<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------------------
FORM 10-K
--------------------------------------
(Mark One)
__X__ Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 31, 1999 or
______ 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 of Incorporation) (IRS Employer Identification Number)
19975 VICTOR PARKWAY
LIVONIA, MI 48152
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER: (734) 591-3000
----------------------------------------------------
Securities registered pursuant to Section 12(b) of the Act:
TITLE of each class Exchange on which registered
------------------- ----------------------------
Common Stock, par value $.01 per share New York Stock Exchange
9.55% Senior Notes Due 2003 Not Applicable
6 5/8% Senior Notes Due 2009 Not Applicable
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and, (2) has been subject to such filing
requirements for the past 90 days:
Yes __X__ No ______
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
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As of March 20, 2000, there were 55,482,513 shares of the Registrant's Common
Stock outstanding. As of such date, the aggregate market value of the voting
stock held by non-affiliates* of the registrant was $1,678,859,217.
The applicable portions of the Company's Proxy Statement for the 2000 Annual
Meeting of Stockholders to be held on or about May 16, 2000 are incorporated by
reference herein into Part III of this Annual Report on Form 10-K.
* Without acknowledging that any individual director or executive officer of
the Company is an affiliate, the shares over which they have voting control
have been included as owned by affiliates solely for purposes of this
computation.
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PART I
ITEM 1. BUSINESS
THE COMPANY
Valassis Communications, Inc. leads the marketing services industry by
providing a wide range of strategic marketing solutions for manufacturers and
retailers. We generate most of our revenues by printing and publishing cents-off
coupons and other consumer purchase incentives primarily for package goods
manufacturers. We are one of the country's largest printers and publishers of
these coupons.
We offer a broad array of marketing products and services, including:
- Free-Standing Inserts ("FSIs") - four-color promotional booklets
containing the coupons of multiple advertisers that are
distributed by us to over 58 million households through Sunday
newspapers;
- Valassis Impact Promotions ("VIP") - solo specialized promotional
programs for single advertisers;
- Customer Relationship Marketing - targeted promotions based on
consumer purchase behavior;
- Valassis Sampling - newspaper-delivered sampling programs;
- Run-of-Press ("ROP") - advertising on the pages of newspapers;
- Internet and E-Commerce services - online couponing, online
grocery and e-commerce media sales.
We produced our first FSI in 1972. In 1999, we inserted our cooperative
FSIs in the Sunday edition of over 530 newspapers with a combined average paid
circulation of approximately 58.0 million on 43 publishing dates. By comparison,
there were approximately 93.3 million households in the United States, according
to information published in 1990 by the U.S. Census Bureau.
BUSINESS STRATEGY
We believe that our existing products put us in a strong position to meet
the mass and geo-demographic targeted needs of our customers. Our strategy is to
build on the strength of our core FSI product to offer a range of integrated
marketing solutions to a broader base of customers. In order to accomplish this,
we will continue our commitment to the FSI segment of our business, while
providing high levels of product quality and customer service. In addition, we
will attempt to capitalize on our expertise in consumer promotion to further
expand our existing VIP, and Targeted Marketing Services divisions and to
further develop our Customer Relationship Marketing and E-Commerce divisions. We
will continue to offer more highly targeted and one-to-one marketing solutions
via direct mail and the Internet utilizing database marketing techniques. In
addition, we plan to continue to develop new technology-based businesses and
grow through acquisitions and joint ventures.
THE COMPANY'S PRODUCTS
We print and publish cents-off coupons, refund offers, premiums,
sweepstakes and contests distributed to households throughout the United States.
We offer our customers a variety of consumer promotion alternatives. Depending
upon the particular promotion goal, a customer can choose to include its
promotional materials in FSIs or ROP, can elect to distribute a customized
printed solo insert (VIP), or distribute a product sampling program. We market
our products through our own sales force and rely to a significant extent on
repeat business.
Our Marketing Services Consultants personally call on existing customers to
maintain relationships and on potential customers to describe the advantages
afforded by our products compared to other promotion alternatives. In addition,
approximately 25% of each cooperative FSI program is sold to direct mail
marketers who purchase space (referred to as "remnant space") at reduced costs
in exchange for accepting such space on a space-available basis.
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FREE-STANDING INSERTS (FSIS)
Most of the consumer purchase incentives that we publish are featured in
cooperative FSIs which are four-color promotional booklets printed by us at our
own facilities and distributed through Sunday newspapers. Cooperative FSIs are
booklets containing promotions from multiple advertisers. We produced our first
FSI in 1972. In 1999, we inserted our cooperative FSIs in the Sunday edition of
over 530 newspapers with a combined average paid circulation of approximately
58.0 million on 43 publishing dates. By comparison, there were approximately
93.3 million households in the United States, according to information published
in 1990 by the U.S. Census Bureau.
As a natural extension of our U.S. business, Valassis of Canada publishes
the Shop & Save FSI in Canada. The Shop & Save FSI is distributed to
approximately 5 million Canadian households through weekend home-delivered
newspapers.
Many FSI sales are made significantly in advance of program dates. We
typically announce our annual publication schedule approximately 12 to 18 months
in advance of the first publication date and customers may reserve space at any
time thereafter. Account Managers work closely with customers to select their
FSI publication dates from our schedule and coordinate all aspects of FSI
printing and publication, as well as to obtain commitments from customers in the
form of signed contracts. Our proprietary order entry and ad placement software
allows us to produce as many different FSI versions as customers require,
typically over 270 different layout versions per publication date. By offering
different versions in different markets, we offer our customers greater
flexibility to target precise geographic areas or tailor promotional offers to
particular markets by varying coupon values, promotion copy and terms of the
promotional offer.
At the end of the selling cycle for each cooperative FSI program, there is
generally space in the booklet that has not been sold. This remnant space is
sold at a discount, primarily to direct mail marketers, who place themselves on
a waiting list for space that may become available. We select direct mail
marketers as remnant space customers on the basis of a number of factors,
including price, circulation, reputation and credit-worthiness. Remnant space
customers are subject to being "bumped" in favor of a regular price customer in
need of space at the last minute. Remnant space sales are included in total
cooperative FSI sales for financial reporting purposes.
Total cooperative FSI sales during the year ended December 31, 1999 were
$586.7 million, or 73.8% of our net sales. The top ten FSI customers accounted
for approximately 24% of FSI sales during the year ended December 31, 1999, and
no single customer accounted for more than 10% of FSI sales during the same
period.
VALASSIS IMPACT PROMOTIONS (VIP)
VIP offers its customers specialty print promotion products in multiple,
customized formats such as die- cuts, posters and calendars, as well as
traditional FSI formats. Because these promotions feature only one manufacturer
(referred to as "solos"), the customer has the ability to create a completely
individualized promotion. While VIP does produce printed material for direct
mail programs or for shipment to store locations, its primary product is
newspaper-delivered promotions. VIP offers customers the flexibility to run
promotions any day of the year in any newspaper throughout the United States.
VIP specializes in producing turnkey promotions for franchise and retail
marketers, such as fast food chains, allowing orders to be placed on a national,
regional or local basis.
VIP sales during the year ended December 31, 1999 were $118.1 million, or
14.9% of our net sales. VIP customers are made up primarily of franchise food
and retail operations. Two VIP customers accounted for 28% of VIP sales for the
year ended December 31, 1999, with the top ten customers accounting for
approximately 54% of total VIP sales.
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CUSTOMER RELATIONSHIP MARKETING GROUP (CRMG)
Customer Relationship Marketing allows companies to understand consumer
purchase behavior and to use that information to deliver intelligent, targeted
promotions. The goal of CRMG is to provide retailers with a turnkey service that
builds long-term customer relationships and increases profitability. During
1999, we made a strategic investment in Relationship Marketing Group, Inc.
(RMG). RMG provides a retail-sponsored direct mail vehicle that uses proprietary
software to target frequent shopper households based on prior purchase behavior.
CRMG sales are included in VIP results.
TARGETED MARKETING SERVICES
The Targeted Marketing Services division comprises the following products
and services:
Product Sampling and Advertising
We offer a newspaper-delivered sampling product that gives manufacturers
the ability to cost-effectively reach up to 58 million households in one
weekend. Samples can either be machine-inserted into newspapers (Newspac(R)),
placed in a polybag alongside the newspaper, or pre-sealed in a pouch that forms
part of the polybag (Newspouch(R)). In addition, Brand Bag(TM) and Brand Bag
Plus(TM) offer marketers the opportunity to deliver an impactful advertising
message on a newspaper polybag without a sample included. Both products offer
customers home-delivered newspaper circulation of up to 40 million households in
one weekend. The bags feature the customer's advertising with the option of a
weather-resistant tear-off coupon. We also offer Targeted Solo Inserts which
promote manufacturers' products in conjunction with specific retail locations.
In 1999, Product Sampling and Advertising generated total revenue of $41.2
million, or 5.2% of net sales. The top ten customers accounted for approximately
50% of Product Sampling and Advertising sales during the year ended December 31,
1999, with two customers accounting for 27% of sales during the same period.
Run-of-Press (ROP)
We arrange for the publication of ROP promotions in either a cooperative or
solo format. Cooperative programs, which group the promotions of several
customers together, are sold on a product exclusive basis, and usually run each
week when a newspaper runs its food section. Solo programs, which feature a
single advertiser, offer the marketer the flexibility to run in any newspaper
throughout the United States (including newspapers targeted to specific
demographic groups), on any day of the year and in any section of the newspaper.
Media (newspaper placement fees) is the major cost component of ROP
distribution, which generally accounts for approximately 98% of our total direct
ROP costs. We believe that our customers use us to place ROP because of our
ability to negotiate favorable media rates, our well-developed production and
placement capabilities, and our capacity to execute integrated FSI and ROP
programs. We do not project this division to be a growth area, but rather an
additional service offered to our customers.
ROP customers include primarily package goods manufacturers, pharmaceutical
companies and their advertising and promotion agencies. Our total ROP sales were
$24.3 million during the year ended December 31, 1999, or 3.1% of net sales. The
top ten ROP customers accounted for 93% of the ROP sales during the same period.
Promotion Watch
Promotion Watch offers a variety of promotion security consulting services,
including the execution of chance promotions such as sweepstakes and contests.
We help customers with the entire process, from preliminary planning, through
the writing of official rules, overseeing the printing and placement of winning
pieces, and conducting background investigations of winners.
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INTERNET AND E-COMMERCE SERVICES
E-Commerce represents a new customer channel for Valassis. This newly
formed division is charged with growing e-commerce media sales, overseeing our
online couponing joint venture and future Internet related products and
services. During 1999, we purchased The Net's Best, which maintains a web site
designed for Internet shoppers and produces a newspaper-delivered insert that is
sold to companies that do business on the Internet.
The Internet and E-Commerce Services division will be responsible for
selling our unique "bundled" Internet advertising package, including our
complete line-up of marketing solutions.
COMPETITION
We compete in the cooperative FSI business principally with News America
FSI, Inc., a company owned by The News Corporation Limited. This competitor has
substantially greater financial resources than we do. We compete for business
primarily on the basis of the following:
- customer service and sales relationships;
- price; and
- category availability.
We also compete with in-store marketing and other forms of promotional
strategies or coupon delivery, and may compete with any new technology or
products in the sales promotion field.
In the past, new competitors have tried to establish themselves in the FSI
market. During such times, the number of FSI programs increased, which led to a
meaningful decrease in the number of pages per FSI program. As a result, we
experienced periods of intense price competition. These events had a material
adverse effect on our financial performance.
If new competitors enter the FSI market or our existing competitor tries to
increase market share by reducing prices, our financial performance could be
materially adversely affected.
Although we believe that cooperative FSIs are currently the most efficient
means of distributing coupons to the public, we compete with other media for the
promotion and marketing dollars of our customers. It is possible that
alternative media or changes in promotional strategies could make FSIs less
attractive to our customers or could cause a shift in their preference to
different promotional materials or coupon delivery modes.
The VIP division competes with News America FSI, Inc. for package goods and
fast food business, and with commercial printers.
We compete with several newspaper network groups in the ROP market. As
there is no significant capital investment associated with this business, other
competitors could easily enter the ROP market. An increase in the number of ROP
competitors could result in a loss of market share.
EMPLOYEES
As of December 31, 1999, we had approximately 1,679 full-time employees:
391 of these employees are on our sales, sales operations and marketing staff;
1,080 are involved in manufacturing; 41 are on our management information
systems staff; and 167 are involved with administration. None of our employees
are represented by a labor union. We consider labor relations with employees to
be good and have not experienced any interruption of our operations due to labor
disagreements.
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SEGMENT REPORTING
For segment financial information for the years 1999, 1998 and 1997, see
the table titled "Results of Operations" presented on page 11 under
"Management's Discussion & Analysis of Financial Condition & Results of
Operations" and in Note 15 of the "Notes to Consolidated Financial Statements"
on pages 37 and 38 under Item 8 "Financial Statements and Supplementary Data."
ITEM 2. PROPERTIES
Our principal executive offices are located in a leased office complex in
Livonia, Michigan. We also lease sales offices in Los Angeles (Seal Beach),
Chicago (Schaumburg), Atlanta, Dallas, Minneapolis, Connecticut (Wilton), and
various other localities.
We operate three printing facilities. We own the Livonia printing facility,
which consists of approximately 225,000 square feet and includes VIP, printing
and warehouse facilities. We also own printing facilities in Durham, North
Carolina and Wichita, Kansas, consisting of approximately 110,000 square feet
and 138,000 square feet, respectively. In addition, we lease a facility in
Plymouth, Michigan, which houses our pre-press operations. These facilities
generally have sufficient capacity to handle present volumes although, during
periods of unusual demand, we may require services of a contract printer.
ITEM 3. LEGAL PROCEEDINGS
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 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded on the New York Stock Exchange (ticker
symbol VCI). The approximate number of record holders of the Company's common
stock at December 31, 1999 was 235.
High and low stock prices and cash dividends during the twelve months ended
December 31, 1999 and 1998 were:
<TABLE>
<CAPTION>
1999 1998
----------------------------------------- -----------------------------------------
CASH CASH
SALES PRICE DIVIDENDS SALES PRICE DIVIDENDS
QUARTER ENDED HIGH LOW DECLARED HIGH LOW DECLARED
- ------------------------------------------------------------------------ -----------------------------------------
<S> <C> <C> <C> <C> <C> <C>
March 31 $36.6667 $29.0417 $--- $27.3333 $21.6667 $---
June 30 40.8125 33.5000 --- 27.4167 22.8333 ---
September 30 46.5000 35.3125 --- 26.9167 20.0000 ---
December 31 44.2500 36.6250 --- 34.4167 19.4167 ---
</TABLE>
Currently, the Company has no plans to pay cash dividends. In addition,
should the Company change its dividend policy, the payment of future dividends
would be dependent on future earnings, capital requirements and other alternate
uses of cash, as well as, subject to the restrictions described in Note 4 to the
consolidated financial statements.
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ITEM 6. SELECTED FINANCIAL DATA
(in thousands of dollars, except per share data)
<TABLE>
<CAPTION>
YEAR ENDED
- ------------------------------------------------------------------------------------------------------------------------
DECEMBER 31 DECEMBER 31 DECEMBER 31 DECEMBER 31 DECEMBER 31
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales and other
revenues $794,566 $741,383 $675,496 $659,108 $613,752
Earnings from continuing
operations before
extraordinary loss 121,134 84,286 69,930 39,775 12,701
Total assets 247,205 232,014 240,885 273,734 264,111
Long-term debt, less
current portion 291,354 340,461 367,075 395,865 416,034
Earnings per share before
extraordinary loss, basic* 2.14 1.44 1.15 .62 .19
Net earnings per share,
basic 2.02 1.21 1.15 .62 .19
Net earnings
per share,
diluted 1.97 1.19 1.13 .62 .19
Cash dividends declared
per share --- --- --- --- ---
Ratio of earnings
to fixed charges (1) 7.98x 4.83x 3.92x 2.61x 1.67x
</TABLE>
*The Company recorded a $6.9 million extraordinary loss (net of taxes) during
the year ended December 31, 1999 and a $13.6 million extraordinary loss (net
of taxes) during the year ended December 31, 1998, as a result of early
retirement of a portion of its public debt.
(1) The ratio of earnings to fixed charges was computed by dividing (a)
earnings before fixed charges, income taxes and extraordinary items by (b)
fixed charges, which consist of interest expense, amortization of debt
issuance costs and the interest portion of rent expense.
This information should be read in conjunction with the Consolidated Financial
Statements of the Company and the notes thereto appearing elsewhere in this
Report. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Certain statements under the caption "Management's Discussion and Analysis
of Financial Condition and Results of Operations," including specifically
statements made in "Business Outlook" and elsewhere in this report on Form 10-K
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements
involve known and unknown risks and uncertainties and other factors which may
cause the actual results, performance or achievements of the Company to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
among others, the following: a new competitor in the Company's core
free-standing insert business and consequent price war; new technology that
would make free-standing inserts less attractive; a shift in customer preference
for different promotional materials, promotional strategies or coupon delivery
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.
GENERAL
Valassis Communications, Inc. ("VCI" and the "Company") derives revenues
primarily from the sale of space in promotional materials printed on the
Company's printing presses. The Company's prime cost components include paper,
payments to newspapers for insertion of promotional materials (media), printing
costs (including labor) and shipping.
Paper represents approximately 41% of the cost of products sold for the
Company's FSI business. In 1995 and 1996, the Company's paper prices experienced
dramatic fluctuations, increasing nearly 70% in 1995, before returning in early
1997 to levels approximating those in 1994. Paper prices again increased in 1997
and the first half of 1998, although at a much lesser rate. Paper costs
decreased during the second half of 1998 and throughout 1999.
Valassis purchases coated groundwood No. 5 sheet from three primary
suppliers. In 1998, Valassis entered into a three-year contract with one of
these suppliers for the purchase of approximately 23% of its paper volume
requirement. This contract limits the amount of increases or decreases (to
approximately 10% in any twelve-month period) of the Company's cost of paper.
Such cost is adjusted quarterly. In March 1999, the Company signed long-term
contracts for an additional 52% of its paper requirements, which include pricing
collars that help stabilize the Company's paper costs. The remainder of the
Company's paper requirement is bought pursuant to contracts that are typically
three to six months in duration. The Company maintains on average less than 30
days of paper inventory.
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RESULTS OF OPERATIONS
The following table sets forth for the periods indicated, certain income and
expense items from continuing operations and the percentages that such items
bear to revenues:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
- -------------------------------------------------------------------------------------------------------------------
DEC. 31, DEC. 31, DEC. 31,
1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------
% OF % OF % OF
(DOLLAR AMOUNTS IN MILLIONS) ACTUAL REVENUES ACTUAL REVENUES ACTUAL REVENUES
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FSI sales $586.7 73.8% $567.7 76.6% $521.3 77.2%
VIP sales 118.1 14.9 103.1 13.9 89.2 13.2
Targeted Marketing Services 69.0 8.7 48.4 6.5 41.0 6.1
Other sales 20.8 2.6 22.2 3.0 24.0 3.5
- -------------------------------------------------------------------------------------------------------------------
Revenues 794.6 100.0 741.4 100.0 675.5 100.0
Cost of products sold 491.6 61.9 485.1 65.4 436.2 64.6
- -------------------------------------------------------------------------------------------------------------------
Gross profit 303.0 38.1 256.3 34.6 239.3 35.4
Selling, general and
administrative expenses 83.1 10.5 77.2 10.4 77.4 11.4
Amortization of
intangibles 5.2 .7 8.1 1.1 8.6 1.3
- -------------------------------------------------------------------------------------------------------------------
Operating earnings 214.7 27.0 171.0 23.1 153.3 22.7
Interest expense 26.0 3.3 34.5 4.7 38.3 5.7
- -------------------------------------------------------------------------------------------------------------------
Earnings before
income taxes and extra-
ordinary loss 188.7 23.7 136.5 18.4 115.0 17.0
Income taxes 67.5 8.5 52.2 7.1 45.1 6.7
- -------------------------------------------------------------------------------------------------------------------
Earnings before extra-
ordinary loss 121.1 15.2 84.3 11.3 69.9 10.3
Extraordinary loss (net
of taxes) 6.9 .9 13.6 1.8 --- ---
- -------------------------------------------------------------------------------------------------------------------
Net earnings $114.2 14.4% $70.7 9.5% $69.9 10.3%
===================================================================================================================
</TABLE>
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CALENDAR 1999 COMPARED TO CALENDAR 1998
Total revenues for 1999 increased 7.2% to $794.6 million from $741.4 million for
1998. This increase was partially a result of a 3.3% rise in FSI revenue from
$567.7 million in 1998 to $586.7 million in 1999. The FSI revenue increase is
attributable to overall industry page growth and moderate price increases. In
addition, VIP experienced a 14.5% increase in sales in 1999 compared to 1998 as
a result of increased demand. Targeted Marketing Services revenue rose 42.6%
from $48.4 million in 1998 to $69.0 million in 1999. This growth is attributable
to increased demand from core consumer package goods customers and greater
demand from new customer categories such as automotive, e-commerce and
telecommunications.
Gross margin increased from 34.6% in 1998 to 38.1% for 1999. This increase was
due primarily to decreases in paper costs and media efficiencies gained by
increased average page counts in our FSI booklets. As of March 1999, the Company
had signed long-term contracts for 75% of its paper requirements, which include
pricing collars that help stabilize the Company's paper costs. The Company
expects average paper costs to remain flat to slightly down in 2000 versus 1999.
Selling, general and administrative expenses increased to $83.1 million in 1999.
The Company's results for 1998 include a one-time charge of $6.0 million related
to the early retirement of the Company's former CEO. Without this one-time
charge, SG&A would have increased 16.7% during 1999, versus the prior year. This
increase is primarily the result of costs associated with new business
development and higher incentive based pay programs as a result of stronger
sales and profits in 1999 as compared to 1998.
Interest expense was down for the year ended December 31, 1999 to $26.0 million
from $34.5 million in 1998. The Company retired $114.0 million of its public
debt in 1999 and $129.7 million of its public debt in 1998. During the fourth
quarter of 1999, the Company repurchased on the open market approximately $114.0
million in aggregate principal amount of its 9.55 % Senior Notes due 2003 for
$129.4 million. See Liquidity and Capital Resources for further information.
The effective tax rate was 35.8% for the year ended December 31, 1999, compared
with 38.3% for the same period in 1998. The effective tax rate decrease is
primarily the result of tax benefits associated with the writedown of our
foreign investment associated with the Valassis of Canada direct mail
merchandising division.
Earnings before extraordinary item for the year ended December 31, 1999 were up
43.7% to $121.1 million versus $84.3 million for last year. This earnings
improvement was driven by growth across all of our business segments and gross
margin improvements.
In connection with the buyback of the 9.55% Senior Notes due 2003 discussed
above, the Company paid a premium in an amount equal to $10.8 million and wrote
off $0.4 million of unamortized debt issuance costs. Accordingly, the Company
incurred extraordinary charges of $6.9 million (net of tax) due to the early
extinguishment of $114.0 million of debt in 1999.
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CALENDAR 1998 COMPARED TO CALENDAR 1997
Total revenues for 1998 increased 9.8% to $741.4 million from $675.5 million for
1997. This increase was primarily as a result of an 8.9% rise in FSI revenue
from $521.3 million in 1997 to $567.7 million in 1998. The FSI revenue increase
is attributable to overall industry page growth, as well as slightly higher
market share and moderate price increases. In addition, VIP experienced volume
growth resulting in a 15.6% increase in sales during 1998. Also, Targeted
Marketing Services revenue rose 18.0% in 1998 to $48.4 million, compared to
$41.0 million for 1997, despite a decline in ROP advertising, due to a nearly
80% increase in sampling activity.
The favorable impact of increases in FSI page volume and higher pricing was
offset by an increase in paper costs during 1998. However, the effect of paper
price increases peaked in the third quarter of 1998. The Company experienced
paper price decreases towards the end of 1998 and into 1999. Gross margin
decreased from 35.4% in 1997 to 34.6% for 1998.
Selling, general and administrative expenses were flat at $77.2 million in 1998.
The Company's results for 1998 include a one-time charge of $6.0 million related
to the early retirement of the Company's former CEO, and the results for 1997
include a charge of $7.3 million for a one-time bonus paid to certain of the
Company's executives, funded by Consolidated Press Holdings (CPH), the Company's
former majority shareholder, upon the sale of its interest in the Company in the
Company's secondary offering that was completed in July 1997. Without these
one-time charges, SG&A would have increased 1.6% during 1998, versus the prior
year.
Interest expense was down for the year ended December 31, 1998 to $34.5 million
from $38.3 million in 1997. The Company retired $129.7 million of its public
debt in 1998 and $36.2 million of its public debt in 1997. During the fourth
quarter of 1998, the Company repurchased on the open market approximately $125.2
million in aggregate principal amount of its 9.55% Senior Notes due 2003 for
$146.6 million using approximately $70 million under its Revolving Credit
Facility, approximately $40.0 million under its then existing facility (which
borrowings were refinanced at par with the Revolving Credit Facility) and $36.6
million of cash.
The effective tax rate was 38.3% for the year ended December 31, 1998, compared
with 39.2% for the same period in 1997. The effective tax rate decrease was the
result of a portion of the special one-time charge during 1997, referred to
above, being non-deductible.
Earnings before extraordinary item for the year ended December 31, 1998 were up
20.6% to $84.3 million versus $69.9 million for last year. This earnings
improvement was primarily the result of increases in FSI page volume and higher
pricing, offset in part by higher paper costs.
In connection with the buyback of the 9.55% Senior Notes due 2003 discussed
above, the Company paid a premium in an amount equal to $21.4 million and wrote
off $0.5 million of unamortized debt issuance costs. Accordingly, the Company
incurred extraordinary charges of $13.6 million (net of tax) due to the early
extinguishment of $129.7 million of debt in 1998.
13
<PAGE> 14
LIQUIDITY AND CAPITAL RESOURCES
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 $11.1 million at December 31, 1999, up $4.1
million from December 31, 1998. This was the result of cash provided by
operating activities of $146.7 million, and cash used in investing activities
and financing activities of $24.9 million and $117.7 million, respectively, in
1999.
Cash flow from operating activities increased to $146.7 million for the year
ended December 31, 1999 from $87.9 million for the year ended December 31, 1998.
The Company used this cash flow during 1999, in addition to amounts available
under its credit facility, to repurchase $114.0 million of its public debt and
$80.5 million of its common stock. In addition, during 1999 the Company used
$10.6 million of its cash flow to fund strategic acquisitions and equity
investments. For further details, see Note 13 of the "Notes to Consolidated
Financial Statements" on page 36.
A portion of the Company's debt (which totaled $340.5 million as of December 31,
1998), in the amount of $107.7 million, was due on March 15, 1999. In November
1998, the Company replaced its previous credit facility with a $160.0 million
Revolving Credit Facility which was increased to $230 million in 1999. The
Company used borrowings under the Revolving Credit Facility to retire
approximately $125.2 million in aggregate principal amount of its 9.55% Senior
Notes due 2003 for $146.6 million. In January 1999, the Company issued $100
million of 6 5/8% Senior Notes due 2009. The Company used the net proceeds from
such offering to retire the outstanding indebtedness under the Revolving Credit
Facility. The Company borrowed additional amounts under the Revolving Credit
Facility to pay the debt due in March 1999.
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. As of December 31, 1999, the Company had authorization
to repurchase additional 284,900 shares of its common stock under its existing
share repurchase program. In January 2000, the Board of Directors approved a
share repurchase program authorizing the Company to purchase up to 5 million
additional shares of its common stock.
Management believes the Company will generate sufficient funds from operations
and will have sufficient lines of credit available to meet currently anticipated
liquidity needs, including interest and required principal payments on
indebtedness.
Capital expenditures were $14.3 million for the year ended December 31, 1999.
Management expects future capital expenditure requirements of approximately $15
million over each of the next three to five years to meet increased capacity
needs at its three printing facilities and to replace or rebuild equipment as
required. It is expected that equipment will be purchased using funds provided
by operations.
YEAR 2000 COMPLIANCE
We have completed our multi-faceted project plan regarding the Year 2000 issue.
This plan covered both IT and non-IT systems and encompassed three areas: (1)
program modifications; (2) implementing new financial software upgrades; and (3)
testing readiness of vendors and customers.
We expected total costs related to implementation of the program modification
plan and the financial software upgrade plan of approximately $700,000. To date,
we have incurred approximately $431,000 in expenses
14
<PAGE> 15
related the Year 2000 project, and we do not anticipate any future costs. Such
costs were expensed as incurred. To date, we have not experienced any
significant operational problems related to the Year 2000 issue, and we do not
anticipate any such problems in the future. This is a Year 2000 Readiness
Disclosure Statement within the meaning of the Year 2000 Information and
Readiness Disclosure Act (P.L. 105-271).
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. SFAS No.
133 requires that an entity recognizes all derivatives as either assets or
liabilities in the statement of financial position and measures those
instruments at fair value. All changes in the fair value of derivatives are
recorded in earnings. This statement is effective January 1, 2001. Adoption of
this standard is not expected to have a material impact on the Company's
consolidated financial statements.
BUSINESS OUTLOOK
The following statements are based on current expectations. These statements are
forward looking and actual results may differ materially.
- -- Price and volume increases for the Company's principal product, the
free-standing insert, are expected to result in a 4-6% increase in FSI
revenue for 2000.
- -- The average price of paper, which is a major cost factor in the Company's
business, decreased in 1999. The average price of paper in 2000 is expected
to be flat to slightly lower than the average in 1999.
The above expectations are forward-looking statements that involve a number of
risks and uncertainties. Among the factors that could affect expectations are
the following: a new competitor in the Company's core free-standing insert
business and consequent price pressure; new products that would make
free-standing inserts less attractive; a shift in customer preference for
different promotional materials, promotional strategies or coupon delivery
methods; an increase in the Company's paper costs; or general business and
economic conditions.
15
<PAGE> 16
The following is a summary of the quarterly results of operations for the years
ended December 31, 1999 and December 31, 1998.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
- ------------------------------------------------------------------------------------------------------------------------
THOUSANDS OF DOLLARS,
EXCEPT PER SHARE DATA MAR. 31 JUNE 30 SEPT. 30 DEC. 31
- -------------------------------------------------------------------------------------------------------------------------
FISCAL YEAR ENDED DECEMBER 31, 1999
<S> <C> <C> <C> <C>
Revenue $222,205 $194,999 $177,485 $199,877
Cost of products sold 138,421 122,345 108,233 122,594
Earnings, before extraordinary item 33,891 28,503 26,055 32,685*
Earnings per common share, before
extraordinary item, basic .59 .50 .46 .59
Net earnings 33,891 28,503 25,955# 25,852#
Net earnings per common share, diluted .58 .49 .45 .45
<CAPTION>
THREE MONTHS ENDED
- -------------------------------------------------------------------------------------------------------------------------
THOUSANDS OF DOLLARS,
EXCEPT PER SHARE DATA MAR. 31 JUNE 30 SEPT. 30 DEC. 31
- -------------------------------------------------------------------------------------------------------------------------
FISCAL YEAR ENDED DECEMBER 31, 1998
<S> <C> <C> <C> <C>
Revenue $205,683 $178,896 $167,103 $189,701
Cost of products sold 133,902 118,133 107,377 125,691
Earnings, before extraordinary item 26,047 16,904 19,870 21,465
Earnings per common share, before
extraordinary item, basic .43 .29 .35 .37
Net earnings 26,047 16,904- 19,870 7,867#
Net earnings per common share, diluted .42 .29 .34 .14
</TABLE>
* Earnings before extraordinary item include a one-time tax benefit of $4.4
million associated with the writedown of our foreign investment in Valassis of
Canada direct mail merchandising division, and $1.7 million in close-down
costs.
# Net earnings for the quarter ended December 31, 1998, September 30, 1999 and
December 31, 1999 include an extraordinary loss (net of taxes) of $13.6
million, $0.1 million and $6.8 million, respectively, as a result of the early
retirement of a portion of the Company's public debt.
- - Net earnings for the quarter ended June 30, 1998 include a one-time charge of
$3.7 million (net of taxes) related to the early retirement of the former CEO.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has exposure to interest rate risk from its long-term debt. A
portion of the Company's debt is fixed rate, the remainder being a revolving
credit facility at a variable rate. See Note 4 of the Notes to Consolidated
Financial Statements for components of the Company's long-term debt.
The Company has performed a sensitivity analysis assuming a hypothetical 10%
adverse movement in interest rates applied to its variable debt. As of December
31, 1999, the analysis indicated that such market movements would not have a
material effect on the Company's consolidated results of operations or on the
fair value of its risk-sensitive financial instruments.
The Company does not have a material exposure to risks associated with foreign
currency fluctuations related to our operations and does not use derivative
financial instruments.
16
<PAGE> 17
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
VALASSIS COMMUNICATIONS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
(in thousands) 1999 1998
- ------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $11,089 $6,939
Accounts receivable (less allowance for
doubtful accounts of $1,386 at December 31,
1999 and $1,354 at December 31, 1998) 94,105 95,430
Inventories:
Raw materials 11,729 11,817
Work in progress 17,498 20,051
Prepaid expenses and other 5,969 5,817
Deferred income taxes (Note 6) 1,473 1,790
Refundable income taxes 448 1,215
- ------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 142,311 143,059
- ------------------------------------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT, AT COST:
Land and buildings 21,590 21,456
Machinery and equipment 121,956 114,912
Office furniture and equipment 21,909 20,143
Automobiles 1,116 1,025
Leasehold improvements 1,166 1,022
- ------------------------------------------------------------------------------------------------------------
167,737 158,558
Less accumulated depreciation and amortization (114,926) (112,200)
- ------------------------------------------------------------------------------------------------------------
NET PROPERTY, PLANT AND EQUIPMENT 52,811 46,358
- ------------------------------------------------------------------------------------------------------------
INTANGIBLE ASSETS (NOTE 3):
Goodwill 72,754 68,594
Other intangibles 85,387 85,387
- ------------------------------------------------------------------------------------------------------------
158,141 153,981
Less accumulated amortization (118,050) (112,806)
- ------------------------------------------------------------------------------------------------------------
NET INTANGIBLE ASSETS 40,091 41,175
- ------------------------------------------------------------------------------------------------------------
EQUITY INVESTMENTS AND ADVANCES TO
INVESTEES (NOTES 13 AND 14) 9,580
OTHER ASSETS 2,412 1,422
- ------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $247,205 $232,014
============================================================================================================
</TABLE>
17
<PAGE> 18
VALASSIS COMMUNICATIONS, INC.
Consolidated Balance Sheets, Continued
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
(in thousands, except share data) 1999 1998
- -----------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
<S> <C> <C>
Accounts payable $77,683 $69,064
Accrued interest 3,645 4,542
Accrued expenses 30,503 26,345
Progress billings 57,733 58,615
- -----------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 169,564 158,566
- -----------------------------------------------------------------------------------------------------------------------
LONG-TERM DEBT (NOTE 4) 291,354 340,461
Deferred income taxes (Note 6) 1,871 1,511
Commitments and contingencies (Notes 7 and 8)
STOCKHOLDERS' DEFICIT (NOTES 9, 10 AND 11):
Preferred stock of $.01 par value. Authorized 25,000,000 shares; no shares
issued or outstanding at December 31, 1999 and December 31, 1998.
Common stock of $.01 par value. Authorized 100,000,000 shares; issued
62,715,893 at December 31, 1999 and 62,854,360 at December 31, 1998;
outstanding 56,128,478 at December 31, 1999 and 57,589,322 at
December 31, 1998 627 629
Additional paid-in capital 76,898 69,416
Accumulated deficit (51,736) (165,937)
Foreign currency translations (478) (298)
Treasury stock, at cost (6,587,415 shares at
December 31, 1999 and 5,265,038 shares at
December 31, 1998) (240,895) (172,334)
- -----------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' DEFICIT (215,584) (268,524)
- -----------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $247,205 $232,014
=======================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
18
<PAGE> 19
VALASSIS COMMUNICATIONS, INC.
Consolidated Statements of Income
<TABLE>
<CAPTION>
YEAR ENDED
- --------------------------------------------------------------------------------------------------------------------
Dec. 31, Dec. 31, Dec. 31,
(in thousands, except per share data) 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------
Revenues:
<S> <C> <C> <C>
Net sales $793,860 $739,208 $672,622
Other 706 2,175 2,874
- --------------------------------------------------------------------------------------------------------------------
Total revenues 794,566 741,383 675,496
- --------------------------------------------------------------------------------------------------------------------
Costs and expenses:
Cost of products sold 491,593 485,103 436,174
Selling, general and administrative 83,112 77,227 77,440
Amortization of intangible assets 5,243 8,097 8,574
Interest 25,968 34,450 38,312
Minority interests --- (3) (34)
- --------------------------------------------------------------------------------------------------------------------
Total costs and expenses 605,916 604,874 560,466
- --------------------------------------------------------------------------------------------------------------------
Earnings before income taxes and extraordinary loss 188,650 136,509 115,030
Income taxes (Note 6) 67,516 52,223 45,100
- --------------------------------------------------------------------------------------------------------------------
Earnings before extraordinary loss 121,134 84,286 69,930
Extraordinary loss (net of tax benefit) 6,933 13,598 ---
- --------------------------------------------------------------------------------------------------------------------
Net earnings $114,201 $70,688 $69,930
====================================================================================================================
Earnings per common share before extraordinary loss, basic $2.14 $1.44 $1.15
====================================================================================================================
Earnings per common share before extraordinary loss, diluted $2.09 $1.42 $1.13
====================================================================================================================
Net earnings per common share, basic $2.02 $1.21 $1.15
====================================================================================================================
Net earnings per common share, diluted $1.97 $1.19 $1.13
====================================================================================================================
</TABLE>
19
See accompanying notes to consolidated financial statements.
<PAGE> 20
VALASSIS COMMUNICATIONS, INC.
Consolidated Statements of Stockholders' Deficit
<TABLE>
<CAPTION>
ADDITIONAL FOREIGN TOTAL
COMMON PAID-IN ACCUMULATED TREASURY CURRENCY STOCKHOLDERS'
(IN THOUSANDS) STOCK CAPITAL DEFICIT STOCK TRANSLATION DEFICIT
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCES AT DECEMBER 31, 1996 $434 $41,337 $(306,555) $(21,550) $(260) $(286,594)
Net earnings 69,930 69,930
Stock repurchase (91,490) (91,490)
Exercise of stock options 10 22,299 22,309
Stock grants 1 1,500 1,501
Foreign currency translation 114 114
Capital contribution 7,263 7,263
- ----------------------------------------------------------------------------------------------------------------------------
Balances at December 31, 1997 445 72,399 (236,625) (113,040) (146) (276,967)
Net earnings 70,688 70,688
Stock repurchase (105,745) (105,745)
Exercise of stock options 16 40,660 40,676
Stock grants 1 2,975 2,976
Foreign currency translation (152) (152)
- ----------------------------------------------------------------------------------------------------------------------------
Balances at December 31, 1998 462 116,034 (165,937) (218,785) (298) (268,524)
Net earnings 114,201 114,201
Stock repurchase (80,498) (80,498)
3-for-2 stock split 165 (46,616) 46,451
Exercise of stock options 4,732 11,937 16,669
Stock grants 2,748 2,748
Foreign currency translation (180) (180)
- ----------------------------------------------------------------------------------------------------------------------------
Balances at December 31, 1999 $627 $76,898 $(51,736) $(240,895) $(478) $(215,584)
============================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
20
<PAGE> 21
VALASSIS COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
(in thousands) YEAR ENDED
- ----------------------------------------------------------------------------------------------------------------------
DEC. 31, DEC. 31, DEC. 31,
1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net earnings $114,201 $70,688 $69,930
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Depreciation 7,660 7,622 6,798
Amortization of intangibles and bond discount 5,243 8,222 8,757
Provision for losses on accounts receivable 1,867 900 900
Stock-based compensation charge 2,194 2,714 1,378
(Gain)/loss on sale of property, plant and equipment (55) 25 (157)
Deferred income taxes 677 (628) (128)
Minority interest --- (9) (489)
Changes in assets and liabilities which increase (decrease) cash flow:
Accounts receivable (542) (14,649) 10,164
Inventories 2,641 (5,173) (5,870)
Prepaid expenses and other 433 (1,019) (2,482)
Other assets (4,071) 894 2,956
Accounts payable 8,619 9,838 (8,025)
Accrued interest and expenses 3,261 (2,101) 2,487
Income taxes 5,499 10,242 3,264
Progress billings (882) 376 1,005
- ---------------------------------------------------------------------------------------------------------------------
TOTAL ADJUSTMENTS 32,544 17,254 20,558
- ---------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES $146,745 $87,942 $90,488
=====================================================================================================================
</TABLE>
21
<PAGE> 22
VALASSIS COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW, CONTINUED
<TABLE>
<CAPTION>
(in thousands) YEAR ENDED
- -------------------------------------------------------------------------------------------------------------------
DEC. 31, DEC. 31, DEC. 31,
1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
<S> <C> <C> <C>
Additions to property, plant and equipment $(14,261) $(13,418) $(13,023)
Proceeds from sale of property, plant and equipment 203 73 969
Investments and acquisitions (10,659) (450) ---
Other (210) (152) 114
- -------------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (24,927) (13,947) (11,940)
- -------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 11,937 29,991 17,149
Purchase of treasury shares (80,498) (105,745) (91,490)
Repayment of long-term debt (219,745) (153,739) (36,205)
Borrowings of long-term debt 99,738 127,000 ---
Capital contribution --- --- 7,263
Net borrowings under revolving line of credit 70,900 --- ---
- -------------------------------------------------------------------------------------------------------------------
NET CASH USED IN FINANCING ACTIVITIES (117,668) (102,493) (103,283)
- -------------------------------------------------------------------------------------------------------------------
Net (decrease)/ increase in cash and cash equivalents 4,150 (28,498) (24,735)
Cash and cash equivalents at beginning of the year 6,939 35,437 60,172
- -------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF THE YEAR $11,089 $6,939 $35,437
===================================================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for interest $26,865 $35,006 $39,280
Cash paid during the year for income taxes $56,625 $34,186 $47,124
Non-cash financing activities:
Stock issued under stock-based compensation plan $2,748 $2,976 $1,501
</TABLE>
See accompanying notes to consolidated financial statements.
22
<PAGE> 23
VALASSIS COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) THE COMPANY
Valassis Communications, Inc. (VCI or the Company) became a publicly-held
company upon completion of its initial public offering on March 18, 1992. The
Company operates in a single industry and principally produces free-standing
inserts for customers in the package goods industry throughout the United
States. No single customer accounted for more than 10 percent of the Company's
sales during the years ended December 31, 1997, 1998, or 1999.
(2) SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Valassis
Communications, Inc. and its subsidiaries. All significant intercompany balances
and transactions have been eliminated in consolidation. Certain amounts for 1998
and 1997 have been reclassified to conform to current period classifications.
REVENUE RECOGNITION
Sales and earnings are recognized in the period the product is inserted for
distribution. Progress billings represent customer billings in advance of the
insertion date.
USE OF ESTIMATES
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
INVENTORIES
During the year ended December 31, 1998, the Company changed its method of
accounting for inventories from the last-in, first-out (LIFO) method to the
first in, first out (FIFO) method. The Company believes the change is preferable
because the FIFO method better reflects the economic reality of its inventory
management practices and provides a better matching of current costs with
revenues.
The change in method of inventory costing has been applied retroactively. Due to
debit balance LIFO reserves and corresponding lower-of-cost-or-market reserves,
the change had no effect on the balance sheet at December 31, 1997 or the income
statement for the year then ended.
ADVERTISING
The Company expenses the cost of advertising as incurred. Advertising expense
for the years ended December 31, 1999, 1998 and 1997 was $1,369,000, $1,953,000
and $1,614,000, respectively.
23
<PAGE> 24
VALASSIS COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PROPERTY, PLANT AND EQUIPMENT
Property, plant, and equipment are stated at cost. Expenditures and improvements
that add significantly to the productive capacity or extend the useful life of
an asset are capitalized. Depreciation is computed using the straight-line
method over the estimated useful lives of the related assets. Leasehold
improvements are amortized over the estimated life of the related asset or the
lease-term using the straight-line method. Property, plant and equipment are
reviewed annually for impairment. The useful lives of the major classes of
property, plant and equipment are as follows:
Class Range
Buildings 5 - 20 years
Machinery and equipment 5 - 15 years
Office furniture and fixtures 3 - 5 years
Automobiles 3 years
Leasehold improvements 3 - 10 years
INTANGIBLE ASSETS
Intangible assets are amortized using the straight-line method over their
estimated useful lives, which range from 10 to 40 years. Fully amortized
intangible assets are removed from the cost and accumulated amortization
accounts. In accordance with SFAS No. 121, "Accounting for Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of," as well as APB
No. 17, "Intangible Assets," the carrying value of goodwill is reviewed if
circumstances suggest that it may be impaired. If this review indicates that
goodwill will not be recoverable, as determined based on the undiscounted cash
flows of the entity acquired over the remaining amortization period, the
Company's carrying value of the goodwill will be reduced by the estimated
shortfall of discounted cash flows. As part of this review, the Company assesses
the useful lives assigned to intangible assets. During 1999, as a result of this
review, the lives of certain intangible assets (primarily goodwill and the
Valassis name) associated with the purchase of the assets and FSI business of
GFV Communications in December 1996 were changed from 20 years to 40 years. This
change was deemed appropriate based on the continuing significance of the FSI
business to Valassis. In 1999, the effect of this change was to increase
earnings before income taxes and extraordinary item and net earnings by
approximately $3.1 million and EPS by approximately $0.05 per share on a diluted
basis. See Note 3 for further details.
INCOME TAXES
Deferred income tax assets and liabilities are computed annually for differences
between the consolidated financial statement and tax bases of assets and
liabilities that will result in taxable or deductible amounts in the future
based on enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount more
likely than not to be realized. Income tax expense is the tax payable or
refundable for the period plus or minus the change during the period in deferred
tax assets and liabilities.
STOCK BASED COMPENSATION
The Company grants stock options for a fixed number of shares to employees with
an exercise price at least equal to or greater than the fair value of the shares
at the date of grant. The Company accounts for stock option grants in accordance
with APB Opinion No. 25, "Accounting for Stock Issued to Employees", and,
accordingly, recognizes no compensation expense for the stock option grants.
COMPREHENSIVE INCOME
Foreign currency translation is the Company's only component of other
comprehensive income and is not considered material to the Company's
consolidated financial statements.
24
<PAGE> 25
VALASSIS COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. SFAS No.
133 requires that an entity recognizes all derivatives as either assets or
liabilities in the statement of financial position and measures those
instruments at fair value. All changes in the fair value of derivatives are
recorded in earnings. This statement is effective January 1, 2001. Adoption of
this standard is not expected to have a material impact on the Company's
consolidated financial statements.
CONCENTRATION OF CREDIT RISK AND FINANCIAL INSTRUMENTS
Financial instruments that potentially subject the Company to concentrations of
credit risk consist principally of temporary cash investments and accounts
receivable. The Company places its temporary cash investments (none at December
31, 1999 and December 31, 1998) with high credit quality financial institutions.
The carrying value of the cash and temporary investments approximates fair
value. Concentrations of credit risk with respect to accounts receivable are
limited due to the large number of customers comprising the Company's customer
base and their dispersion across many different industries and geographies.
Generally, the Company does not require collateral or other security to support
customer receivables.
The Company's debt is also a financial instrument with an excess of stated value
over fair market value of $5.7 million at December 31, 1999, and an excess of
fair market value over stated value of $21.6 million at December 31, 1998. See
Note 4 for additional fair value disclosure.
FOREIGN CURRENCY TRANSLATION
The financial statements of foreign subsidiaries have been translated into U.S.
dollars in accordance with SFAS No. 52, "Foreign Currency Translation". All
balance sheet accounts have been translated using the exchange rates in effect
at the balance sheet date. Income statement amounts have been translated using
the average exchange rate for the year. The gains and losses resulting from the
changes in exchange rates from year to year have been reported separately as a
component of stockholders' deficit.
Summarized financial information for the foreign operations is not presented
herein, since revenues and assets of the foreign operations are each less than
10% of the respective consolidated amounts and, accordingly, are not considered
material in relation to the consolidated financial statements. Additionally,
foreign translation gains and losses were insignificant for all years presented.
25
<PAGE> 26
VALASSIS COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(3) INTANGIBLE ASSETS
Intangible assets, which principally arose from the 1986 acquisition of specific
net assets from GFV Communications, Inc., and its related affiliates, consist of
the following:
<TABLE>
<CAPTION>
REMAINING
(dollars in thousands) AMORTIZABLE
ORIGINAL UNAMORTIZED UNAMORTIZED LIFE IN
AMORTIZABLE INTANGIBLE BALANCE AT BALANCE AT YEARS AT
INTANGIBLE ASSETS LIFE IN YEARS ASSETS, AT COST DEC. 31, 1998 DEC. 31, 1999 DEC. 31, 1999
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Goodwill 20 - 40 $ 72,754 $21,355 $24,705 20 - 27
The Valassis name
and other 40 32,100 12,706 12,251 27
Pressroom operating
systems 13.375 50,000 4,568 808 .375
Other 10 - 40 3,287 2,546 2,327 9 - 27
- ----------------------------------------------------------------------------------------------------------------------------------
$158,141 $41,175 $40,091
==================================================================================================================================
</TABLE>
(4) LONG-TERM DEBT
Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
DEC. 31, DEC. 31,
(in thousands) 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Revolving Credit Facility $173,900 $103,000
8 7/8% Senior Notes due 1999 --- 6,149
9 3/8% Senior Subordinated Notes due 1999 --- 101,546
9.55% Senior Notes due 2003 17,767 129,766
6 5/8% Senior Notes due 2009 99,687
- ----------------------------------------------------------------------------------------------------------------------------------
291,354 340,461
Less current portion ---- ----
- ----------------------------------------------------------------------------------------------------------------------------------
$291,354 $340,461
==================================================================================================================================
</TABLE>
In January 1999, the Company issued $100 million of new public debt due 2009.
The net proceeds from such offering were used to retire outstanding indebtedness
under the Credit Facility. The Company borrowed additional amounts under the
Credit Facility to refinance the debt that was due March 15, 1999. Minimum
long-term debt maturities are approximately $18 million in 2003 and $100 million
in 2009.
26
<PAGE> 27
VALASSIS COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During 1998, the Company repurchased on the open market approximately $125.2
million in the aggregate principal amount of its 9.55% Senior Notes due 2003 for
$146.6 million using approximately $70 million pursuant to its Revolving Credit
Agreement, approximately $40.0 million under its then existing revolving line of
credit and $36.6 million of cash. The Company incurred an extraordinary charge
of $13.6 million (net of tax) due to this early retirement of debt.
During 1999, the Company repurchased on the open market approximately $114.0
million in the aggregate principal amount of its 9.55% Senior Notes due 2003 for
$129.4 million. The Company incurred an extraordinary charge of $6.9 million
(net of tax) due to this early retirement of debt.
CREDIT FACILITY
In November 1998, the Company replaced its revolving line of credit with a $160
million revolving credit facility pursuant to an agreement with Comerica Bank,
Harris Trust and Savings Bank, and The Long-Term Credit Bank of Japan, Ltd.
Chicago Branch (collectively, the "Banks") with Comerica acting as Agent for the
Banks (the "Revolving Credit Agreement"). The Revolving Credit Agreement was
amended in August 1999 to increase the available credit to $230 million. The
Revolving Credit Agreement matures in November 2001. The floating-rate interest
is calculated on either a Eurocurrency-based rate or a prime rate. At December
31, 1999, there was $173.9 million outstanding under this facility.
The Revolving Credit Agreement requires the Company to meet certain financial
covenants. At December 31, 1999, under the most restrictive covenant, VCI would
have been able to declare a dividend up to $12.5 million. In addition, the
Revolving Credit Agreement contains certain restrictive covenants that prescribe
limits on VCI's ability to, among other things, create or incur additional
indebtedness, make certain investments and other restricted payments, incur
liens, purchase or redeem its capital stock, pay dividends and make other
distributions, make acquisitions, engage in transactions with affiliates, enter
into mergers or consolidations, liquidate, sell, lease, or otherwise transfer
their business or property to another entity, engage in any business other than
the business engaged in by VCI or substantially similar lines of business, and
to enter into certain sales and leaseback transactions.
PUBLIC DEBT
The Company repaid its Senior Notes due on March 15, 1999, and Senior
Subordinated Notes due March 15, 1999, issued under indentures dated March 15,
1992. At December 31, 1999, the Company's public debt consists of 9.55% Senior
Notes due 2003 issued under an indenture dated November 15, 1994 and 6 5/8%
Senior Notes due 2009 issued under an indenture dated January 12, 1999. The
Senior Notes are general unsecured obligations of VCI and rank on parity in
right of payment with all other Senior Indebtedness of VCI. Interest is payable
on the 2003 Senior Notes semiannually on June 1 and December 1 of each year.
Interest is payable on the 2009 Senior Notes semi-annually on January 15 and
July 15 of each year.
The stated amount of the Company's public debt under the 9.55% Senior Notes due
2003 at December 31, 1999 is $17.8 million. The stated amount of the public debt
under the 6 5/8% Senior Notes due 2009 at December 31, 1999 is $100 million.
Debt discount is being amortized utilizing the interest method over the term of
the notes. The difference between the stated and effective interest rates is
nominal. The debt is traded in the over-the-counter market. At December 31,
1999, the estimated fair market value of the debt was $5.7 million under stated
value. The debt had an estimated excess of fair market value over stated value
of $21.6 million at December 31, 1998. The fair market value was estimated using
discounted cash flow analyses, based on discount rates equivalent to comparable
U.S. Treasury securities plus a spread for credit risk and other factors. The
public debt contains certain restrictive covenants similar to those described
for the Revolving Credit Agreement.
27
<PAGE> 28
VALASSIS COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(5) PROFIT SHARING AND BONUS PLANS
The Company has discretionary profit sharing and team achievement dividend/bonus
plans covering substantially all salaried and hourly employees.
Expenses under the aforementioned plans were as follows:
<TABLE>
<CAPTION>
YEAR ENDED
- ----------------------------------------------------------------------------------------------------
DEC. 31, DEC. 31, DEC. 31,
(in thousands) 1999 1998 1997
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Profit sharing plan $4,262 $3,357 $3,556
Bonus plans for salaried,
sales and hourly personnel 11,190 7,674 7,809
Bonus plan for executives 1,823 2,105 2,295
</TABLE>
(6) INCOME TAXES
For financial reporting purposes, earnings before income taxes and extraordinary
loss include the following components.
<TABLE>
<CAPTION>
YEAR ENDED
- --------------------------------------------------------------------------------------------------
DEC. 31, DEC. 31, DEC. 31,
(in thousands) 1999 1998 1997
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Pre-tax income (loss):
United States $188,414 $136,722 $115,120
Foreign 236 (213) (90)
- --------------------------------------------------------------------------------------------------
$188,650 $136,509 $115,030
==================================================================================================
</TABLE>
28
<PAGE> 29
VALASSIS COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Income taxes have been charged to earnings before extraordinary loss as follows:
<TABLE>
<CAPTION>
YEAR ENDED
- ---------------------------------------------------------------------------------------------------
DEC. 31, DEC. 31, DEC. 31,
(in thousands) 1999 1998 1997
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal:
Current $60,440 $48,442 $41,048
Deferred (credit)/provision 677 (628) (128)
State and Local 6,399 4,409 4,180
===================================================================================================
$67,516 $52,223 $45,100
===================================================================================================
</TABLE>
The actual income tax expense differs from expected amounts computed by applying
the U.S. federal income tax rate to earnings before income taxes and
extraordinary item as follows:
<TABLE>
<CAPTION>
YEAR ENDED
- --------------------------------------------------------------------------------------------------------
DEC. 31, DEC. 31, DEC. 31,
(in thousands) 1999 1998 1997
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Expected income tax expense $66,028 $47,778 $40,261
Increase (decrease) in taxes resulting from:
Tax effect of non-deductible foreign
losses 83 (75) (347)
Tax effect of writedown in foreign investments (2,823) --- ---
Amortization of intangibles 427 1,500 1,500
State and local income taxes,
net of federal benefit 4,159 2,866 2,717
Other items, net (358) 154 969
- --------------------------------------------------------------------------------------------------------
Actual income tax expense, before extraordinary item $67,516 $52,223 $45,100
========================================================================================================
</TABLE>
29
<PAGE> 30
VALASSIS COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The sources of deferred income taxes and effects of each were as follows:
<TABLE>
<CAPTION>
YEAR ENDED
- ----------------------------------------------------------------------------------------------
DEC. 31, DEC. 31, DEC. 31,
(in thousands) 1999 1998 1997
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Depreciation and amortization $96 $529 $(198)
Consulting agreement 333 (1,297) ---
Other items, net 248 140 70
- ----------------------------------------------------------------------------------------------
$677 $(628) $(128)
==============================================================================================
</TABLE>
Significant components of the Company's deferred tax liabilities and assets are
as follows:
<TABLE>
<CAPTION>
DEC. 31, DEC. 31,
(in thousands) 1999 1998
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Long term deferred income tax liabilities (assets):
Fixed assets $2,787 $2,570
Intangible assets 44 242
Consulting agreement (964) (1,297)
Other 4 (4)
- ------------------------------------------------------------------------------------------
TOTAL LONG TERM DEFERRED INCOME TAX LIABILITIES $1,871 $1,511
==========================================================================================
Current deferred income tax assets:
Inventory $629 $547
Allowance for uncollectible accounts 487 474
Minority interest net operating loss carryforward 134 782
Other - net 357 769
- ------------------------------------------------------------------------------------------
CURRENT TOTAL DEFERRED INCOME TAX ASSETS 1,607 2,572
Valuation allowance (134) (782)
- ------------------------------------------------------------------------------------------
NET CURRENT DEFERRED INCOME TAX ASSETS $1,473 $1,790
==========================================================================================
</TABLE>
The valuation allowance decreased from 1998 to 1999 as a result of tax benefits
recognized due to the restructuring of the Canadian operations.
30
<PAGE> 31
VALASSIS COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(7) COMMITMENTS
Total operating lease rentals, for various office space, charged to expense was
$3.2 million, $3.6 million and $3.3 million for the years ended December 31,
1999, 1998 and 1997, respectively. Entire minimum rental payments required under
noncancelable operating leases as of December 31, 1999 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, (IN THOUSANDS)
----------------------------------------------------------------------------------
<S> <C>
2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,313
2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,104
2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,702
2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,407
2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,099
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,052
----------------------------------------------------------------------------------
$27,677
==================================================================================
</TABLE>
On January 20, 1992 and February 11, 1992, VCI's Board of Directors approved
employment agreements, which include non-compete clauses, for certain executives
which became effective upon the public offering of its common stock. All such
agreements have since been amended. Future commitments pursuant to such
employment agreements are as follows:
<TABLE>
<CAPTION>
(in thousands)
YEAR ENDED BASE SALARY MAXIMUM CASH BONUS
----------------------------------------------------------------------------------
<S> <C> <C>
Dec. 31, 2000..................... $1,990 $1,990
Dec. 31, 2001..................... 1,735 1,735
Dec. 31, 2002..................... 850 600
Dec. 31, 2003..................... 600 600
Dec. 31, 2004..................... --- ---
Thereafter........................ --- ---
</TABLE>
The Company's obligation to pay the maximum cash bonus is based on the Company
attaining certain EPS targets. The Company also provides stock options to
certain of its executives (See Note 9).
(8) CONTINGENCIES
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. Such amount will be recorded in 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.
31
<PAGE> 32
VALASSIS COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(9) STOCKHOLDERS' EQUITY
On April 1, 1999, the Board of Directors approved a three-for-two split of the
Company's Common Stock, effected in the form of a 50% stock dividend, issued May
12, 1999, to stockholders of record as of April 16, 1999. Accordingly, all
common share and per common share data have been restated to reflect this stock
split. The stock split was accomplished through the issuance of 16,481,134 new
shares and the use of 2,536,462 of Treasury Stock.
On September 1, 1999, the Board of Directors adopted a Stockholder Rights
Agreement (the "Agreement"). Under the Agreement, the Board declared a dividend
of one Preferred Stock Purchase Right ("Right") for each outstanding share of
the Company's common stock. The dividend was paid on September 27, 1999 to the
shareholders of record on September 15, 1999. The Rights are attached to and
automatically trade with the outstanding shares of the Company's common stock.
The Rights will become exercisable only in the event that any person or group of
persons not approved by the Board of Directors acquires 15% or more of the
Company's common stock or commences a tender offer for 15% or more of the
Company's common stock. Once the Rights become exercisable they entitle the
shareholder to purchase one one-hundredth of one share of a new series of
preferred stock at an exercise price of $170. The Rights expire on September 1,
2009. The Company is entitled to redeem the Rights at $.01 per Right at any
time, prior to the expiration of the Rights, before a person or group acquires
15% or more of the Company's common stock.
Options granted under the Company's Amended and Restated 1992 Long-Term
Incentive Plan, which authorized the issuance of a maximum of 10,655,922 shares
of common stock with exercise prices at least equal to the fair market value of
the shares at date of grant and, subject to termination of employment, expire
not later than ten years from date of grant, are not transferable other than on
death, and fully vest over terms ranging from six months to five years from date
of grant.
At December 31, 1999, there were outstanding options among 1,446 participants
for the purchase of 5,758,077 shares. At December 31, 1999, there were 308,320
shares available for grant.
32
<PAGE> 33
VALASSIS COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following options to purchase the Company's common shares were outstanding
under the Plan on December 31, 1999.
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- --------------------------------------------------------------------------------- ----------------------------------
WEIGHTED- WEIGHTED-
OUTSTANDING AVERAGE WEIGHTED- EXERCISABLE AVERAGE
RANGE OF AS OF CONTRACTUAL AVERAGE AS OF EXERCISE
EXERCISE PRICES 12/31/1999 LIFE EXERCISE PRICE 12/31/1999 PRICE
- ------------------------ -------------- -------------- ----------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
$4.5501 - $9.1000 15,750 3.9 $6.5000 15,750 $6.5000
$9.1001 - $13.6500 297,730 5.5 $11.3333 203,778 $11.333
$13.6501 - $18.2000 168,954 7.0 $14.1895 80,316 $14.2035
$18.2001 - $22.7500 3,371,103 7.1 $21.4169 2,160,558 $21.4852
$22.7501 - $27.3000 4,500 8.3 $25.5417 1,485 $25.5417
$27.3001 - $31.8500 18,225 9.1 $30.0687 0 $0.0000
$31.8501 - $36.4000 1,800,950 5.2 $34.6395 1,125,000 $34.6667
$36.4001 - $40.9500 61,365 9.5 $37.7734 0 $0.0000
$40.9501 - $45.5000 19,500 9.6 $42.3117 0 $0.0000
-------------- -------------- ----------------- --------------- ---------------
5,758,077 6.5 $25.0539 3,586,887 $24.8156
============== ============== ================= =============== ===============
</TABLE>
A summary of the Company's stock option activity for the years ended December
31, 1999, 1998 and 1997, is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1999 1998
------------------------------------ -------------------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
PER SHARE PER SHARE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
-------------- ----------------- -------------- -------------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 4,370,135 $19.97 3,917,770 $13.85
Granted 2,008,890 $34.77 2,866,275 $21.75
Exercised (555,481) $20.54 (2,396,457) $12.18
Forfeited (65,467) $22.99 (17,453) $13.81
-------------- --------------
Outstanding at end of year 5,758,077 $25.05 4,370,135 $19.97
============== ==============
Options exercisable at year end 3,586,887 $24.82 311,123 $11.43
============== ==============
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997
--------------------------------------
WEIGHTED
AVERAGE
PER SHARE
SHARES EXERCISE PRICE
-------------- -------------------
<S> <C> <C>
Outstanding at beginning of year 4,193,298 $11.19
Granted 1,293,579 $19.11
Exercised (1,552,817) $11.07
Forfeited (16,290) $12.73
--------------
Outstanding at end of year 3,917,770 $13.85
==============
Options exercisable at year end 2,295,927 $11.25
==============
</TABLE>
33
<PAGE> 34
VALASSIS COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related Interpretations
in accounting for its employee stock options. Because the exercise price of the
Company's employee stock options is greater than or equal to the market price of
the underlying stock on the date of grant, no compensation expense is
recognized.
Pro forma information regarding net income and earnings per share is required by
SFAS No. 123, "Accounting for Stock Based Compensation" and has been determined
as if the Company had accounted for its employee stock options under the fair
value method of that Statement. The fair value for these options was estimated
at the date of grant using a Black-Scholes option pricing model with the
following weighted-average assumptions for 1999, 1998 and 1997, respectively:
weighted-average dividend yield of 0%, 0% and 0%, expected volatility of 34%,
34% and 36%, weighted-average risk-free interest rates of 5.0%, 4.80% and 5.60%,
and weighted-average expected lives of 5.7, 5.0 and 5.8 years.
No options were granted at greater than market value in 1999, 1998 and 1997. The
weighted average per share fair value of options granted at market value was
$14.21 in 1999, $12.42 in 1998 and $12.66 in 1997. The weighted average exercise
price of options granted in 1999, 1998 and 1997 was $34.77, $21.75 and $19.11,
respectively.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma net earnings and earnings per share follows (in thousands except for
earnings per share information):
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- ----------
<S> <C> <C> <C>
Pro forma net earnings $94,549 $66,604 $68,872
Pro forma earnings
per share, basic $1.67 $1.71 $1.69
Pro forma earnings per
share, diluted $1.63 $1.68 $1.67
</TABLE>
The pro forma effects in 1999, 1998 and 1997 are not necessarily indicative of
future pro forma adjustments. The Black-Scholes option valuation model was
developed for use in estimating the fair value of traded options, which have no
vesting restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the expected
stock price volatility. Because the Company's employee stock options have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its employee
stock options.
(10) STOCK COMPENSATION PLANS
The following summarizes the Company's stock compensation plans:
Employee and Director Restricted Stock Award Plan
The Employee and Director Restricted Stock Award Plan provides for the grant of
restricted stock to executives in lieu of or as a supplement to a cash raise, to
non-employee, non-affiliated directors as a portion of their fee, and to
participants in the Employee Stock Purchase Plan as described in the following
paragraph. A total of 300,000 shares of restricted stock have been reserved for
this plan. Pursuant to an employment agreement between the Company and its then
Chief Operating Officer, Alan F. Schultz, 11,250 shares of restricted stock have
been issued to Mr. Schultz annually in January 1996, 1997 and 1998,
respectively, with each grant vesting ratably from date of grant over a
three-year period. The expense related to the aggregate of such restricted stock
will be recognized on the straight-line method over the vesting period. Such
pre-tax expense was approximately $94,000, $196,000 and $207,000 for the years
ended December 31, 1999, 1998 and 1997, respectively. In addition, several
executives received restricted stock grants totaling 39,000 shares and 34,500
shares in 1998 and 1997, respectively, vesting over a three-year period.
34
<PAGE> 35
VALASSIS COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The related expense is recognized over the vesting period and was approximately
$483,000, $694,000 and $373,000 for the years ended December 31, 1999, 1998 and
1997, respectively. Also during 1999, 1998 and 1997, a portion of the total
payments to the outside directors, was paid in restricted stock from this plan,
with a total value of approximately $124,500, $95,000 and $83,000, respectively.
Employee Stock Purchase Plan
All full-time employees are eligible to participate in VCI's Employee Stock
Purchase Plan. The plan provides that participants may authorize VCI to withhold
a portion of earnings to be used to purchase VCI's common stock at prevailing
market prices. Under the plan, VCI contributed on behalf of each participant 25%
of the participant's contributions during the year. During 1997, the Company's
contribution was made in the form of restricted stock with a one-year transfer
restriction. In 1998 and 1999, the Company purchased shares on the open market
to fund the match. The value of the Company's stock contributed by the Company
and expensed totaled approximately $172,000, $302,000 and $204,000 for the years
ended December 31, 1999, 1998 and 1997, respectively.
Executive Restricted Stock Plan
The Executive Restricted Stock Plan provides for the grant of restricted stock,
with a minimum one-year vesting, to certain executive officers. The maximum
number of restricted shares that may be issued under this plan is 375,000,
provided that not more than 60% of such shares are awarded to any one
participant. Pursuant to a previous employment agreement between the Company and
David A. Brandon, the Company's former President and Chief Executive Officer,
Mr. Brandon received 67,500 shares of restricted stock in 1998 and 45,000 shares
in 1997. Compensation expense was recognized over the vesting period and was
dependent on the market value of stock at the end of each quarter. Pursuant to
an employment agreement between the Company and its then Chief Operating
Officer, Alan F. Schultz, 11,250 shares of restricted stock were issued to Mr.
Schultz in 1999. This grant vests from the date of grant over a three-year
period. In addition, several executives received restricted stock grants
totaling 46,500 shares in 1999. The related expense is recognized over the
vesting period. Pre-tax compensation expense related to the plan for year ended
December 31, 1999, 1998 and 1997 was approximately $.6 million, $1.1 million and
$.9 million, respectively.
401(k) Plan
The Company's 401(k) Plan includes a 25% match, payable in VCI stock, on each
participant's annual contributions to the Plan that are invested in VCI stock at
the end of the year. The expense related to this plan for the year ended
December 31, 1999, 1998 and 1997 was approximately $230,000, $160,000 and
$148,000, respectively.
(11) DIVIDENDS
On June 21, 1993, the Company suspended its policy of paying quarterly cash
dividends. In addition, the payment of future dividends is subject to the
restrictions described in Note 4.
35
<PAGE> 36
VALASSIS COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(12) DISPOSALS
The Company discontinued operations of its joint venture, Valassis de Mexico and
exited this business during the first quarter of 1997. The effect on earnings of
the disposal of this business was immaterial. In addition, the Company
discontinued operations in the second quarter of 1997 of Valassis France, the
effect of which was also not material.
The Company discontinued the direct mail merchandising division of Valassis of
Canada in the fourth quarter of 1999. Costs associated with the discontinuance
of this division totaled $1.7 million in 1999. The Company received a special
one-time tax benefit of $4.4 million associated with the write-down of our
foreign investment in Valassis of Canada as a result of this discontinuation.
(13) ACQUISITIONS AND INVESTMENTS
On October 14, 1999, the Company acquired 100% of the outstanding membership
interests of The Net's Best LLC ("Net's Best") for $3.9 million, net of cash
acquired. Net's Best maintains a web site designed for Internet shoppers and
produces a newspaper delivered free-standing insert (FSI) that is sold to
companies that do business on the Internet. The acquisition of Net's Best was
accounted for using the purchase method of accounting for acquisitions and,
accordingly, the results of operations for Net's Best have been included in the
1999 consolidated 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 also contains additional payments contingent on
the future earnings performance of Net's Best. 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.
In addition, during 1999 the company made several strategic equity investments.
Through two investments in January and April 1999, the Company purchased
approximately 50% of Save.com, an Internet coupon joint venture. In September
1999, the Company purchased approximately 54% of Independent Delivery Services,
Inc., a provider of on-line grocery shopping solutions. Finally, in October
1999, the Company purchased approximately 30% of Relationship Marketing Group,
Inc., a company providing targeted direct mail solutions to the retail grocery
and consumer packaged goods industries. These equity investments totaled
approximately $6.5 million during the year ended December 31, 1999.
(14) RELATED PARTY TRANSACTIONS
The Company owns approximately 50% of Save.com. The Company has a note
receivable from Save.com due July 2002. The note bears interest at 10% annually.
At December 31, 1999, the balance of the note receivable was $4.5 million. The
investment in Save.com and the note receivable are included in equity
investments and advances to investees in the accompanying consolidated balance
sheet.
36
<PAGE> 37
VALASSIS COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(15) 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.
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies. The Company evaluates performances
based on earnings before taxes. 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.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------------------------------------
(IN MILLIONS) FSI VIP ALL OTHERS* TOTALS
------------ ----------- ---------------- ------------
<S> <C> <C> <C> <C>
1999
- ----
Revenues from external customers $585.4 $118.1 $90.9 $794.4
Intersegment revenue 6.1 --- --- 6.1
Depreciation / amortization 11.0 1.8 .1 12.9
Segment profit 161.8 12.2 14.5 188.5
1998
- ----
Revenues from external customers 567.7 103.1 69.4 740.2
Intersegment revenue 4.4 --- --- 4.4
Depreciation / amortization 13.2 2.2 .3 15.7
Segment profit 121.5 9.0 4.8 135.3
1997
- ----
Revenues from external customers 521.3 89.2 62.7 673.2
Intersegment revenue .6 --- --- .6
Depreciation / amortization 12.6 2.1 .7 15.4
Segment profit 99.8 9.8 3.1 112.7
</TABLE>
* Segments below the quantitative thresholds are primarily attributable to
two divisions of the Company. Those divisions are Targeted Marketing
Services which includes a product sampling business, a run-of-press
business, and a promotion security service, and Valassis of Canada, a sales
promotion business in Canada. These segments have not met any of the
quantitative thresholds for determining reportable segments.
37
<PAGE> 38
VALASSIS COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Reconciliations to consolidated financial statement totals are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1999 1998 1997
------------ ----------- ------------
<S> <C> <C> <C>
Revenues for reportable segments $703.5 $670.8 $610.5
Revenues for other segments 90.9 69.4 62.7
Interest income .2 1.2 2.3
------------ ----------- ------------
Total consolidated revenues $794.6 $741.4 $675.5
============ =========== ============
Profit for reportable segments $174.0 $130.5 $109.6
Profit for other segments 14.5 4.8 3.1
Unallocated amounts:
Interest income .2 1.2 2.3
------------ ----------- ------------
Earnings before taxes $188.7 $136.5 $115.0
============ =========== ============
</TABLE>
Domestic and foreign revenues for each of the three years ended December 31 were
as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------ ----------- ------------
<S> <C> <C> <C>
United States $774.0 $721.1 $657.2
Canada 20.6 20.3 18.3
------------ ----------- ------------
$794.6 $741.4 $675.5
============ =========== ============
</TABLE>
38
<PAGE> 39
VALASSIS COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(16) EARNINGS PER SHARE
Earnings per common share ("EPS") data were computed as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1999 1998 1997
(in thousands except for share amounts)
<S> <C> <C> <C>
Net earnings $114,201 $70,688 $69,930
==============================================
Basic EPS:
Weighted average common shares outstanding 56,628 58,532 61,037
==============================================
Earnings (loss) per common share - basic
Before extraordinary item $2.14 $1.44 $1.15
Extraordinary item (0.12) (0.23) ---
----------------------------------------------
Total $2.02 $1.21 $1.15
==============================================
Diluted EPS:
Weighted average common shares outstanding 56,628 58,532 61,037
Shares issued on exercise of dilutive options 6,301 4,998 3,906
Shares purchased with proceeds of options (4,918) (4,233) (3,003)
Shares contingently issuable 73 12 23
==============================================
Shares applicable to diluted earnings 58,084 59,309 61,963
==============================================
Earnings (loss) per common share - diluted
Before extraordinary item $2.09 $1.42 $1.13
Extraordinary item (0.12) (0.23) ---
----------------------------------------------
Net earnings per common share, diluted $1.97 $1.19 $1.13
==============================================
</TABLE>
Unexercised employee stock options to purchase 4,500 and 1,057,500 shares of the
Company's common stock as of December 31, 1998 and 1997, respectively, were not
included in the computations of diluted EPS because the options exercise prices
were greater than the average market price of the Company's common stock during
the respective periods. Subsequent to December 31, 1999, the Company has
repurchased approximately 785,000 of its common shares.
39
<PAGE> 40
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Valassis Communications, Inc.
We have audited the accompanying consolidated balance sheets of
Valassis Communications, Inc. and subsidiaries (the "Company") at
December 31, 1999 and 1998 and the related consolidated statements of
income, stockholders' deficit, and cash flows for each of the three
years in the period ended December 31, 1999. Our audits also included
the financial statement schedule listed in the Index at Item 14(a).
These consolidated financial statements and financial statement
schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of Valassis
Communications, Inc. and subsidiaries at December 31, 1999 and 1998,
and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1999, in conformity
with generally accepted accounting principles. Also, in our opinion,
such financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, presents
fairly in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Detroit, Michigan
February 9, 2000
(February 29, 2000 as to Note 8)
40
<PAGE> 41
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
Not applicable.
PART III
Certain information required by Part III is omitted from this report
in that the registrant will file a definitive proxy statement pursuant to
Regulation 14A (the "Proxy Statement") not later than 120 days after the end of
the fiscal year covered by this Report, and certain information included therein
is incorporated herein by reference.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is set forth in the Company's Proxy
Statement for the 2000 Annual Meeting of Stockholders, which information is
hereby incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is set forth in the Company's Proxy
Statement for the 2000 Annual Meeting of Stockholders, which information is
hereby incorporated herein by reference, excluding the Stock Price Performance
Graph and the Compensation/Stock Option Committee Report on Executive
Compensation.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is set forth in the Company's Proxy
Statement for the 2000 Annual Meeting of Stockholders, which information is
hereby incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is set forth in the Company's Proxy
Statement for the 2000 Annual Meeting of Stockholders, which information is
hereby incorporated herein by reference.
41
<PAGE> 42
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this Report:
1. Financial Statements. The following consolidated financial
statements of Valassis Communications, Inc. and subsidiaries are
included in Item 8:
Consolidated Balance Sheets as of December 31, 1999 and 1998.
Consolidated Statements of Operations for the Years Ended December
31, 1999, 1998 and 1997.
Consolidated Statements of Stockholders' Deficit for the Years
Ended December 31, 1999, 1998 and 1997.
Consolidated statements of Cash Flows for the Years Ended December
31, 1999, 1998 and 1997.
Notes to Consolidated Financial Statements
Independent Auditors' Reports
2. Financial Statement Schedules. The following consolidated financial
statement schedule of Valassis Communications, Inc. for the year
ended December 31, 1999, 1998 and 1997.
<TABLE>
<CAPTION>
Schedule Page
-------- ----
<S> <C>
II Valuation and Qualifying Accounts ........................... S-2
</TABLE>
Schedules not listed above have been omitted because they are not
applicable or are not required or the information required to be
set forth therein is included in the Consolidated Financial
Statements or Notes thereto.
3. Exhibits. The Exhibits on the accompanying Index to Exhibits
immediately following the financial statement schedules are filed
as part of, or incorporated by reference into, this Report.
(b) Reports on Form 8-K.
No Reports on Form 8-K were filed during the quarter ended December 31,
1999.
42
<PAGE> 43
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
VALASSIS COMMUNICATIONS, INC.
By: /s/ Alan F. Schultz March 14, 2000
------------------- ----------------
Alan F. Schultz Date
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- -------------------------------- ------------------------------------- ---------------
<S> <C> <C>
/s/Alan F. Schultz Chairman of the Board of Directors, March 14, 2000
- ------------------------------- President and Chief Executive Officer --------------
Alan F. Schultz (Principal Executive Officer)
/s/Richard N. Anderson Director March 14, 2000
- ------------------------------- --------------
Richard N. Anderson
/s/Patrick F. Brennan Director March 14, 2000
- ------------------------------- --------------
Patrick F. Brennan
/s/Seth Goldstein Director March 14, 2000
- ------------------------------- --------------
Seth Goldstein
/s/Brian J. Husselbee Director March 14, 2000
- ------------------------------- --------------
Brian J. Husselbee
/s/Joseph E. Laird, Jr. Director March 14, 2000
- ------------------------------- --------------
Joseph E. Laird, Jr.
/s/Robert L. Recchia Chief Financial Officer and Director March 14, 2000
- ------------------------------- (Principal Financial and --------------
Robert L. Recchia Accounting Officer)
/s/Marcella A. Sampson Director March 14, 2000
- ------------------------------- --------------
Marcella A. Sampson
/s/Faith Whittlesey Director March 14, 2000
- ------------------------------- --------------
Faith Whittlesey
</TABLE>
43
<PAGE> 44
Schedule II
VALASSIS COMMUNICATIONS, INC.
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
CHARGED TO BALANCE
BALANCE AT COSTS AND AT
BEGINNING EXPENSES DEDUCTIONS END OF
DESCRIPTION OF PERIOD (1) PERIOD
- ------------------------------------------------- -------------- ------------- -------------- ------------
<S> <C> <C> <C> <C>
Allowance for doubtful
accounts (deducted from
accounts receivable):
Year Ended December 31, 1999......... $1,354 $1,464 $1,432 $1,386
Year Ended December 31, 1998......... 1,171 900 717 1,354
Year Ended December 31, 1997......... 684 900 413 1,171
</TABLE>
(1) Accounts deemed to be uncollectible.
S-2
44
<PAGE> 45
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Page
------ ----
<S> <C> <C>
3.1 Restated Certificate of Incorporation of Valassis Communications,
Inc. (incorporated by reference to Exhibit 3.1 to the Company's
Registration Statement No. 33-45189)
3.2 Amended and Restated By-laws of Valassis Communications, Inc.
(incorporated by reference to Exhibit 3.2 to the Company's
Registration Statement No. 33-45189)
3.2(a) Amended and Restated By-laws of Valassis Communications, Inc.
(incorporated by reference to Exhibit 3 (ii) to the Company's Form
10-Q for the period ended March 31, 1999).
4.1 Indenture between Valassis Communications, Inc. and The Bank of New
York, as trustee, relating to the 9.55% Senior Notes due 2003
(incorporated by reference to Exhibit 4.1 to the Company's Form 10-K
for the transition period July 1, 1994 to December 31, 1994)
4.1(a) First Supplemental Indenture dated as of January 6, 2000.
4.2 Form of Indenture between Valassis Communications, Inc. and The Bank
of New York, as trustee, relating to the 6 5/8% Senior Notes due
2009 (incorporated by reference to Exhibit 4.1 to the Company's
Registration Statement No. 333-75041)
4.2(a) First Supplemental Indenture dated as of March 9, 1999 (incorporated
by reference to Exhibit 4.1(a) to the Company's Registration
Statement No. 333-75041)
4.4 Certificate of Designations of Preferred Stock of Valassis
Communications, Inc. filed with the Office of the Secretary of State
of Delaware on September 21, 1999, Authentication No. 9983607
(incorporated by reference to Exhibit (4) to the Company's Form 8-K
filed on September 23, 1999)
10.1 Credit Agreement dated as of November 16, 1998 (the "Credit
Facility"), among Valassis Communications, Inc., the institutions
named therein as issuing banks, and Comerica Bank, as Agent
(incorporated by reference to Exhibit 10.1 to the Company's 1998
Form 10-K)
10.1(a) Amendment No. 1 to the Credit Facility, dated as of November 25,
1998 (incorporated by reference to Exhibit 10.1(a) to the Company's
1998 Form 10-K)
10.1(b) Amendment No. 2 to the Credit Agreement by and among the Company and
a group of banks for which Comerica Bank is acting as administrative
agent dated as of August 19, 1999 (incorporated by reference to
Exhibit 10 to the Company's Form 10-Q filed on November 12, 1999)
</TABLE>
45
<PAGE> 46
<TABLE>
<S> <C>
10.3* Employment Agreement, dated January 20, 1992 among Robert L.
Recchia, Valassis Communications, Inc. and Valassis Inserts, Inc.,
including amendment dated February 11, 1992 (incorporated by
reference to Exhibit 10.5 to the Company's Registration Statement
No. 33-45189)
10.3(a)* Amendment to Employment Agreement and Non Qualified Stock Option
Agreement of Robert Recchia dated January 2, 1996 (incorporated by
reference to Exhibit 10.6(a) to the Company's 1995 Form 10-K)
10.3(b)* Amendment to Employment Agreement and Non Qualified Stock Option
Agreement of Robert Recchia dated January 3, 1997 (incorporated by
reference to Exhibit 10.6(b) to the Company's 1996 Form 10-K)
10.3(c)* Amendment to Employment Agreement and Non Qualified Stock Option
Agreement of Robert L. Recchia dated December 9, 1998 (incorporated
by reference to Exhibit 10.3(c)* to the Company's 1998 Form 10-K)
10.3(d)* Amendment to Employment Agreement of Robert L. Recchia dated
December 23, 1999.
10.4* Employment Agreement, dated January 20, 1992, among Barry P.
Hoffman, Valassis Communications, Inc. and Valassis Inserts, Inc.,
including amendment dated February 11, 1992 (incorporated by
reference to Exhibit 10.6 to the Company's Registration Statement
No. 33-45189)
10.4(a)* Amendment to Employment Agreement and Non Qualified Stock Option
Agreement of Barry P. Hoffman dated December 19, 1995 (incorporated
by reference to Exhibit 10.7(a) to the Company's 1995 Form 10-K)
10.4(b)* Amendment to Employment Agreement and Non-Qualified Stock Option
Agreement of Barry P. Hoffman dated December 12, 1997 (incorporated
by reference to Exhibit 10.7(b) to the Company's 1997 Form 10-K)
10.4(c)* Amendment to Employment Agreement and Non Qualified Stock Option
Agreement of Barry P. Hoffman dated December 9, 1998 (incorporated
by reference to Exhibit 10.4(c)* to the Company's 1998 Form 10-K)
10.4(d) Amendment to Employment Agreement of Barry P. Hoffman dated December
16, 1999.
10.5* Employment Agreement of Richard P. Herpich dated as of January 17,
1994 (incorporated by reference to Exhibit 10.5* to the Company's
1998 Form 10.K)
10.5(a)* Amendment to Employment Agreement of Richard P. Herpich dated June
30, 1994 (incorporated by reference to Exhibit 10.5(a)* to the
Company's 1998 Form 10-K)
10.5(b)* Amendment to Employment Agreement and Non Qualified Stock Option
Agreements of Richard P. Herpich dated December 19, 1995
(incorporated by reference to Exhibit 10.5(b)* to the Company's 1998
Form 10-K)
</TABLE>
46
<PAGE> 47
<TABLE>
<S> <C>
10.5(c)* Amendment to Employment Agreement and Non Qualified Stock Option
Agreements of Richard P. Herpich dated February 18, 1997
(incorporated by reference to Exhibit 10.5(c)* to the Company's 1998
Form 10-K)
10.5(d)* Amendment to Employment Agreement and Non Qualified Stock Option
Agreements of Richard P. Herpich dated December 30, 1997
(incorporated by reference to Exhibit 10.5(d)* to the Company's 1998
Form 10-K)
10.5(e)* Amendment to Employment Agreement and Non Qualified Stock Option
Agreements of Richard P. Herpich dated December 15, 1998
(incorporated by reference to Exhibit 10.5(e)* to the Company's 1998
Form 10-K)
10.5(f) Amendment to Employment Agreement of Richard P. Herpich dated
January 4, 2000.
10.7 Valassis Inserts, Inc. Employees' 401(k) Retirement Savings Plan
(incorporated by reference to Exhibit 10.8 to the Company's
Registration Statement No. 33-45189)
10.7(a) First Amendment of the Valassis Communications, Inc. Employees'
401(k) Retirement Savings Plan (incorporated by reference to Exhibit
10.9(a) to the Company's 1995 Form 10-K)
10.8 Valassis Inserts, Inc. Employees' Profit Sharing Plan (incorporated
by reference to Exhibit 10.9 to the Company's Registration Statement
No. 33-45189)
10.8(a) First Amendment of the Valassis Communications, Inc. Employees'
Profit Sharing Plan (incorporated by reference to Exhibit 10.10(a)
to the Company's 1995 Form 10-K)
10.9 Valassis Inserts, Inc. Plant Employees Pension Plan (incorporated by
reference to Exhibit 10.14 to the Company's Registration Statement
No. 33-45189)
10.10* Employment Agreement among Richard N. Anderson, Valassis
Communications, Inc. and Valassis Inserts, Inc. (incorporated by
reference to Exhibit 10.16 to the Company's Registration Statement
No. 33-45189)
10.10(a)* Amendment to Employment Agreement among Richard N. Anderson,
Valassis Communications, Inc. and Valassis Inserts, Inc.
(incorporated by reference to Exhibit 10.15(a) to the Company's Form
10-K for the transition period of July 1, 1994 to December 31, 1994)
10.10(b)* Amendment to Employment Agreement and Non Qualified Stock Option
Agreement of Richard N. Anderson dated December 15, 1995
(incorporated by reference to Exhibit 10.15(b) to the Company's 1995
Form 10-K)
10.10(c)* Amendment to Employment Agreement and Non Qualified Stock Option
Agreement of Richard N. Anderson dated December 11, 1998
(incorporated by reference to Exhibit 10.10(c)* to the Company's
1998 Form 10-K)
</TABLE>
47
<PAGE> 48
<TABLE>
<S> <C>
10.10(d) Amendment to Employment Agreement of Richard N. Anderson dated
December 22, 1999.
10.11* Employment Agreement among Alan F. Schultz, Valassis Communications,
Inc. and Valassis Inserts, Inc. (incorporated by reference to
Exhibit 10.17 to the Company's Registration Statement No. 33-45189)
10.11(a)* Amendment to Employment Agreement among Alan F. Schultz, Valassis
Communications, Inc. and Valassis Inserts, Inc. (incorporated by
reference to Exhibit 10.16(a) to the Form 10-K for the transition
period of July 1, 1994 to December 31, 1994)
10.11(b)* Amendment to Employment Agreement and Non Qualified Stock Option of
Alan F. Schultz dated December 19, 1995 (incorporated by reference
to Exhibit 10.16(b) to the Company's 1995 Form 10-K)
10.11(c)* Amendment to Employment Agreement and Non Qualified Stock Option
Agreement of Alan F. Schultz dated September 15, 1998 (incorporated
by reference to Exhibit 10.16(c) to the Company's Quarterly Report
on Form 10-Q for the period ending September 30, 1998)
10.11(d) Amendment to Employment Agreement of Alan F. Schultz dated December
16, 1999.
10.12* Senior Executive Annual Bonus Plan (incorporated by reference to
Exhibit A to the Company's Proxy Statement dated October 24, 1994)
10.12(a) First Amendment to Senior Executive Annual Bonus Plan (incorporated
by reference to Exhibit E to the Company's Proxy Statement dated
April 15, 1996.
10.14 Lease for New Headquarters Building (incorporated by reference to
Exhibit 10.21 to the Company's Form 10-Q for the period ended June
30, 1996)
10.15 Executive Restricted Stock Plan (incorporated by reference to
Exhibit A to the Company's Proxy Statement dated April 25, 1996)
10.16 First Amendment of Executive Restricted Stock Plan (incorporated by
reference to Exhibit A to the Company's Proxy Statement dated April
25, 1996)
10.17 Employee and Director Restricted Stock Award Plan (incorporated by
reference to Exhibit B to the Company's Proxy Statement dated April
25, 1996)
10.18 Employee Stock Purchase Plan (incorporated by reference to Exhibit C
to the Company's Proxy Statement dated April 25, 1996)
10.22 Valassis Communications, Inc. Amended and Restated 1992 Long-Term
Incentive Plan (incorporated by reference to Exhibit 10.22 to the
Company's 1998 Form 10-K)
12.1 Statements of Computation of Ratios
21.1 Subsidiaries of Valassis Communications, Inc.
</TABLE>
48
<PAGE> 49
<TABLE>
<S> <C>
23.1 Consent of Independent Auditors
27.1 Financial Data Schedule for the Year Ended December 31, 1999
99 Rights Agreement dated as of September 1, 1999 by and between the
Company and the Bank of New York (incorporated by reference to
Exhibit 99.1 to the Company's Form 8-A 12B/A filed on November 8,
1999)
</TABLE>
*Constitutes a management contract or compensatory plan or arrangement.
49
<PAGE> 1
EXHIBIT 4.1(a)
FIRST SUPPLEMENTAL INDENTURE (the "Supplement"), dated as of
January 6, 2000, between Valassis Communications, Inc., a Delaware corporation
(the "Company"), and The Bank of New York, a New York banking corporation, as
trustee (the "Trustee").
W I T N E S S E T H
WHEREAS, the Company and the Trustee have executed and
delivered the Indenture, dated as of November 15, 1994 (the "Indenture"),
providing for the issuance thereunder by the Company, and the authentication and
delivery by the Trustee, of the Company's 9.55% Senior Notes due 2003 (the
"Notes");
WHEREAS, Section 1102 of the Indenture authorizes the Company
and the Trustee, with the consent of the holders of not less than a majority in
aggregate principal amount of the Notes, to amend, from time-to-time, the
Indenture by supplemental indenture for the purposes therein set forth;
WHEREAS, the holders of not less than a majority in aggregate
principal amount of the Notes have consented to the amendments to the Indenture
set forth herein and the Company, by appropriate corporate action, has
determined to supplement the Indenture in the manner described below, and all
acts or proceedings necessary to authorize and constitute this Supplement a
valid and binding agreement in accordance with the terms hereof, have been done
and taken.
NOW, THEREFORE, in consideration of the premises herein, the
Company covenants and agrees with the Trustee, for the equal and proportionate
benefit of the respective holders of the Notes from time-to-time, as follows:
Section 1. Indenture Supplement.
(a) Section 101 of the Indenture shall be amending by adding
the following defined terms:
"EBITDA" for any period means the sum of Consolidated Net
Income, plus Consolidated Interest Expense plus the following to the extent
deducted in calculating such Consolidated Net Income: (i) all income tax expense
of the Company and its consolidated Subsidiaries, (ii) depreciation expense of
the Company and its consolidated Subsidiaries, (iii) amortization expense of the
Company and its consolidated Subsidiaries (excluding amortization expense
attributable to a prepaid cash item that was paid in a prior period), and (iv)
all other non-cash charges of the Company and its consolidated Subsidiaries
(excluding any such non-cash charge to the extent that it represents an accrual
of or reserve for cash expenditures in any future period), in each case for such
period.
"Funded Debt" of any Person means, as at any date as of which
any determination thereof is being or is to be made, any Indebtedness of such
person that by its terms (i) will mature more than one year after the date it
was issued,
<PAGE> 2
incurred, assumed or guaranteed by such Person, or (ii) will mature one year or
less after the date it was issued, incurred, assumed or guaranteed by such
Person which at such date of determination may be renewed or extended at the
election or option of such Person so as to mature more than one year after such
date of determination.
"Funded Debt to EBITDA Ratio" as of any date of determination
means the ratio of (i) Funded Debt to (ii) the aggregate amount of EBITDA for
the period of the most recent four consecutive fiscal quarters prior to the date
of determination for which internal financial statements are available;
provided, however, that if the Company or any Subsidiary shall have made an
acquisition of assets which constitutes all or substantially all of the assets
of a business, EBITDA for such period shall be calculated after giving pro forma
effect thereto as if such acquisition occurred on the first day of such period.
(b) Section 1208(a) of the Indenture shall be amended and
restated in its entirety as follows:
"(a) The Company shall not, nor shall it permit any of its
Subsidiaries to, make any Restricted Payment if, after giving effect thereto,
(i) any Default shall have occurred and be continuing or (ii) the aggregate
amount of such payments made subsequent to January 12, 1999 would exceed the sum
of (1) 50% (or if Consolidated Net Income shall be a deficit, minus 100% of such
deficit) of the aggregate Consolidated Net Income from November 16, 1998 through
the date of determination, (2) the aggregate net proceeds (including cash and
the Fair Market Value of Property other than cash) received by the Company,
subsequent to January 12, 1999, from capital contributions from any of its
stockholders or from the issuance or sale (other than to a Subsidiary),
subsequent to January 12, 1999, of shares of its Capital Stock of any class (or
rights or warrants to subscribe for or purchase shares of Capital Stock of any
class), other than Redeemable Stock, or of any convertible securities or debt
obligations which have been converted into, exchanged for or satisfied by the
issuance of shares of Capital Stock of any class of the Company and (3)
$75,000,000. Notwithstanding anything to the contrary contained herein, the
Company and its Subsidiaries may make any Restricted Payment if, pro forma for
such Restricted Payment, the Funded Debt to EBITDA Ratio would have been equal
to or less than 1.0.
Section 2. Indenture to Remain in Effect. The
Indenture, as amended and supplemented by this Supplement, shall remain in full
force and effect.
Section 3. GOVERNING LAW. THIS SUPPLEMENT SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT
REGARD TO CONFLICTS OF LAWS PRINCIPLES THEREOF.
Section 4. Counterparts. This Supplement may be executed in
one or more counterparts, each of which shall be an original, but such
counterparts together shall construe one and the same instrument.
2
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this First
Supplemental Indenture to be duly executed as of the day and year first above
written.
VALASSIS COMMUNICATIONS, INC.
By:
--------------------------
Name:
Title:
THE BANK OF NEW YORK
By:
--------------------------
Name:
Title:
3
<PAGE> 1
EXHIBIT 10.3(d)
AMENDMENT
TO
EMPLOYMENT AGREEMENT
THIS AMENDMENT TO EMPLOYMENT AGREEMENT (the "Amendment") is made
December 23, 1999 by and between Valassis Communications, Inc. (the
"Corporation") and Robert L. Recchia (the "Executive").
WHEREAS, the Corporation and the Executive entered into that
certain Employment Agreement effective as of March 18, 1992, as amended on
January 2, 1996, January 3, 1997 and December 9, 1998 (the "Employment
Agreement"); and
WHEREAS, the Corporation and the Executive desire to amend the
Employment Agreement to extend the term of employment under the Employment
Agreement.
NOW THEREFORE, in consideration of the above recitals, the parties
hereto agree as set forth below.
1. The first sentence of Section 3(a) of the Employment Agreement
shall be amended to read as follows:
"The Executive's Annual Base Salary ("Annual Base Salary"),
payable on a biweekly basis, shall be at the annual rate of not
less than $310,000 effective
January 1, 2000."
2. All other terms of the Employment Agreement shall remain in
full force and effect.
3. This instrument, together with the Employment Agreement,
contains the entire agreement of the parties with respect to the subject matter
hereof.
IN WITNESS WHEREOF, the Executive and the Corporation have caused
this Agreement to be executed as of the day and year first above written.
VALASSIS COMMUNICATIONS, INC.
By:
--------------------------
Name:
------------------------
Title:
-----------------------
-----------------------------
Robert L. Recchia
<PAGE> 1
EXHIBIT 10.4(d)
AMENDMENT
TO
EMPLOYMENT AGREEMENT
THIS AMENDMENT TO EMPLOYMENT AGREEMENT (the "Amendment") is made
December 16, 1999 by and between Valassis Communications, Inc. (the
"Corporation") and Barry P. Hoffman (the "Executive").
WHEREAS, the Corporation and the Executive entered into that
certain Employment Agreement effective as of March 18, 1992, as amended on
December 19, 1995, December 12, 1997 and December 9, 1998 (the "Employment
Agreement"); and
WHEREAS, the Corporation and the Executive desire to amend the
Employment Agreement to extend the term of employment under the Employment
Agreement.
NOW THEREFORE, in consideration of the above recitals, the parties
hereto agree as set forth below.
1. The first sentence of Section 3(a) of the Employment Agreement
shall be amended to read as follows:
"The Executive's Annual Base Salary ("Annual Base Salary"),
payable on a biweekly basis, shall be at the annual rate of not
less than $310,000 effective January 1, 2000."
2. All other terms of the Employment Agreement shall remain in
full force and effect.
3. This instrument, together with the Employment Agreement,
contains the entire agreement of the parties with respect to the subject matter
hereof.
IN WITNESS WHEREOF, the Executive and the Corporation have caused
this Agreement to be executed as of the day and year first above written.
VALASSIS COMMUNICATIONS, INC.
By:
--------------------------
Name:
------------------------
Title:
-----------------------
-----------------------------
Barry P. Hoffman
<PAGE> 1
EXHIBIT 10.5(f)
AMENDMENT
TO
EMPLOYMENT AGREEMENT
THIS AMENDMENT TO EMPLOYMENT AGREEMENT (the "Amendment") is made
January 4, 2000 by and between Valassis Communications, Inc. (the "Corporation")
and Richard P. Herpich (the "Executive").
WHEREAS, the Corporation and the Executive entered into that
certain Employment Agreement effective as of January 17, 1994, as amended June
30, 1994, December 19, 1995, February 18, 1997, December 30, 1997 and December
15, 1998 (the "Employment Agreement"); and
WHEREAS, the Corporation and the Executive desire to amend the
Employment Agreement to extend the term of employment under the Employment
Agreement.
NOW THEREFORE, in consideration of the above recitals, the parties
hereto agree as set forth below.
1. Section 1(b) of the Employment Agreement shall be amended to
read in its entirety as follows:
"The Employment Period shall commence as of January 17, 1994
(the "Effective Date") and shall continue until the close of
business on December 31, 2002."
2. Section 2(a) of the Employment Agreement shall be amended to
read in its entirety as follows:
"(a) Position. During the Employment Period, the Executive
shall serve as Executive Vice President of Manufacturer Services."
3. The first sentence of Section 3(a) of the Employment Agreement
shall be amended to read as follows:
"The Executive's Annual Base Salary ("Annual Base Salary"),
payable on a biweekly basis, shall be at the annual rate of not
less than $250,000 effective January 1, 2000."
<PAGE> 2
4. All other terms of the Employment Agreement shall remain in
full force and effect.
5. This instrument, together with the Employment Agreement,
contains the entire agreement of the parties with respect to the subject matter
hereof.
IN WITNESS WHEREOF, the Executive and the Corporation have caused
this Agreement to be executed as of the day and year first above written.
VALASSIS COMMUNICATIONS, INC.
By:
--------------------------
Name:
------------------------
Title:
-----------------------
-----------------------------
Richard P. Herpich
2
<PAGE> 1
EXHIBIT 10.10(d)
AMENDMENT
TO
EMPLOYMENT AGREEMENT
THIS AMENDMENT TO EMPLOYMENT AGREEMENT (the "Amendment") is made
December 22, 1999 by and between Valassis Communications, Inc. (the
"Corporation") and Richard N. Anderson (the "Executive").
WHEREAS, the Corporation and the Executive entered into that
certain Employment Agreement effective as of March 18, 1992, as amended on
December 22, 1994, December 15, 1995 and December 11, 1998 (the "Employment
Agreement"); and
WHEREAS, the Corporation and the Executive desire to amend the
Employment Agreement to extend the term of employment under the Employment
Agreement.
NOW THEREFORE, in consideration of the above recitals, the parties
hereto agree as set forth below.
1. The first sentence of Section 3(a) of the Employment Agreement
shall be amended to read as follows:
"The Executive's Annual Base Salary ("Annual Base Salary"),
payable on a biweekly basis, shall be at the annual rate of not
less than $335,000 effective January 1, 2000."
2. All other terms of the Employment Agreement shall remain in
full force and effect.
3. This instrument, together with the Employment Agreement,
contains the entire agreement of the parties with respect to the subject matter
hereof.
IN WITNESS WHEREOF, the Executive and the Corporation have caused
this Agreement to be executed as of the day and year first above written.
VALASSIS COMMUNICATIONS, INC.
By:
--------------------------
Name:
------------------------
Title:
-----------------------
-----------------------------
Richard N. Anderson
<PAGE> 1
EXHIBIT 10.11(d)
AMENDMENT
TO
EMPLOYMENT AGREEMENT
THIS AMENDMENT TO EMPLOYMENT AGREEMENT (the "Amendment") is made
December 16, 1999 by and between Valassis Communications, Inc. (the
"Corporation") and Alan F. Schultz (the "Executive").
WHEREAS, the Corporation and the Executive entered into that
certain Employment Agreement effective as of March 18, 1992, as amended on
January 3, 1995, December 19, 1995 and September 15, 1998 (the "Employment
Agreement"); and
WHEREAS, the Corporation and the Executive desire to amend the
Employment Agreement to extend the term of employment under the Employment
Agreement.
NOW THEREFORE, in consideration of the above recitals, the parties
hereto agree as set forth below.
1. The first sentence of Section 3(a) of the Employment Agreement
shall be amended to read as follows:
"The Executive's Annual Base Salary ("Annual Base Salary"),
payable on a biweekly basis, shall be at the annual rate of not
less than $600,000 effective January 1, 2000."
2. All other terms of the Employment Agreement shall remain in
full force and effect.
3. This instrument, together with the Employment Agreement,
contains the entire agreement of the parties with respect to the subject matter
hereof.
IN WITNESS WHEREOF, the Executive and the Corporation have caused
this Agreement to be executed as of the day and year first above written.
VALASSIS COMMUNICATIONS, INC.
By:
--------------------------
Name:
------------------------
Title:
-----------------------
-----------------------------
Alan F. Schultz
<PAGE> 1
EXHIBIT 12.1
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Fixed Charges:
Interest expense 25,968 34,450 38,312 39,625 40,451
Portion of rent expense
representative of interest 1,067 1,200 1,108 1,166 1,054
------------- ------------ ----------- ----------- -----------
Total Fixed Charges 27,035 35,650 39,420 40,791 41,505
============= ============ =========== =========== ===========
Earnings:
Income from continuing
operations before tax 188,650 136,509 115,030 65,873 27,793
Fixed charges per above 27,035 35,650 39,420 40,791 41,505
------------- ------------ ----------- ----------- -----------
Total earnings 215,685 172,159 154,450 106,664 69,298
============= ============ =========== =========== ===========
Ratio of Earnings to Fixed Charges 7.98 4.83 3.92 2.61 1.67
============= ============ =========== =========== ===========
</TABLE>
50
<PAGE> 1
EXHIBIT 21.1
Subsidiaries of Valassis Communications, Inc.
VCI Enterprises, Inc.
Valassis International, Inc.
Promotion Watch, Inc.
VCI Electronic Commerce, Inc.
Valassis Retail Connection, Inc.
VCI Direct Mail, Inc.
51
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference of our report dated February 9,
2000 (February 29, 2000 as to Note 8), appearing in this Annual Report on Form
10-K of Valassis Communications, Inc. for the year ended December 31, 1999 in
the following Registration Statements of Valassis Communications, Inc.:
<TABLE>
<S> <C> <C>
FORM REGISTRATION NO. DESCRIPTION
- ---- ---------------- -----------
Form S-8 33-59670 1992 Long-Term Incentive Plan
1992 Non-Employee Directors' Stock Compensation Plan
Form S-8 333-00022 1992 Long-Term Incentive Plan
Form S-8 333-00024 Employees' 401(k) Retirement Savings Plan
Employee Stock Purchase Plan
Employee and Director Restricted Stock Award Plan
Executive Restricted Stock Award Plan
Form S-8 333-52919 1992 Long-Term Incentive Plan
Form S-8 333-74263 Amended and Restated 1992 Long-Term Incentive Plan
</TABLE>
DELOITTE & TOUCHE LLP
Detroit, Michigan
March 28, 2000
52
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1999 AND THE CONSOLIDATED
STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1999 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 11,089
<SECURITIES> 0
<RECEIVABLES> 95,491
<ALLOWANCES> 1,386
<INVENTORY> 29,227
<CURRENT-ASSETS> 142,311
<PP&E> 167,737
<DEPRECIATION> 114,926
<TOTAL-ASSETS> 247,205
<CURRENT-LIABILITIES> 169,564
<BONDS> 291,354
0
0
<COMMON> 627
<OTHER-SE> (216,211)
<TOTAL-LIABILITY-AND-EQUITY> 247,205
<SALES> 793,860
<TOTAL-REVENUES> 794,566
<CGS> 491,593
<TOTAL-COSTS> 579,948
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,867
<INTEREST-EXPENSE> 25,968
<INCOME-PRETAX> 188,650
<INCOME-TAX> 67,516
<INCOME-CONTINUING> 121,134
<DISCONTINUED> 0
<EXTRAORDINARY> 6,933
<CHANGES> 0
<NET-INCOME> 114,201
<EPS-BASIC> 2.02
<EPS-DILUTED> 1.97
</TABLE>
