================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------
FORM 10-K
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(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, 2001 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
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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
6 5/8% Senior Notes Due 2009 Not Applicable
Zero Coupon Senior Convertible Notes Due 2021` 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]
As of March 15, 2002, there were 53,896,700 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 $1,332,000,000.
The applicable portions of the Company's Proxy Statement for the 2002 Annual
Meeting of Stockholders to be held on or about May 14, 2002 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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2
PART I
Item 1. Business
--------
The Company
Valassis leads the marketing services industry by connecting people to brands
through our wide range of products and services offered to a variety of premier
manufacturers and retailers.
We offer a broad array of strategic marketing solutions, including:
Mass Marketing Products:
. Free-Standing Inserts ("FSIs")--four-color promotional booklets containing
the coupons of multiple advertisers that are distributed by us to nearly 59
million households through Sunday newspapers;
. Run-of-Press ("ROP")--promotions printed directly on the pages of over
13,000 newspapers;
Cluster-Targeted Marketing Products:
. Newspaper-delivered Product Sampling--samples machine-inserted into
newspapers or placed in a polybag around the newspaper;
. Newspaper Polybag Advertising--advertising message on a newspaper polybag
without a sample;
. Solo Newspaper Inserts--specialized print promotion programs for single
advertisers.
One-to-One Marketing Products:
. Direct Mail Sampling / Advertising--high-impact, personalized
communications and product samples aimed at the right target audience;
. Customer Relationship Marketing ("CRM") software, consulting and agency
services;
. Internet-delivered promotions;
. Security consulting services.
Business Strategy
We believe that our existing products put us in a strong position to meet the
mass and cluster-targeted needs of our clients. 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 clients. 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 client service. In addition, we will attempt to
capitalize on our expertise in consumer promotion to further expand our existing
cluster-targeted products, and to further develop our Customer Relationship
Marketing initiative. We will continue to offer more highly-targeted and
one-to-one marketing solutions via direct mail and the Internet, utilizing
database marketing techniques.
The Company's Products
We print and publish cents-off coupons, refund offers, premiums, sweepstakes
and contests distributed to households throughout the United States and Canada.
We offer our clients a variety of consumer promotion alternatives. Depending
upon the particular promotion goal, a client can choose to include its
promotional materials in FSIs or ROP, distribute a customized printed solo
insert, or distribute a product sampling program. We market our products through
our own sales force and rely to a significant extent on repeat business.
3
Our Marketing Services Consultants personally call on existing clients to
maintain relationships and on potential clients to describe the advantages
afforded by our products compared to other promotion alternatives. In addition,
approximately 20%-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 an available basis.
Mass Marketing Products
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 2001, we inserted our cooperative FSIs in the Sunday edition of
over 525 newspapers with a combined average newspaper circulation of over 60
million on 45 publishing dates. By comparison, there were approximately 93.3
million households in the United States, according to the latest information
published by the U.S. Census Bureau.
As a natural extension of our U.S. business, Valassis 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. In
addition, Valassis produces a specialty FSI for smaller rural communities,
reaching 5.4 million households in the U.S.
Most 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 clients may reserve space at any
time thereafter. Marketing Services Consultants work closely with clients 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 clients require,
typically over 240 different layout versions per publication date. By offering
different versions in different markets, we offer our clients 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 are placed on a
waiting list for space that may become available. We select direct mail
marketers as remnant space clients on the basis of a number of factors,
including price, circulation, reputation and credit-worthiness. Remnant space
clients are subject to being "bumped" in favor of a regular price client 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, 2001 were
$579.2 million, or 68% of our total revenue. The top ten FSI customers accounted
for approximately 25% of FSI sales during the year ended December 31, 2001, and
no single customer accounted for more than 10% of FSI sales during the same
period.
Run-of-Press (ROP)
------------------
We arrange for the placement of on-page newspaper ads on behalf of our
clients. We serve in an agency role in this regard.
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 clients use us to place ROP because of our
ability to negotiate favorable media rates, our well-developed production and
national network placement capabilities, and our live quoting capability.
ROP customers include primarily telecommunications and pharmaceutical
companies and their advertising and promotion agencies. Our total ROP sales were
$31.9 million during the year ended December 31, 2001, or 4% of our total
revenue. The top ten ROP customers accounted for 59% of the ROP sales during the
same period.
4
Cluster-Targeted Products
Cluster-targeted products include:
Solo Newspaper Inserts
----------------------
Valassis offers its clients specialty print promotion products in 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. This allows customers the flexibility to run promotions any day of
the week in any newspaper throughout the United States. We specialize in
producing turnkey promotions for franchise retail marketers, such as fast food
chains, allowing orders to be placed on a national, regional or local basis.
Product Sampling and Advertising
--------------------------------
We offer newspaper-delivered sampling products that gives manufacturers the
ability to cost-effectively reach up to 65 million households in one weekend.
Samples can either be machine-inserted into newspapers (Newspac(R)), placed in a
polybag around the newspaper, or pre-sealed in a pouch that forms part of the
polybag (Newspouch(R)). In addition, Brand Bag(TM) and Brand Bag +(TM) offer
marketers the opportunity to deliver an impactful advertising message on a
newspaper polybag without a sample included. Both products offer clients
home-delivered newspaper circulation of up to 46 million households in one
weekend. The bags feature the customer's advertising with the option of a
weather-resistant tear-off coupon. We increased our competitive advantage in
2000 with the purchase of the consumer direct-to-door product sampling arm of
Alternative Marketing Networks.
In 2001, cluster-targeted products generated total revenue of $197.1 million,
or 23% of our total revenue. The top ten clients accounted for approximately 38%
of cluster-targeted sales during the year ended December 31, 2001.
One-to-One Marketing
Customer Relationship Marketing (CRM)
-------------------------------------
Customer Relationship Marketing allows companies to understand consumer
purchase behavior and to use that information to deliver intelligent, targeted
promotions. The goal of CRM is to provide retailers with a turnkey service that
builds long-term consumer relationships and increases profitability.
During 1999, we made a strategic investment in Relationship Marketing Group,
Inc., which was later reorganized into a limited liability company, (RMG). In
August 2000, VNU Marketing Information and RMS, Inc. invested in RMG and RMG was
renamed Valassis Retail Marketing Systems (VRMS). We currently own approximately
25% of VRMS and have an option to acquire up to an additional 50%. This option
expires in July 2002. VRMS provides a consumer packaged goods-sponsored direct
mail vehicle that uses proprietary software to target grocery retail frequent
shopper households based on prior purchase behavior.
In 2000, we completed our most significant acquisition to date with the 80%
purchase of Boston-based PreVision Marketing(R), a high-end, full-service CRM
agency. Through PreVision we have the ability to analyze the information
marketers collect in databases; make strategic recommendations; execute creative
programs; and analyze results.
In addition to VRMS and PreVision, Valassis produces additional "solo" direct
mail database marketing programs. These programs utilize the Company's internal
variable image print capability, its Aztec code technology and, in some cases,
the VRMS shopper data list. Fueled by great interest in frequent shopper-based
programs and solo programs utilizing multiple data sources, direct mail
represents one of the fastest growing CRM products.
CRM revenue in 2001 totaled $34.9 million, $27.7 million of which was from
PreVision.
5
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 clients 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.
Competition
We compete in the cooperative FSI business principally with News America FSI,
Inc., a company owned by The News Corporation Limited. We compete for business
primarily on the basis of the following:
. client 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 have had a
significant adverse effect on our financial performance in the past. 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.
Cluster-targeted products compete with News America FSI, Inc. and commercial
printers for print business, as well as with Sunflower Marketing for polybag
advertising and sampling.
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, 2001, we had approximately 1,265 full-time employees: 259
of these employees are on our sales, sales operations and marketing staff; 833
are involved in manufacturing; 38 are on our management information systems
staff; and 135 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.
Segment Reporting
For segment financial information for the years 2001, 2000 and 1999, 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" under Item 8
"Financial Statements and Supplementary Data."
6
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), Dallas, Minneapolis, Connecticut (Shelton), 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
cluster-targeted products operations, printing and warehouse facilities. We also
own printing facilities in Durham, North Carolina and Wichita, Kansas,
consisting of approximately 188,000 square feet and 138,000 square feet,
respectively. In addition, we lease a facility in Plymouth, Michigan, which
houses our pre-press operations and a facility in Mexico, which houses our
fulfillment 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
-----------------
On July 27, 2001 a federal court jury returned a verdict against Dennis D.
Garberg & Associates, Inc. d/b/a The Sunflower Group (Sunflower) awarding the
Company $16.6 million which included damages for past and future lost profits
which, with prejudgment interest, will total nearly $20 million. The lawsuit,
brought by the Company against Sunflower in February of 1999, asserted that
Sunflower wrongfully obtained proprietary information from the Company's
newspaper delivered sampling business. The jury found Sunflower liable for
misappropriating the Company's trade secrets and inducing an individual to
breach his duty of loyalty to the Company. No judgment has been entered pending
the disposition by the Court of certain post trial motions by defendant seeking
to set aside the award. The Company will request that the judge enter a judgment
on the verdict. A reasonable estimation of the Company's ultimate recovery can
not be made at this time and the Company has not recorded any amount in its
financial statements.
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.
7
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, 2001 was 255.
High and low stock prices during the twelve months ended December 31, 2001
and 2000 were:
2001 2000
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Sales Price Sales Price
----------------- -----------------
Quarter Ended High Low High Low
------------- -------- -------- -------- --------
March 31..... $34.4000 $28.7000 $42.6250 $25.2500
June 30...... 37.3500 28.0000 39.2500 29.6250
September 30. 37.3000 30.1900 39.0625 20.5000
December 31.. 36.3300 30.5000 32.6875 21.2500
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.
8
Item 6. Selected Financial Data
-----------------------
(in thousands of dollars, except per share data)
YEAR ENDED
-----------------------------------------------------------
December 31 December 31 December 31 December 31 December 31
----------- ----------- ----------- ----------- -----------
2001 2000 1999 1998 1997
----------- ----------- ----------- ----------- -----------
Net sales and other revenues................. $849,529 $863,121 $794,566 $741,383 $675,496
Earnings from continuing operations before
extraordinary loss......................... 119,143 125,699 121,134 84,286 69,930
Total assets................................. 363,025 325,717 247,205 232,014 240,885
Long-term debt, less current portion......... 252,383 325,490 291,354 340,461 367,075
Earnings per share before extraordinary loss,
basic...................................... 2.22 2.30 2.14 1.44 1.15
Net earnings per share, basic*............... 2.20 2.30 2.02 1.21 1.15
Net earnings per share, diluted.............. 2.17 2.27 1.97 1.19 1.13
Cash dividends declared per share............ -- -- -- -- --
Ratio of earnings to fixed charges (1)....... 11.00x 9.44x 7.98x 4.83x 3.92x
----------
* The Company recorded a $1.3 million extraordinary loss (net of taxes) during
the year ended December 31, 2001, 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."
9
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 and to cause future
results to differ from our operating results in the past. Such factors include,
among others, the following: a new competitor in the Company's core
free-standing insert business and consequent price war, which has occurred in
the past when a new competitor entered the market; 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, a significant cost component
of the Company's business; or economic disruptions caused by terrorist activity,
armed conflict or changes in general economic conditions, or economic changes
which affect the businesses of our customers and lead to reduced sales promotion
spending.
GENERAL
Valassis 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. Valassis purchases a combination of coated and uncoated
paper. To protect the Company against the risk of price fluctuations, a
significant portion of our paper requirements is purchased from two paper
companies under long-term contracts. These contracts limit the amount of
increases or decreases (to approximately 10% in any twelve-month period) of the
Company's cost of paper purchased from these suppliers. Such cost can be
adjusted quarterly. As of January 1, 2001, approximately 50% of our paper
requirements are under long-term contract. The remainder of our 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.
10
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:
YEAR ENDED YEAR ENDED YEAR ENDED
-------------- -------------- --------------
Dec. 31, 2001 Dec. 31, 2000 Dec. 31, 1999
-------------- -------------- --------------
% of % of % of
(dollar amounts in millions) Actual Revenues Actual Revenues Actual Revenues
------ -------- ------ -------- ------ --------
Mass Marketing Products:
FSI sales......................................... $579.2 68.2% $603.0 69.9% $586.7 73.8%
ROP sales......................................... 31.9 3.7 25.7 3.0 24.3 3.1
Cluster-Targeted product sales..................... 197.1 23.2 191.6 22.2 157.6 19.8
One-to-One product sales........................... 39.3 4.6 15.1 1.7 5.1 0.6
Other income....................................... 2.0 0.3 27.7 3.2 20.9 2.7
------ ----- ------ ----- ------ -----
Revenues........................................... 849.5 100.0 863.1 100.0 794.6 100.0
Cost of products sold.............................. 541.3 63.7 527.5 61.1 491.6 61.9
------ ----- ------ ----- ------ -----
Gross profit....................................... 308.2 36.3 335.6 38.9 303.0 38.1
Selling, general and administrative expenses....... 89.2 10.5 81.6 9.5 81.8 10.3
Amortization of intangibles........................ 3.4 0.4 3.1 0.4 5.2 0.7
Loss on equity investments......................... 4.1 0.5 14.9 1.7 1.3 0.2
------ ----- ------ ----- ------ -----
Operating earnings................................. 211.5 24.9 236.0 27.3 214.7 27.0
Interest expense................................... 17.7 2.1 22.9 2.6 26.0 3.3
Writedown of impaired assets....................... 6.1 0.7 11.0 1.3 -- --
------ ----- ------ ----- ------ -----
Earnings before income taxes and extraordinary loss 187.7 22.1 202.1 23.4 188.7 23.7
Income taxes....................................... 68.5 8.1 76.4 8.8 67.5 8.5
------ ----- ------ ----- ------ -----
Earnings before extraordinary loss................. 119.2 14.0 125.7 14.6 121.1 15.2
Extraordinary loss (net of taxes).................. 1.3 0.1 -- -- 6.9 0.9
------ ----- ------ ----- ------ -----
Net earnings....................................... $117.9 13.9% $125.7 14.6% $114.2 14.4%
====== ===== ====== ===== ====== =====
11
Calendar 2001 Compared to Calendar 2000
---------------------------------------
Total revenues for 2001 decreased 1.6% to $849.5 million from $863.1 million
in 2000. However, revenues in 2000 included $26.6 million related to net
proceeds from a lawsuit settlement. Without the effect of this unusual item,
2001 revenue increased 1.5%. FSI revenue was down 3.9% to $579.2 million in
2001, due primarily to lower page demand. Cluster-targeted products revenue was
up 2.9% to $197.1 million in 2001, although the segment was negatively effected
in the second half of 2001 by the economy in the form of reduced demand,
increased price competition and fewer new product introductions. Run-of-press
revenues were up 24.1% for the year to $31.9 million, due to the shutdown of a
competitor and additional sales focus. The one-to-one segment also experienced
revenue growth, up 160.3% to $39.3 million.
Gross margin decreased from 36.9% in 2000 (excluding the lawsuit settlement
mentioned above) to 36.3% in 2001. This decrease was primarily the result of the
negative pressure on margins in the cluster-targeted segment of our business,
due to the economy and increased price competition. FSI margins remained steady
as any increases in media costs per page caused by reduced page demand were
offset by decreased paper costs.
Selling, general and administrative expenses were up 9.3% to $89.2 million in
2001. This is primarily the result of the SG&A expenses of PreVision, which was
acquired in August 2000. SG&A expenses in the second half of 2001 were down 2.9%
compared to the second half of 2000, as cost containment initiatives were put
into place in the latter part of 2001.
Interest expense was down for the year ended December 31, 2001 to $17.7
million from $22.9 million in 2000. The Company issued zero coupon convertible
notes in June 2001 for $150 million. The proceeds were used to repay outstanding
indebtedness under the revolving credit facility. The Company also retired $15.8
million in aggregate principal amount of its 9.55% Senior Notes due 2003.
During 2001, the Company took a one-time charge of $6.8 million relating to
the closedown of Save.com, and resulting restructuring costs, a portion of which
is included in SG&A as severance pay. In 2000, the Company recorded losses from
Save.com of $10.3 million and reserved against an additional commitment to
Save.com of $2.9 million.
The effective tax rate was 36.5% for the year ended December 31, 2001,
compared with 37.8% for the same period in 2000. This was primarily due to the
ability to utilize certain capital losses as a result of the reverse repurchase
agreement described in Note 17.
In connection with the retirement of the 9.55% Senior Notes due 2003
discussed above, the Company paid a premium of $2.0 million. Accordingly, the
Company incurred extraordinary charges of $1.3 million (net of taxes) due to
this early extinguishment of debt in 2001.
Calendar 2000 Compared to Calendar 1999
---------------------------------------
Total revenues for 2000 increased 8.6% to $863.1 million from $794.6 million
for 1999. Revenues for 2000 include $26.6 million related to net proceeds from a
lawsuit settlement. Revenues for 1999 include $15.1 million in sales from the
direct merchandising division of Valassis of Canada, which was discontinued in
the fourth quarter of 1999. Without the effects of these items, the increase in
revenues would have been 7.3%. This increase was partially a result of a 1.8%
rise in FSI revenue from $592.2 million in 1999 to $603.0 million in 2000. The
FSI revenue increase was attributable to overall industry page growth partially
offset by a reduction in remnant pricing. In addition, solo inserts (previously
known as VIP) experienced a 16.8% increase in sales in 2000 compared to 1999 as
a result of the continued strength of its core client base as well as increased
demand from new categories. Sampling and advertising products (previously known
as Targeted Marketing Services) rose 22.0% in 2000 to $84.2 million, from $69.0
million in 1999. This increase was primarily a result of growth in the sampling
and advertising business.
12
Gross margin increased from 38.1% in 1999 to 38.9% for 2000. Excluding the
impact of a lawsuit settlement included in other revenues in the first quarter
of 2000, gross margin would have decreased to 36.9%.This decrease was due
primarily to increases in paper costs, a reduction in remnant pricing and the
publication of four "custom co-ops" which operate at a lower margin than the
regular co-op FSI.
Losses on equity investments (Save.com, IDS and VRMS) in 2000 totaled $14.9
million. This included a charge of $10.3 million for Save.com losses which were
recognized after the original investment was written off as an offset to
outstanding loan balances, due to the fact that VCI was the sole financing
source for Save.com.
Due to the uncertainty in the public markets regarding internet start-ups and
the difficulty that Save.com and IDS are having securing additional financial
backing at this time, the Company fully reserved against its investments,
receivables and commitments with these companies at December 31, 2000. The
Company also wrote off the goodwill of The Net's Best in the amount of $4.0
million due to the discontinuance of the business and related products and
services. These actions resulted in an additional pre-tax charge of $11.0
million.
Interest expense was down for the year ended December 31, 2000 to $22.9
million from $26.0 million in 1999. The Company retired $114.0 million of its
public debt in 1999. 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 37.8% for the year ended December 31, 2000,
compared with 35.8% for the same period in 1999. The effective tax rate increase
was primarily the result of a lower tax rate in 1999 due to tax benefits
associated with the writedown of our foreign investment associated with the
Valassis of Canada direct mail merchandising division.
Earnings for the year ended December 31, 2000 were up 3.8% to $125.7 million
versus $121.1 million (before extraordinary item) for last year.
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 $10.6 million at December 31, 2001, nearly
flat from December 31, 2000. This was the result of cash provided by operating
activities of $131.5 million, and cash used in investing activities and
financing activities of $37.8 million and $94.2 million, respectively, in 2001.
Cash flow from operating activities increased to $131.5 million for the year
ended December 31, 2001 from $114.2 million for the year ended December 31,
2000. The Company used this cash flow during 2001 to repurchase $60.9 million
(2.1 million shares) of its common stock and retire the remaining $15.8 million
of 2003 debt. In addition, during 2001 the Company used $24.8 million of its
cash flow to fund strategic acquisitions and equity investments. For further
details, see Notes 13 and 14 of the "Notes to Consolidated Financial
Statements".
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, 2001, the Company had authorization
to repurchase an additional 5,484,200 shares of its common stock under its
existing share repurchase program.
13
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 $15.7 million for the year ended December 31, 2001.
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.
Recent Accounting Pronouncements
--------------------------------
Effective January 1, 2001, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments
and Hedging Activities." SFAS 133, as amended, establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging activities. Under SFAS
133, certain contracts that were not formerly considered derivatives may now
meet the definition of a derivative. The adoption of SFAS 133 did not have a
material effect on the Company's financial position or results of operations.
During July 2001, the Financial Accounting Standards Board ("FASB") issued
two statements SFAS No. 141, "Business Combinations", and SFAS No. 142,
"Goodwill and Other Intangible Assets", that amend APB Opinion No. 16, "Business
Combinations," and supersede APB Opinion No. 17, "Intangible Assets." The two
statements modify the method of accounting for business combinations entered
into after June 30, 2001 and address the accounting for intangible assets.
Beginning January 1, 2002, the Company will no longer amortize its goodwill and
certain intangible assets, but will, however, evaluate them for impairment
annually. The Company is in the process of completing its transitional goodwill
impairment testing but does not expect the adoption of these statements to
result in an impairment of goodwill. The Company estimates that goodwill and
indefinite-lived intangible asset amortization required under previous
accounting standards of approximately $3 million will not be charged to the
income statement in future periods.
In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations," which requires an entity to record the fair value of a
liability for an asset retirement obligation in the period in which it is
incurred and a corresponding increase in the related long-lived asset. SFAS No.
143 is effective for fiscal years beginning after June 15, 2002. The Company
does not expect the adoption of SFAS No. 143 to have a material effect on its
financial position or results of operations.
During October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," which replaces SFAS No. 121 and
provisions of APB Opinion No. 30 for the disposal of segments of a business.
The statement creates one accounting model, based on the framework established
in Statement No. 121, to be applied to all long-lived assets including
discontinued operations. SFAS No. 144 is effective for fiscal years beginning
after December 15, 2001. The Company does not expect the adoption of SFAS No.
144 to have a material effect on its financial position or results of
operations.
14
Business Outlook
----------------
The following statements are based on current expectations. These statements
are forward looking and actual results may differ materially.
-- Overall revenues in 2002 are expected to be flat to down slightly
compared to 2001 as the result of tightening client marketing budgets.
-- FSI revenues and margins are expected to be down slightly. We have
reduced our co-op date schedule to 43 dates and anticipate an increase in
less-profitable custom co-ops. We also reduced our FSI circulation to
remove circulation which proved unpopular with clients. FSI pricing is
expected to be flat to down slightly based on current contracts.
-- The average price of paper, which is a major cost factor in the Company's
business, decreased in 2001. The average price of paper in 2002 is
expected to again decrease compared to the average in 2001.
-- The increased demand for ROP advertising is expected to extend into 2002,
due to the shutdown of a competitor and additional sales focus.
-- Cluster-targeted product revenues are expected to grow, but at a slower
rate than in the past, due to competition and marketing cut backs.
-- One-to-one product revenues are expected to increase. PreVision revenues
are expected to grow 4 to 6% and direct mail revenue is expected to
increase over 20%.
15
The following is a summary of the quarterly results of operations for the years
end December 31, 2001 and December 31, 2000.
THREE MONTHS ENDED
-----------------------------------------
Thousands of dollars, except per share data Mar. 31 June 30 Sept. 30 Dec. 31
-------- -------- -------- --------
Fiscal Year Ended December 31, 2001
Revenue $227,810 $217,277 $198,408 $206,034
Cost of products sold 145,060 133,845 127,578 134,899
Earnings, before extraordinary item 32,458 33,738 24,711 28,237
Earnings per common share, before extraordinary item, basic 0.60 0.62 0.45 0.52
Net earnings 32,458 33,738 23,426# 28,237
Net earnings per common share, diluted 0.60 0.62 0.53 0.52
THREE MONTHS ENDED
----------------------------------------
Thousands of dollars, except per share dat Mar. 31 June 30 Sept. 30 Dec. 31
-------- -------- -------- --------
Fiscal Year Ended December 31, 2000
Revenue $239,037* $211,085 $191,073 $221,926
Cost of products sold 128,838 129,571 122,181 146,883
Earnings, before extraordinary item 53,411 34,383 25,662 12,243
Earnings per common share, before extraordinary item, basic 0.96 0.63 0.47 0.24
Net earnings 53,411 34,383 25,662 12,243+
Net earnings per common share, diluted 0.94 0.62 0.47 0.23
--------
* Revenue includes the proceeds from the settlement of a lawsuit. See Note 8
to the Consolidated Financial Statements.
# Net earnings for the quarter ended September 30, 2001 include an
extraordinary loss (net of taxes) of $1.3 million, as a result of the early
retirement of a portion of the Company's public debt.
+ Save.com and IDS (see Note 14), and the write off of goodwill related to The
Net's Best.
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, 2001, 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 operations and does not use derivative
financial instruments.
16
Item 8. Financial Statements and Supplementary Data
-------------------------------------------
VALASSIS COMMUNICATIONS, INC.
Consolidated Balance Sheets
December 31, December 31,
(in thousands) 2001 2000
------------ ------------
Assets
Current assets:
Cash and cash equivalents............................................. $ 10,615 $ 11,140
Accounts receivable (less allowance for doubtful accounts of $1,051 at
December 31, 2001 and $1,322 at December 31, 2000).................. 131,777 114,554
Inventories:
Raw materials......................................................... 13,965 10,542
Work in progress...................................................... 13,935 17,338
Prepaid expenses and other............................................. 7,499 10,729
Deferred income taxes (Note 6)......................................... 1,479 3,356
Refundable income taxes................................................ 4,277 --
--------- ---------
Total current assets................................................... 183,547 167,659
--------- ---------
Property, plant and equipment, at cost:
Land and buildings.................................................... 22,960 21,648
Machinery and equipment............................................... 120,548 123,043
Office furniture and equipment........................................ 31,674 31,638
Automobiles........................................................... 900 1,117
Leasehold improvements................................................ 1,954 1,857
--------- ---------
178,036 179,303
Less accumulated depreciation and amortization......................... (113,967) (119,265)
--------- ---------
Net property, plant and equipment...................................... 64,069 60,038
--------- ---------
Intangible assets (Note 3):
Goodwill.............................................................. 115,756 107,756
Other intangibles..................................................... 85,347 85,137
--------- ---------
201,103 192,893
Less accumulated amortization......................................... (123,408) (120,030)
--------- ---------
Net intangible assets.................................................. 77,695 72,863
--------- ---------
Equity investments and advances to investees (Note 14)................. 33,955 18,136
Other assets........................................................... 3,759 3,083
Deferred income taxes (Note 6)......................................... -- 3,938
--------- ---------
Total assets........................................................... $ 363,025 $ 325,717
========= =========
17
VALASSIS COMMUNICATIONS, INC.
Consolidated Balance Sheets, Continued
December 31, December 31,
(in thousands, except share data) 2001 2000
------------ ------------
Liabilities and Stockholders' Deficit
Current liabilities:
Current portion long-term debt............................................... $ 2,600 $ --
Accounts payable............................................................. 82,750 85,671
Accrued interest............................................................. 3,105 3,919
Accrued expenses............................................................. 32,846 31,412
Progress billings............................................................ 51,766 49,029
Income taxes payable......................................................... -- 1,019
--------- ---------
Total current liabilities....................................................... 173,067 171,050
--------- ---------
Long-term debt (Note 4)......................................................... 252,383 325,490
Deferred income taxes (Note 6).................................................. 3,259 --
Other non-current liabilities................................................... -- 1,681
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, 2001 and December 31, 2000.
Common stock of $.01 par value. Authorized 100,000,000 shares; issued
62,992,763 at December 31, 2001 and 62,932,556 at December 31, 2000;
outstanding 53,698,382 at December 31, 2001 and 53,562,676 at
December 31, 2000.......................................................... 630 629
Additional paid-in capital................................................... 99,116 87,015
Deferred compensation........................................................ (1,342) (1,983)
Retained earnings............................................................ 191,822 73,963
Foreign currency translations................................................ (560) (460)
Treasury stock, at cost (9,294,381 shares at December 31, 2001 and 9,369,880
shares at December 31, 2000)............................................... (355,350) (331,668)
--------- ---------
Total stockholders' deficit..................................................... (65,684) (172,504)
--------- ---------
Total liabilities and stockholders' deficit..................................... $ 363,025 $ 325,717
========= =========
See accompanying notes to consolidated financial statements.
18
VALASSIS COMMUNICATIONS, INC.
Consolidated Statements of Income
YEAR ENDED
----------------------------------
Dec. 31, Dec. 31, Dec. 31,
(in thousands, except per share data) 2001 2000 1999
-------- -------- --------
Revenues:
Net sales................................................ $847,455 $835,342 $793,860
Other (see Note 8)....................................... 2,074 27,779 706
-------- -------- --------
Total revenues.............................................. 849,529 863,121 794,566
-------- -------- --------
Costs and expenses:
Cost of products sold.................................... 541,382 527,473 491,593
Selling, general and administrative...................... 89,168 81,588 81,770
Loss on equity investments............................... 4,084 14,919 1,342
Amortization of intangible assets........................ 3,433 3,080 5,243
Interest................................................. 17,711 22,924 25,968
Writedown of impaired assets............................. 6,062 11,020 --
-------- -------- --------
Total costs and expenses.................................... 661,840 661,004 605,916
-------- -------- --------
Earnings before income taxes and extraordinary loss......... 187,689 202,117 188,650
Income taxes (Note 6)....................................... 68,545 76,418 67,516
-------- -------- --------
Earnings before extraordinary loss.......................... 119,144 125,699 121,134
Extraordinary loss (net of tax benefit)..................... 1,285 -- 6,933
-------- -------- --------
Net earnings................................................ $117,859 $125,699 $114,201
======== ======== ========
Earnings per common share before extraordinary loss, basic.. $ 2.22 $ 2.30 $ 2.14
======== ======== ========
Earnings per common share before extraordinary loss, diluted $ 2.19 $ 2.27 $ 2.09
======== ======== ========
Net earnings per common share, basis........................ $ 2.20 $ 2.30 $ 2.02
======== ======== ========
Net earnings per common share, diluted...................... $ 2.17 $ 2.27 $ 1.97
======== ======== ========
See accompanying notes to consolidated financial statements.
19
VALASSIS COMMUNICATIONS, INC.
Consolidated Statements of Stockholders' Deficit
Retained Total
Additional Deferred Earnings Foreign Stock-
Common Paid-in Compen- (Accumulated Treasury Currency holder's
(in thousands) Stock Capital sation Deficit) Stock Translation Deficit
------ ---------- -------- ------------ --------- ----------- ---------
Balances at January 1, 1999 $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
Deferred compensation (1,135) (1,135)
Stock grants 2,748 2,748
Foreign currency translation (180) (180)
---- -------- ------- --------- --------- ----- ---------
Balances at December 31, 1999 627 76,898 (1,135) (51,736) (240,895) (478) (216,719)
Net earnings 125,699 125,699
Stock repurchase (94,429) (94,429)
Exercise of stock options 1 1,227 3,656 4,884
Deferred compensation (848) (848)
Stock grants 1 8,890 8,891
Foreign currency translation 18 18
---- -------- ------- --------- --------- ----- ---------
Balances at December 31, 2000 629 87,015 (1,983) 73,963 (331,668) (460) (172,504)
Net earnings 117,859 117,859
Stock repurchase (60,935) (60,935)
Exercise of stock options 10,470 37,253 47,723
Deferred compensation 641 641
Stock grants 1 1,631 1,632
Foreign currency translation (100) (100)
---- -------- ------- --------- --------- ----- ---------
Balances at December 31, 2001 $630 $ 99,116 $(1,342) $ 191,822 $(355,350) $(560) $ (65,684)
==== ======== ======= ========= ========= ===== =========
See accompanying notes to consolidated financial statements.
20
VALASSIS COMMUNICATIONS, INC.
Consolidated Statements of Cash Flows
YEAR ENDED
------------------------------
Dec. 31, Dec. 31, Dec. 31,
(in thousands) 2001 2000 1999
--------- -------- ---------
Cash flows from operating activities:
Net earnings........................................................... $ 117,859 $125,699 $ 114,201
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation........................................................... 10,318 8,222 7,660
Amortization of intangibles and bond discount.......................... 3,454 3,080 5,243
Provision for losses on accounts receivable............................ 1,800 1,208 1,867
Writedown of impaired assets........................................... 6,062 11,020 --
Losses on equity investments........................................... 4,084 14,919 1,342
Stock-based compensation charge........................................ 12,102 3,801 2,194
(Gain)/loss on sale of property, plant and equipment................... (770) 295 (55)
Deferred income taxes.................................................. 9,074 (7,693) 677
Changes in assets and liabilities which increase (decrease) cash flow:
Accounts receivable................................................ (19,023) (18,905) (542)
Inventories........................................................ (20) 1,347 2,641
Prepaid expenses and other......................................... 2,800 (5,715) 433
Other assets....................................................... (1,661) (17,351) (5,413)
Other liabilities.................................................. (1,681) 1,106 --
Accounts payable................................................... (2,921) 1,825 8,619
Accrued interest and expenses...................................... (7,380) (1,183) 3,261
Income taxes....................................................... (5,296) 1,441 5,499
Progress billings.................................................. 2,737 (8,930) (882)
--------- -------- ---------
Total adjustments......................................................... 13,679 (11,513) 32,544
--------- -------- ---------
Net cash provided by operating activities................................. $ 131,538 $114,186 $ 146,745
========= ======== =========
Cash flows from investing activities:
Additions to property, plant and equipment............................. $ (15,741) $(14,044) $ (14,261)
Proceeds from sale of property, plant and equipment.................... 2,178 263 203
Acquisition of PreVision Marketing, net of cash acquired............... -- (29,929) --
Other investments and acquisitions..................................... (24,815) (12,127) (10,659)
Other.................................................................. 541 (828) (210)
--------- -------- ---------
Net cash used in investing activities..................................... (37,837) (56,665) (24,927)
--------- -------- ---------
Cash flows from financing activities:
Proceeds from issuance of common stock................................. 37,253 3,656 11,937
Purchase of treasury shares............................................ (60,935) (94,429) (80,498)
Repayment of long-term debt............................................ (15,771) (2,797) (219,745)
Borrowings of long-term debt........................................... 152,627 -- 99,738
Net (payments)/borrowings under revolving line of credit............... (207,400) 36,100 70,900
--------- -------- ---------
Net cash used in financing activities..................................... (94,226) (57,470) (117,668)
--------- -------- ---------
Net increase / (decrease) in cash and cash equivalents.................... (525) 51 4,150
Cash and cash equivalents at beginning of the year........................ 11,140 11,089 6,939
--------- -------- ---------
Cash and cash equivalents at end of the year.............................. $ 10,615 $ 11,140 $ 11,089
========= ======== =========
21
VALASSIS COMMUNICATIONS, INC.
Consolidated Statements of Cash Flows, Continued
YEAR ENDED
--------------------------
Dec. 31, Dec. 31, Dec. 31,
(in thousands) 2001 2000 1999
-------- -------- --------
Supplemental disclosure of cash flow information
Cash paid during the year for interest......................... $18,525 $22,650 $26,865
Cash paid during the year for income taxes..................... $63,996 $82,643 $56,625
Non-cash investing and financing activities:
Stock issued under stock-based compensation plan........... $ 1,632 $ 8,890 $ 2,748
Contingent purchase price for acquisition of PreVision..... $ 8,000 -- --
See accompanying notes to consolidated financial statements.
22
VALASSIS COMMUNICATIONS, INC.
Notes to Consolidated Financial Statements
(1) THE COMPANY
Valassis Communications, Inc. (Valassis 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 packaged 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, 2001, 2000, 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 2000
and 1999 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
accounting principles generally accepted in the United States of America
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
Inventories are accounted for using the first in, first out (FIFO) method of
inventory valuation.
ADVERTISING
The Company expenses the cost of advertising as incurred. Advertising expense
for the years ended December 31, 2001, 2000 and 1999 was $1.1 million, $1.5
million, and $1.4 million, respectively.
23
VALASSIS COMMUNICATIONS, INC.
Notes to Consolidated Financial Statements--(Continued)
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. In 2000, goodwill totaling $4.0
million related to The Net's Best was written off due to discontinuance of the
business and related products and services. During 1999, 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
VALASSIS COMMUNICATIONS, INC.
Notes to Consolidated Financial Statements--(Continued)
RECENT ACCOUNTING PRONOUNCEMENTS
Effective January 1, 2001, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments
and Hedging Activities". SFAS 133, as amended, establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging activities. Under SFAS
133, certain contracts that were not formerly considered derivatives may now
meet the definition of a derivative. The adoption of SFAS 133 did not have a
material effect on the Company's financial position or results of operations.
During July 2001, the Financial Accounting Standards Board ("FASB") issued
two statements SFAS No. 141, "Business Combinations", and SFAS No. 142,
"Goodwill and Other Intangible Assets", that amend APB Opinion No. 16, "Business
Combinations," and supersede APB Opinion No. 17, "Intangible Assets." The two
statements modify the method of accounting for business combinations entered
into after June 30, 2001 and address the accounting for intangible assets.
Beginning January 1, 2002, the Company will no longer amortize its goodwill and
certain intangible assets, but will, however, evaluate them for impairment
annually. The Company is in the process of completing its transitional goodwill
impairment testing but does not expect the adoption of these statements to
result in an impairment of goodwill. The Company estimates that goodwill and
indefinite-lived intangible asset amortization required under previous
accounting standards of approximately $3 million will not be charged to the
income statement in future periods.
In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations," which requires an entity to record the fair value of a
liability for an asset retirement obligation in the period in which it is
incurred and a corresponding increase in the related long-lived asset. SFAS No.
143 is effective for fiscal years beginning after June 15, 2002. The Company
does not expect the adoption of SFAS No. 143 to have a material effect on its
financial position or results of operations.
During October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," which replaces SFAS No. 121 and
provisions of APB Opinion No. 30 for the disposal of segments of a business.
The statement creates one accounting model, based on the framework established
in Statement No. 121, to be applied to all long-lived assets including
discontinued operations. SFAS No. 144 is effective for fiscal years beginning
after December 15, 2001. The Company does not expect the adoption of SFAS No.
144 to have a material effect on its financial position or results of
operations.
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, 2001 and December 31, 2000) with high credit quality financial institutions.
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 the estimated fair
market value of the debt at $11.1 million under stated value as of December 31,
2001 and $3.7 million at December 31, 2000. See Note 4 for additional fair value
disclosure.
25
VALASSIS COMMUNICATIONS, INC.
Notes to Consolidated Financial Statements--(Continued)
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.
(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:
Remaining
Amortizable
Original Unamortized Unamortized Life in
Amortizable Intangible Balance at Balance at Years at
Life in Assets, at December 31, December 31, December 31,
Intangible Assets Years Cost 2000 2001 2001
----------------- ----------- ---------- ------------ ------------ ------------
(dollars in thousands)
Goodwill................... 20-40 $115,756 $58,960 $64,211 19-25
The Valassis name and other 40 32,100 11,796 11,341 25
Pressroom operating systems 13.375 50,000 -- -- --
Other...................... 10-40 3,247 2,107 2,143 7-25
-------- ------- -------
$201,103 $72,863 $77,695
======== ======= =======
As required under the purchase agreement, the Company will pay an additional
$8.0 million for the purchase of PreVision, due to the achievement of certain
financial results. As such, the Company accrued $8.0 million at December 31,
2001, which is included in goodwill.
26
VALASSIS COMMUNICATIONS, INC.
Notes to Consolidated Financial Statements--(Continued)
(4) LONG-TERM DEBT
Long-term debt is summarized as follows:
December 31, December 31,
2001 2000
------------ ------------
(in thousands)
Revolving Credit Facility.................... $ 2,600 $210,000
9.55% Senior Notes due 2003.................. -- 15,771
6 5/8% Senior Notes due 2009................. 99,756 99,719
Zero Coupon Senior Convertible Notes Due 2021 152,627
-------- --------
254,983 325,490
Less current portion......................... 2,600 --
-------- --------
$252,383 $325,490
======== ========
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 loss after tax of $6.9
million due to this early retirement of debt.
On June 6, 2001, the Company issued $150 million of zero coupon convertible
notes due 2021. The net proceeds from such offering were used to repay
outstanding indebtedness under the Credit Facility. The issue price of each note
represents a yield to maturity of 3.0% per year calculated from the issuance
date. In connection with the Company's issuance of its zero coupon convertible
notes, the Company reduced the amount permitted to be borrowed under its
Revolving Credit Facility from $230 million to $125 million.
During September 2001, the Company retired its 9.55% Senior Notes due 2003
with a face value of $15.8 million prior to maturity. The debt retirement
resulted in an extraordinary loss after tax of $1.3 million.
Minimum long-term debt maturities are approximately $100 million in 2009.
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 and several other banks (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 and again in June 2001 to decrease the available credit to $125 million.
The Revolving Credit Agreement matures in October 2002. The floating-rate
interest is calculated on either a Eurocurrency-based rate or a prime rate. At
December 31, 2001, there was $2.6 million outstanding under this facility, at a
rate of 2.28%.
The Revolving Credit Agreement requires the Company to meet certain financial
covenants. At December 31, 2001, under the most restrictive covenant, Valassis
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 Valassis' 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 Valassis or substantially similar lines of business,
and to enter into certain sales and leaseback transactions.
27
VALASSIS COMMUNICATIONS, INC.
Notes to Consolidated Financial Statements--(Continued)
PUBLIC DEBT
At December 31, 2001, the Company's public debt consists of 6 5/8% Senior
Notes due 2009 issued under an indenture dated January 12, 1999 and zero coupon
convertible notes due 2021 issued under an indenture dated June 6, 2001. 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 2009 Senior Notes semi-annually on January 15 and July 15 of each year.
The stated amount of the public debt under the 6 5/8% Senior Notes due 2009 and
the zero coupon convertible notes due 2021 at December 31, 2001 is $100 million
and $153 million, respectively.
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,
2001, the estimated fair market value of the debt was $11.1 million less than
stated value. The debt had an estimated fair market value of $3.7 million under
stated value at December 31, 2000. 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
indentures covering the public debt contain certain restrictive covenants that
prescribe limits on Valassis' ability to, among other things, enter into sale
and leaseback transactions, incur liens, make certain stock redemptions and
stock repurchases, and enter into mergers, consolidations or convey or transfer
substantially all of its property.
(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:
YEAR ENDED
--------------------------------------
December 31, December 31, December 31,
2001 2000 1999
------------ ------------ ------------
(in thousands)
Profit sharing plan................. $3,683 $3,062 $ 4,262
Bonus plans for salaried,
sales and hourly personnel 8,969 8,298 11,190
Bonus plan for executives........... 1,617 1,342 1,823
28
VALASSIS COMMUNICATIONS, INC.
Notes to Consolidated Financial Statements--(Continued)
(6) INCOME TAXES
For financial reporting purposes, earnings before income taxes and
extraordinary loss include the following components.
YEAR ENDED
--------------------------------------
December 31, December 31, December 31,
2001 2000 1999
------------ ------------ ------------
(in thousands)
Pre-tax income (loss):
United States...... $187,678 $201,606 $188,414
Foreign............ 11 511 236
-------- -------- --------
$187,689 $202,117 $188,650
======== ======== ========
Income taxes have been charged to earnings before extraordinary loss as
follows:
YEAR ENDED
--------------------------------------
December 31, December 31, December 31,
2001 2000 1999
------------ ------------ ------------
(in thousands)
Federal:
Current..................... $55,018 $76,706 $60,440
Deferred (credit)/provision. 9,073 (7,693) 677
State and Local................ 4,454 7,405 6,399
------- ------- -------
$68,545 $76,418 $67,516
======= ======= =======
29
VALASSIS COMMUNICATIONS, INC.
Notes to Consolidated Financial Statements--(Continued)
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:
YEAR ENDED
-------------------------------------
December 31, December 31, December 31,
2001 2000 1999
------------ ------------ ------------
Expected income tax expense............................ $65,691 $70,741 $66,028
Increase (decrease) in taxes resulting from:
Tax effect of writedown in foreign investments...... -- -- (2,823)
Amortization of intangibles......................... 427 427 427
State and local income taxes net of federal benefit. 2,895 4,813 4,159
Valuation allowance................................. (1,302) -- --
Other items, net.................................... 834 437 (275)
------- ------- -------
Actual income tax expense, before extraordinary item... $68,545 $76,418 $67,516
======= ======= =======
The sources of deferred income taxes and effects of each were as follows:
YEAR ENDED
-------------------------------------
December 31, December 31, December 31,
2001 2000 1999
------------ ------------ ------------
(in thousands)
Equity losses....................... $4,561 $(3,160) $ --
Depreciation and amortization....... 873 798 96
Allowance for uncollectable accounts 1,231 (1,134) 13
General reserves.................... 1,181 (1,088) --
Convertible notes................... 1,356 -- --
Consulting agreement................ 228 155 333
Prepaid revenues.................... 69 (646) 117
Deferred compensation............... (906) (1,651) --
Restricted stock grants............. (29) (621) 150
Other items, net.................... 509 (346) (32)
------ ------- ----
$9,073 $(7,693) $677
====== ======= ====
30
VALASSIS COMMUNICATIONS, INC.
Notes to Consolidated Financial Statements--(Continued)
Significant components of the Company's deferred tax liabilities and assets
are as follows:
Long term deferred income tax assets (liabilities):
Fixed assets......................................... $(4,470) $(3,570)
Deferred compensation................................ 2,557 1,651
General reserves..................................... 1,539 1,088
Convertible notes.................................... (1,356) --
Restricted stock..................................... 964 935
Consulting agreement................................. 582 810
Equity losses........................................ (3,034) 3,160
Other................................................ (41) (136)
------- -------
Total long term deferred income tax assets (liabilities) $(3,259) $ 3,938
======= =======
Current deferred income tax assets (liabilities):
Inventory............................................ $ 615 $ 619
Accrued rebates...................................... 706 385
Allowance for uncollectible accounts................. 390 1,621
Minority interest net operating loss carryforward.... 126 1,428
Prepaid advertising revenue.......................... (163) 763
Other--net........................................... (69) (32)
------- -------
Current total deferred income tax assets................ 1,605 4,784
Valuation allowance..................................... (126) (1,428)
------- -------
Net current deferred income tax assets.................. $ 1,479 $ 3,356
======= =======
As a result of a reverse repurchase agreement transaction relating to
$234.5 million in U.S. Treasury Securities, the Company released $3.7 million of
its deferred tax valuation allowance, as it was able to utilize capital losses,
and recorded a $1.3 million reduction in income taxes.
31
VALASSIS COMMUNICATIONS, INC.
Notes to Consolidated Financial Statements--(Continued)
(7) COMMITMENTS
Total operating lease rentals, for various office space, charged to expense
was $3.2 million, $3.1 million and $3.2 million for the years ended December 31,
2001, 2000 and 1999, respectively. Entire minimum rental payments required under
noncancelable operating leases as of December 31, 2001 are as follows:
Year Ending December 31, (in thousands)
------------------------ --------------
2002.......................................................... $ 3,667
2003.......................................................... 3,444
2004.......................................................... 3,261
2005.......................................................... 2,864
2006.......................................................... 2,629
Thereafter.................................................... 11,466
-------
$27,331
=======
Future commitments pursuant to senior executive employment agreements, which
include non-compete clauses, are as follows:
Year Ended Base Salary Maximum Cash Bonus
---------- ----------- ------------------
(in thousands)
Dec. 31, 2002 $2,000 $2,086
Dec. 31, 2003 1,659 1,659
Dec. 31, 2004 100 100
The Company's obligation to pay the maximum cash bonus is based on the
Company attaining certain EPS and/or sales targets. The Company also provides
stock options and restricted stock grants to certain of its executives (See
Notes 9 and 10).
(8) CONTINGENCIES
On July 27, 2001 a federal court jury returned a verdict against Dennis D.
Garberg & Associates, Inc. d/b/a The Sunflower Group (Sunflower) awarding the
Company $16.6 million which included damages for past and future lost profits
which, with prejudgment interest, will total nearly $20 million. The lawsuit,
brought by the Company against Sunflower in February of 1999, asserted that
Sunflower wrongfully obtained proprietary information from the Company's
newspaper delivered sampling business. The jury found Sunflower liable for
misappropriating the Company's trade secrets and inducing an individual to
breach his duty of loyalty to the Company. No judgment has been entered pending
the disposition by the Court of certain post trial motions by defendant seeking
to set aside the award. The Company will request that the judge enter a judgment
on the verdict. A reasonable estimation of the Company's ultimate recovery can
not be made at this time and the Company has not recorded any amount in its
financial statements.
In February 1999, the Company filed a lawsuit against Arthur Andersen LLP.
A settlement was reached in February 2000. The proceeds of the settlement are
included in other revenues in the accompanying condensed consolidated statement
of income for the year ended December 31, 2000.
In February 1999, the Company filed a lawsuit against Arthur Andersen LLP. A
settlement are included in other revenues in the accompanying condensed
consolidated statement of income for the year ended December 31, 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.
32
VALASSIS COMMUNICATIONS, INC.
Notes to Consolidated Financial Statements--(Continued)
(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 authorizes the issuance of a maximum of 13,045,921 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.
Options granted under the Company's Broad-Based Incentive Plan, which
authorizes the issuance of a maximum of 1,515,000 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, 2001, there were outstanding options among 1,345 participants
for the purchase of 5,807,400 shares. At December 31, 2001, there were 2,049,954
shares available for grant.
33
VALASSIS COMMUNICATIONS, INC.
Notes to Consolidated Financial Statements--(Continued)
The following options to purchase the Company's common shares were
outstanding under the Plan on December 31, 2001.
OPTIONS
OPTIONS OUTSTANDING EXERCISABLE
------------------------------------------------------ ---------------------
Weighted- Weighted-
Outstanding Average Weighted- Exercisable Average
Range of As of Contractual Average As of Exercise
Exercise Prices 12/31/2001 Life Exercise Price 12/31/2001 Price
--------------- ----------- ----------- -------------- ----------- ---------
$ 5.01-$10.00. 10,500 1.9 $ 6.50 10,500 $ 6.50
$10.01-$15.00. 128,822 4.6 $12.95 118,206 $12.87
$15.01-$20.00. 9,000 5.3 $15.17 9,000 $15.17
$20.01-$25.00. 1,730,609 5.5 $21.40 1,248,209 $21.37
$25.01-$30.00. 767,533 7.3 $28.26 229,191 $28.20
$30.01-$35.00. 1,897,575 3.9 $34.39 1,148,410 $34.59
$35.01-$40.00. 1,063,161 8.6 $35.70 70,096 $36.43
$40.01-$50.00. 200,200 7.8 $42.54 108,970 $42.59
--------- --- ------ --------- ------
5,807,400 5.8 $29.66 2,942,582 $27.78
========= === ====== ========= ======
A summary of the Company's stock option activity for the years ended December
31, 2001, 2000 and 1999, is as follows:
Year Ended Year Ended
December 31, 2001 December 31, 2000
----------------------------- ----------------------------
Weighted Weighted
Average per Share Average per Share
Shares Exercise Price Shares Exercise Price
---------- ----------------- --------- -----------------
Outstanding at beginning of year 6,714,502 $26.44 5,758,077 $25.05
Granted......................... 1,088,340 $34.86 1,306,775 $30.00
Exercised....................... (1,890,479) $20.95 (178,135) $18.43
Forfeited....................... (104,963) $32.57 (172,215) $29.45
---------- ---------
Outstanding at end of year...... 5,807,400 $29.66 6,714,502 $26.44
========== =========
Options exercisable at year end. 2,942,582 $27.78 3,963,024 $24.79
========== =========
Year Ended December 31, 1999
-----------------------------
Weighted
Average per Share
Shares Exercise Price
---------- -----------------
Outstanding at beginning of year 4,370,135 $19.97
Granted......................... 2,008,890 $34.77
Exercised....................... (555,481) $20.54
Forfeited....................... (65,467) $22.99
----------
Outstanding at end of year...... 5,758,077 $25.05
==========
Options exercisable at year end. 3,586,887 $24.82
==========
34
VALASSIS COMMUNICATIONS, INC.
Notes to Consolidated Financial Statements--(Continued)
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 2001, 2000, and 1999,
respectively: weighted-average dividend yield of 0%, 0% and 0%, expected
volatility of 35%, 36% and 34%, weighted-average risk-free interest rates of
4.80%, 5.23% and 5.00%, and weighted-average expected lives of 5.8, 5.5 and 5.7
years.
No options were granted at greater than market value in 2001, 2000, and 1999.
The weighted average per share fair value of options granted at market value was
$17.16 in 2001, $15.29 in 2000 and $14.21 in 1999. The weighted average exercise
price of options granted in 2001, 2000, and 1999 was $34.86, $30.00, and $34.77,
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):
2001 2000 1999
-------- -------- -------
Pro forma net earnings............... $108,323 $116,824 $94,549
Pro forma earnings per share, basic.. $ 2.02 $ 2.14 $ 1.67
Pro forma earnings per share, diluted $ 1.99 $ 2.11 $ 1.63
The pro forma effects in 2001, 2000, and 1999 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 employees as an award, and to non-employee, non-affiliated directors as a
portion of their fee. 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 were 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
was recognized on the straight-line method over the aggregate vesting period.
Such pre-tax expense was approximately $94,000, $94,000 and $94,000 for the
years ended December 31, 2001, 2000, and 1999, respectively.
35
VALASSIS COMMUNICATIONS, INC.
Notes to Consolidated Financial Statements--(Continued)
In addition, several executives received restricted stock grants totaling
39,000 shares and 34,500 shares in 1998 and 1997, respectively, each vesting
over a three-year period. The expense related to this plan is recognized over
the vesting period and was approximately $321,000 and $283,000 for the years
ended December 31, 2000 and 1999, respectively. Also during 2001, 2000 and 1999,
a portion of the total payments to the outside directors was paid in restricted
stock from this plan, with a total value of approximately $120,000, $120,000,
and $124,500, 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 employment agreements between the Company and certain
executives, 40,500 shares, 65,250 shares and 32,250 shares of restricted stock
were issued to such executives in 2001, 2000, and 1999, respectively. In
addition, shares were also issued to other executives in 2001, 2000 and 1999 in
the amounts of 7,000 shares, 11,250 shares and 25,500 shares, respectively.
Pre-tax compensation expense related to the plan for years ended December 31,
2001, 2000 and 1999 was approximately $1.6 million, $1.9 million and $1.5
million, respectively.
Employee Stock Purchase Plan
All full-time employees are eligible to participate in the Company's Employee
Stock Purchase Plan. The plan provides that participants may authorize Valassis
to withhold a portion of earnings to be used to purchase the Company's common
stock at prevailing market prices. Under the plan, Valassis contributed on
behalf of each participant 25% of the participant's contributions during the
year. The value of the Company's stock contributed by the Company and expensed
totaled approximately $101,000, $210,000, and $172,000 for the years ended
December 31, 2001, 2000 and 1999, respectively.
401(k) Plan
The Company's 401(k) Plan includes a 25% match, payable in the Company's
stock, on each participant's annual contributions to the Plan that are invested
in Company stock at the end of the year. The expense related to this plan for
the years ended December 31, 2001, 2000 and 1999 was approximately $300,000,
$228,000, and $230,000, 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.
36
VALASSIS COMMUNICATIONS, INC.
Notes to Consolidated Financial Statements--(Continued)
(12) DISPOSALS
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.
The Company discontinued the business and related products and services of
The Net's Best in 2000. As a result, goodwill totaling $4.0 million was written
off.
(13) ACQUISITIONS AND INVESTMENTS
On August 11, 2000, the Company acquired 80% of the outstanding membership
interest in PreVision Marketing, LLC for $30 million cash and approximately $5
million in restricted stock. PreVision Marketing, LLC is a customer relationship
marketing firm specializing in one-to-one marketing, customer retention and
customer acquisition. The acquisition of PreVision Marketing was accounted for
using the purchase method of accounting for acquisitions and, accordingly, the
results of operations for PreVision have been included in the Company's
financial statements since the date of acquisition. Cost in excess of net assets
acquired is amortized on a straight-line basis over 20 years. The purchase
agreement executed in connection with this transaction also contains additional
payments contingent on the future earnings performance of PreVision Marketing.
Based upon the financial results for the year ended December 31, 2001 for
PreVision Marketing, the Company accrued $8.0 million to be paid in 2002 as
required under the purchase agreement. This amount is included in goodwill in
the accompanying consolidated balance sheet. Additional contingent payments of
$22 million may be earned over the next two years based on achieving certain
earnings targets.
(14) RELATED PARTY TRANSACTIONS
As of December 31, 2001, the Company owns 25.3% of Valassis Relationship
Marketing Systems, LLC ("VRMS") which is accounted for under the equity method
of accounting. At December 31, 2001 and 2000, the Company had total investments
in and advances to VRMS totaling $25.9 million and $6.0 million, respectively,
which are included in equity investments and advances to investees in the
accompanying consolidated balance sheet. The Company has no funding commitments
to VRMS at December 31, 2001. Under an agreement with RMG, the Company has an
option to acquire up to an additional 50% of VRMS. This option expires in July
2002.
The Company owned approximately 50% of Save.com. At December 31, 2000, the
Company had notes receivable in the amount of $10.3 million from Save.com due
July 2002. The notes bore interest at 10% and 8% annually. Since Valassis was
the sole financing source for Save.com, 100% of Save.com's losses were
recognized in 2000 to the extent of the outstanding loan balances, resulting in
a reserve of $10.3 million. In addition, the Company had a commitment to fund
Save.com $2.9 million in 2001. The Company also had an investment in Independent
Delivery Services ("IDS") of $1.0 million, along with a receivable from and a
commitment, to IDS of $2.2 million and $.8 million, respectively. Due to the
deterioration of Save.com's and IDS's financial condition in 2000, the
uncertainty in the public markets regarding Internet startups, and the
difficulty Save.com and IDS had securing additional financial backing, the
Company fully reserved against the investments, receivables and commitments with
these companies at December 31, 2000.
During September, 2001, the Company took a one-time charge of $6.1 million
relating to the closedown of Save.com and resulting restructuring costs.
37
VALASSIS COMMUNICATIONS, INC.
Notes to Consolidated Financial Statements--(Continued)
(15) SEGMENT REPORTING
The Company's products are broken down as follows:
Mass-Distributed Products--products which provide mass reach at low cost,
including:
-- Free-standing inserts (FSI)--four color booklets containing promotions
from multiple advertisers distributed through Sunday newspapers.
-- Run-of-press (ROP)--on-page newspaper promotions
Cluster-Targeted Products--products targeted around geographic and
demographic clusters, including:
-- Solo newspaper inserts
-- Newspaper-delivered product sampling/advertising
One-to-One Products--products and services that pinpoint individuals to build
loyalty to a brand, including:
-- Customer Relationship Marketing (which includes PreVision)
-- Promotion Watch--security consulting
-- Non-consolidated investments in one-to one promotion companies
The Company has two reportable segments, Free-standing inserts (FSIs) and
Cluster-targeted products, and three segments which do not meet the quantitative
threshold for reporting separately, ROP, Customer Relationship Marketing and
Promotion Watch. These 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.
38
VALASSIS COMMUNICATIONS, INC.
Notes to Consolidated Financial Statements--(Continued)
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. The Company evaluates
performance 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.
Year Ended December 31,
------------------------------
Cluster- All
FSI Targeted Others* Total
------ -------- ------- ------
(in millions)
2001
----
Revenues from external customers $579.2 $197.1 $ 71.2 $847.5
Intersegment revenues........... $ -- $ -- $ -- $ --
Depreciation/amortization....... $ 9.7 $ 2.0 $ 2.0 $ 13.7
Segment profit.................. $171.7 $ 19.8 $ (5.8) $185.7
2000
----
Revenues from external customers $603.0 $191.6 $ 41.1 $835.7
Intersegment revenues........... $ -- $ -- $ -- $ --
Depreciation/amortization....... $ 8.6 $ 2.0 $ 0.7 $ 11.3
Segment profit.................. $169.5 $ 26.3 $(21.1) $174.7
1999
----
Revenues from external customers $586.7 $157.6 $ 50.1 $794.4
Intersegment revenues........... $ 6.1 $ -- $ -- $ 6.1
Depreciation/amortization....... $ 11.0 $ 1.8 $ 0.1 $ 12.9
Segment profit.................. $168.7 $ 19.9 $ (0.1) $188.5
--------
* Segments below the quantitative thresholds are primarily attributable to
three segments of the Company. Those include a customer relationship
marketing segment, a run-of-press business, and a promotion security service.
None of these segments has met any of the quantitative thresholds for
determining reportable segments.
Reconciliations to consolidated financial statement totals are as follows:
Year Ended December 31,
----------------------
2001 2000 1999
------ ------ ------
Revenues for reportable segments $776.3 $794.6 $744.3
Revenues for other segments..... 71.2 41.1 50.1
Other income.................... 2.0 27.4 .2
------ ------ ------
Total consolidated revenues..... $849.5 $863.1 $794.6
====== ====== ======
Profit for reportable segments.. $191.5 $195.8 $188.6
Profit (loss) for other segments (5.8) (21.1) (.1)
Unallocated amounts:
Other income................. 2.0 27.4 0.2
------ ------ ------
Earnings before taxes........... $187.7 $202.1 $188.7
====== ====== ======
39
VALASSIS COMMUNICATIONS, INC.
Notes to Consolidated Financial Statements--(Continued)
Domestic and foreign revenues for each of the three years ended December 31
were as follows:
2001 2000 1999
------ ------ ------
United States...... $844.4 $856.6 $774.0
Canada............. 5.1 6.5 20.6
------ ------ ------
$849.5 $863.1 $794.6
====== ====== ======
(16) EARNINGS PER SHARE
Earnings per common share ("EPS") data was computed as follows:
Year ended December 31,
----------------------------
2001 2000 1999
-------- -------- --------
(in thousands, except for
per share amounts)
Net earnings..................................... $117,859 $125,699 $114,20
======== ======== ========
Basic EPS:
Weighted average common shares outstanding.... 53,593 54,587 56,628
======== ======== ========
Earnings (loss) per common share--basic..........
Before extraordinary item..................... $ 2.22 $ 2.30 $ 2.14
Extraordinary item............................ (.02) -- (0.12)
-------- -------- --------
Total......................................... $ 2.20 $ 2.30 $ 2.02
======== ======== ========
Diluted EPS:
Weighted average common shares outstanding.... 53,593 54,587 56,628
Shares issued on exercise of dilutive options. 3,056 4,575 6,301
Shares purchased with proceeds of options..... (2,277) (3,734) (4,918)
Shares contingently issuable.................. 34 50 73
-------- -------- --------
Shares applicable to diluted earnings......... 54,406 55,478 58,084
======== ======== ========
Earnings (loss) per common share--diluted
Before extraordinary item..................... $ 2.19 $ 2.27 $ 2.09
Extraordinary item............................ (.02) -- (0.12)
-------- -------- --------
Net earnings per common share, diluted........ $ 2.17 $ 2.27 $ 1.97
======== ======== ========
Unexercised employee stock options to purchase 2,275,563 shares, 2,307,620
shares and 46,600 shares of the Company's common stock as of December 31, 2001,
2000 and 1999, 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, 2001, the Company has repurchased approximately 236,700 of its
common shares.
40
VALASSIS COMMUNICATIONS, INC.
Notes to Consolidated Financial Statements--(Continued)
(17) REVERSE REPURCHASE AGREEMENT
During September 2001, the Company entered into a reverse repurchase
agreement transaction relating to $234.5 million of U.S. Treasury Securities.
The transaction was closed out in the fourth quarter of 2001 and resulted in a
net charge of $.2 million to interest. As a result of the transaction, the
Company released $3.7 million of its deferred tax valuation allowance, as it was
able to utilize capital losses, and recorded a $1.3 million reduction in income
taxes.
41
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, 2001 and
2000 and the related consolidated statements of income, stockholders' deficit,
and cash flows for each of the three years in the period ended December 31,
2001. 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 auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our 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, 2001 and 2000, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 2001, in conformity with accounting principles generally accepted in the
United States of America. 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 13, 2002
42
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 2002 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 2002 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 2002 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 2002 Annual Meeting of Stockholders, which information is
hereby incorporated herein by reference.
43
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, 2001 and 2000.
Consolidated Statements of Operations for the Years Ended December 31,
2001, 2000 and 1999.
Consolidated Statements of Stockholders' Deficit for the Years Ended
December 31, 2001, 2000 and 1999.
Consolidated Statements of Cash Flows for the Years Ended December 31,
2001, 2000 and 1999.
Notes to Consolidated Financial Statements
Independent Auditors' Report
2. Financial Statement Schedules. The following consolidated financial
statement schedule of Valassis Communications, Inc. for the years ended
December 31, 2001, 2000 and 1999.
Schedule Page
-------- ----
II Valuation and Qualifying Accounts......................... S-2
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, 2001.
44
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
-------------------------------------
Alan F. Schultz
President and Chief Executive Officer
Date: March 22, 2002
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.
Signature Title Date
--------- ----- ----
/s/ Alan F. Schultz Chairman of the Board of March 22, 2002
------------------------ Directors, President and
Alan F. Schultz Chief Executive Officer
(Principal Executive
Officer)
Director March 22, 2002
------------------------
Patrick F. Brennan
/s/ Kenneth V. Darish Director March 22, 2002
------------------------
Kenneth V. Darish
/s/ Seth Goldstein Director March 22, 2002
------------------------
Seth Goldstein
/s/ Barry P. Hoffman General Counsel and Director March 22, 2002
------------------------
Barry P. Hoffman
Director March 22, 2002
------------------------
Brian J. Husselbee
/s/ Robert L. Recchia Chief Financial Officer and March 22, 2002
------------------------ Director (Principal
Robert L. Recchia Financial and Accounting
Officer)
/s/ Marcella A. Sampson Director March 22, 2002
------------------------
Marcella A. Sampson
/s/ Faith Whittlesey Director March 22, 2002
------------------------
Faith Whittlesey
45
Schedule II
VALASSIS COMMUNICATIONS, INC.
VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 2001, 2000 and 1999
(in thousands)
Balance at Charged to Balance at
Beginning Costs and Deductions End of
Description of Period Expenses (1) Period
----------- ---------- ---------- ---------- ----------
Allowance for doubtful accounts
(deducted from accounts
receivable):
Year Ended December 31, 2001......... 1,322 1,800 2,071 1,051
Year Ended December 31, 2000......... 1,386 1,208 1,272 1,322
Year Ended December 31, 1999......... 1,354 1,867 1,835 1,386
--------
(1) Accounts deemed to be uncollectible.
46
EXHIBIT INDEX
Exhibit
Number
--------
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 Zero Coupon Convertible Senior
Notes Due 2021 (incorporated by reference to Exhibit 4.1 to the
Company's Registration Statement on Form S-3 (No. 333-65824))
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)
47
10.1(c) Amendment No. 3 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 9, 2000
10.1(d) Amendment No. 4 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 December 27, 2001
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 (incorporated by reference to Exhibit 10.3(d) to the
Company's 1999 Form 10-K)
10.3(e)* Amendment to Employment Agreement of Robert L. Recchia dated March
14, 2001 (incorporated by reference to Exhibit 10.3(e) to the
Company's 2000 Form 10-K)
10.3(f)* Amendment to Employment Agreement of Robert L. Recchia dated December
20, 2001
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 (incorporated by reference to Exhibit 10.4(d) to the
Company's 1999 Form 10-K)
48
10.4(e)* Amendment to Employment Agreement of Barry P. Hoffman dated March 14,
2001 (incorporated by reference to Exhibit 10.4(e) to the Company's
2000 Form 10-K)
10.4(f)* Amendment to Employment Agreement of Barry P. Hoffman dated December
20, 2001
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)
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 (incorporated by reference to Exhibit 10.5(f) to the
Company's 1999 Form 10-K)
10.5(g)* Amendment to Employment Agreement of Richard P. Herpich dated
December 21, 2000 (incorporated by reference to Exhibit 10.5(g) to
the Company's 2000 Form 10-K)
10.5(h) Amendment to Employment Agreement of Richard P. Herpich dated
December 20, 2001
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)
49
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)
10.10(d)* Amendment to Employment Agreement of Richard N. Anderson dated
December 22, 1999 (incorporated by reference to Exhibit 10.10(d) to
the Company's 1999 Form 10-K)
10.10(e)* Amendment to Employment Agreement of Richard N. Anderson dated March
14, 2001 (incorporated by reference to Exhibit 10.10(e) to the
Company's 2000 Form 10-K)
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)
50
10.11(d)* Amendment to Employment Agreement of Alan F. Schultz dated December
16, 1999 (incorporated by reference to Exhibit 10.11(d) to the
Company's 1999 Form 10-K)
10.11(e)* Amendment to Employment Agreement of Alan F. Schultz dated March 14,
2001 (incorporated by reference to Exhibit 10.11 (e) to the Company's
2000 Form 10-K)
10.11(f)* Amendment to Employment Agreement of Alan F. Schultz dated December
20, 2001
10.12* Amended and Restated Senior Executives Annual Bonus Plan
(incorporated by reference to Exhibit B to the Company's Proxy
Statement dated April 16, 2001)
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* Amended and Restated 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.
23.1 Consent of Independent Auditors
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)
--------
*Constitutes a management contract or compensatory plan or arrangement.
51