<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
(X) Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 30, 1996
--------------
or
( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from __________________ to _________________
Commission file number 1-11720
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ADVO, Inc.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 06-0885252
- ------------------------ --------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Univac Lane, P.O. Box 755, Windsor, CT 06095-0755
- ------------------------------------------ --------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (860) 285-6100
--------------------------
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 27, 1996 there were 24,008,376 shares of common stock
outstanding.
<PAGE>
ADVO, Inc.
Index to Quarterly Report
on Form 10-Q
Quarter Ended March 30, 1996
Part I - Financial Information Page
------------------------------ ----
Item 1. Financial Statements (Unaudited)
Consolidated balance sheets -
March 30, 1996 and September 30, 1995 2
Consolidated statements of operations -
Six months and three months ended
March 30, 1996 and March 25, 1995 3
Consolidated statements of cash flows -
Six months ended March 30, 1996
and March 25, 1995 4
Notes to consolidated financial statements 5
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations. 7
Part II - Other Information
---------------------------
Item 6. Exhibits and Reports on Form 8-K. 9
Signatures 10
<PAGE>
ADVO, Inc.
CONSOLIDATED BALANCE SHEETS (Unaudited)
(In thousands, except share data)
<TABLE>
<CAPTION>
March 30, September 30,
1996 1995
---------- --------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents (1) $ 7,760 $ 23,849
Available-for-sale securities-Related Party - 30,611
Accounts receivable, net 61,134 61,089
Inventories 7,129 8,742
Prepaid expenses and other current assets 5,512 4,369
Deferred income taxes 20,242 13,049
Current assets of discontinued operations - 13,950
--------- --------
Total current assets 101,777 155,659
Property, plant and equipment 134,396 128,861
Less accumulated depreciation and amortization (73,349) (68,385)
--------- --------
Net property, plant and equipment 61,047 60,476
Other assets 18,873 10,848
Non-current assets of discontinued operations - 7,220
--------- --------
TOTAL ASSETS $ 181,697 $ 234,203
========= =========
LIABILITIES
Current liabilities:
Current portion of long-term debt $ 4,925 $ -
Accounts payable 34,958 24,556
Accrued compensation and benefits 20,726 25,482
Other current liabilities 29,881 38,639
Current liabilities of discontinued operations - 8,118
--------- --------
Total current liabilities 90,490 96,795
Long-term debt 180,075 -
Deferred income taxes 6,744 5,786
Other liabilities 1,038 1,216
--------- --------
187,857 7,002
STOCKHOLDERS' EQUITY/(DEFICIENCY)
Series A Convertible preferred stock,
$.01 par value (Authorized 5,000,000
shares, none issued) - -
Common stock, $.01 par value (Authorized
40,000,000 shares, issued 27,792,260
and 24,583,092 shares, respectively) 278 246
Additional paid-in capital 160,756 138,735
Unrealized losses on available-for-sale
securities, net of tax - (62)
Accumulated (deficit) earnings (193,410) 55,020
--------- --------
(32,376) 193,939
Less common stock held in
treasury, at cost
(64,274) (63,533)
--------- --------
Total stockholders' equity/(deficiency) (96,650) 130,406
--------- --------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY/
(DEFICIENCY) $ 181,697 $ 234,203
========= =========
</TABLE>
(1) Includes cash and cash equivalents invested with related party of $9,401,000
at March 30, 1996 and $12,905,000 at September 30, 1995.
See Accompanying Notes.
- 2 -
<PAGE>
ADVO, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Six months ended Three months ended
------------------------ -----------------------
March 30, March 25, March 30, March 25,
1996 1995 1996 1995
------------ ----------- ----------- ----------
<S> <C> <C> <C> <C>
Revenues $488,523 $487,706 $232,010 $239,618
Costs and expenses:
Cost of sales 385,317 366,185 185,358 183,774
Selling, general and
administrative 91,243 101,244 44,175 50,228
Nonrecurring charges 12,082 -- 12,082 --
Provision for bad debts 2,420 1,510 1,217 810
Gain on sale of business
lines (2,687) (2,243) -- --
-------- -------- -------- --------
Operating income (loss) 148 21,010 (10,822) 4,806
Interest income-Related Party 960 1,508 444 736
Interest income-Other 50 37 40 11
Interest expense 1,354 -- 1,354 --
Other expense 239 377 121 157
-------- -------- -------- --------
(Loss) income before income
taxes (435) 22,178 (11,813) 5,396
(Benefit) provision for income
taxes (297) 8,659 (4,657) 2,114
-------- -------- -------- --------
(Loss) income from continuing
operations (138) 13,519 (7,156) 3,282
Discontinued Operations:
Loss from discontinued
operations, net of tax -- (495) -- (479)
Loss on disposal of discontinued
operations, net of tax (8,199) -- (7,218) --
-------- -------- -------- --------
(Loss) income before cumulative
effect of accounting change (8,337) 13,024 (14,374) 2,803
Cumulative effect of change in
accounting for postemployment
benefits, net of tax -- (1,545) -- --
-------- -------- -------- --------
Net (loss) income $ (8,337) $ 11,479 $(14,374) $ 2,803
======== ======== ======== ========
Primary (loss) earnings per share:
Continuing operations $ (.01) $ .59 $ (.32) $ .14
Discontinued operations -- (.02) -- (.02)
Disposal of discontinued
operations (.38) -- (.32) --
Cumulative effect of change
in accounting for post-
employment benefits -- (.07) -- --
-------- -------- -------- --------
Primary (loss) earnings
per share $ (.39) $ .50 $ (.64) $ .12
======== ======== ======== ========
Fully diluted (loss) earnings
per share:
Continuing operations $ (.01) .58 (.32) .14
Discontinued operations -- (.02) -- (.02)
Disposal of discontinued
operations (.38) -- (.32) --
Cumulative effect of change
in accounting for post-
employment benefits -- ( .07) -- --
-------- -------- -------- --------
Fully diluted (loss) earnings
per share $ (.39) $ .49 $ (.64) $ .12
======== ======== ======== ========
Cash dividends declared per
share $ 10.025 $ .050 $ 10.000 $ .025
Weighted average common and
common equivalent shares:
Primary 21,570 23,186 22,368 23,161
Fully diluted 21,570 23,327 22,368 23,269
</TABLE>
See Accompanying Notes.
- 3 -
<PAGE>
ADVO, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Six months ended
--------------------------
March 30, March 25,
1996 1995
--------------------------
<S> <C> <C>
Net cash (used) provided by continuing
operating activities $ (2,166) $ 8,752
Cash flows from continuing investing activities:
Investment in business ventures/acquisitions - (61)
Acquisition of property, plant and equipment (7,786) (13,633)
Proceeds from disposals of property
and equipment 5 6
Proceeds from sale of business lines 742 9,000
Sales and maturities of available-for-sale
securities 80,482 27,336
Purchases of available-for-sale securities (49,604) (27,527)
-------- --------
Net cash provided (used) by continuing
investing activities 23,839 (4,879)
Cash flows from continuing financing activities:
Proceeds from long-term borrowings 195,000 -
Payments on long-term borrowings (10,000) -
Proceeds from exercise of warrants 7,173 -
Tax effect - vesting of restricted
stock/options exercised 3,717 384
Proceeds from exercise of stock options 2,021 471
Purchase of common stock for treasury (740) (3,660)
Cash dividends paid (240,613) (1,039)
Other 32 -
--------- -------
Net cash used by continuing financing activities (43,410) (3,844)
--------- -------
Net effect of discontinued operations 5,648 (2,123)
--------- -------
Decrease in cash and cash equivalents (16,089) (2,094)
Cash and cash equivalents at beginning of period 23,849 39,748
--------- -------
Cash and cash equivalents at end of period $ 7,760 $37,654
========= =======
</TABLE>
Excluded from the consolidated statements of cash flows was the effect of a
certain noncash activity in which the Company received a note for $3.5 million
in conjunction with the sale of a business line during the first quarter of
fiscal 1996 (see note 2).
See Accompanying Notes.
- 4 -
<PAGE>
ADVO, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. Basis of presentation
The accompanying unaudited 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, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and six month periods ended
March 30, 1996 are not necessarily indicative of the results that may be
expected for the fiscal year ending September 28, 1996. For further
information, refer to the consolidated financial statements and footnotes
thereto included in ADVO, Inc.'s (the "Company") annual report on Form 10-K for
the fiscal year ended September 30, 1995. Certain reclassifications have been
made in the fiscal 1995 financial statements to conform with the fiscal 1996
presentation.
In fiscal year 1995, the Company announced its plan to sell its in-store
marketing segment. The sale of substantially all of the net assets of this
segment was completed on March 1, 1996 (See note 3). The Company's results of
operations have been presented for the three and six month periods ended March
30, 1996 and March 25, 1995, to separately reflect continuing and discontinued
operations in the consolidated statements of operations and cash flows. The
consolidated balance sheet as of September 30, 1995 has been reclassified to
reflect the assets and liabilities of the discontinued operation under separate
captions. In addition, the results of operations in the management's discussion
and analysis section excludes the revenues, cost of sales, selling, and general
and administrative costs of the discontinued segment.
Both primary and fully diluted loss per share amounts for the three and six
months ended March 30, 1996 exclude common share equivalents from the weighted
average shares because they are anti-dilutive.
2. Gain on sale of business lines
MidCoast Press, the Company's commercial web offset printer, was sold during
the first quarter ended December 30, 1995. The Company recognized a before tax
gain of $2.7 million ($1.7 million after tax or $.07 per share during the first
quarter of fiscal 1996) and received a note for $3.5 million in conjunction with
the sale.
During the first quarter ended December 24, 1994 of the previous fiscal year,
the Company sold its 50% ownership in InfoBase Services to Acxiom Corporation
and recognized a before tax gain on this transaction of $2.2 million ($1.4
million after tax or $.06 per share during the first quarter of fiscal 1995).
3. Discontinued operations
On March 1, 1996 the Company completed the sale of substantially all of the net
operating assets of its in-store marketing segment. The net assets were sold at
book value in exchange for $5.0 million in cash and a long-term note receivable
for $10.8 million. The long-term note was subsequently reserved in full and
additional operating losses were incurred through the date of sale resulting in
total losses associated with the discontinued operations of approximately $7.2
million, net of tax, or $.32 per share, and $8.2 million, net of tax, or $.38
per share for the three and six months ended March 30, 1996, respectively.
4. Long-term debt
During the second quarter ended March 30, 1996, the Company entered into a
credit agreement ("the Agreement") with a syndicate of lenders led by Chase
Manhattan Bank (National Association) as Administrative Agent. The credit was
obtained to finance a special dividend payable March 5, 1996 (the "Special
Dividend") and related recapitalization costs (See notes 5 & 6). Proceeds from
borrowings were used to fund the Special Dividend and any unutilized credits may
be used to fund ongoing working capital and capital expenditure requirements.
-5-
<PAGE>
The Agreement provides for total credit facilities of $250.0 million,
consisting of $155.0 million in term loans, maturing at various dates through
March 31, 2004, and a $95.0 million reducing revolving line of credit, maturing
at various dates through March 31, 2002. The commitment levels on the revolving
line range from a high of $95.0 million for the period March 4, 1996 through
September 30, 1997 to a low of $33.3 million for the period September 30, 2001
through March 31, 2002. Mandatory repayments of debt in defined amounts are
required in the event of certain triggering events including the sale of assets
and the achievement of certain financial ratios.
The debt bears interest at either the London Interbank Offered Rate ("LIBOR")
or at the bank's "base rate", whichever the Company chooses for each tranche due
at various maturity dates, plus an "applicable margin" (based on certain
financial ratios) ranging from 1.50% to 3.00% on the LIBOR rate and .25% to
1.75% on the base rate. Interest is payable quarterly or upon the maturity of
the LIBOR contracts, whichever period is shorter. The interest rate at March
30, 1996 was 7.32% on the revolver and $65.0 million in term loans and 8.32% on
the remaining balance.
The Company is required to maintain certain financial ratios under the
Agreement. In addition, the Agreement also places restrictions on disposals of
assets, mergers and acquisitions, dividend payments, investments and additional
debt. The Company was in compliance with all applicable covenants as of March
30, 1996.
In connection with the Agreement, the Company must enter into and maintain,
within 120 days of the closing date, Interest Rate Protection Agreements to
protect itself against three month LIBOR rates exceeding 9% per annum as to a
notional principal amount equal to $100 million. On April 17, 1996, the Company
entered into a two year Interest Rate Collar Agreement to hedge a notional
amount of $100 million, with an effective date of May 9, 1996. The cap rate is
8.0% with the floor rate at 5.0%, and the floating rate option at three month
LIBOR.
The Company pays fees on the unused commitments at a rate of 3/8 of 1% or 1/2
of 1% depending on the Company's total leverage ratio as defined. As of March
30, 1996, $65.0 million of the revolver was unused.
Total maturities of long-term debt over the next five fiscal years and
thereafter at March 30, 1996 are as follows (in thousands):
<TABLE>
<S> <C>
1996 $ -
1997 $ 6,900
1998 $ 8,975
1999 $ 10,250
2000 $ 15,875
Thereafter $143,000
--------
Total maturities $185,000
========
</TABLE>
The Company capitalized debt issue costs directly associated with the issuance
of the Agreement totaling $5.5 million. These costs are included in other
assets and will be amortized over the term of the debt agreement.
5. Stockholders' Equity/(Deficiency)
On January 17, 1996 the Company announced the declaration of a Special Dividend
of $10 per share of common stock to shareholders of record on February 20, 1996.
The announcement was a result of the Company's initiative to explore strategic
alternatives aimed at increasing shareholder value which began at the end of
fiscal 1995. Total shares outstanding as of the record date were approximately
24.0 million resulting in dividends of approximately $240 million, which were
paid on March 5, 1996.
On February 15, 1996 Warburg Pincus Capital Partners, L.P. ("Warburg"), the
Company's largest shareholder, exercised warrants to purchase approximately 2.7
million shares of common stock at an exercise price of $2.70 per share.
6. Nonrecurring Charges
In connection with the Special Dividend (see note 5), the Company also made
equitable adjustments to outstanding employee stock options. As a result of the
adjustments, the Company recorded noncash compensation expense totaling $8.8
million during the second quarter of fiscal 1996. Also included as nonrecurring
charges are $3.3 million in legal and various other fees associated with the
Special Dividend and the Company's exploration of strategic alternatives.
-6-
<PAGE>
ADVO, Inc.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations
- ---------------------
For the second quarter of fiscal 1996, revenues of $232.0 million decreased
$7.6 million or 3.2% from the comparable period of the prior fiscal year. The
3.2% decline in revenues was related to both volume and price per piece
declines. The price declines were primarily caused by decreases in shared mail
product weights. Pieces per package for the quarter were 7.58, down 2.7% from
the prior year, while total packages mailed increased from 801.7 million to
803.0 million. Year to date fiscal 1996 revenues remained relatively flat,
increasing approximately $.8 million over the prior fiscal year. Pricing
increases achieved due to the pass through of paper cost increases and the
postal rate increase effective January 1, 1995 were offset by volume declines
and previously mentioned product weight declines. Year to date total packages
delivered increased from 1,588 million in fiscal 1995 to 1,602 million in fiscal
1996. However, total pieces per package decreased 3.6% from the prior year to
7.67.
Cost of sales as a percentage of revenues increased 3.8% to 78.9% for the
current six month period over the prior year six month period. In absolute
terms, year to date cost of sales increased $19.1 million. Postage costs and
print costs (inclusive of paper) increased 3% and 11%, respectively over the
comparable period of the prior year. For the three months ended March 30, 1996,
cost of sales as a percentage of revenues increased 3.2% to 79.9% over the same
three months of the prior fiscal year. In absolute terms, cost of sales
increased $1.6 million. Print costs (inclusive of paper) increased 8.7% while
postage costs decreased 3.1%. The decline in postage expense was associated
with the decrease in the product weights and the decrease in pieces per package
of the packages mailed in the second quarter of fiscal 1996 as compared to the
second quarter of fiscal 1995.
Selling expenses, including the provision for bad debts, remained relatively
constant at 13.9% of revenues for the second quarter of fiscal 1996 when
compared with the 13.2% for the same quarter of fiscal 1995. Year to date
selling expense as a percentage of revenues remained consistent with the prior
year at a rate of approximately 13.0%. In absolute terms, selling expense for
the fiscal 1996 second quarter and six months ended March 30, 1996 remained
relatively flat as compared to the same periods of fiscal 1995.
General and administrative costs for the three month period ended March 30,
1996 decreased $6.5 million when compared to the prior year second quarter.
General and administrative costs also decreased from 8.1% to 5.6% as a
percentage of revenues for the same period. Year to date, fiscal 1996 costs
compared to fiscal 1995 costs decreased approximately $9.9 million in absolute
terms and to 6.1% from 8.1% as a percentage of revenues. The decrease in
general and administrative costs from fiscal 1995 in absolute terms and as a
percentage of revenues continues to reflect the Company's ongoing focus on
streamlining and re-engineering its processes including the elimination of 381
employees over the last 9 months, as well as the ongoing cost control efforts
implemented by the Company.
In connection with the declaration of the Special Dividend, the Company
recorded $12.1 million in nonrecurring charges during the second quarter of
fiscal 1996. The Company also made equitable adjustments to outstanding
employee stock options as a result of the Special Dividend. These adjustments
mandated the Company record noncash compensation expense of $8.8 million. Also
included as nonrecurring charges were $3.3 million in legal and various other
fees associated with the Special Dividend and the Company's exploration of its
strategic alternatives related to enhancing shareholder value as announced by
the Company in September 1995.
During the quarter ended December 30, 1995 the Company recognized a $2.7
million pretax gain on the sale of its MidCoast Press operation, a commercial
web offset printer. In the first quarter of the previous fiscal year the
Company recognized a $2.2 million pretax gain on the sale of its 50% ownership
in InfoBase Services, a data base joint venture with the Acxiom Corporation.
As a result of the aforementioned, the Company reported a $15.6 million
decrease and a $20.9 million decrease, respectively, in operating income from
the prior year for the three and six month periods ended March 30, 1996.
Excluding the nonrecurring charges, operating income was $1.3 million and $12.2
million for the fiscal 1996 three and six month periods, respectively.
The Company obtained credit facilities totaling $250.0 million during the
second quarter of fiscal 1996. Interest expense and commitment fees related to
the debt totaled $1.4 million.
-7-
<PAGE>
The effective income tax rate for the three months ended March 30, 1996 and
March 25, 1995 was approximately 39%, resulting in a tax benefit in 1996 and a
tax provision in 1995. The effective rate of tax benefit for the six months
ended March 30, 1996 was 68% due to the significant losses caused by the
nonrecurring charges. The effective tax rate for the six months ended March 25,
1995 was 39%.
Earnings (loss) per share from continuing operations for the three months and
six months ended March 30, 1996 were significantly impacted by the loss incurred
by the Company due to the $12.1 million in nonrecurring charges. Earnings per
share from continuing operations on a fully diluted basis for the fiscal 1995
three and six month periods were $.14 and $.58, respectively. Losses per share
for the comparable periods in fiscal 1996 were $.32 and $.01, respectively.
Common share equivalents were excluded from the fiscal 1996 weighted average
shares because their effect would be anti-dilutive. The weighted average
shares, including common stock equivalents, related to fiscal 1995 fully diluted
calculations for the three and six months ended March 25, 1995 were both 23.3
million shares. Weighted average common shares on a fully diluted basis for the
three and six months ended March 30, 1996 were 22.4 million shares and 21.6
million shares, respectively.
Financial Condition
- -------------------
Working Capital decreased $47.6 million to $11.3 million at March 30, 1996 from
$58.9 at September 30, 1995. The decrease in working capital is mainly
attributable to the liquidation of the available-for-sale securities in
connection with the payment of the Special Dividend by the Company on March 5,
1996. The working capital ratio at March 30, 1996 was 1.12 compared to 1.61 at
September 30, 1995.
On March 4, 1996, the Company entered into a credit agreement ("the Agreement")
with a syndicate of lenders led by Chase Manhattan Bank (National Association)
as Administrative Agent. The credit was obtained to finance the $10 per share
Special Dividend and related costs incurred by the Company to explore strategic
alternatives aimed at increasing shareholder value. At March 30, 1996, there
was $185.0 million of debt outstanding, with $4.9 million of the balance
classified as current. The Company capitalized debt issue costs totaling $5.5
million.
Total stockholders' equity decreased approximately $227.1 million from
September 30, 1995 to a net deficiency of $96.7 million at March 30, 1996. The
decrease was primarily the result of the $10 per share Special Dividend paid by
the Company totaling approximately $240 million. The year to date net loss of
$8.3 million, primarily caused by the nonrecurring charges along with the year
to date losses from discontinued operations of $8.2 million, also added to the
decrease in stockholders' equity. These decreases were offset in part by $2.0
million in employee option exercises, $7.2 million from the exercise by Warburg
Pincus Capital Partners, L.P. of their warrant to obtain 2.7 million shares of
ADVO common stock, and $3.7 million from the tax benefit related to employee
restricted stock vesting and option exercises.
Liquidity
- ---------
The Company continues to rely on funds generated from continuing operating
activities as its primary operational resource. However, unused credit
commitments from the Agreement may also be utilized by the Company for operating
activities. Total cash and cash equivalents for the six months ended March 30,
1996 decreased $16.1 million to $7.8 million from September 1995. The decrease
was a result of the Special Dividend paid by the Company in March 1996. The
source of funds to pay the dividend resulted from the sales and maturities of
the available-for-sale securities (net of purchases) of $30.9 million, the
$195.0 million in proceeds from borrowings obtained in connection with the new
credit agreement and cash on hand. Other items contributing to the change in
cash and cash equivalents were $7.8 million in capital expenditures, which
primarily relate to the purchase of lap top computers for the Company's sales
force and the software development of new financial and operational systems; and
those items previously addressed in the financial condition section that
affected the change in working capital and the change in stockholders' equity.
Prospective Events
- ------------------
In March 1996, the United States Postal Service approved a postal rate
reclassification reform to be implemented July 1, 1996. The reform calls for a
new Enhanced Carrier Route subclass for third-class mail, which will result in
lower postal costs for efficient mailers like ADVO.
-8-
<PAGE>
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibit Index
Sequential
Exhibit No. Exhibits Page Number
----------- -------- -----------
10 Executive Severance Agreement dated
April 3, 1996 between ADVO, Inc. and
Larry G. Morris.
11 Statement re computation of per share
(loss) earnings.
27 Financial Data Schedule
(b) Reports on Form 8-K
-------------------
A report on Form 8-K dated January 26, 1996 was filed by the Company
during the quarter ended March 30, 1996. The Form reported under Item 5
thereof, the declaration of a special dividend distribution of $10 per
share in cash, on shares of the Company's common stock, $.01 par value,
payable on March 5, 1996.
A second report on Form 8-K dated March 5, 1996 was filed by the Company
during the quarter ended March 30, 1996. The Form reported under Item 5
thereof, that on March 4, 1996 the Company entered into a credit
agreement with a syndicate of lenders led by the Chase Manhattan Bank
(National Association) as Administrative Agent. The Credit Agreement
provides for total credit facilities of $250 million consisting of a $95
million reducing revolving credit line and $155 million of term loans.
- --------------------------------------------------------------------------
Omitted from this Part II are items which are inapplicable or to which the
answer is negative for the period covered.
- 9 -
<PAGE>
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.
ADVO, Inc.
Date: May 9, 1996 By:ROBERT S. HIRST\s\
----------- -----------------------------
Robert S. Hirst
Vice President and Controller
(Principal Accounting Officer)
- 10 -
<PAGE>
Exhibit No. 10
April 3, 1996
Mr. Larry G. Morris
15 Lucy Way
Simsbury, CT 06070
Dear Larry:
This letter will confirm our discussion regarding the end of your assignment on
the Clientizing Quality Action Team. Moreover, this letter will further serve
as our Agreement on the terms and conditions of your position elimination and
wage continuation arrangement ADVO will provide you.
1. Your termination date from your position with ADVO is April 30, 1996.
2. Effective at the end of business on April 30, 1996, you will be placed on
inactive wage continuation pay status for a period of 52 weeks. While on
inactive pay status, you will be paid on each regular pay date throughout
this period at your current rate of pay. You will be available for
consulting on transitional matters on a reasonable basis. If you were
participating in the Company's medical, dental, group universal life,
dependant life, executive disability or 401(k) on your termination date, you
may continue such participation up to the date your wage continuation ends
(provided you make any required associate contributions). You will continue
to be covered by the Company's basic group life insurance plan. Matching
employer Social Security contributions will be made on your behalf
throughout this period as well. You will not be eligible for Workers'
Compensation, vacation accrual or auto allowance beyond your termination
date. Any earned vacation pay you have not taken will be paid in a lump sum
and added to your last wage continuation payment.
You will also resign your seat on the ADVO Board of Directors as of
April 30, 1996.
3. Pursuant to your August 21, 1991 Employment Agreement with ADVO (the
"Employment Agreement"), you will be paid a target bonus at the time you
leave the inactive payroll or November 15, 1996, whichever comes first. You
will have no other bonus entitlement.
4. Per the Employment Agreement, you have the right to request the amounts
described above in one lump sum, which you must do before May 10, 1996. The
terms of the Employment Agreement will apply, in this case.
<PAGE>
Mr. Larry Morris
April 3, 1996
Page Two
5. You will be given full outplacement assistance at Beam Pines, Inc. Your
contact within that company will be Mike Keosky (203-678-2686) and Tom Van
Berkem will be your ADVO contact for that purpose.
6. All company property (i.e. keys, security access card, etc.) must be
returned to me. You will maintain use of your lap top computer while you are
on inactive status, after which it needs to be returned to my office.
7. If you obtain other employment during your period of wage continuation and
inactive pay status, you must notify me of such other employment. You will
then be removed from inactive pay status on the day on which you begin such
employment. Your benefits will terminate and all remaining severance will be
given to you in a lump sum, less applicable withholding.
8. ADVO will not contest on the basis of termination, any application which you
make for unemployment compensation at the appropriate agency as long as all
other aspects of the application are accurate.
9. As long as you are on the inactive wage continuation status described, all
stock options shall continue to vest on their normal schedule. When you
leave inactive wage continuation status, all vesting shall cease. You will
have three months after that date in which to exercise any outstanding
options. If you should leave the payroll prior to any next Vesting Date (as
defined in the Employment Agreement), you will have the benefit of the
additional vesting described in Section 7.1 of the Employment Agreement. You
can contact David Stigler directly at 203-285-6120 for more information
about stock-related matters.
10. Within 14 days of the end of your wage continuation period, you will receive
notification of your right under COBRA legislation to elect continuation of
group coverage under the Company's medical and/or dental plans.
Additionally, you may have the option to convert your group medical coverage
to an individual policy basis. You will receive the written COBRA notice
from the Corporate Benefits Department (203-285-6307), and may inquire to
them about details regarding these privileges.
11. In consideration for the outplacement described in Paragraph No. 5, which
you would otherwise not have been entitled to, you affirm that your leaving
ADVO is not caused by any act of discrimination by ADVO, its employees,
officers or directors, past or present. You agree not to make any claims of
any kind against ADVO before any agency, court or other forum, and you agree
to release ADVO from any claim, known or unknown, arising in any way from
any actions taken by ADVO up to the date of the signing of this
<PAGE>
Mr. Larry Morris
April 3, 1996
Page Three
Agreement including, but not limited to, Title VII of the Civil Rights Act
of 1964 as Amended, 42 U.S.C. 2000E et seq.; the Employee Retirement Income
Security Act of 1974 ("ERISA"), 29 U.S.C. 1001 et. seq.; the Age
Discrimination in Employment Act, as amended and the Civil Rights Act of
1991, and any claims for attorney's fees, expenses, or costs of litigation.
12. Additionally, as consideration for the outplacement as described above in
Paragraph 5, you promise not to disparage or otherwise reflect negatively
upon the Company, its personnel or its business practices. You further agree
to keep the terms of this agreement completely confidential.
13. This agreement supersedes all other Agreements or understandings, written or
oral, that you may have had with ADVO, Inc. on the subject matter discussed
above, except the ongoing obligations contained in the Employment Agreement,
which will continue in full force and effect.
14. You agree that if you should knowingly violate the terms of this Agreement,
or attempt to repudiate the release, you will reimburse the Company for all
related costs, including attorney's fees.
15. You acknowledge that you have read this Agreement carefully and fully
understand its terms. You have been advised to seek counsel and have had an
opportunity to do so, and you are executing this Agreement voluntarily and
knowingly. You also acknowledge that you have had a reasonable time to
consider this Agreement. You fully understand that signing this Agreement
waives all legal claims against ADVO based on any actions taken by ADVO up
to the date of the signing of this Agreement.
16. In the event that any provision of this Agreement is held to be void and
unenforceable by a Court of competent jurisdiction, the remaining provisions
of this Agreement shall nevertheless be binding upon the parties with the
same effect as though the void or unenforceable part had been deleted. This
Agreement shall be governed by and construed under the laws of the State of
Connecticut and shall not be modified, in whole or in part, except by
agreement in writing signed by ADVO and you.
If you have any questions concerning this matter, please discuss them with me as
soon as possible.
Please signify your acceptance of this Agreement by signing and returning a copy
to me no sooner than April 26, 1996. You will have seven days thereafter within
which you can repudiate this Agreement, whereafter it will be final. We will
proceed to implement this Agreement as if you
<PAGE>
Mr. Larry Morris
April 3, 1996
Page Four
will sign it, but if you fail to do so you will not be entitled to outplacement
as described in Paragraph No. 5.
Sincerely,
Robert Kamerschen
Accepted and agreed to this ____________ day of ____________, 1996.
____________________________________
Larry G. Morris
<PAGE>
Exhibit 11
----------
Page 1 of 2
ADVO, Inc.
COMPUTATION OF PRIMARY PER SHARE (LOSS) EARNINGS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Six months ended Three months ended
----------------------- -------------------------
March 30, March 25, March 30, March 25,
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
(LOSS) EARNINGS APPLICABLE TO COMMON STOCK $(8,337) $11,479 $(14,374) $ 2,803
======== ======= ========= =======
AVERAGE COMMON AND COMMON EQUIVALENT
SHARES
Average common shares outstanding 21,570 20,641 22,368 20,590
Assumed conversion or exercise of:
Warrants - 2,253 - 2,260
Stock Options - 257 - 273
Restricted Stock - 35 - 38
------ ------ ------ ------
Weighted average common and common
equivalent shares (1) 21,570 23,186 22,368 23,161
====== ====== ====== ======
(LOSS) EARNINGS PER COMMON AND COMMON
EQUIVALENT SHARE $ (.39) $ .50 $ (.64) $ .12
======= ======= ======= =======
</TABLE>
(1) Weighted average common and common equivalent shares for the three
and six months ended March 30, 1996 exclude the conversion of common
stock equivalents because their effect would be anti-dilutive.
<PAGE>
Exhibit 11
----------
Page 2 of 2
ADVO, Inc.
COMPUTATION OF FULLY DILUTED PER SHARE (LOSS)EARNINGS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Six months ended Three months ended
---------------------- -----------------------
March 30, March 25, March 30, March 25,
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
(LOSS) EARNINGS APPLICABLE TO FULLY
DILUTED SHARES $(8,337) $11,479 $(14,374) $ 2,803
======== ======= ========= =======
FULLY DILUTED SHARES
Average common shares outstanding 21,570 20,641 22,368 20,590
Assumed conversion or exercise of:
Warrants - 2,280 - 2,280
Stock Options - 353 - 349
Restricted Stock - 53 - 50
------ ------ ------ ------
Fully diluted shares (1) 21,570 23,327 22,368 23,269
======= ======= ======= =======
(LOSS)EARNINGS PER SHARE ASSUMING
FULL DILUTION $ (.39) $ .49 $ (.64) $ .12
======= ======= ======= =======
</TABLE>
(1) Weighted average common and common equivalent shares for the three
and six months ended March 30, 1996 exclude the conversion of common
stock equivalents because their effect would be anti-dilutive.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ADVO, INC.'S
FORM 10Q FOR THE QUARTER ENDED MARCH 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-28-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> MAR-30-1996
<CASH> 7,760
<SECURITIES> 0
<RECEIVABLES> 64,587
<ALLOWANCES> 3,453
<INVENTORY> 7,129
<CURRENT-ASSETS> 101,777
<PP&E> 134,396
<DEPRECIATION> 73,349
<TOTAL-ASSETS> 181,697
<CURRENT-LIABILITIES> 90,490
<BONDS> 180,075
0
0
<COMMON> 278
<OTHER-SE> (96,928)
<TOTAL-LIABILITY-AND-EQUITY> 181,697
<SALES> 0
<TOTAL-REVENUES> 488,523
<CGS> 0
<TOTAL-COSTS> 385,317
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,420
<INTEREST-EXPENSE> 1,354
<INCOME-PRETAX> (435)
<INCOME-TAX> (297)
<INCOME-CONTINUING> (138)
<DISCONTINUED> (8,199)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,337)
<EPS-PRIMARY> (.39)
<EPS-DILUTED> (.39)
</TABLE>
