Back to GetFilings.com
ADVO, Inc.
Form 10-K
September 24, 1994
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended September 24, 1994
------------------
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from _________to __________
Commission file number 1-11720
-------
ADVO, INC.
---------
(Exact name of registrant as specified in its charter)
Delaware 06-0885252
_____________________________________ _____________________________________
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
One Univac Lane, P.O. Box 755,
Windsor, CT 06095-0755
_____________________________________ _____________________________________
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code: (203) 285-6100
--------------
Securities registered pursuant to Section 12(b) of the Act:
Common Stock and Rights, par value $.01 per share
-------------------------------------------------
(Title of Class)
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]
The aggregate market value of voting stock held by non-affiliates of the
registrant at November 30, 1994 was $300,232,111. On that date, there were
20,858,884 outstanding shares of the registrant's common stock.
Documents Incorporated by Reference:
Portions of the 1994 Annual Report to Stockholders are incorporated by
reference into Parts I, II and IV of this Report.
Portions of the Proxy Statement for the 1995 Annual Meeting of Stockholders are
incorporated by reference into Part III of this Report.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ADVO, INC.
INDEX TO REPORT ON FORM 10-K
FOR THE YEAR ENDED SEPTEMBER 24, 1994
PART I
ITEM PAGE
---- ----
1. Business........................................................... 1
2. Properties......................................................... 6
3. Legal Proceedings.................................................. 6
4. Submission of Matters to a Vote of Security Holders................ 6
PART II
5. Market for Registrant's Common Equity and Related Stockholder
Matters........................................................... 8
6. Selected Financial Data............................................ 8
7. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................. 8
8. Financial Statements and Supplementary Data........................ 8
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.............................................. 8
PART III
10. Directors and Executive Officers of the Registrant................. 8
11. Executive Compensation............................................. 9
12. Security Ownership of Certain Beneficial Owners and Management..... 9
13. Certain Relationships and Related Transactions..................... 9
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.... 9
PART I
ITEM 1. BUSINESS
GENERAL
ADVO, Inc. ("ADVO" or the "Company") is a direct marketing firm primarily
engaged in soliciting and processing printed advertising from retailers,
manufacturers and service companies for targeted distribution by mail to
consumer households in the United States on a national, regional and local
basis. Founded in 1929 as a hand delivery company, the Company entered the
direct mail industry as a solo mailer in 1946 and began its shared mail
program in 1980. The Company currently is the largest commercial user of
third-class mail in the United States.
ADVO competes primarily with newspapers, direct mail companies, broadcast
media, periodicals and other local distribution entities for retail
advertising expenditures. The Company believes that direct mail, which enables
advertisers to target advertisements to specific customers or geographic
areas, is the most efficient vehicle for delivering printed advertising on a
saturation or full market coverage basis, as well as an effective means of
targeted coverage. ADVO has participated in several joint ventures in order to
expand its targeting capability by offering psychographic and product usage
information in addition to its geo-demographic database.
In August of 1993 ADVO merged with Marketing Force, Inc., a Michigan
corporation ("Marketing Force" or "MF") accounted for as a pooling of
interests. MF, founded in 1981, is a in-store marketing services organization
which provides marketing services to a wide range of manufacturers and
marketers, using proprietary operating systems. Such services include managing
and executing in-store promotions, such as in-store sampling, couponing, and
product demonstration/education; customizing and executing unique brand events
on a national basis; in-store merchandising including shelf resets, display
building, sales/service calls, audits, product stickering and product pick-up;
audits of unsaleable inventory and provision of casual data in reclamation
centers and retail stores; and overall management and administration of
corporate promotion/marketing programs. MF recruits, trains and supervises
specialized merchandisers to perform in-store work for clients, thereby
eliminating the costs of building and maintaining an in-house field force by
managing all program elements and managing all administrative details such as
payroll, insurance and taxes.
ADVO's principal executive offices are located at One Univac Lane, Windsor,
Connecticut, 06095.
BUSINESS SEGMENTS
Information with respect to the separate revenues, operating income and
identifiable assets of the Company's direct mail segment and its in-store
marketing services segment can be found in ADVO's 1994 Annual Report to
Stockholders under the caption "Segment Information" on page 33 and is
incorporated herein by reference and made a part hereof (see Exhibit 13).
DIRECT MAIL PRODUCTS AND SERVICES
ADVO's direct mail products and services include shared mail and solo mail.
ADVO also provides certain printing, transportation and ancillary services in
conjunction with its direct mail programs.
SHARED MAIL
In the Company's shared mail programs (Marriage Mail (R) and Mailbox
Values (R)), the advertisements of several advertisers are combined in a
single mail package.
Shared mail packages are assembled by the Company for distribution by ZIP
Code and, in most instances, each household within the ZIP Code will receive a
mail package. Individual customers can
1
choose a portion of the designated mailing area for their distributions,
ranging from part of a ZIP Code to all ZIP Codes covered by the program. This
flexibility enables major customers, such as retail store chains, to select ZIP
Codes serviced by their retail stores and, at the same time, distribute
different versions of their advertisements to accommodate the needs of their
individual stores. It also allows a smaller retailer to select only those ZIP
Codes or portions of ZIP Codes needed to accommodate its customer base, thereby
reducing overall advertising costs.
The Company's shared mail programs offer the features of penetration and
target marketing at a significant cost reduction when compared to mailing on an
individual or solo mail basis. This cost advantage is available because the
Company pays the total postage expense, and advertisers are generally charged a
selling price based upon, among other factors, the incremental weight of their
promotional pieces.
As a part of its shared mail programs, the Company provides the addresses of
the households receiving the mail packages and sorts, processes and transports
the advertising material for ultimate delivery through the United States Postal
Service ("USPS"). Generally, larger businesses, such as food chains and mass
merchandisers, will provide the Company with preprinted advertising materials
in predetermined quantities. In the case of manufacturers and small retail
customers, the Company may perform graphics services and act as a broker for
the required printing. The Company also offers shared mail customers numerous
standard turnkey advertising products in a variety of sizes and colors.
The Company believes its shared mail programs are the largest programs of
their kind.
Marriage Mail (R) is a weekly mail program with coverage, on average, of 57
million households in approximately 160 markets. This program is used by local
and national retailers. The ZIP Code configuration selected for each market is
normally determined by population density and by proximity to retail outlets.
Retailers with multiple locations and weekly frequency have a great influence
on the ZIP Codes chosen by the Company for its weekly mailings. The Company
derives most of its revenues from the Marriage Mail (R) program.
SOLO MAIL
Solo mail services include addressing and processing of brochures and
circulars for an individual customer for distribution through the USPS. Each
customer bears the full cost of postage and handling for each mailing.
Customers choosing this form of direct mail are generally those who wish to
maintain an exclusive image and complete control over the timing and the target
of their mailings.
The Company processes solo mail using its own mailing list or lists supplied
by the customer. The Company charges a processing fee based on the solo mail
services rendered.
OTHER DIRECT MAIL PRODUCTS AND SERVICES
The Company rents portions of its mailing list to organizations interested in
distributing their own solo mailings. The Company may or may not perform the
associated distribution services for the customer.
Mid Coast Press is a commercial web offset printer located in Maryland, which
produces general commercial printing as well as tabloids for local customers
participating in the Marriage Mail (R) program.
Trans-ADVO, Inc., a wholly-owned subsidiary of the Company, is a Class 1 ICC
Contract Carrier presently engaged in the transportation of time-sensitive
advertising material and general freight. Trans-ADVO, Inc., utilizes contracted
carriers to provide direct pickup and delivery services throughout the 48
contiguous states.
2
ADVO Target Communications, Inc., and ADVOLink, Inc., based in Texas, are
majority owned subsidiaries of the Company which specialize in the coordination
and production of custom promotional magazines and circulars which, in most
cases, are then distributed by the Company.
The Company has been involved in several joint ventures directed at enhancing
its micromarketing services capabilities such as proprietary data bases and
custom micromarketing strategies.
MAILING LIST
ADVO's management believes its computerized mailing list is the largest
residential/household mailing list in the country. It contains over 108 million
addresses (constituting nearly all of the households in the continental United
States) and was used by the U.S. Census Bureau as a base for developing the
mailing list for its 1990 census questionnaire mailings. The Company's
management believes that the list is particularly valuable and that replication
in its entirety by competitors would be extremely difficult and costly. The
list enables the Company to target mailings to best serve its customers.
ADVO's list is updated on a regular basis with information supplied by the
USPS as follows. At least every three months, ADVO submits each address on its
mailing list to the USPS. The USPS then provides to ADVO any changes to the
addresses within the Zip Code. Such changes include whether the address is
still occupied, whether the addresses still exist at all (i.e. demolished
buildings) and any new addresses included in the Zip Code (i.e. new
construction). The USPS also indicates to ADVO whether carrier routes and/or
Zip Codes have changed so that ADVO can maintain its address list in walk
sequence order. The USPS provides these updates for a fee, provided that the
user's list is at least 90% accurate on a ZIP Code basis. ADVO believes its
list is nearly 100% accurate.
IN-STORE MARKETING SERVICES
Products and services for its in-store marketing services organization are
divided into five major categories: Promotion Services, Merchandising Services,
Promotion Administration, Damage Advantage(TM) and Instant Recall(TM).
PROMOTION SERVICES
The Promotion Services group manages and executes customized in-store
promotions, such as in-store couponing, sampling, and product
demonstration/education. In-store representatives, directly employed by the
Company, give a scripted sales presentation and a purchase incentive to
consumers during peak shopping periods in all types of retail stores: grocery,
mass merchandisers, chain drug, club, and hardware/do-it-yourself.
MERCHANDISING SERVICES
Merchandising Services include shelf resets, display building, sales/service
calls, audits, product stickering, and product pick-up. The Company's
merchandising services products are Dedicated Merchandising Services(TM) and
On-Call Merchandising Services(TM). Dedicated Merchandising Services(TM)
involves the selection and funding by the Company of specialized merchandisers
to perform in-store work exclusively for one client. For its On-Call
Merchandising Services(TM), the Company has a national force of merchandising
specialists who regularly perform specific short-term in-store projects for a
wide variety of clients. On-Call(TM) programs are closely managed by expert
field-based managers who are in regular contact with both the manufacturer
field sales organization and the retailers.
PROMOTION ADMINISTRATION
The Promotion Administration segment of the Company's business includes a
variety of database management programs such as the administration of the
Grocery Manufacturers of America's "Central
3
List" project and the administration of General Motors' Career Builder, which
is a deferred compensation plan for enrolled retail sales people within each of
the General Motors divisions.
The Company also has over a hundred TeleServices Operators in support of its
various programs, along with warehousing and fulfillment services.
DAMAGED GOODS AND RECALLS
Damaged Advantage(TM) was a new product developed in 1992 to help consumer
packaged goods manufacturers gain control of damaged goods payments and reduce
damaged goods volume. Damaged Advantage(TM) audits unsaleable inventory and
provides casual data in reclamation centers and retail stores.
Instant Recall(TM) was a product being launched in 1993 to provide
manufacturers with a quick and efficient way of dealing with product recalls or
the removal and disposition of discontinued product.
CLIENT BASE
Approximately 80% of the customers served by the Company throughout the
United States are smaller retail or service businesses. The remainder include
major food, drug or discount chains and manufacturing companies.
Typically, the Company's customers are those businesses whose products and
services are used by the general population. These businesses (supermarkets,
fast food, drug stores, discount and department stores and consumer products
manufacturers) require continuous advertising to a mass audience. No customer
accounted for more than 10% of the Company's sales in 1994, 1993 or 1992.
OPERATIONS
Customers' advertising circulars are processed by approximately 3,000 direct
mail production employees who work at 23 facilities which are strategically
located throughout the nation. State-of-the-art inserting machines (which
combine the individual advertising pieces into the mailing packages) and modern
quarter-folding equipment are the principal equipment used to process the
Company's products and services. In nearly all 23 of ADVO's production
facilities, the USPS accepts and verifies the Company's mail to help ensure
rapid package acceptance and distribution, which benefits both the USPS and the
Company. In most instances, the mail is then shipped by the Company to the
destination office of the USPS for final delivery.
ADVO's computer center is located in Hartford, Connecticut. The Company's
branches are on-line to this computer center which enables the day-to-day
processing functions to be performed and provides corporate headquarters with
management information. The systems include: order processing and production
control, transportation/distribution, address list maintenance, market
analysis, label printing and distribution, billing and financial systems, and
carrier routing of addresses received from customer files and demographic
analyses.
Marketing Force maintains four sales offices nationwide and a corporate
headquarters facility in Michigan, along with two warehouses used to hold
various promotional merchandise.
COMPETITION
In general, the printed advertising market is highly competitive with
companies competing primarily on basis of price, speed of delivery and ability
to target selected potential customers on a cost-effective basis. ADVO's
competitors for the delivery of retail and other printed advertising are
numerous and include newspapers, regional and local mailers, direct marketing
firms, "shoppers" and "pennysavers".
4
Newspapers represent the Company's most significant and direct competition.
Through the distribution of preprinted circulars, classified advertising and
run of press advertising ("ROP"), newspapers have been the traditional and
dominant medium for advertising by retailers for many years. Insertion rates
are highly competitive and many newspapers' financial resources are
substantial.
ADVO's principal direct marketing competitors are other companies with
residential lists or similar cooperative mailing programs. These companies have
a significant presence in many of the Company's markets and represent serious
competition to the Company's Marriage Mail (R) programs in those markets.
There are local mailers in practically every market of the country. In
addition to local mailers, there are many local private delivery services such
as "shoppers" and "pennysavers" which compete by selling ROP advertisements and
classified advertisements. ADVO believes that it competes effectively in its
various markets.
Because of Marketing Force's diverse products and services, it does not have
competition from one competitor across all areas of its business, but rather
different competitors in each niche. Additionally, there are a great number of
local sampling and demonstration agencies who compete for business on a
national level.
The Marketing Force's Promotion Administration programs are primarily
confined to the automotive industry and, therefore, its competition includes
traditional automotive suppliers as well as the various divisional advertising
agencies.
Generally, competition is based on price, expertise of personnel and quality
of service. Marketing Force competes effectively due to its consistently high
quality of service, trained merchandisers, expert personnel and price.
SEASONALITY
ADVO's business generally follows the trends of retail advertising spending.
The Company has historically experienced higher revenues in the second half of
the calendar year.
RESEARCH AND DEVELOPMENT
Expenditures of the Company in research and development during the last three
years have not been material.
ENVIRONMENTAL MATTERS
The Company believes that it is substantially in compliance with all
regulations concerning the discharge of materials into the environment, and
such regulations have not had a material effect on the capital expenditures or
operations of the Company.
RAW MATERIALS
The Company manages the direct purchasing of approximately 40,000 tons of
paper per year and another 10,000 tons through its printing network. ADVO has
agreements with various paper suppliers and print vendors to assure the supply
of proper paper grades at competitive prices.
These purchases enable ADVO to purchase the paper necessary for its DAL and
turnkey family products at favorable prices.
5
EMPLOYEES
As of September 24, 1994, the Company had a total of approximately 5,300 full
and part-time direct mail employees. ADVO also uses outside temporary employees
for its direct mail operations, particularly during busy seasons.
As of September 24, 1994, the In-store marketing services organization had a
total of approximately 250 full-time and 3,800 part-time employees.
ADVO has one union contract, covering production employees in the Hartford,
Connecticut branch. The Company believes that its relations with its employees
are satisfactory.
ITEM 2. PROPERTIES
ADVO does not own any real estate. The Company's corporate headquarters is a
71,000 square foot leased facility in Windsor, Connecticut. The lease runs
through December 1996 with options to renew. The Company also leases 23
production facilities, 3 division offices, 80 sales offices (which excludes the
sales offices that are located in the branches) throughout the United States.
The In-store marketing services organization's corporate headquarters is a
42,000 square foot leased facility in Rochester Hill, Michigan which runs
through December 1999. The terms of the branch and division office leases range
from three to ten years and the sales offices are generally leased for periods
of one to five years. The Company believes its facilities are suitable and
adequate for the purposes for which they are used and are adequately
maintained.
ITEM 3. LEGAL PROCEEDINGS
ADVO is party to various lawsuits and regulatory proceedings which are
incidental to its business and which the Company believes will not have a
material adverse effect on its consolidated financial condition, liquidity or
results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
EXECUTIVE OFFICERS OF THE REGISTRANT
NAME AGE POSITION WITH COMPANY
---- --- ---------------------
Robert Kamerschen........... 58 Chairman and Chief Executive Officer
Joseph P. Durrett........... 49 President and Chief Operating Officer
Larry G. Morris............. 56 Senior Executive Vice President, Chief
Administrative and Process Development Officer
Lowell W. Robinson.......... 45 Executive Vice President and Chief Financial
Officer
Peter A. Corrao............. 40 Senior Vice President
Rick Kurz................... 54 Senior Vice President
Frederick Leick............. 50 Senior Vice President
Myron L. Lubin.............. 54 Senior Vice President
Daniel J. Steever........... 36 Vice President
Frank J. Talz............... 50 Senior Vice President
Robert S. Hirst............. 48 Vice President and Controller
Mr. Kamerschen has been the Chairman of the Board since January 1989. From
November 1988 to February 1989, he was President of the Company and he has been
Chief Executive Officer and a Director since November 1988. Mr. Kamerschen is
also a Director of Playboy Enterprises, Inc., Micrografx, Inc. and Audrey Jones
Stores.
6
Mr. Durrett became President, Chief Operating Officer and a Director of the
Company on September 1, 1992. From February 1990 to August 1992, he was Senior
Vice President of Sales of Kraft General Foods Inc., the food segment
subsidiary of Philip Morris Companies Inc. From August 1987 to January 1990, he
was President of Sales and Sales Operations of Kraft Inc. (acquired December 7,
1988 by Philip Morris Companies Inc.), a multinational food company.
Mr. Morris has been Senior Executive Vice President, Chief Administrative and
Process Development Officer of the Company since May 1994 and a Director since
October 1989. From August 1989 to April 1994, he was Executive Vice President,
Chief Financial and Administrative Officer.
Mr. Robinson became Executive Vice President and Chief Financial Officer of
the Company on May 5, 1994. From April 1993 to April 1994, he was an
independent consultant. From April 1991 to March 1993, he was Vice President
and Chief Financial Officer for The Travelers Managed Care and Employee
Benefits Operations. From October 1988 to March 1991, he was Vice President and
Chief Financial Officer for Citicorp's Global Insurance and Capital Investments
Divisions and from June 1986 to September 1988, he was Vice President and
Controller for Citicorp's Consumer Services Group--International.
Mr. Corrao became Senior Vice President--President National Accounts
Marketing Division on January 25, 1990. From January 1989 to January 1990, he
held the position of Senior Vice President of National Accounts Marketing.
Mr. Kurz became Senior Vice President--Chief Marketing Officer on April 19,
1993. Prior to that, he was a Managing Partner of Marketing Corporation of
America, a marketing consulting firm. He had held that position for the last
five years.
Mr. Leick became Senior Vice President--President Atlantic Division on
February 15, 1994. Prior to that, he was President, Chief Executive Officer,
and a Director of Seneca Foods Corporation whose primary business is a producer
of fruit juices and vegetables. He had held those positions for the last five
years.
Mr. Lubin became Senior Vice President--President Western Division on January
25, 1990. From February 1986 to January 1990, he held the position of Senior
Vice President, General Manager-- Western Division of the Company.
Mr. Steever became Vice President--President Marketing Force on May 4, 1994.
Prior to that he held several Regional Vice President/General Manager positions
within the Company, including regions located in Northern California, the
Northeastern United States and the Rocky Mountain area. He had held these
positions for the last five years.
Mr. Talz became Senior Vice President--President Central Division on January
25, 1990. From August 1986 to January 1990, he held the position of Senior Vice
President, General Manager--Central Division of the Company.
Mr. Hirst became Vice President and Controller on April 16, 1990. From April
1987 to April 1990, he was Chief Financial Officer of Star Expansion Company,
an international manufacturing and distribution company, producing fasteners
and hardware for numerous applications.
The Company is not aware of any family relationships between any of the
foregoing officers and any of the Company's directors. Each of the foregoing
officers holds such office until his successor shall have been duly chosen and
shall have qualified, or until his earlier resignation or removal.
7
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
ADVO's 1994 Annual Report to Stockholders includes on page 35 under the
caption "Quarterly Financial Data (unaudited)" the reported high and low sales
prices of ADVO's Common Stock for the past two fiscal years, and such
information is incorporated herein by reference and made a part hereof (see
Exhibit 13). For the fiscal years ended September 24, 1994 and September 25,
1993, the Company declared cash dividends of $.095 and $.06 per share to
holders of ADVO Common Stock, respectively. For the fiscal year ended September
26, 1992 the Company declared no cash dividends.
The closing price as of November 30, 1994 of the Company's Common Stock,
under the symbol AD, on the New York Stock Exchange as reported in The Wall
Street Journal was $17 7/8 per share. The approximate number of holders of
record of the common stock on November 30, 1994 was 1,004.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item is included in ADVO's 1994 Annual
Report to Stockholders on page 21 under the caption "Selected Financial Data"
and is incorporated herein by reference and made a part hereof (see Exhibit
13).
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required by this item is included in ADVO's 1994 Annual
Report to Stockholders on pages 22 through 24 under the caption "Financial
Report" and is incorporated herein by reference and made a part hereof (see
Exhibit 13).
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ADVO's consolidated financial statements, together with the Report of
Independent Auditors thereon dated October 19, 1994, appearing on pages 25
through 36 of ADVO's 1994 Annual Report to Stockholders, are incorporated
herein by reference and made a part hereof.
The selected quarterly information required by this item is included under
the caption "Quarterly Financial Data (unaudited)" on page 35 of ADVO's 1994
Annual Report to Stockholders and is incorporated herein by reference and made
a part hereof (see Exhibit 13). For financial statement schedules required by
this item, see the index at page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item, to the extent not included under the
caption "Executive Officers of the Registrant" in Part I of this Annual Report
on Form 10-K, appears on pages 4 and 5 of the Company's definitive proxy
statement dated December 15, 1994 for the annual meeting of stockholders to be
held on January 19, 1995 (the "Proxy Statement"), under the caption "Election
of Directors", and on page 7 of the Proxy Statement under the subcaption
"Section 16 Reports", and is incorporated herein by reference and made a part
hereof.
8
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is included under the caption
"Executive Compensation" on pages 7 through 17 (except for those portions
appearing under the subcaptions "Report of the Compensation Committee" and
"Company Financial Performance"), and "Governance of the Company" on pages 3
and 4, of ADVO's Proxy Statement and is incorporated herein by reference and
made a part hereof.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is included under the captions
"Security Ownership of Certain Beneficial Owners" and "Security Ownership of
Management" on pages 2 and 3 and on pages 6 and 7, respectively, of ADVO's
Proxy Statement and is incorporated herein by reference and made a part hereof.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is included under the caption "Related
Party Transactions" on pages 17 and 18 of ADVO's Proxy Statement and in
footnotes 2 and 3 under the caption "Security Ownership of Certain Beneficial
Owners" on pages 2 and 3 of ADVO's Proxy Statement and is incorporated herein
by reference and made a part hereof.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Financial Statements. See the Index to Financial Statements and
Financial Statement Schedules on page F-1.
(2) Financial Statement Schedules. See the Index to Financial Statements
and Financial Statement Schedules on page F-1.
(3) Exhibits. The following is a list of the exhibits to this Report:
EXHIBIT NO. EXHIBIT WHERE LOCATED
- ----------- ------- -------------
2 Agreement and Plan of Merger, dated Incorporated by reference to Exhibit
as of August 6, 1993. 2 to pre-effective Amendment No. 2
to the Company's Form S-4 filed on
August 18, 1993 (No. 33-65794).
3(a) Restated Certificate of Incorporation Incorporated by reference to Exhibit
of ADVO. 5 to the Company's Registration
Statement on Form 8-A filed on
February 24, 1993 (No. 1-11720).
3(b) Restated By-laws of ADVO. Incorporated by reference to Exhibit
6 to the Company's Registration
Statement on Form 8-A filed on
February 24, 1993 (No. 1-11720).
3(c) Stockholder Protection Rights Incorporated by reference to Exhibit
Agreement, dated as of February 5, 4.1 of the Company's Form 8-K dated
1993, between the Company and Mellon February 5, 1993.
Securities Trust Company, as Rights
Agent, including Exhibit A and
Exhibit B.
9
EXHIBIT NO. EXHIBIT WHERE LOCATED
- ----------- ------- -------------
10(a) Stock Subscription Warrants, as held Incorporated by reference to Exhibit
by Warburg Pincus Capital Partners, 10(c) to the Company's Form 10 filed
L.P. to subscribe for the common on September 15, 1986.
stock of ADVO.
10(b) 1986 Stock Option Plan of ADVO.* Incorporated by reference to Exhibit
4.1 to the Company's Form S-8 filed
on July 16, 1987 (No.33-15856).
10(c) 1986 Employee Restricted Stock Plan Incorporated by reference to Exhibit
of ADVO, as amended.* A to the Company's definitive Proxy
statement for the annual meeting
held on January 24, 1991.
10(d) 1988 Non-Qualified Stock Option Plan Incorporated by reference to Exhibits
and 1993 Stock Option Subplan of A and B to the Company's definitive
ADVO, as amended.* Proxy statement for the annual
meeting held on January 20, 1994.
10(e) The ADVO Savings Continuation Plan, Incorporated by reference to Exhibit
effective January 1, 1988.* 10(n) to the Company's Annual Report
on Form 10-K for the fiscal year
ended September 24, 1988.
10(f) Executive Severance Agreements dated Incorporated by reference to Exhibit
December 7, 1990, between ADVO and 10(r) to the Company's Annual Report
the executive officer named on Form 10-K for the fiscal year
therein.* ended September 29, 1990.
10(g) Executive Severance Agreements dated Incorporated by reference to Exhibit
December 7, 1990, between ADVO and 10(s) to the Company's Annual Report
the executive officer named on Form 10-K for the fiscal year
therein.* ended September 29, 1990.
10(h) Executive Severance Agreement dated Incorporated by reference to Exhibit
February 20, 1991, between ADVO and 10(a) to the Company's Quarterly
Robert Kamerschen.* Report on Form 10-Q for the quarter
ended March 30, 1991.
10(i) Executive Severance Agreement dated Incorporated by reference to Exhibit
February 20, 1991, between ADVO and 10(c) to the Company's Quarterly
Larry G. Morris.* Report on Form 10-Q for the quarter
ended March 30, 1991.
10(j) Employment Agreement dated November Incorporated by reference to Exhibit
14, 1991 between ADVO and Robert 10(t) to the Company's Annual Report
Kamerschen.* on Form 10-K for the fiscal year
ended September 28, 1991.
10(k) Employment Agreement dated August 21, Incorporated by reference to Exhibit
1991 between ADVO and Larry G. 10(u) to the Company's Annual Report
Morris.* on Form 10-K for the fiscal year
ended September 28, 1991.
10(l) ADVO Long-term Compensation Plan.* Incorporated by reference to Exhibit
10(v) to the Company's Annual Report
on Form 10-K for the fiscal year
ended September 28, 1991.
10
EXHIBIT NO. EXHIBIT WHERE LOCATED
- ----------- ------- -------------
10(m) Amendment dated August 18, 1992 on Incorporated by reference to Exhibit
Stock Subscription Warrants, as held 10(u) to the Company's Annual Report
by Warburg Pincus Capital Partners, on Form 10-K for the fiscal year
L.P. to subscribe for common stock ended September 26, 1992.
of ADVO.
10(n) Employment Agreement dated July 13, Incorporated by reference to Exhibit
1992, between ADVO and Joseph P. 10(v) to the Company's Annual Report
Durrett.* on Form 10-K for the fiscal year
ended September 26, 1992.
10(o) Executive Severance Agreement dated Filed herewith.
September 1, 1992 between ADVO and
Joseph P. Durrett.*
11 Computation of Per Share Earnings. Filed herewith.
13 1994 Annual Report to Stockholders. Furnished herewith; however, such
report, except for those portions
thereof which are expressly
incorporated by reference into this
Annual Report on Form 10-K, is for
the information of the Commission
and is not deemed "filed".
21 Subsidiaries of the Registrant. Filed herewith.
23 Consent of Independent Auditors. Filed herewith.
27 Financial Data Schedule. Filed herewith.
- --------
* Management contract or compensatory plan required to be filed as an exhibit
pursuant to item 14(c) of this report.
(b)Reports on Form 8-K.
No reports on form 8-K were filed by the Company for the quarter ended
September 24, 1994.
11
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.
Date December 13, 1994 ADVO, Inc.
----------------------------------
By Robert S. Hirst /s/
------------------------------------
ROBERT S. HIRST
VICE PRESIDENT AND CONTROLLER
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.
DATE SIGNATURE TITLE
---- --------- -----
December 13, 1994 Robert Kamerschen /s/ Chairman, Chief Executive
---------------------------- Officer and Director
ROBERT KAMERSCHEN (Principal Executive
Officer)
December 13, 1994 Joseph P. Durrett /s/ President, Chief
---------------------------- Operating Officer and
JOSEPH P. DURRETT Director
December 13, 1994 Larry G. Morris /s/ Senior Executive Vice
---------------------------- President, Chief
LARRY G. MORRIS Administrative and
Process Development
Officer
December 13, 1994 Lowell W. Robinson /s/ Executive Vice President
---------------------------- and Chief Financial
LOWELL W. ROBINSON Officer (Principal
Financial Officer)
December 13, 1994 Robert S. Hirst /s/ Vice President and
---------------------------- Controller (Principal
ROBERT S. HIRST Accounting Officer)
December 13, 1994 Jack W. Fritz /s/ Director
----------------------------
JACK W. FRITZ
December 13, 1994 Lawrence Lachman /s/ Director
----------------------------
LAWRENCE LACHMAN
December 13, 1994 Howard H. Newman /s/ Director
----------------------------
HOWARD H. NEWMAN
December 13, 1994 John R. Rockwell /s/ Director
----------------------------
JOHN R. ROCKWELL
December 13, 1994 Richard H. Stowe /s/ Director
----------------------------
RICHARD H. STOWE
December 13, 1994 John L. Vogelstein /s/ Director
----------------------------
JOHN L. VOGELSTEIN
12
ADVO, INC.
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
PAGE
----
Report of independent auditors........................................... *
Consolidated statements of operations for the years ended September 24,
1994, September 25, 1993 and September 26, 1992......................... *
Consolidated balance sheets at September 24, 1994 and September 25, 1993. *
Consolidated statements of cash flows for the years ended September 24,
1994, September 25, 1993 and September 26, 1992......................... *
Consolidated statements of changes in stockholders' equity for the years
ended September 24, 1994, September 25, 1993 and September 26, 1992..... *
Notes to consolidated financial statements............................... *
Consolidated Schedules
I --Marketable Securities......................................... F-2
V --Property, Plant and Equipment................................. F-3
VI --Accumulated Depreciation, Depletion and Amortization of
Property, Plant and Equipment................................ F-4
VIII --Valuation and Qualifying Accounts............................. F-5
IX --Short-Term Borrowings......................................... F-6
All other schedules have been omitted since the required information is not
present or not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the consolidated
financial statements or notes thereto.
- --------
* Incorporated herein by reference from pages 25 to 36 of the ADVO, Inc. 1994
Annual Report to Stockholders.
F-1
ADVO, INC.
SCHEDULE I--MARKETABLE SECURITIES
YEAR ENDED SEPTEMBER 24, 1994
(IN THOUSANDS)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ------------------------ ------------------ ---------- ------------------ ----------------------
AMOUNTS AT WHICH
EACH PORTFOLIO OF
EQUITY SECURITY ISSUES
NUMBER OF AND EACH OTHER
SHARES OR UNITS-- MARKET VALUE OF SECURITY ISSUE
NAME OF ISSUER AND PRINCIPAL AMOUNT COST OF EACH ISSUE AT CARRIED IN THE
TITLE OF EACH ISSUER OF BONDS AND NOTES EACH ISSUE BALANCE SHEET DATE BALANCE SHEET
- ------------------------ ------------------ ---------- ------------------ ----------------------
Marketable Securities
U.S. Government
Obligations.......... $14,600 $14,463 $14,438 $14,519
Municipal Bonds....... 15,765 16,885 16,307 16,422
Corporate Securities.. 452 451 437 451
------- ------- -------
$31,799 $31,182 $31,392
======= ======= =======
F-2
ADVO, INC.
SCHEDULE V--PROPERTY, PLANT AND EQUIPMENT
(IN THOUSANDS)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
- ----------------------------- ---------- --------- ----------- ------------- ----------
BALANCE AT BALANCE AT
BEGINNING ADDITIONS OTHER CHANGES END
DESCRIPTION OF PERIOD AT COST RETIREMENTS ADD (DEDUCT) OF PERIOD
- ----------------------------- ---------- --------- ----------- ------------- ----------
Year ended September 26,
1992:
Machinery & equipment...... $ 68,969 $10,809 $1,379 $ 20(a) $ 78,419
Leasehold improvements..... 12,743 1,132 -- 7(a) 13,882
-------- ------- ------ ------ --------
$ 81,712 $11,941 $1,379 $ 27 $ 92,301
======== ======= ====== ====== ========
Year ended September 25,
1993:
Machinery & equipment...... $ 78,419 $13,074 $1,413 $1,458(a) $ 91,538
Leasehold improvements..... 13,882 1,115 353 10(a) 14,654
-------- ------- ------ ------ --------
$ 92,301 $14,189 $1,766 $1,468 $106,192
======== ======= ====== ====== ========
Year ended September 24,
1994:
Machinery & equipment...... $ 91,538 $12,156 $1,553 $ -- $102,141
Leasehold improvements..... 14,654 1,148 495 -- 15,307
-------- ------- ------ ------ --------
$106,192 $13,304 $2,048 $ -- $117,448
======== ======= ====== ====== ========
- --------
(a) Represents amounts of companies acquired.
F-3
ADVO, INC.
SCHEDULE VI--ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION
OF PROPERTY, PLANT AND EQUIPMENT
(IN THOUSANDS)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
- ----------------------------- ---------- ---------- ----------- ------------ ----------
ADDITIONS
BALANCE AT CHARGED TO OTHER BALANCE AT
BEGINNING COSTS AND CHANGES END
DESCRIPTION OF PERIOD EXPENSES RETIREMENTS ADD (DEDUCT) OF PERIOD
- ----------------------------- ---------- ---------- ----------- ------------ ----------
Year ended September 26, 1992:
Machinery & equipment...... $29,294 $ 6,728 $ 879 $(151) $34,992
Leasehold improvements..... 6,997 1,298 -- -- 8,295
------- ------- ------ ----- -------
$36,291 $ 8,026 $ 879 $(151) $43,287
======= ======= ====== ===== =======
Year ended September 25, 1993:
Machinery & equipment...... $34,992 $ 7,783 $ 896 -- $41,879
Leasehold improvements..... 8,295 1,456 241 -- 9,510
------- ------- ------ ----- -------
$43,287 $ 9,239 $1,137 -- $51,389
======= ======= ====== ===== =======
Year ended September 24, 1994:
Machinery & equipment...... $41,879 $ 9,443 $ 984 -- $50,338
Leasehold improvements..... 9,510 1,535 444 -- 10,601
------- ------- ------ ----- -------
$51,389 $10,978 $1,428 -- $60,939
======= ======= ====== ===== =======
The estimated useful lives of the principal classes of assets are as follows:
machinery and equipment--5 to 15 years; leasehold improvements--shorter of
useful life or life of lease.
F-4
ADVO, INC.
SCHEDULE VIII--VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ------------------------------ ---------- --------------------- ---------- ----------
ADDITIONS
---------------------
BALANCE AT CHARGED TO CHARGED TO DEDUCTIONS BALANCE AT
BEGINNING COSTS AND OTHER FROM END
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS RESERVES OF PERIOD
- ------------------------------ ---------- ---------- ---------- ---------- ----------
Year ended September 26, 1992:
Allowances for sales
adjustments................ $ 1,557 $ -- $9,356(c) $ 8,565 $ 2,348
Allowances for doubtful
accounts................... 1,151 3,086 36(b) 3,204(a) 1,069
Accumulated amortization--
Goodwill................... 158 144 -- -- 302
Accumulated amortization--
Intangibles................ 248 988 -- -- 1,236
------- ------- ------ ------- -------
$ 3,114 $ 4,218 $9,392 $11,769 $ 4,955
======= ======= ====== ======= =======
Year ended September 25, 1993:
Allowances for sales
adjustments................ $ 2,348 $ -- $6,277(c) $ 5,738 $ 2,887
Allowances for doubtful
accounts................... 1,069 2,879 -- 2,363(a) 1,585
Restructuring reserve....... -- 25,750 -- -- 25,750
Accumulated amortization--
Goodwill................... 302 340 -- -- 642
Accumulated amortization--
Intangibles................ 1,236 1,554 -- -- 2,790
------- ------- ------ ------- -------
$ 4,955 $30,523 $6,277 $ 8,101 $33,654
======= ======= ====== ======= =======
Year ended September 24, 1994:
Allowances for sales
adjustments................ $ 2,887 $ -- $6,992(c) $ 6,558 $ 3,321
Allowances for doubtful
accounts................... 1,585 3,402 -- 3,203(a) 1,784
Restructuring reserve....... 25,750 -- -- 8,641 17,109
Accumulated amortization--
Goodwill................... 642 331 -- 270 703
Accumulated amortization--
Intangibles................ 2,790 1,477 -- 280 3,987
------- ------- ------ ------- -------
$33,654 $ 5,210 $6,992 $18,952 $26,904
======= ======= ====== ======= =======
- --------
(a) Write off of uncollectible accounts, net of recoveries on accounts
previously written off.
(b) Accounts of companies acquired.
(c) Reduction of revenues.
F-5
ADVO, INC.
SCHEDULE IX--SHORT-TERM BORROWINGS
(IN THOUSANDS)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
- ------------------------------- ---------- -------- ----------- ----------- -----------
MAXIMUM AVERAGE WEIGHTED
WEIGHTED AMOUNT AMOUNT AVERAGE
BALANCE AT AVERAGE OUTSTANDING OUTSTANDING INTEREST
CATEGORY OF AGGREGATE END OF INTEREST DURING THE DURING THE RATE DURING
SHORT-TERM BORROWINGS PERIOD RATE PERIOD PERIOD THE PERIOD
- ------------------------------- ---------- -------- ----------- ----------- -----------
Year ended September 26, 1992:
Notes payable to bank (a).... $1,475 6.90% $4,625 $1,813(b) 7.54%(c)
Year ended September 25, 1993:
Notes payable to bank (a).... $ -- 6.00% $5,625 $2,573(b) 6.00%(c)
Year ended September 24, 1994:
Notes payable to bank (d).... $ -- -- $5,850 $ 64(e) 3.69%(f)
- --------
(a) Notes payable to bank represented borrowings under lines of credit
borrowing arrangements which had no termination date but were reviewed
semi-annually for renewal.
(b) The average amount outstanding during the period was computed by dividing
the total of month-end outstanding principal balances by 12.
(c) The weighted average interest rate during the period was computed by
dividing the actual interest expense by average short-term debt
outstanding.
(d) Represents borrowings under the Company's revolving credit agreement with a
bank expiring December 31, 1995.
(e) The average amount outstanding during the period was based on the average
daily outstanding balance.
(f) The weighted average interest rate only for the number of days the
borrowing was outstanding.
F-6