<PAGE>
FORM 11-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
(X) Annual Report pursuant to Section 15(d) of the Securities Exchange Act of
1934
For the fiscal year ended December 31, 1998
-----------------
or
(_) Transition Report Pursuant to Section 15(d) of the Securities Exchange Act
of 1934
For the transition period from __________________ to _________________
Commission file number 1-11720
-------
MailCoups Inc. 401(k) Savings Plan
------------------------------------------------------
(Full title of the plan)
ADVO, Inc.
One Univac Lane,
P.O. Box 755,
Windsor, CT 06095-0755
-------------------------------------------------------
(Name of issuer of the securities held pursuant to the plan
and the address of its principal executive offices)
<PAGE>
MailCoups, Inc. 401(k) Savings Plan
Annual Report
Index to Form 11-K
Eight-Month Period Ended December 31, 1998
Report of Independent Auditors
Financial Statements:
Statement of Assets Available for Plan Benefits as of
December 31, 1998
Statement of Changes in Assets Available for Plan
Benefits for the Eight-Month Period Ended December 31, 1998
Notes to Financial Statements
Supplemental Schedules:
Schedule I - Schedule of Assets Held for Investment Purposes
as of December 31, 1998
Schedule II - Schedule of Reportable Transactions for the
Eight-Month Period Ended December 31, 1998
Exhibit 23 - Consent of Ernst & Young LLP
Signature
<PAGE>
Report of Independent Auditors
ADVO, Inc.
Associate Savings Committee
We have audited the accompanying statements of assets available for plan
benefits of the MailCoups, Inc. 401(k) Savings Plan as of December 31, 1998, and
the related statement of changes in assets available for plan benefits for the
eight month period then ended. These financial statements are the
responsibility of the Plan's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the assets available for plan benefits of the Plan at
December 31, 1998, and the changes in its assets available for plan benefits for
the eight month period then ended, in conformity with generally accepted
accounting principles.
Our audit was performed for the purpose of forming an opinion on the financial
statements taken as a whole. The accompanying supplemental schedules of assets
held for investment purposes as of December 31, 1998, and reportable
transactions for the eight month period then ended are presented for purposes of
additional analysis and are not a required part of the financial statements but
are supplementary information required by the Department of Labor's Rules and
Regulations for Reporting and Disclosure under the Employee Retirement Income
Security Act of 1974. These supplemental schedules are the responsibility of the
Plan's management. The fund information in the statement of changes in assets
available for plan benefits is presented for the purposes of additional analysis
rather than to present the changes in assets available for plan benefits of each
fund. The supplemental schedules and fund information have been subjected to the
auditing procedures applied in our audit of the financial statements and, in our
opinion, are fairly stated in all material respects in relation to the financial
statements taken as a whole.
/s/ Ernst & Young LLP
Hartford, Connecticut
June 15, 1999
<PAGE>
MailCoups, Inc.
401(k) Savings Plan
Statement of Assets Available for Plan Benefits
December 31, 1998
Assets
------
Investments at Fair Value:
Collective Investment Fund:
Income Accumulation Fund for Employee
Retirement Plans $ 5,042
Mutual Funds:
Templeton Foreign Fund 6,043
Money Market Fund-MasterWorks 9,137
S&P 500 Stock Fund-MasterWorks 144,472
ADVO Custom Funds:
ADVO Fidelity Asset Manager Fund 54,186
ADVO Berger 100 Fund 52,106
ADVO IDS New Dimensions Fund 98,981
ADVO Stock Fund 35,181
----------
Total Investments 405,148
Participant Loans 8,896
Receivables:
Employees' Contributions 15,093
Employer's Contributions 1,793
----------
Total Receivables 16,886
----------
Assets Available for Plan Benefits $ 430,930
==========
See accompanying notes to financial statements.
- 3 -
<PAGE>
<TABLE>
<CAPTION>
MailCoups, Inc.
401(k) Savings Plan
Statement of Changes in Assets Available for Plan Benefits
Eight-Month Period Ended December 31, 1998
Fund Information
---------------------------------------------------------------------------------------------------
Income
Accumulation Templeton Money Market S&P 500 ADVO Fidelity
Fund for Employee Foreign Fund- Stock Fund- Asset Manager
Retirement Plans Fund MasterWorks MasterWorks Fund
---------------- ---- ----------- ----------- ----
<S> <C> <C> <C> <C> <C>
Addition to assets attributed
to:
Investment income:
Net realized appreciation in
fair value of investments $ 36 $ 20,174 $ 7,305
Interest $326
Dividends 593 $ 110 6,793
Contributions:
Employee 2,674 1,270 2,644 28,639 20,019
Employer 276 131 315 3,098 2,151
Participant rollover 3,211 4,230 7,888 93,004 31,811
--------- ------ -------- -------- ---------
Total additions 6,487 6,260 10,957 151,708 61,286
--------- ------ -------- -------- ---------
Benefit payments 1 2 107 106
Interfund transfers (901) (1) (1,426) (1,968) (3,407)
--------- ------ -------- -------- ---------
Net increase in assets
available for plan benefits 5,585 6,259 9,529 149,633 57,773
Assets available for plan
benefits:
Beginning of the period - - - - -
--------- ------ -------- -------- ---------
End of period $ 5,585 $ 6,259 $ 9,529 $149,633 $ 57,773
========= ====== ======== ======== =========
<CAPTION>
Fund Information
----------------------------------------------
ADVO ADVO IDS New ADVO
Berger 100 Dimensions Stock Loan
Fund Fund Fund Fund TOTAL
---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C>
Addition to assets attributed
to:
Investment income:
Net realized appreciation in
fair value of investments $ 14,268 $ 21,971 $ 5,444 $ 69,198
Interest $ 75 401
Dividends 7,496
Contributions:
Employee 8,172 19,454 8,495 91,367
Employer 886 2,005 985 9,847
Participant rollover 30,259 60,793 21,783 252,979
-------- -------- -------- -------- ---------
Total additions 53,585 104,223 36,707 75 431,288
-------- -------- -------- -------- ---------
Benefit payments 104 38 358
Interfund transfers 20 (1,154) 17 8,820 -
-------- -------- -------- -------- ---------
Net increase in assets available
for plan benefits 53,605 102,965 36,686 8,895 430,930
Assets available for plan
benefits:
Beginning of the period - - - - -
-------- -------- -------- -------- ---------
End of period $ 53,605 $ 102,965 $ 36,686 $ 8,895 $ 430,930
========= ======== ======== ======== =========
</TABLE>
See accompanying notes to financial statements
- 4 -
<PAGE>
MailCoups, Inc.
401(k) Savings Plan
Notes tO Financial Statements
December 31, 1998
A. Description of the Plan
-----------------------
The following description of the MailCoups, Inc. ("MailCoups") 401(k) Savings
Plan ("Plan") provides only general information. Participants should refer to
the Plan agreement for a more complete description of the Plan's provisions.
MailCoups is a wholly owned subsidiary of ADVO, Inc. (the "Company").
General
- -------
The Plan is a defined contribution plan covering all full-time employees
("participants") of MailCoups who have completed one year of service. It is
subject to the provisions of the Employee Retirement Income Security Act of
1974, (ERISA). The Plan was established in May 1998, therefore, the financial
statements reflect an eight-month period.
Contributions
- -------------
MailCoups matches 10% of a participant's pay deferral contributions up to a
maximum dollar amount of $1,000. Participants may contribute up to 15 percent of
their annual compensation on a pretax basis.
Participant Accounts
- --------------------
Each participant's account is credited with the participant's contribution,
MailCoups' matching contribution, and the Plan earnings. The benefit to which a
participant is entitled is the benefit that can be provided from the
participant's vested account.
Vesting
- -------
Participants are immediately vested in their voluntary contributions plus actual
earnings thereon. Vesting in the MailCoups matching portion of the participants'
accounts plus earnings thereon is based on years of continuous service. A
participant is 100% vested after six years of credited service.
Investment options
- ------------------
Upon enrollment in the Plan, a participant may direct both the participant's and
MailCoups matching contributions in several investment vehicles. The various
investment vehicles a participant may elect as of December 31, 1998 are:
. The Income Accumulation Fund for Employee Retirement Plans (" Income
Accumulation Fund") is a collective investment fund which invests in
guaranteed investment contracts, short-term fixed income securities and
money market instruments.
. The Templeton Foreign Fund is a registered mutual fund which invests in
stocks and debt obligations of companies and governments outside the United
States.
. The Money Market Fund-MasterWorks is a registered mutual fund comprised of
instruments with maturities of less than one year, including commercial
paper, corporate notes and other high quality short-term instruments.
. The S&P 500 Stock Fund-MasterWorks is a registered mutual fund comprised of
stock in S&P 500 companies
- 5 -
<PAGE>
MailCoups, Inc.
401(k) Savings Plan
Notes to Financial Statements
December 31, 1998
A. Description of Plan (cont.)
--------------------------
. The ADVO Fidelity Asset Manager Fund allocates its assets across domestic
and foreign stocks, bonds, and short-term instruments and also includes
money market instruments which serve as overnight sweep investments.
. The ADVO Berger 100 Fund invests primarily in domestic and foreign stocks of
established companies and also includes money market instruments which serve
as overnight sweep investments.
. The ADVO IDS New Dimensions Fund is a growth fund comprised primarily of
common stocks in U.S. and foreign companies showing potential for
significant growth and also includes money market instruments which serve as
overnight sweep investments.
. The ADVO Stock Fund, consists primarily of ADVO, Inc common stock and also
includes money market instruments which serve as overnight sweep
investments.
Payment of Benefits
- -------------------
On termination of service due to death, disability, or retirement, a participant
becomes fully vested and may elect to receive a lump-sum amount or periodic
installments equal to the value of their account. For termination of service
due to other reasons, a participant receives the value of the vested interest in
their account as a lump-sum amount or in periodic installments.
Loans
- -----
Participants may borrow funds subject to certain restrictions and the consent of
MailCoups.
Expenses of the Plan
- --------------------
All costs and expenses of operation and administration of the Plan are paid by
MailCoups.
Forfeited Accounts
- ------------------
At December 31, 1998, forfeited nonvested accounts totaled $71. These accounts
will be used to reduce future MailCoups' contributions or to pay Plan fees and
expenses.
ADVO Custom Funds
- -----------------
Employer custom funds include the following: ADVO Fidelity Asset Manager Fund,
ADVO Berger 100 Fund, ADVO IDS New Dimensions Fund and ADVO Stock Fund. Custom
funds are unregistered custom separate accounts maintained by the Trustee and
established by the Company for the benefit of the Plan and any other qualified
plan of the Company. Ownership is represented by each plans' proportionate
units of participation.
Although the performance of the custom fund is based on the performance of the
underlying mutual fund or company common stock, the value of a fund unit is
different from the net asset value of the mutual fund or the price of one share
of common stock. Changes in the unit value of the fund will be affected by
price changes in the underlying mutual fund or common stock, earnings,
dividends, interest and applicable fees and expenses of the fund. Additionally,
the funds maintain highly liquid money market instruments which may contribute
towards differences in performance between the fund units and net asset value of
the underlying mutual funds or common stock.
- 6 -
<PAGE>
MailCoups, Inc.
401(k) Savings Plan
Notes to Financial Statements
December 31, 1998
B. Summary of Accounting Policies
------------------------------
Valuation of Investments
- ------------------------
The fair value of investments in Mutual Funds is based on the quoted market
prices of the shares held in these funds at year-end.
The fair value of investments in the Collective Investment Fund and the ADVO
Custom Funds is based on the net asset value ("NAV") of participation units held
by the Plan at year-end. These NAV's are calculated based on the current market
value of the underlying securities and the current number of units held by
participants in these funds.
Participant loans receivable are stated at net realizable value which
approximates fair value.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires plan management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. While management believes that the estimates and related assumptions in
the preparation of these financial statements are appropriate, actual results
could differ from those estimates.
C. Investments
-----------
The Plan's investments are primarily held by bank-administered trust funds. The
following table presents the fair value of investments. Investments that
represent 5% or more of the Plan's assets are separately identified by the
following "*".
December 31,
-------------
1998
----
Collective Investment Fund:
- ---------------------------
Income Accumulation Fund $ 5,042
Mutual Funds
- ------------
Templeton Foreign Fund 6,043
Money Market Fund-MasterWorks 9,137
S&P 500 Stock Fund-MasterWorks 144,472*
ADVO Custom Funds:
- ------------------
ADVO Fidelity Asset Manager Fund 54,186*
ADVO Berger 100 Fund 52,106*
ADVO IDS New Dimensions Fund 98,981*
ADVO Stock Fund 35,181*
--------
TOTAL $405,148
========
- 7 -
<PAGE>
MailCoups, Inc.
401(k) Savings Plan
Notes to Financial Statements
December 31, 1998
D. Plan Termination
----------------
Although it has not expressed any intent to do so, the Company has the right
under the Plan to discontinue contributions at any time and to terminate the
Plan subject to the provisions of ERISA. In the event of plan termination,
participants will remain vested in their accounts. After payment of expenses,
distributions would be made pro rata based on the value of such accounts.
E. Income Tax Status
-----------------
The Plan has not received a determination letter from the Internal Revenue
Service stating that the Plan is qualified under Section 401(a) of the Internal
Revenue Code. However, the Plan Administrator believes that the Plan is
qualified and, therefore, the related trust is exempt from taxation.
F. Asset Value Per Fund Unit
-------------------------
The number of units, and the asset value per unit, in the Plan's investments at
December 31, 1998 are as follows:
1998
----------------
Asset Number
Value of
Per Unit Units
-------- ------
Income Accumulation Fund $14.81 336
Templeton Foreign Fund 8.39 720
Money Market Fund- MasterWorks 1.00 9,137
S&P 500 Stock Fund - MasterWorks 24.61 5,870
ADVO Fidelity Asset Manager Fund 18.60 2,913
ADVO Berger 100 Fund 18.03 2,890
ADVO IDS New Dimensions Fund 29.08 3,404
ADVO Stock Fund 21.46 1,639
G. Year 2000 (Unaudited)
---------------------
The Plan Sponsor has determined that it will be necessary to take certain steps
in order to ensure that the Plan's computer systems will function properly with
respect to dates in the Year 2000 and thereafter. The Plan Sponsor has
identified three areas of compliance which are affected by the Year 2000 issue;
information technology ("IT") systems, non-IT systems, and third parties.
The Plan Sponsor is assessing both IT and non-IT systems and has modified and/or
replaced or is in the process of modifying and/or replacing systems which are
not compliant. As part of the third party relationship assessment, the Plan
Sponsor is sending out questionnaires and surveying third parties to ensure
products, services or interfaces are in compliance or expected to be in
compliance no later than September 30, 1999.
If modifications and /or replacements of IT systems associated with the data
processing of the Plan, the Plan Sponsor or its third parties (service
providers) are not completed timely, the Year 2000 issue could have a material
impact on the operations of the Plan. Currently, the Plan Sponsor is developing
formal contingency plans that address non-compliance.
The Plan Sponsor is currently proceeding on schedule in its overall Year 2000
program and is approximately 75% complete as of April 30, 1999. The project is
estimated to be completed no later than September 1999.
- 8 -
<PAGE>
S U P P L E M E N T A L S C H E D U L E S
<PAGE>
Schedule I
MailCoups, Inc.
401(k) Savings Plan
Schedule of Assets Held for Investment Purposes
December 31, 1998
<TABLE>
<CAPTION>
Description of Investment,
Identity of Issue, Borrower, Lessor Including Maturity Date, Rate of
or Similar Party Interest, Par or Maturity Value Cost Current Value
- ------------------------------------- -------------------------------- -------- -------------
<S> <C> <C> <C>
Collective Investment Fund:
Income Accumulation Fund 336 units $ 5,042 $ 5,042
Mutual Funds:
Templeton Foreign Fund 720 units 6,006 6,043
Money Market Fund-MasterWorks 9,137 units 9,137 9,137
S&P 500 Stock Fund-MasterWorks 5,870 units 124,530 144,472
ADVO Custom Funds:
ADVO Fidelity Asset Manager Fund: 2,913 units 47,045 54,186
ADVO Berger 100 Fund: 2,890 units 37,838 52,106
ADVO IDS New Dimensions Fund: 3,404 units 77,120 98,981
ADVO Stock Fund: 1,639 units 29,744 35,181
Participant Loans 8.75 - 9% -- 8,896
-------- ---------
TOTAL -- $ 336,462 $414,044
======== =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Schedule II
MailCoups, Inc.
401(k) Savings Plan
Schedule of Reportable Transactions
For the Eight-Month Period Ended December 31, 1998
Category (iii) -- Series Transactions in excess of 5% of plan assets
- ------------------------------------------------------------------------
Current
Expenses Value of
Incurred Asset on Net
Identity of Description Purchase Selling Lease with Cost of Transaction Gain
Party Involved of Assets Price Price Rental Transaction Asset Date (Loss)
- -------------- ----------- -------- ------- ------ ----------- ------- ----------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Collective Income
Investment Fund - Accumulation
Merrill Lynch Fund 5,638 5,638 5,638
" " " " 733 733 733
Mutual Funds - S&P 500
Merrill Lynch Stock Fund-
MasterWorks 126,485 126,485 126,485
" " " " 2,187 1,955 2,187 232
" " Money Market
Fund -
Masterworks 10,572 10,572 10,572
" " " " 1,435 1,435 1,435
" " Templeton Foreign
Fund 6,006 6,006 6,006
ADVO Custom ADVO Fidelity
Funds Asset Manager
Fund 50,558 50,558 50,558
" " " " 3,676 3,513 3,676 163
" " ADVO IDS New
Dimensions
Fund 78,364 78,364 78,364
" " " " 1,354 1,244 1,354 110
" " ADVO Berger
100 Fund 37,838 37,838 37,838
" " ADVO Stock
Fund 29,780 29,780 29,780
" " " " 42 35 42 7
</TABLE>
There were no category (i), (ii) or (iv) reportable transactions during 1998.
Note: Fair value at the transaction date is equivalent to the
purchase cost or selling price.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
ADVO, Inc, Associate Savings Committee has duly caused this annual report to be
signed on its behalf by the undersigned hereunto duly authorized.
MailCoups, Inc.
401(k) Savings Plan
Date: June 28, 1999 By: \s\ WILLIAM E. CROWLEY
------------- ----------------------------------
William E. Crowley
Committee Secretary
ADVO, Inc. Associate Savings Committee
<PAGE>
Exhibit 23
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement
(Form S-8) Number 333-81365 pertaining to the MailCoups, Inc. 401(k) Savings
Plan of our report dated June 15, 1999, with respect to the financial
statements and schedules of the MailCoups, Inc. 401(k) Savings Plan included
in this Annual Report (Form 11-K) for the eight month period ended December
31, 1998.
\s\Ernst & Young LLP
Hartford, Connecticut
June 24, 1999
