UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________________________
FORM 10-Q
__________________________________
(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarterly Period Ended March 31, 1997
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
AS SPECIFIED IN ITS CHARTER)
Delaware 38-2760940
(State or Other Jurisdiction of (IRS Employer Identification Number)
Incorporation or Organization)
19975 VICTOR PARKWAY
LIVONIA, MICHIGAN 48152
TELEPHONE NUMBER: (313) 591-3000
______________________________________________________
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports) and, (2) has been
subject to such filing requirements for the past 90 days:
Yes X No _______
As of April 30, 1997, there were 41,135,000 shares of the Registrant's
Common Stock outstanding.
1
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
VALASSIS COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
MARCH 31, DECEMBER 31,
1997 1996
(unaudited) (note)
----------- ------------
Current assets:
Cash and cash equivalents $ 60,901 $ 60,172
Accounts receivable (less allowance for doubtful
accounts of $947 at March 31, 1997 and $684 at
December 31, 1996) 85,227 92,745
Inventories:
Raw materials 10,679 6,091
Work in progress 8,639 14,734
Prepaid expenses and other 3,058 1,931
Deferred income taxes 2,088 2,088
--------- ---------
Total current assets 170,592 177,761
--------- ---------
Property, plant and equipment, at cost:
Land and buildings 20,436 19,991
Machinery and equipment 112,526 108,800
Office furniture and equipment 18,353 17,782
Automobiles 992 887
Leasehold improvements 1,457 1,458
--------- ---------
153,764 148,918
Less accumulated depreciation and amortization (115,083) (114,100)
--------- ---------
Net property, plant and equipment 38,681 34,818
--------- ---------
Intangible assets:
Goodwill 67,964 68,594
Other intangibles 83,704 83,706
--------- ---------
151,668 152,300
Less accumulated amortization (98,309) (96,396)
--------- ---------
Net intangible assets 53,359 55,904
--------- ---------
Other assets (primarily debt issuance costs) 5,344 5,251
--------- ---------
Total assets $267,976 $273,734
========= =========
2
VALASSIS COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS, CONTINUED
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
MARCH 31, DECEMBER 31,
LIABILITIES AND STOCKHOLDERS' DEFICIT 1997 1996
(unaudited) (note)
--------- ----------
Current liabilities:
Accounts payable $ 69,581 $ 67,251
Accrued interest 8,731 6,066
Income taxes payable 14,198 1,124
Common stock repurchase commitment 14,323 ---
Accrued expenses 18,104 22,435
Progress billings 46,757 57,234
Current portion, long-term debt --- 7,290
-------- --------
Total current liabilities 171,694 161,400
-------- --------
Long-term debt 384,483 395,865
Deferred income taxes 2,565 2,565
Minority interest 508 498
Stockholders' deficit:
Common stock of $.01 par value. Authorized 100,000,000
shares; issued 43,489,542 at March 31, 1997 and
43,407,906 at December 31, 1996; outstanding 41,452,342
at March 31, 1997 and 42,077,196 at December 31, 1996 435 434
Additional paid-in capital 42,891 41,337
Accumulated deficit (284,257) (306,555)
Foreign currency translations (147) (260)
Common stock repurchase commitment (14,323) ---
Treasury stock, at cost (2,037,200 shares at March 31,
1997 and 1,330,800 shares at December 31, 1996) (35,873) (21,550)
---------- ---------
Total stockholders' deficit (291,274) (286,594)
---------- ---------
Total liabilities and stockholders' deficit $ 267,976 $ 273,734
========== =========
<FN>
NOTE: The balance sheet at December 31, 1996 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See accompanying notes to condensed consolidated financial statements.
3
VALASSIS COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
QUARTER ENDED
MARCH 31, MARCH 31,
1997 1996
--------- ---------
REVENUES:
Net sales $189,307 $179,996
Other 652 537
-------- --------
189,959 180,533
-------- --------
COSTS AND EXPENSES:
Cost of products sold 123,607 134,290
Selling, general and administrative 17,035 16,496
Amortization of intangible assets 2,544 2,067
Interest 10,099 10,263
Minority interest 10 (43)
-------- --------
153,295 163,073
-------- --------
Earnings before income taxes 36,664 17,460
Income taxes 14,366 7,000
-------- --------
Net earnings $ 22,298 $ 10,460
========== =========
Net earnings per common share $ .53 $ .24
========== =========
Shares used in computing net earnings per share 41,870,395 43,304,333
========== ==========
<FN>
See accompanying notes to condensed consolidated financial statements.
4
VALASSIS COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
QUARTER ENDED
MARCH 31, MARCH 31,
1997 1996
---------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 22,298 $ 10,460
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 4,332 4,018
Provision for losses on accounts receivable 225 150
Minority interest 10 (40)
Loss on sale of property, plant and equipment 154 ---
Changes in assets and liabilities which increase
(decrease) cash flow:
Accounts receivable 7,293 2,244
Inventories 1,507 2,103
Prepaid expenses and other (1,127) 144
Other assets (93) (127)
Accounts payable 2,330 2,949
Accrued expenses and interest (1,666) (4,033)
Income taxes 13,074 7,012
Progress billings (10,477) (14,323)
--------- ---------
Total adjustments 15,562 97
--------- ---------
Net cash provided by operating activities 37,860 10,557
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (5,786) (1,575)
Other 113 40
--------- ---------
Net cash used in investing activities (5,673) (1,535)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt (18,690) (8,000)
Proceeds from the issuance of common stock 1,555 27
Repurchase of common stock (14,323) ---
--------- ---------
Net cash used in financing activities (31,458) (7,973)
Net increase in cash 729 1,049
Cash at beginning of period 60,172 34,408
--------- ---------
Cash at end of period $60,901 $35,457
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 7,434 $ 7,936
Cash paid during the period for income taxes $ 1,292 $ (12)
Dividends declared but unpaid $ --- $ ---
Common stock repurchase commitment $ 14,323 $ ---
<FN>
See accompanying notes to condensed consolidated financial statements.
5
VALASSIS COMMUNICATIONS, INC.
Notes to Condensed Consolidated Financial Statements
1.BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete
financial statements. In the opinion of management, the information
contained herein reflects all adjustments necessary for a fair
presentation of the information presented. All such adjustments are of
a normal recurring nature. The results of operations for the interim
periods are not necessarily indicative of results to be expected for
the fiscal year. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1996.
2. SIGNIFICANT ACCOUNTING POLICIES - INVENTORIES
Inventories are stated at the lower of cost or market (net
realizable value). Cost has been principally determined by the last-in,
first-out (LIFO) method. As a result of decreases in material costs
compared to prior years, LIFO inventories at March 31, 1997 and
December 31, 1996 were written down by $2,997,000 and $1,701,000,
respectively, which represents the excess of LIFO costs over market.
There was no LIFO impact on results of operations for the quarter ended
March 31, 1997, and the effect on the quarter ended March 31, 1996 was
immaterial.
3. 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.
4. COMMITMENTS
Pursuant to an Agreement by and among the Company, the Company's
majority shareholder, Conpress Cayman, LDC ("Conpress") and
Consolidated Press International Limited, Conpress has the option to
sell an equivalent number of shares back to the Company at the end of
each month, at the average price of the purchases by the Company in the
open market during such month, pursuant to the Company's share
repurchase program. Conpress has exercised this option for both months
of the 1997 quarter in which the Company bought back shares. The
Company expects that the share repurchase transaction will be completed
in the second quarter. Accordingly, a commitment and a corresponding
reduction in equity has been recorded at March 31, 1997.
6
VALASSIS COMMUNICATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONT.
5. EARNINGS PER SHARE
The Company will be required to adopt Statement of Financial
Accounting Standards No. 128-Earnings per Share effective for the
annual period ending after December 15, 1997. This standard revises the
calculation of EPS and will require the Company to report diluted EPS
in addition to basic EPS. Basic EPS is based on the average shares
outstanding while diluted EPS gives effect to all dilutive potential
common shares outstanding. Under SFAS No. 128, both the Company's basic
and diluted EPS amounts would have been identical to the EPS amounts
presented in its consolidated statements of income for the three months
ended March 31, 1997 and 1996.
6. SUBSEQUENT EVENT
During April 1997, the Company decided to discontinue the operations of
Valassis France. As such, net goodwill of $470,000 was written off at
March 31, 1997. The effect of the close down of this subsidiary will
not be material to the Company's financial condition or results of
operations.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Certain statements under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations," 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.
RESULTS OF OPERATIONS
Total revenues increased 5.3% from $180.5 million for the first quarter
of 1996 to $190.0 million for the first quarter of 1997. Free-standing
insert (FSI) revenues were down 2.6% from $145.2 million for the
quarter ended March 31, 1996 to $141.4 million for the same quarter of
1997. This decline is due primarily to the first quarter of 1997 having
one less FSI publishing date than 1996. Valassis Impact Promotions
(VIP) sales were up 35.5% to $25.2 million for the March 31, 1997
quarter, as compared to $18.6 million for the previous year's quarter.
This increase is a result of continued strong demand by core customers
as well as additional sales from new customers. VIP sales do not
typically track quarter-to-quarter; however, management anticipates
VIP will experience double-digit growth in 1997. Run-of-Press (ROP)
sales rose significantly during the first quarter to $10.7 million,
from $3.8 million for the comparable period last year. Similar to VIP
sales, ROP sales do not necessarily track quarter to quarter, and the
current quarter increase was primarily driven by one-time events. The
ROP division is not projected to be a strong growth area, but has been
experiencing an increased demand in certain product categories.
Gross profit margin rose to 34.9% in the first quarter of 1997, from
25.6% in the first quarter of 1996. This was primarily the result of
the decline in paper prices from prior year and, to a lesser extent,
media efficiencies caused by higher average page counts in the first
quarter of 1997.
Selling, general and administrative expenses increased slightly to
$17.0 million from $16.5 million for the same quarter last year.
Management expects selling, general and administrative expenses to
remain at consistent levels during 1997.
Interest expense was down for the quarter ended March 31, 1997 due to
early retirement of debt since the year-ago quarter. Included in
interest expense for the quarter ended March 31, 1997 is $378,000
representing premiums paid to repurchase debt. Amortization expense
increased as the $470,000 of goodwill on the books of Valassis France
was written off as the result of management's decision to discontinue
operations in France.
Net earnings were $22.3 million for the first quarter 1997 versus $10.5
million for the same period last year. These improved results were due
to strong VIP and ROP sales along with a decline in paper cost from the
prior year.
8
Management noted that the first quarter marked a return to a more
traditional pattern for the company in which first quarter earnings
results are typically the strongest for the year, versus the previous
year in which later quarters were significantly impacted by rapidly
declining paper prices.
FINANCIAL CONDITION, LIQUIDITY AND SOURCES OF CAPITAL
Cash flow from operating activities increased from $10.6 million at
March 31, 1996 to $37.9 million at March 31, 1997. This increase was
mainly due to increased earnings.
During the quarter ended March 31, 1997, the Company used $11.4 million
of cash to retire long-term debt early and another $14.3 million to
repurchase Company stock. The Company has a commitment to purchase a
matching $14.3 million of Company stock from CPH. The Company expects
the CPH transaction will be completed during the second quarter of
1997.
Management believes the Company will generate sufficient funds from
operations and will have sufficient lines of credit available to meet
currently anticipated liquidity needs, including interest and required
principal payments on indebtedness.
9
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
The following exhibits are included herein:
(27) Financial Data Schedule
b. Forms 8-K
The Company did not file any reports on Form 8-K during the three
months ended March 31, 1997.
10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
Valassis Communications, Inc.
(Registrant)
Dated: May 9, 1997
By: /s/Robert L. Recchia
------------------------
Robert L. Recchia
V.P. of Finance - Chief Financial
Officer
Signing on behalf of the Registrant and as principal financial officer.
11