain financial
covenants. At December 31, 1996, under the most restrictive covenant,
VCI would have been able to declare a dividend up to $7,500,000. In
addition, the Credit Facility contains certain restrictive covenants
that prescribe limits on VCI's ability to, among other things, create or
incur additional indebtedness, make certain investments and other
restricted payments, incur liens, provide guarantees, pay dividends and
make other distributions, make acquisitions, engage in transactions with
affiliates, enter into mergers or consolidations, liquidate, sell,
lease, or otherwise transfer their business or property to another
entity, engage in any business other than the business engaged in by VCI
or substantially similar lines of business, and to enter into certain
sales and leaseback transactions.
PUBLIC DEBT
The Public Debt consisting of Senior Notes due on March 15, 1997 and
1999, and the Senior Subordinated Notes due March 15, 1999, was issued
under indentures dated March 15, 1992. In November 1994, the Company
sold $255 million in Senior Notes, due 2003. The proceeds of these notes
were used to retire through acquisition by tender offer $256.6 million
of the 8-3/8% and 8-7/8% Senior Notes. The Company recorded a $4.2
million extraordinary loss net of applicable income taxes as a result of
the refinancing. All of the Senior Notes are general unsecured
obligations of VCI and rank on a parity in right of payment with all
other Senior Indebtedness of VCI. The Senior Subordinated Notes are
general unsecured obligations of VCI and are subordinated to all Senior
Indebtedness of VCI. Interest is payable on the 2003 Senior Notes
semiannually on June 1 and December 1 of each year, and on March 15 and
September 15 of each year, for the remaining public debt.
The stated amount of the Public Debt is as follows:
(in thousands) Stated Value
-------------------------------------------------------
8-3/8% Senior Notes Due 1997 ...........$ 7,300
8 7/8% Senior Notes Due 1999 ........... 6,150
9 3/8% Senior Subordinated
Notes due 1999.......................... 135,000
9.55% Senior Notes due 2003............. 255,000
-------------------------------------------------------
Debt discount is being amortized utilizing the interest method over the
term of the notes. The difference between the stated and effective
interest rates is nominal. The debt is traded in the over-the-counter
VALASSIS COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
market. At December 31, 1995, the estimated fair market value of the
debt was $10.9 million over stated value. The debt had an estimated
excess of fair market value over stated value of $17.6 million at
December 31, 1996. The fair market value was estimated using discounted
cash flow analyses, based on discount rates equivalent to comparable
U.S. Treasury securities plus a spread for credit risk and other
factors.
The Public Debt contains certain restrictive covenants similar to those
described for the Credit Facility.
(5) PROFIT SHARING AND BONUS PLANS
The Company has discretionary profit sharing and team achievement
dividend/bonus plans covering substantially all salaried and hourly
employees.
Expenses under the aforementioned plans were as follows:
YEAR ENDED SIX MONTHS ENDED YEAR ENDED
- -----------------------------------------------------------------------------
DEC. 31, DEC. 31, DEC. 31, JUNE 30,
(in thousands) 1996 1995 1994 1994
- -----------------------------------------------------------------------------
Profit sharing plan $4,067 $3,115 $1,552 $2,899
Bonus plans for salaried,
sales and hourly personnel 7,021 5,535 1,689 3,122
Bonus plan for executives 2,295 1,800 613 500
(6) INCOME TAXES
For financial reporting purposes, income before income taxes includes the
following components.
YEAR ENDED SIX MONTHS ENDED YEAR ENDED
- -----------------------------------------------------------------------------
DEC. 31, DEC. 31, DEC. 31, JUNE 30,
(in thousands) 1996 1995 1994 1994
- -----------------------------------------------------------------------------
Pre-tax income (loss):
United States $73,147 $31,611 $4,393 $(1,627)
Foreign (2,095) (8,997) (321) ---
- -----------------------------------------------------------------------------
$71,052 $22,614 $4,072 $(1,627)
=============================================================================
VALASSIS COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Income taxes have been charged (credited) to earnings as follows:
YEAR ENDED SIX MONTHS ENDED YEAR ENDED
- -----------------------------------------------------------------------------
DEC. 31, DEC. 31, DEC. 31, JUNE 30,
(in thousands) 1996 1995 1994 1994
- -----------------------------------------------------------------------------
Federal:
Current (refundable) $23,953 $14,901 $2,348 $(4,640)
Deferred credit 1,778 (3,111) (549) (2,760)
State and Local 2,419 1,250 350 600
- -----------------------------------------------------------------------------
$28,150 $13,040 $2,149 $(6,800)
=======================================================================================
The actual income tax expense differs from expected amounts computed by
applying the U.S. federal income tax rate to earnings before income
taxes as follows:
SIX MONTHS
YEAR ENDED ENDED YEAR ENDED
- -----------------------------------------------------------------------------
DEC. 31, DEC. 31, DEC. 31, JUNE 30,
(in thousands) 1996 1995 1994 1994
- -----------------------------------------------------------------------------
Expected income tax
expense (credit) $24,868 $7,915 $1,425 $ (569)
Increase (decrease) in
taxes resulting from:
Reversal of prior year
accrual --- --- --- (8,503)
Tax effect of non-
deductible foreign losses 733 2,948 --- ---
Amortization of intangibles 1,500 1,500 750 2,181
State and local income taxes,
net of federal benefit 1,572 813 228 390
Other items, net (523) (136) (254) (299)
- -----------------------------------------------------------------------------
ACTUAL INCOME TAX EXPENSE/
(CREDIT) $28,150 $13,040 $2,149 $(6,800)
=============================================================================
VALASSIS COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During the quarter ended June 30, 1994, the Company reversed a portion
of prior years' accruals for income taxes which was determined to be no
longer necessary as a result of the settlement of certain tax issues
with the Internal Revenue Service for less than amounts previously
accrued.
The sources of deferred income taxes and effects of each were as
follows:
SIX MONTHS
YEAR ENDED ENDED YEAR ENDED
- -----------------------------------------------------------------------------
DEC. 31, DEC. 31, DEC. 31, JUNE 30,
(in thousands) 1996 1995 1994 1994
- -----------------------------------------------------------------------------
Depreciation and amortization $ (689) $ (944) $ (585) $(2,800)
Accrued expenses --- 175 --- 604
Write-down of assets 3,407 (3,407) --- ---
Other items, net (940) 1,065 36 (564)
- -----------------------------------------------------------------------------
$1,778 $(3,111) $(549) $(2,760)
=============================================================================
VALASSIS COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Significant components of the Company's deferred tax liabilities and
assets are as follows:
SIX MONTHS
YEAR ENDED ENDED YEAR ENDED
- -----------------------------------------------------------------------------
DEC. 31, DEC. 31, DEC. 31, JUNE 30,
(in thousands) 1996 1995 1994 1994
- -----------------------------------------------------------------------------
Deferred tax liabilities:
Fixed assets $1,826 $2,308 $2,666 $2,955
Intangible assets 638 746 1,268 1,394
Other 101 72 74 ----
- -----------------------------------------------------------------------------
TOTAL DEFERRED TAX LIABILITIES 2,565 3,126 4,008 4,349
Deferred tax assets:
Write-down of assets --- 3,407 --- ---
Inventory 595 677 1,562 1,285
Allowance for uncollectible
accounts 239 318 407 423
Foreign net operating loss
carryforward 1,611 177 --- ---
Other - net 1,254 25 229 282
- -----------------------------------------------------------------------------
TOTAL DEFERRED TAX ASSETS 3,699 4,604 2,198 1,990
Valuation allowance for
foreign net operating loss
carryforward (1,611) (177) --- ---
- -----------------------------------------------------------------------------
NET DEFERRED TAX ASSET/
(LIABILITY) $(477) $1,301 $(1,810) $(2,359)
========================================================================
The Company has foreign loss carryforwards of $4,235,000, expiring as
follows:
1999 $ 545,000
2001 730,000
2002 1,620,000
2003 1,115,000
2004 225,000
----------
$4,235,000
==========
VALASSIS COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(7) COMMITMENTS
Total operating lease rentals, for various office space, charged to
expense was $2,700,000 for the year ended June 30, 1994, $1,570,000 for
the six months ended December 31, 1994 and $3,498,000 and $3,161,000 for
the years ended December 31, 1995 and 1996, respectively. Entire minimum
rental payments required under noncancelable operating leases as of
December 31, 1996, are as follows:
YEAR ENDING DECEMBER 31, (IN THOUSANDS)
- ----------------------------------------------------------
1997 . . . . . . . . . . . . . . . . . . . $ 3,614
1998 . . . . . . . . . . . . . . . . . . . 3,596
1999 . . . . . . . . . . . . . . . . . . . 3,188
2000 . . . . . . . . . . . . . . . . . . . 3,057
2001 . . . . . . . . . . . . . . . . . . . 2,349
Thereafter . . . . . . . . . . . . . . . 20,349
- -----------------------------------------------------------
$36,153
===========================================================
On January 20, 1992 and February 11, 1992, VCI's Board of Directors
approved employment agreements for certain executives which became
effective upon the public offering of its common stock, all of which
have since been amended. Future commitments pursuant to such employment
agreements are as follows:
YEAR ENDED BASE SALARY MAXIMUM CASH BONUS
- ----------------------------------------------------------
Dec. 31, 1997...... $2,223,000 $2,223,000
Dec. 31, 1998...... 1,864,000 1,864,000
Dec. 31, 1999...... 1,560,000 1,560,000
Dec. 31, 2000...... 1,000,000 1,000,000
Dec. 31, 2001...... 1,000,000 ---
Thereafter......... 5,500,000 ---
The Company's obligation to pay the maximum cash bonus is based on the
Company attaining certain EPS targets. The Company also provides stock
options to certain of its executives (See Note 9).
(8) 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.
VALASSIS COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(9) COMMON STOCK
Options granted under the 1992 qualified stock option plan, which
authorized the issuance of a maximum of 2,778,947 shares of common stock
with exercise prices at least equal to the fair market value of the
shares at date of grant and, subject to termination of employment,
expire not later than ten years from date of grant, are not transferable
other than on death, and fully vest over terms ranging from two to five
years from date of grant. In May, 1996, the Board and stockholders
approved a resolution to increase the number of available shares by
250,000 to 3,028,947.
At December 31, 1996, there were outstanding options among 69
participants for the purchase of 2,795,532 shares. At December 31, 1996,
there were 177,521 shares available for grant.
The following options to purchase the Company's common shares were
outstanding under the Plan on December 31, 1996.
SHARES
YEAR OF NUMBER OF EXERCISE EXPIRATION EXERCISABLE
GRANT SHARES PRICE DATE AT DEC. 31, 1996
- -----------------------------------------------------------------------------
1992 2,157,400 $17.00 03/18/02 1,999,394
1993 121,544 $17.00 06/17/02 97,236
1994 86,500 $9.75 11/16/03 86,500
1994 30,386 $17.00 11/22/03 18,232
1994 113,079 $17.00 05/10/04 60,463
1995 44,079 $17.00 07/31/05 8,816
1996 153,386 $17.00 01/01/06 10,000
1996 43,579 $17.00 04/22/06 ---
1996 45,579 $17.00 05/06/06 ---
VALASSIS COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A summary of the Company's stock option activity for the years ended
December 31, 1996 and 1995, the six-months ended December 31, 1994 and
the year ended June 30, 1994 is as follows:
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1996 1995
------------------------- ------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
PER SHARE PER SHARE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
-------------------------- ------------------------
Outstanding at beginning of year 2,681,914 $16.72 2,662,955 $16.68
Granted 250,544 $17.00 44,079 $17.00
Exercised (53,394) $14.76 (2,500) $ 9.75
Forfeited (83,532) $17.00 (22,620) $12.67
---------- ----------
Outstanding at end of year 2,795,532 $16.78 2,681,914 $16.72
========== ==========
Options exercisable at year end 2,280,641 2,140,245
========== ==========
SIX MONTHS ENDED DECEMBER 31, YEAR ENDED JUNE 30,
1994 1994
--------------------------- ------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
PER SHARE PER SHARE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
---------------------------- -------------------------
Outstanding at beginning of period 2,671,955 $16.65 2,400,490 $17.00
Granted --- 301,851 $13.93
Exercised --- ---
Forfeited (9,000) $9.75 (30,386) $17.00
---------- ----------
Outstanding at end of period 2,662,955 $16.68 2,671,955 $16.65
========== ==========
Options exercisable at period end 1,183,819 1,096,933
========== ==========
VALASSIS COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company has elected to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting for its employee stock options. Because
the exercise price of the Company's employee stock options is greater
than or equal to the market price of the underlying stock on the date of
grant, no compensation expense is recognized.
Pro forma information regarding net income and earnings per share is
required by Financial Accounting Standards Board Statement No. 123,
"Accounting for Stock Based Compensation" (Statement 123), and has been
determined as if the Company had accounted for its employee stock
options under the fair value method of that Statement. The fair value
for these options was estimated at the date of grant using a Black-
Scholes option pricing model with the following weighted-average
assumptions for 1996 and 1995, respectively: weighted-average dividend
yield of 0% and 0%, expected volatility of 34% and 36%, weighted-average
risk-free interest rates of 5.84% and 6.43%, and weighted-average
expected lives of 5.9 and 6.5 years.
The weighted average per share fair value of options granted during 1996
and 1995 was $6.84 and $6.09, respectively, for options granted at
greater than market value. The weighted average
per share fair value of options granted at market value was $7.07 in
1996; no such options were granted in 1995.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The
Company's pro forma net income and earnings per share follows (in
thousands except for earnings per share information):
1996 1995
Pro forma net income $42,409 $9,535
Pro forma earnings
per share $.99 $.22
The pro forma effects in 1996 and 1995 are not necessarily indicative of
future pro forma adjustments. The Black-Scholes option valuation model
was developed for use in estimating the fair value of traded options
which have no vesting restrictions and are fully transferable. In
addition, option valuation models require the input of highly subjective
assumptions including the expected stock price volatility. Because the
Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its
employee stock options.
VALASSIS COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Board also approved a resolution to reserve 200,000 shares of Common
Stock to be issued in accordance with an Employee and Director
Restricted Stock Award Plan and 250,000 shares to be issued under an
Executive Restricted Stock Plan. These plans were approved by
stockholders at the Company's Annual Meeting in 1996.
(10) STOCK COMPENSATION PLANS
The following stock compensation plans have been implemented in 1996:
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 employment agreement between
the Company and its Chief Operating Officer, Alan F. Schultz, 7,500
shares of restricted stock have been or will be issued to Mr. Schultz
annually in January 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 the vesting period. Such
pre-tax expense was approximately $74,000 for the year ended December
31, 1996. In addition, several executives received restricted stock
grants totaling 36,500 shares and vesting over a three-year period. The
related expenses will be recognized over the vesting period and was
approximately $212,000 for the year ended December 31, 1996. Also during
1996, one-half of the annual Director's fee of $40,000, to the four
outside directors, was paid in restricted stock from this plan.
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
contributed on behalf of each participant 15% of the participant's
contributions in 1996. The Company contribution will increase to 25% in
1997. 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 year
ended December 31, 1996 totaled approximately $56,000.
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
VALASSIS COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 December 31, 1996. Compensation expense is
recognized over the vesting period and is dependent on the market value
of stock at the end of each quarter. Pre-tax compensation expense
related to the plan for year ended December 31, 1996 was approximately
$266,000.
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. The expense
related to this plan for the year ended December 31, 1996 was
approximately $47,000. The matching percentage will increase to 25% in
1997.
(11) DIVIDENDS
On June 21, 1993, the Company suspended its policy of paying quarterly
cash dividends. In addition, the payment of future dividends is subject
to the restrictions described in Note 4.
(12) ACQUISITIONS
On March 28, 1995, the Company, through an indirectly wholly-owned
subsidiary, purchased 100% of the capital stock of McIntyre & Dodd
Marketing, Inc., a print media company in Canada involved in sales
promotion and direct response marketing. The acquisition was made for
$6,575,000 U.S. from available cash and has been accounted for as a
purchase with the acquired operations included in the consolidated
financial statements from the date of acquisition. Pro forma revenue and
net earnings, as though the Canadian acquisition had been made as of
January 1, 1994, are not presented herein, as the Company does not
consider such disclosure to be material.
On September 8, 1994, the Company, through its wholly-owned subsidiary,
Valassis International, Inc., purchased an 80% stockholder interest in
GAPP (Valassis France) for $453,000. The acquisition has been accounted
for as a purchase and resulted in $706,000 of goodwill being recorded.
During 1996, the Company purchased the remaining 20% from the minority
shareholder.
On July 8, 1994, the Company, through its wholly-owned subsidiary,
Valassis Direct Response, Inc., funded the purchase of an 80%
partnership interest in the assets of DRB Holdings, Inc. for $1,160,000.
The acquisition was accounted for as a purchase and resulted in
$1,087,000 of goodwill being recorded on the newly-formed company,
VALASSIS COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Valcheck Company. The assets of Valcheck were subsequently sold. (See
Note 13)
On March 10, 1994, the Company, through its wholly-owned subsidiary,
Valassis In-Store Marketing, Inc., purchased the assets of EMARC, Inc.
for $3,450,000 in cash and assumed liabilities of $4,898,000. The
acquisition has been accounted for as a purchase and resulted in
$5,828,000 of goodwill being recorded. The Company sold all of the
assets of Valassis In-Store Marketing in 1996. (See Note 13)
(13) DISPOSALS
On May 31, 1995, the Company sold substantially all of the assets and
operations of Valcheck, a marketer and printer of personal checks, to
Artistic Greetings Incorporated in exchange for 500,000 shares of
Artistic common stock valued at $2,100,000 and a portion of revenues
received by Artistic from advertising previously placed by Valcheck. The
sale resulted in a pretax loss of $950,000. An 80% interest of
Valcheck's operations and assets was originally acquired by the Company
on July 8, 1994.
Concurrent with the sale of Valcheck, the Company entered into a long-
term advertising agreement with Artistic Greetings, which involves
future payments to VCI to be received over the next four years. These
payments will be reflected in the Company's earnings throughout the life
of the contract. Certain minimum payments are required under the
agreement regardless of whether any advertising is placed in the period.
The Company decided at the end of 1995 to discontinue its Valassis In-
Store Marketing division and wrote off certain assets, which consisted
principally of goodwill, in-store LED signs, and related computer
hardware and software, and accrued the estimated cost of removing the
equipment from the stores. This resulted in a pretax charge of $9.7
million in 1995. This division accounted for $.8 million, $8.1 million
and $6.9 million in revenues in 1996, 1995 and 1994, respectively.
Losses before cost of discontinuing the business were $.3 million, $1.9
million and $2.8 million in the periods ended December 31, 1996, 1995
and 1994, respectively. Valassis In-Store Marketing, Inc. was dissolved
on March 3, 1997.
The Company has decided to discontinue operations of its joint venture,
Valassis de Mexico and will exit this business in the first quarter of
1997. The effect on earnings of the disposal of this business will be
immaterial.
VALASSIS COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(14) COMPARATIVE FINANCIAL INFORMATION
In July 1994, the Company elected to change its year end from June 30 to
December 31, resulting in a six-month transitional period ended December
31, 1994.
The following information is presented for comparative purposes against
the transitional period and the new calendar year reporting period.
SIX MONTHS YEAR
ENDED ENDED
DEC. 31, DEC. 31,
1993 1994
(UNAUDITED) (UNAUDITED)
- ------------------------------------------------------------------
Revenues $258,814 $562,829
Gross Profit 54,402 111,293
Earnings/(loss) before income
taxes and extraordinary loss 10,294 (7,849)
Income Taxes 7,000 (11,651)
Earnings before extraordinary item 3,294 3,802
Extraordinary loss ---- (4,176)
Net earnings/(loss) 3,294 (374)
Net earnings/(loss) per common share .08 (.01)
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Valassis Communications, Inc.
We have audited the accompanying consolidated balance sheets of Valassis
Communications, Inc. as of December 31, 1996 and 1995 and the related
consolidated statements of operations, stockholders' equity (deficit),
and cash flows for the years ended December 31, 1996 and 1995, the six-
month period ended December 31, 1994 and for the year ended June 30,
1994. Our audits also included the financial statement schedule listed
in the Index at Item 14(a). These financial statements and schedule are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of Valassis Communications, Inc. at December 31, 1996 and 1995,
and the consolidated results of its operations and its cash flows for
the years ended December 31, 1996 and 1995, the six-month period ended
December 31, 1994 and for the year ended June 30, 1994 in conformity
with generally accepted accounting principles. Also in our opinion, the
related financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
ERNST & YOUNG LLP
Detroit, Michigan
February 10, 1997
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
Certain information required by Part III is omitted from this report in
that the registrant will file a definitive proxy statement pursuant to
Regulation 14A (the "Proxy Statement") not later than 120 days after the
end of the fiscal year covered by this Report, and certain information
included therein is incorporated herein by reference.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by the Item is incorporated herein by reference
to the Company's Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to
the Company's Proxy Statement, excluding the Stock Price Performance
Graph and the Compensation/Stock Option Committee Report on Executive
Compensation.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated herein by
reference to the Company's Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated herein by
reference to the Company's Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)The following documents are filed as a part of this Report:
1. Financial Statements. The following consolidated financial
statements of Valassis Communications, Inc. and subsidiaries are
included in Item 8:
Consolidated Balance Sheets as of December 31, 1996, and 1995
Consolidated Statements of Operations for the Years Ended
December 31, 1996 and 1995, the Six Months Ended December 1994
and for Year Ended June 30, 1994.
Consolidated Statements of Stockholders' Deficit for the Years
Ended December 31, 1996 and 1995, the Six Months Ended December
31, 1994 and for Year Ended June 30, 1994.
Consolidated statements of Cash Flows for the Years Ended
December 31, 1996 and 1995, the Six Months Ended December 31,
1994 and for the Year Ended June 30, 1994.
Notes to Consolidated Financial Statements
Independent Auditors' Report
2. Financial Statement Schedules. The following consolidated
financial statement schedule of Valassis Communications, Inc. for
the year ended December 31, 1996 and 1995, the six months ended
December 31, 1994 and the year ended June 30, 1994 is included
pursuant to Item 14(d).
Schedule Page
-------------------------------------------------------
II Valuation and Qualifying Accounts S-2
Schedules not listed above have been omitted because they are not
applicable or are not required or the information required to be
set forth therein is included in the Consolidated Financial
Statements or Notes thereto.
3. Exhibits. The Exhibits on the accompanying Index to Exhibits
immediately following the financial statement schedules are filed
as part of, or incorporated by reference into, this Report.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by the Company during the
fiscal quarter ended December 31, 1996.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By: /s/David A. Brandon March 26, 1997
- ------------------------------------- -----------------
David A. Brandon Date
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/Brian M. Powers Chairman of the Board March 26, 1997
of Directors
/s/David A. Brandon President and Chief March 26, 1997
Executive Officer and
Director (Principal
Executive Officer)
/s/Graham A. Cubbin Director March 26, 1997
/s/Mark C. Davis Director March 26, 1997
/s/Cartha D. DeLoach Director March 26, 1997
/s/Jon M. Huntsman, Jr. Director March 26, 1997
/s/James Packer Director March 26, 1997
/s/Robert L. Recchia Chief Financial Officer March 26, 1997
and Director (Principal
Financial and Accounting Officer)
/s/Alan F. Schultz Chief Operating Officer March 26, 1997
and Director
/s/Faith Whittlesey Director March 26, 1997
Schedule II
VALASSIS COMMUNICATIONS, INC.
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1996 AND 1995
SIX MONTHS ENDED DECEMBER 31, 1994 AND
YEAR ENDED JUNE 30, 1994
(in thousands)
BALANCE
BALANCE AT CHARGED TO AT
BEGINNING COSTS AND DEDUCTIONS END OF
DESCRIPTION OF PERIOD EXPENSES (1) PERIOD
- ---------------------------------------------------------------------------
Allowance for doubtful
accounts (deducted from
accounts receivable):
Year Ended December 31, 1996.. $ 810 $600 $ 726 $ 684
Year Ended December 31, 1995.. 1,162 675 1,027 810
6 Months ended Dec. 31, 1994.. 1,210 50 98 1,162
Year Ended June 30, 1994...... 750 600 140 1,210
(1) Accounts deemed to be uncollectible.
S-2
EXHIBIT INDEX
Exhibit
Number
- --------
3.1 Restated Certificate of Incorporation of Valassis
Communications, Inc. (incorporated by reference
to Exhibit 3.1 to the Company's Registration
Statement No. 33-45189)
3.2 Amended and Restated By-laws of Valassis
Communications, Inc. (incorporated by reference
to Exhibit 3.2 to the Company's Registration
Statement No. 33-45189)
4.1 Indenture between Valassis Communications, Inc.
and The Bank of New York, as trustee, relating to
the 9.55% Senior Notes due 2003 (incorporated by
reference to Exhibit 4.1 to the Company's Form
10-K for the transition period July 1, 1994 to
December 31, 1994)
10.1 Form of Indenture between Valassis
Communications, Inc. and The Bank of New York, as
trustee, relating to the 8-3/8% Senior Notes due
1997 (incorporated by reference to Exhibit 4.1 to
the Company's Registration Statement No. 33-45285)
10.1(a) First Supplemental Indenture dated as of March
31, 1993 (incorporated by reference to Exhibit 10.1(a)
to the Company's 1993 Form 10-K)
10.2 Form of Indenture between Valassis
Communications, Inc. and The Bank of New York, as
trustee, relating to the 8-7/8% Senior Notes due
1999 (incorporated by reference to Exhibit 4.3 to
the Company's Registration Statement No. 33-45285)
10.2(a) First Supplemental Indenture dated as of March
31, 1993 (incorporated by reference to Exhibit 10.2(a)
to the Company's 1993 Form 10-K)
10.3 Form of Indenture between Valassis
Communications, Inc. and The Bank of New York, as
trustee, relating to the 9-3/8% Senior
Subordinated Notes due 1999 (incorporated by
reference to Exhibit 4.2 to the Company's
Registration Statement No. 33-45285)
10.3(a) First Supplemental Indenture dated as of March
31, 1993 (incorporated by reference to Exhibit 3
to the Company's Form 8-K dated as of March 31, 1993)
10.4 Credit Agreement dated as of March 6, 1992 (the
"Credit Facility"), among Valassis
Communications, Inc., the institutions named
therein, the institutions named therein as
issuing banks, CitiCorp USA, Inc., as agent and
administrative agent, and Westpac Banking
Corporation, as agent (incorporated by reference
to Exhibit 10.3 to the Company's Registration
Statement No. 33-45189)
10.4(a) Amended and Restated Amendment No. 1 to the
Credit Facility, dated as of March 6, 1992
(incorporated by reference to Exhibit 10.3(a) to
the Company's Registration Statement No. 33-45189)
10.4(b) Amendment No. 2 to the Credit Facility, dated as
of May 15, 1992 (incorporated by reference to Exhibit
10.3(b) to the Comapny's 1992 Form 10-K)
10.4(c) Amendment No. 3 to the Credit Facility, dated as
of June 10, 1992 (incorporated by reference to
Exhibit 10.3(c) to the Company's 1992 Form 10-K)
10.4(d) Amendment No. 4 to the Credit Facility, dated as
of August 24, 1992 (incorporated by reference to
Exhibit 10.3(d) to the Company's 1992 Form 10-K)
10.4(e) Amended and Restated Credit Agreement dated as of
March 31, 1993 (incorporated by reference to
Exhibit 10.3(e) to the Company's 1993 Form 10-K)
10.4(f) Amendment No. 1 to the Amended and Restated
Credit Agreement dated as of July 26, 1993
(incorporated by reference to Exhibit 10.3(f) to
the Company's 1993 Form 10-K)
10.4(g) Amended and Restated Credit Agreement dated as of
December 29, 1993 (incorporated by reference to
Exhibit 10.4(g) to the Company's 1994 Form 10-K)
10.4(h) Amendment No. 4 to the Amended and Restated
Credit Agreement dated as of December 29, 1993
(incorporated by reference to Exhibit 10.4(h) to
the Company's Form 10-K for the transition period
July 1, 1994 to December 31, 1994)
10.5* Employment Agreement, dated January 20, 1992,
among David A. Brandon, Valassis Communications,
Inc. and Valassis Inserts, Inc. (incorporated by
reference to Exhibit 10.4 to the Company's
Registration Statement No. 33-45189)
10.5(a)* Amendment To Employment Agreement and Non
Qualified Stock Option Agreement of David A.
Brandon dated as of June 18, 1993 (incorporated
by reference to Exhibit 10.4(a) to the Company's
1993 Form 10-K)
10.5(b)* Amendment to Employment Agreement and Non
Qualified Stock Option Agreement of David A.
Brandon dated as of July 9, 1995 (incorporated by
reference to Exhibit 10.5(b) to the Company's
1995 Form 10-K)
10.5(c)* Amendment to Employment Agreement of David A.
Brandon dated as of December 22, 1995
(incorporated by reference to Exhibit 10.5(c) to
the Company's 1995 Form 10-K)
10.6* Employment Agreement, dated January 20, 1992
among Robert L. Recchia, Valassis Communications,
Inc. and Valassis Inserts, Inc., including
amendment dated February 11, 1992 (incorporated
by reference to Exhibit 10.5 to the Company's
Registration Statement No. 33-45189)
10.6(a)* Amendment to Employment Agreement and Non
Qualified Stock Option Agreement of Robert
Recchia dated January 2, 1996 (incorporated by
reference to Exhibit 10.6(a) to the Company's
1995 Form 10-K)
10.6(B)* Amendment to Employment Agreement and Non
Qualified Stock Option Agreement of Robert
Recchia dated January 3, 1997
10.7* Employment Agreement, dated January 20, 1992,
among Barry P. Hoffman, Valassis Communications,
Inc. and Valassis Inserts, Inc., including
amendment dated February 11, 1992 (incorporated
by reference to Exhibit 10.6 to the Company's
Registration Statement No. 33-45189)
10.7(a)* Amendment to Employment Agreement and Non
Qualified Stock Option Agreement of Barry P.
Hoffman dated December 19, 1995 (incorporated by
reference to Exhibit 10.7(a) to the Company's
1995 Form 10-K)
10.8 1992 Long-Term Incentive Plan, as amended
(incorporated by reference to Exhibits 4.1 and
4.2 to the Company's Form S-8 filed on February
17, 1993, No. 33-59670)
10.9 Valassis Inserts, Inc. Employees' 401(k)
Retirement Savings Plan (incorporated by
reference to Exhibit 10.8 to the Company's
Registration Statement No. 33-45189)
10.9(a) First Amendment of the Valassis Communications,
Inc. Employees' 401(k) Retirement Savings Plan
(incorporated by reference to Exhibit 10.9(a) to
the Company's 1995 Form 10-K)
10.10 Valassis Inserts, Inc. Employees' Profit Sharing
Plan (incorporated by reference to Exhibit 10.9
to the Company's Registration Statement No. 33-45189)
10.10(a) First Amendment of the Valassis Communications,
Inc. Employees' Profit Sharing Plan (incorporated
by reference to Exhibit 10.10(a) to the Company's
1995 Form 10-K)
10.11 Tax Sharing Agreement, dated as of December 31,
1991, among CII Holdings Group, Inc. and each of
its U.S. subsidiaries and Valassis
Communications, Inc. (incorporated by reference
to Exhibit 10.10 to the Company's Registration
Statement No. 33-45189)
10.12 Access Agreement, dated as of December 31, 1991,
among Valassis Communications, Inc., Consolidated
Press Holdings Limited and certain of its
affiliates (incorporated by reference to Exhibit
10.11 to the Company's Registration Statement No. 33-45189)
10.13 Consolidated Federal Income Tax Liability
Allocation Agreement, dated July 1, 1989, between
Valassis Communications, Inc. and certain
subsidiaries (incorporated by reference to
Exhibit 10.13 to the Company's Registration
Statement No. 33-45189)
10.14 Valassis Inserts, Inc. Plant Employees Pension
Plan (incorporated by reference to Exhibit 10.14
to the Company's Registration Statement No. 33-45189)
10.15* Employment Agreement among Richard N. Anderson,
Valassis Communications, Inc. and Valassis
Inserts, Inc. (incorporated by reference to
Exhibit 10.16 to the Company's Registration No. 33-45189)
10.15(a)* Amendment to Employment Agreement among Richard
N. Anderson, Valassis Communications, Inc. and
Valassis Inserts, Inc. (incorporated by reference
to Exhibit 10.15(a) to the Company's Form 10-K
for the transition period of July 1, 1994 to
December 31, 1994)
10.15(b)* Amendment to Employment Agreement and Non
Qualified Stock Option Agreement of Richard N.
Anderson dated December 15, 1995 (incorporated by
reference to Exhibit 10.15(b) to the Company's
1995 Form 10-K)
10.16* Employment Agreement among Alan F. Schultz,
Valassis Communications, Inc. and Valassis
Inserts, Inc. (incorporated by reference to
Exhibit 10.17 to the Company's Registration
Statement No. 33-45189)
10.16(a)* Amendment to Employment Agreement among Alan F.
Schultz, Valassis Communications, Inc. and
Valassis Inserts, Inc. (incorporated by reference
to Exhibit 10.16(a) to the Form 10-K for the
transition period of July 1, 1994 to December 31, 1994)
10.16(b)* Amendment to Employment Agreement and Non
Qualified Stock Option of Alan F. Schultz dated
December 19, 1995 (incorporated by reference to
Exhibit 10.16(b) to the Company's 1995 Form 10-K)
10.17 Valassis Communications, Inc. Employee Stock
Purchase Plan (incorporated by reference to
Exhibit 10.17 to the 1992 Form 10-K)
10.18* Valassis Communications, Inc. Non-Employee
Directors' Stock Compensation Plan (incorporated
by reference to Exhibit 4.3 to the Company's Form
S-8 filed on February 17, 1993, No. 33-59670)
10.19* Senior Executive Annual Bonus Plan (incorporated
by reference to Exhibit A to the Company's Proxy
Statement dated October 24, 1994
10.20 Conpress Stock Option Agreement (incorporated by
reference to Exhibit 10.20 to the Company's June
30, 1996 Form 10-Q)
10.21 Lease for New Headquarters Building (incorporated
by reference to Exhibit 10.21 to the Company's
June 30, 1996 Form 10-Q)
21.1 Subsidiaries of Valassis Communications, Inc.
23.1 Consent of Independent Auditors
* Constitutes a management contract or compensatory plan or
arrangement.
EXHIBIT 10.6(b)
AMENDMENT TO EMPLOYMENT AGREEMENT AND
NON QUALIFIED STOCK OPTION AGREEMENT
This AMENDMENT TO EMPLOYMENT AGREEMENT (the "Amendment") us made
January 3, 1997 by and between Valassis Communications, Inc. (the
"Corporation") and Robert L. Recchia (the "Executive").
WHEREAS, the Corporation and the Executive entered into that certain
employment agreement effective as of March 18, 1992, as amended January 2,
1996 (the "Employment Agreement");
WHEREAS,the Corporation entered into a NON QUALIFIED STOCK OPTION
AGREEMENT with the Executive effective on March 18, 1992, as amended
February 11, 1992 (the "Option Agreemtn"); and
WHEREAS, the Corporation and the Executive desire to amend the
Employment Agreement and the Option Agreement to extend the term of
employment under the Employment Agreement.
NOW THEREFORE, in consideration of the above recitals, the parties
hereto agree as set forth below.
1. Section 1(b) of the Employement Agreement shall be amended to read
in its entirety as follows:
"The Employment Period shall commence as of the consummation
date (the "Effective Date") of the initial public offering of
the common stock of VCI (the "IPO") and shall continue until
the close of business on September 30, 1999."
2. All other terms of the Employment Agreement and the Option Agreement
shall remain in full force and effect.
3. This instrument, together with the Employment Agreement and the
Option Agreement, contains the entire agreement of the parties with respect
to the subject matter hereof. The amendments to the Employment Agreement
contained in this Amendment shall be effective from and after January 1, 1997.
IN WITNESS WHEREOF, the Executive and the Corporation have caused this
Agreement to be executed as of the day and year first above written.
VALASSIS COMMUNICATIONS, INC.
By: /s/ Barry P. Hoffman
------------------------------
Barry P. Hoffman
Secretary
/s/ Robert L. Recchia
---------------------------
EXHIBIT 21.1
Subsidiaries of Valassis Communications, Inc.
VCI Enterprises, Inc.
VCI Properties, Inc.
Valassis Direct Response, Inc.
Valassis International, Inc.
Destination Marketing Group, Inc.
Blue Streak, Inc.
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the
Registration Statement (Form S-8 No. 33-59670) pertaining to the
Valassis Communications, Inc. 1992 Long-Term Incentive Plan and
the Valassis Communications, Inc. 1992 Non-Employee Directors'
Stock Compensation Plan, in the Registration Statement (Form S-8
No. 333-022) pertaining to the Valassis Communications, Inc. 1992
Long-Term Incentive Plan, in the Registration Statement (Form No.
333-024) pertaining to the Valassis Communications, Inc.
Employees' 401(k) Retirement Savings Plan, the Valassis
Communications, Inc. Employee Stock Purchase Plan, the Valassis
Communications, Inc. Employee and Director Restricted Stock Award
Plan and the Valassis Communications, Inc. Executive Restricted
Stock Award Plan and in the Registration Statement (Form S-3 No.
33-83640) and in the related Prospectus of our report dated
February 10, 1997, with respect to the consolidated financial
statements and schedule of Valassis Communications, Inc. included
in the Annual Report (Form 10-K) for the year ended December 31,
1996.
ERNST & YOUNG LLP
Detroit, Michigan
March 24, 1997