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 September 30, 2000
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
(address of principal executive offices)
Registrant's Telephone Number: (734) 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 November 10, 2000, there were 53,557,066 shares of the Registrant's Common
Stock outstanding.
Part I - Financial Information
- ------------------------------
Item 1. Financial Statements
VALASSIS COMMUNICATIONS, INC.
Condensed Consolidated Balance Sheets
(dollars in thousands)
September 30, December 31,
Assets 2000 1999
- ------ ------------ ------------
(unaudited)
Current assets:
Cash and cash equivalents $ 7,210 $ 11,089
Accounts receivable (less allowance for doubtful
accounts of $2,126 at September 30, 2000 and
$1,386 at December 31, 1999) 115,868 94,105
Inventories:
Raw materials 12,990 11,729
Work in progress 18,737 17,498
Prepaid expenses and other 12,133 4,581
Deferred income taxes 1,473 1,473
Refundable income taxes -- 448
--------- ---------
Total current assets 168,411 140,923
--------- ---------
Property, plant and equipment, at cost:
Land and buildings 21,687 21,590
Machinery and equipment 124,510 121,956
Office furniture and equipment 26,076 21,909
Automobiles 981 1,116
Leasehold improvements 1,208 1,166
--------- ---------
174,462 167,737
Less accumulated depreciation and amortization (120,344) (114,926)
--------- ---------
Net property, plant and equipment 54,118 52,811
--------- ---------
Intangible assets:
Goodwill 112,482 72,754
Other intangibles 85,387 85,387
--------- ---------
197,869 158,141
Less accumulated amortization (120,181) (118,050)
--------- ---------
Net intangible assets 77,688 40,091
--------- ---------
Equity investments and advances to investees 22,236 9,580
Other 2,306 2,412
--------- ---------
Total assets $ 324,759 $ 245,817
========= =========
2
VALASSIS COMMUNICATIONS, INC.
Condensed Consolidated Balance Sheets, Continued
(dollars in thousands, except per share data)
September 30, December 31,
Liabilities and Stockholders' Deficit 2000 1999
- ------------------------------------- ------------- ------------
(unaudited) (note)
Current liabilities:
Accounts payable $ 71,517 $ 77,683
Accrued interest 3,010 3,645
Accrued expenses 24,777 30,250
Progress billings 54,933 57,733
Income taxes payable 2,152 --
--------- ---------
Total current liabilities 156,389 169,311
--------- ---------
Long-term debt 330,299 291,354
Deferred income taxes 1,898 1,871
Other non-current liabilities 307 --
Commitments and contingencies
Stockholders' deficit:
Preferred stock of $.01 par value. Authorized 25,000,000 shares; no shares
issued or outstanding at September 30, 2000 and December 31, 1999
Common stock of $.01 par value. Authorized 100,000,000 shares; issued
62,932,686 at September 30, 2000 and 62,715,893 at December 31, 1999;
outstanding 54,302,990 at
September 30, 2000 and 56,128,478 at December 31, 1999 629 627
Additional paid-in capital 86,715 76,898
Deferred compensation (2,545) (1,135)
Retained earnings (accumulated deficit) 61,720 (51,736)
Foreign currency translations (492) (478)
Treasury stock, at cost (8,629,696 shares at September 30,
2000 and 6,587,415 shares at December 31, 1999) (310,161) (240,895)
--------- ---------
Total stockholders' deficit (164,134) (216,719)
--------- ---------
Total liabilities and stockholders' deficit $ 324,759 $ 245,817
========= =========
NOTE: The balance sheet at December 31, 1999 has been derived from the
audited consolidated 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 Income
(dollars in thousands, except per share data)
(unaudited)
Quarter Ended Nine Months Ended
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2000 1999 2000 1999
------------ ------------ ------------ ------------
Revenues:
Net sales $ 190,839 $ 177,247 $ 613,870 $ 594,305
Other (see Note 2) 234 238 27,325 384
------------ ------------ ------------ ------------
Total revenues 191,073 177,485 641,195 594,689
------------ ------------ ------------ ------------
Costs and expenses:
Cost of products sold 122,181 108,233 380,590 368,999
Selling, general and administrative 20,033 19,341 57,913 58,046
Loss on investments 858 336 2,670 697
Amortization of intangible assets 555 1,299 2,131 3,899
Interest 5,884 6,361 16,435 20,139
------------ ------------ ------------ ------------
Total costs and expenses 149,511 135,570 459,739 451,780
------------ ------------ ------------ ------------
Earnings before income taxes 41,562 41,915 181,456 142,909
Income taxes 15,900 15,860 68,000 54,460
------------ ------------ ------------ ------------
Net earnings before extraordinary items 25,662 26,055 113,456 88,449
------------ ------------ ------------ ------------
Extraordinary loss, net of tax -- (100) -- (100)
------------ ------------ ------------ ------------
Net earnings $ 25,662 $ 25,955 $ 113,456 $ 88,349
============ ============ ============ ============
Net earnings per common share before
extraordinary loss, basic $ 0.47 $ 0.46 $ 2.07 $ 1.56
============ ============ ============ ============
Net earnings per common share before
extraordinary loss, diluted $ 0.47 $ 0.45 $ 2.03 $ 1.52
============ ============ ============ ============
Net earnings per common share, basic $ 0.47 $ 0.46 $ 2.07 $ 1.56
============ ============ ============ ============
Net earnings per common share, diluted $ 0.47 $ 0.45 $ 2.03 $ 1.52
============ ============ ============ ============
Shares used in computing net earnings per
share, basic 54,323,011 56,417,692 54,913,788 56,797,976
============ ============ ============ ============
Shares used in computing net earnings per
share, diluted 55,212,491 58,013,140 55,893,000 58,166,281
============ ============ ============ ============
See accompanying notes to condensed consolidated financial statements.
4
VALASSIS COMMUNICATIONS, INC.
Condensed Consolidated Statements of Cash Flows
(dollars in thousands)
(unaudited)
Nine Months Ended
Sept. 30, Sept. 30,
2000 1999
--------- ---------
Cash flows from operating activities:
Net earnings $ 113,456 $ 88,349
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Depreciation and amortization 8,029 10,105
Provision for losses on accounts receivable 833 1,606
Deferred compensation (1,482) (828)
(Gain)/loss on sale of property, plant and equipment 45 (108)
Stock-based compensation charge 2,816 1,730
Changes in assets and liabilities which increase (decrease) cash flow:
Accounts receivable (19,844) (12,711)
Inventories (2,500) 6,154
Prepaid expenses and other (3,392) 2,105
Other assets (4,618) (1,394)
Accounts payable (8,732) (3,457)
Accrued expenses and interest (8,727) 550
Other liability (90) --
Tax benefit from stock option exercises 1,053 3,808
Income taxes 2,600 2,638
Progress billings (3,026) 2,478
--------- ---------
Total adjustments (37,035) 12,676
--------- ---------
Net cash provided by operating activities 76,421 101,025
--------- ---------
Cash flows from investing activities:
Additions to property, plant and equipment (5,494) (6,174)
Other investments and acquisitions (12,057) (4,250)
Acquisition of PreVision Marketing, net of cash received (29,867) --
Proceeds from sale of property, plant and equipment 206 176
Other (43) (91)
--------- ---------
Net cash used in investing activities (47,255) (10,339)
--------- ---------
Cash flows from financing activities:
Repayment of long-term debt (2,779) (110,368)
Borrowings of long-term debt -- 100,358
Net borrowings (payments) under revolving line of credit 39,000 (26,500)
Proceeds from the issuance of common stock 3,259 10,345
Purchase of treasury shares (72,525) (63,761)
--------- ---------
Net cash used in financing activities (33,045) (89,926)
--------- ---------
Net increase/(decrease) in cash (3,879) 760
Cash at beginning of period 11,089 6,939
--------- ---------
Cash at end of period $ 7,210 $ 7,699
========= =========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 17,070 $ 19,026
Cash paid during the period for income taxes $ 64,795 $ 51,822
Non-cash financing activities:
Stock issued under stock-based compensation plan $ 8,763 $ 2,568
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, 1999. Certain amounts for 1999 have been reclassified to conform to
current period classifications.
2. Contingencies
-------------
In February 1999, the Company filed a lawsuit alleging that Arthur
Andersen LLP repudiated a joint venture agreement with the Company relating to
the development of its Customer Relationship Marketing (CRM) product. The
lawsuit also named The News Corporation Limited and News America Incorporated as
defendants.
On February 9, 2000, by stipulation made in open court, followed by
execution of a settlement agreement on February 29, 2000, the Company settled
this litigation in the State of Michigan circuit court for the County of Wayne
and related litigation in the form of a declaratory judgment action that Arthur
Andersen had commenced against the Company in the State of Illinois Chancery
Court for Cook County. The amount paid to the Company by Arthur Andersen LLP
against the exchange of mutual releases and stipulations of dismissal with
prejudice and without costs as to Arthur Andersen LLP and The News Corporation
Limited and News America Incorporated is confidential under the terms of the
stipulated settlement. The proceeds of the settlement are included in other
revenues in the accompanying condensed consolidated statement of income for the
nine months ended September 30, 2000.
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, results of operations or liquidity.
3. Share Repurchase
----------------
In February 2000, the Company entered into a forward share repurchase
agreement with a financial institution allowing the Company to acquire
approximately 1.7 million shares of its common stock at a price of $29.72 per
share, plus interest. The purchases settled as follows: 0.7 million shares on
April 3, 2000; 0.5 million shares on July 3, 2000; and 0.5 million shares on
October 2, 2000.
6
4. Recent Accounting Pronouncements
--------------------------------
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements." SAB 101 summarizes certain of the SEC's views in applying generally
accepted accounting principles to revenue recognition in financial statements.
In June 2000, the SEC issued SAB No. 101B to defer the effective date of
implementation of SAB No. 101 until the fourth quarter of fiscal 2000. The
Company does not expect the adoption of SAB 101 to have a material effect on its
financial position or results of operations.
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS No. 133). SFAS No. 133 establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, (collectively referred to as
derivatives) and for hedging activities. SFAS No. 133, as amended, is effective
for financial statements relating to fiscal years beginning after June 15, 2000.
The Company does not expect the adoption of SFAS No. 133 to have a material
effect on its financial position or results of operations.
5. Acquisition and Investments
---------------------------
On August 11, 2000, the Company acquired 80% of the outstanding
membership interest in PreVision Marketing, LLC for $30 million cash and
approximately $5 million in restricted stock. PreVision Marketing, LLC is a
customer relationship marketing firm specializing in one-to-one marketing,
customer retention and customer acquisition. The acquisition of PreVision
Marketing was accounted for using the purchase method of accounting for
acquisitions and, accordingly, the results of operations for PreVision have been
included in the Company's financial statements since the date of acquisition.
Cost in excess of net assets acquired is amortized in a straight-line basis over
20 years. The purchase agreement executed in connection with this transaction
also contains additional payments contingent on the future earnings performance
of PreVision Marketing. Any additional payments made, when the contingency is
resolved, will be accounted for as additional costs of the acquisition and
amortized over the remaining life of the assets.
6. Related Party Transactions
--------------------------
The Company owns approximately 50% of Save.com. The Company has notes
receivable from Save.com due July 2002. The notes bear interest at 10% and 8%
annually. At September 30, 2000, the balances of the notes receivable were $1.6
million and $6.2 million, respectively. The investment in Save.com and the notes
receivable are included in equity investments and advances to investees in the
accompanying consolidated balance sheet.
The Company owns 22.5% of Valassis Relationship Marketing Systems, LLC
("VRMS"). At September 30, 2000, the Company had amounts receivable from VRMS
totaling $1.4 million. The Company owns 54% of Independent Delivery Systems
("IDS"). At September 30, 2000, the Company had amounts receivable from IDS
totaling $1.6 million. The investments in VRMS and IDS are included in equity
investments and advances to investees in the accompanying consolidated balance
sheet. The receivables from VRMS and IDS are included in prepaid expenses and
other in the accompanying consolidated balance sheet.
7
7. Segment Reporting
-----------------
The Company has two reportable segments, cooperative free-standing
inserts (FSIs) and Valassis Impact Promotions (VIP). FSIs are four-color
booklets containing promotions from multiple advertisers distributed through
Sunday newspapers. VIP offers its customers individualized specialty print
promotion products in customized formats. These reportable segments are
strategic business units that offer different products and services. They are
managed separately because each business requires different marketing strategies
and caters to a different customer base.
Assets are not allocated to reportable segments and are not used to assess the
performance of a segment. Intersegment sales are accounted for at cost.
(in millions) Three Months Ended September 30
- ------------- ------------------------------------------------
FSI VIP All Others* Total
--------- --------- ----------- ---------
2000
----
Revenues from external customers $ 134.6 $ 33.7 $ 22.7 $ 191.0
Intersegment revenues -- -- -- --
Depreciation/amortization 2.0 0.4 0.1 2.5
Segment profit 33.4 4.2 3.9 41.5
1999
----
Revenues from external customers $ 134.0 $ 25.2 $ 18.3 $ 177.5
Intersegment revenues 1.3 -- 3.1 4.4
Depreciation/amortization 2.8 0.5 -- 3.3
Segment profit 33.4 3.8 4.7 41.9
* Segments below the quantitative thresholds are primarily attributable to four
segments of the Company. Those segments include a product sampling business,
a sales promotion company in Canada, a run-of-press business, and a promotion
security service. None of these segments has met any of the quantitative
thresholds for determining reportable segments.
Reconciliations to consolidated financial statement totals are as follows:
Three Months Ended
Sept. 30,
------------------
(in millions) 2000 1999
- ------------- ------- -------
Profit for reportable segments $ 37.6 $ 37.2
Profit for other segments 3.9 4.7
Unallocated amounts:
Interest income 0.1 --
------- -------
Earnings before taxes $ 41.6 $ 41.9
======= =======
Domestic and foreign revenues for each of the three-month periods ended
September 30 were as follows:
(in millions) 2000 1999
- ------------- -------- --------
United States $ 189.4 $ 174.3
Canada 1.7 3.2
-------- --------
Total $ 191.1 $ 177.5
======== ========
8
(in millions) Nine Months Ended September 30
- ------------- ------------------------------------------------
FSI VIP All Others* Total
--------- --------- ----------- ---------
2000
----
Revenues from external customers $ 459.5 $ 95.5 $ 59.2 $ 614.2
Intersegment revenues -- -- -- --
Depreciation/amortization 6.6 1.3 0.1 8.0
Segment profit 131.5 12.7 10.3 154.5
1999
----
Revenues from external customers $ 446.1 $ 86.7 $ 61.8 $ 594.6
Intersegment revenues 3.8 -- 5.4 9.2
Depreciation/amortization 8.5 1.5 0.1 10.1
Segment profit 124.3 8.7 9.8 142.8
* Segments below the quantitative thresholds are primarily attributable to four
segments of the Company. Those segments include a product sampling business,
a sales promotion company in Canada, a run-of-press business, and a promotion
security service. None of these segments has met any of the quantitative
thresholds for determining reportable segments.
Reconciliations to consolidated financial statement totals are as follows:
Nine Months Ended
(in millions) Sept. 30,
- ------------- --------------------
2000 1999
-------- --------
Profit for reportable segments $ 144.2 $ 133.0
Profit for other segments 10.3 9.8
Unallocated amounts:
Interest income 0.5 0.1
Other income 26.5 --
-------- --------
Earnings before taxes $ 181.5 $ 142.9
======== ========
Domestic and foreign revenues for each of the nine-month periods ended September
30 were as follows:
(in millions) 2000 1999
- ------------- -------- --------
United States $ 636.3 $ 580.9
Canada 4.9 13.8
-------- --------
Total $ 641.2 $ 594.7
======== ========
9
8. Earnings Per Share
------------------
Earnings per common share ("EPS") data were computed as follows:
Three Months
Ended Sept. 30,
2000 1999
-------- --------
(in thousands except for
per share amount)
Net Earnings $ 25,662 $ 25,955
======== ========
Basic EPS:
Weighted average common shares outstanding 54,323 56,418
======== ========
Earnings per common share - basic
Before extraordinary item $ 0.47 $ 0.46
Extraordinary item -- --
-------- --------
Total $ 0.47 $ 0.46
======== ========
Diluted EPS:
Weighted average common shares outstanding 54,323 56,418
Weighted average shares purchased on exercise of dilutive options 3,712 6,196
Shares purchased with proceeds of options (2,839) (4,630)
Shares contingently issuable 16 29
-------- --------
Shares applicable to diluted earnings 55,212 58,013
======== ========
Earnings per common share - diluted
Before extraordinary item $ 0.47 $ 0.45
Extraordinary item -- --
-------- --------
Total $ 0.47 $ 0.45
======== ========
10
Nine Months
Ended Sept. 30,
-----------------------
2000 1999
--------- ---------
(in thousands except for
per share amounts)
Net Earnings $ 113,456 $ 88,349
========= =========
Basic EPS:
Weighted average common shares outstanding 54,914 56,798
========= =========
Earnings per common share - basic
Before extraordinary item $ 2.07 $ 1.56
Extraordinary item -- --
--------- ---------
Total $ 2.07 $ 1.56
========= =========
Diluted EPS:
Weighted average common shares outstanding 54,914 56,798
Weighted average shares purchased on exercise of dilutive options 3,792 6,295
Shares purchased with proceeds of options (2,829) (4,956)
Shares contingently issuable 16 29
--------- ---------
Shares applicable to diluted earnings 55,893 58,166
========= =========
Earnings per common share - diluted
Before extraordinary item $ 2.03 $ 1.52
Extraordinary item -- --
--------- ---------
Total $ 2.03 $ 1.52
========= =========
11
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 methods, 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. The Company
disclaims any intention or obligation to update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
Results of Operations
Three Months Ended September 30, 2000 and September 30, 1999
- ------------------------------------------------------------
Total revenues rose 8.8% for the quarter ended September 30, 2000 to $191.1
million from $175.7 million for the year-ago quarter (after deducting $1.8
million to reflect the Company's Canadian merchandising division, which was
discontinued in the fourth quarter of 1999). Free-standing insert (FSI) revenue
experienced a slight increase of 0.4% from $134.0 million for the three months
ended September 30, 1999 to $134.5 million for the quarter ended September 30,
2000. This was primarily attributable to a slight reduction in market share
offset by the overall FSI industry full-page growth of approximately 4% during
the quarter. Revenues were also impacted by a drop in direct response/remnant
pricing due to the cyclical nature of demand for direct response. Valassis
Impact Promotions (VIP) revenue was up 33.7% to $33.7 million for the third
quarter of 2000 compared to $25.2 million for the year-ago period. This increase
was due to the strength of its core franchise retail customer base, as well as
sales from new categories, such as telecommunications and computer hardware.
Targeted Marketing Services revenue, which includes the Company's Sampling and
advertising products, its Run-of-Press promotions, and its security consulting
business, increased 30%. Sampling and advertising revenues increased 56% to
$15.6 million for the three months ended September 30, 2000.
For the quarter, gross profit margin decreased to 36.1 %, compared to 39.0% for
the year-ago quarter. FSI profits were impacted by two custom co-ops that the
Company published in the quarter. Custom co-ops are sponsored by a single
client, contain fewer pages than the standard co-op FSI, and thus drive up media
costs on a per-page basis. Increases in media costs and paper prices increased
FSI unit costs by approximately 3% this quarter.
Selling, general and administrative expenses increased slightly to $20.0 million
for the quarter ended September 30, 2000, compared to $19.3 million for the
quarter ended September 30, 1999.
Net earnings were $25.7 million, compared to $26.0 million for the same period
of 1999. This decline is primarily due to the slow growth and cost increases in
the FSI division.
12
Nine Months Ended September 30, 2000 and September 30, 1999
- -----------------------------------------------------------
For the nine months ended September 30, 2000, net sales increased 5.0% to $613.9
million from $584.7 million for the comparable period in 1999 (after deducting
$9.6 million to reflect the Company's Canadian direct merchandising division,
which was discontinued in the forth quarter of 1999). This increase resulted
from a 3.0 % rise in FSI revenue from $446.1 million in the first nine months of
1999, to $459.5 million for the first nine months of 2000. The FSI revenue rose
due to overall industry growth and moderate price increases. In addition, VIP
experienced a 10.0% increase in sales during the nine-month period ended
September 30, 2000. Targeted Marketing Services revenue rose 22.6% for the nine
months ended September 30, 2000 to $57.0 million, compared to $46.5 million for
the nine months ended September 30, 1999. Management expects growth in excess of
20% for this division in 2000.
Gross margin increased from 38.0% for the first nine months of 1999, to 40.6%
for the same period in 2000. Excluding the impact of a lawsuit settlement
included in other revenues in the first quarter of 2000, gross margin would have
remained flat at 38.1%.
Selling, general and administrative expenses were $57.9 million, versus $58.0
million for the comparable prior-year period.
Excluding the impact of a lawsuit settlement in the first quarter of 2000, for
the nine months ended September 30, 2000 net earnings were up 9.7% to $96.9
million, versus $88.3 million for the same period last year. The earnings growth
is primarily the result of the improved performance of the VIP and Targeted
Marketing Services divisions.
Financial Condition, Liquidity and Sources of Capital
The Company's liquidity requirements arise mainly from its working capital
needs, primarily accounts receivable, inventory and debt service requirements.
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 as
a current liability at full sales value. Although the Company receives
considerable payments from its customers prior to publication of promotions,
revenue is recognized only upon publication dates. Therefore, the progress
billings on the balance sheet include any profits in the related receivables and
accordingly, the Company can operate with low, or even negative working capital.
Cash and cash equivalents totaled $7.2 million at September 30, 2000, versus
$11.1 million at December 31, 1999. This was the result of cash provided by
operating activities of $76.4 million, and cash used in investing activities and
financing activities of $47.3 million and $33.0 million, respectively, in the
first nine months of 2000.
Cash flow from operating activities decreased from $101.0 million for the nine
months ended at September 30, 1999 to $76.4 million at September 30, 2000,
despite increased earnings due to a decrease in accrued expenses and interest,
and other negative working capital changes.
As of September 30, 2000 the Company's debt comprised $330.3 million, which
consists of $214.8 million under its Revolving Credit Facility, $100 million of
its 6-5/8% Senior Notes due 2009 and $15.5 million of its 9.55% Senior Notes due
2003.
13
The Company intends to use cash generated by operations to meet interest and
principal repayment obligations, for general corporate purposes, to reduce its
indebtedness and from time to time to repurchase stock through the Company's
stock repurchase program. Consistent with the Company's plan to accelerate the
development of its Customer Relationship Marketing initiative, the Company
acquired 80% of PreVision Marketing, LLC for cash and restricted stock in August
2000.
As of September 30, 2000, the Company had authorization to repurchase an
additional 3.1 million shares of its common stock under its existing share
repurchase program, which excludes the 0.5 million shares settled on October 2,
2000 under the repurchase agreement discussed in Note 3 to the condensed
consolidated financial statements.
Management believes that 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 payments of
indebtedness.
Capital Expenditures - The Company operates three printing facilities. Capital
expenditures were $5.5 million for the nine-month period ended September 30,
2000. Management expects future capital expenditure requirements of
approximately $15 million annually 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 purchased using funds provided by
operations.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
The following exhibits are included herein:
(27) Financial Data Schedule
b. Form 8-K
The Company filed a report on Form 8-K, dated August 25, 2000 announcing
the acquisition of 80% of the outstanding membership interests in PreVision
Marketing, LLC by Valassis Data Management, Inc., a wholly owned subsidiary of
the Company.
14
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.
Dated: November 13, 2000
Valassis Communications, Inc.
(Registrant)
By: /s/Robert L. Recchia
--------------------------------
Robert L. Recchia
Executive Vice President - Chief
Financial Officer
Signing on behalf of the Registrant
and as principal financial officer.
15