FORM 11-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
(X) Annual Report pursuant to Section 15(d) of the Securities Exchange Act of
1934
For the fiscal year ended December 31, 2002
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or
( ) Transition Report Pursuant to Section 15(d) of the Securities Exchange Act
of 1934
For the transition period from to
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Commission file number 1-11720
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ADVO, Inc. 401(k) Savings Plan
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(Full title of the plan)
ADVO, Inc.
One Univac Lane,
P.O. Box 755,
Windsor, CT 06095-0755
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(Name of issuer of the securities held pursuant to the plan
and the address of its principal executive offices)
ADVO, Inc. 401(k) Savings Plan
Annual Report
Index to Form 11-K
Year Ended December 31, 2002
Report of Independent Auditors
Financial Statements:
Statements of Assets Available for Plan Benefits as of
December 31, 2002 and 2001
Statements of Changes in Assets Available for Plan
Benefits for the years ended December 31, 2002 and 2001
Notes to Financial Statements
Supplemental Schedule:
Schedule I - Schedule H, Line 4i -Schedule of Assets (Held at End of Year)
Signature
Exhibit 23 - Consent of Ernst & Young LLP
Exhibit 99 - Certification
Report of Independent Auditors
To the Plan Administrator of
ADVO, Inc. 401(k) Savings Plan
We have audited the accompanying statements of assets available for plan
benefits of the ADVO, Inc. 401(k) Savings Plan as of December 31, 2002 and 2001,
and the related statements of changes in assets available for plan benefits for
the years then ended. These financial statements are the responsibility of the
Plan's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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, the financial statements referred to above present fairly, in
all material respects, the assets available for plan benefits of the Plan at
December 31, 2002 and 2001, and the changes in its assets available for plan
benefits for the years then ended, in conformity with accounting principles
generally accepted in the United States.
Our audits were performed for the purpose of forming an opinion on the financial
statements taken as a whole. The accompanying supplemental schedule of assets
(held at end of year) as of December 31, 2002, is presented for purposes of
additional analysis and is not a required part of the financial statements but
is supplementary information required by the Department of Labor's Rules and
Regulations for Reporting and Disclosure under the Employee Retirement Income
Security Act of 1974. This supplemental schedule is the responsibility of the
Plan's management. The supplemental schedule has been subjected to the auditing
procedures applied in our audits of the financial statements and, in our
opinion, is fairly stated in all material respects in relation to the financial
statements taken as a whole.
\s\ Ernst & Young LLP
Hartford, Connecticut
June 16, 2003
ADVO, Inc.
401(k) Savings Plan
Statements of Assets Available for Plan Benefits
December 31,
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Assets 2002 2001
---- ----
Investments at Fair Value $ 72,360,782 $ 75,268,954
Receivables:
Employees' Contributions 351,436 338,555
Employer's Contributions 224,675 208,623
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Total Receivables 576,111 547,178
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Assets Available for Plan Benefits $ 72,936,893 $ 75,816,132
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See accompanying notes to financial statements.
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ADVO, Inc.
401(k) Savings Plan
Statements of Changes in Assets Available for Plan Benefits
Year-ended
December 31,
--------------------------------
Additions to assets attributed to: 2002 2001
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Investment income (loss):
Net realized and unrealized depreciation
in fair value of investments $(12,509,027) $ (7,637,450)
Interest 204,022 212,858
Dividends 878,265 1,904,778
Contributions:
Employee 8,815,374 7,505,562
Employer 5,311,522 4,990,152
Employee rollover 592,884 559,122
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Total Additions 3,293,040 7,535,022
Deductions to assets attributed to:
Benefit payments 6,967,216 9,064,320
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Transfer In 794,937 --
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Net decrease in assets available
for plan benefits (2,879,239) (1,529,298)
Assets available for plan benefits:
Beginning of the year 75,816,132 77,345,430
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End of the year $ 72,936,893 $ 75,816,132
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See accompanying notes to financial statements.
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ADVO, Inc.
401(k) Savings Plan
Notes to Financial Statements
December 31, 2002
A. Description of the Plan
The following description of the ADVO, Inc. 401(k) Savings Plan ("Plan")
provides only general information. Participants should refer to the Plan
agreement for a more complete description of the Plan's provisions.
General
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The Plan is a defined contribution plan covering all employees ("participants")
of ADVO, Inc. (the "Company"). Participants are eligible to join the Plan on the
first day of the month following the date of hire. Participants are eligible for
the company match on the first day of the month following six months of
continuous employment.
The Plan is subject to the provisions of the Employee Retirement Income Security
Act of 1974 (ERISA).
Contributions
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Participants may contribute up to 16 percent of their annual compensation on a
pretax basis, as defined in the Plan. Participants may also contribute amounts
representing rollover distributions from other defined contribution plans.
The Company contributes 100 percent of the first 6 percent of a participant's
pay deferral contributions to the Plan.
All investment programs are fully participant directed. Participants direct the
investment of their and the Company's contributions into various investment
options offered by the Plan. The Plan currently offers nine investment options:
three collective investment funds, four mutual funds, and two ADVO custom funds
which include a fund with Company common stock.
Participant Accounts
--------------------
Each participant's account is credited with the participant's contribution, the
Company's matching contribution, and the Plan's earnings. The benefit to which a
participant is entitled is the benefit that can be provided from the
participant's account.
Vesting
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Participants are immediately vested in their voluntary contributions and related
employer matching contributions plus actual earnings thereon.
Payment of Benefits
-------------------
Upon termination of service, participants may elect to receive a lump-sum amount
equal to the value of their account.
Loans
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Participants may borrow from their fund accounts a minimum of $1,000 up to a
maximum equal to the lesser of $50,000 or 50 percent of their account balance.
The loans are secured by the balance in the participant's account and bear
interest at a rate commensurate with local prevailing rates as determined
quarterly by the plan administrator. Principal and interest are paid ratably
through monthly payroll deductions.
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ADVO, Inc.
401(k) Savings Plan
Notes to Financial Statements
December 31, 2002
Expenses of the Plan
--------------------
All costs and expenses of operation and administration of the Plan are paid by
the Company.
Plan Termination
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Although it has not expressed any intent to do so, the Company has the right
under the Plan to discontinue its contributions at any time and to terminate the
Plan subject to the provisions of ERISA. In the event of plan termination,
participants will remain 100 percent vested in their accounts. After payment of
expenses, distributions would be made pro rata based on the value of such
accounts.
ADVO Custom Funds
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Employer custom funds include the ADVO AXP New Dimensions Fund and the ADVO
Stock Fund. Custom funds are unregistered custom separate accounts maintained by
the Trustee and established by the Company for the benefit of the Plan and any
other qualified plan of the Company. Ownership is represented by each plan's
proportionate units of participation.
Although the performance of the custom fund is based on the performance of the
underlying mutual fund or Company common stock, the value of a fund unit is
different from the net asset value of the mutual fund or the price of one share
of common stock. Changes in the unit value of the fund will be affected by price
changes in the underlying mutual fund or common stock, earnings, dividends,
interest and applicable fees and expenses of the fund. Additionally, the funds
maintain highly liquid money market instruments which may contribute to
differences in performance between the fund units and net asset value of the
underlying mutual funds or common stock.
Transfer In
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Effective January 1, 2002, the MailCoups Inc. 401(k) Savings Plan was merged
into the Plan. MailCoups Inc.'s associates are entitled to the provisions of the
ADVO Plan.
B. Summary of Accounting Policies
Basis of Accounting
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The financial statements have been prepared on the accrual basis of accounting.
Valuation of Investments
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The fair value of investments in mutual funds is based on the quoted market
prices of the shares held in these funds at year-end.
The fair value of investments in the collective investment funds and the ADVO
custom funds is based on the net asset value ("NAV") of participation units held
by the Plan at year-end. These NAVs are calculated based on the current market
value of the underlying securities and the current number of units held by
participants in these funds.
Participant loans are stated at their outstanding principal balances which
approximate fair value.
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ADVO, Inc
401(k) Savings Plan
Notes to Financial Statements
December 31, 2002
Use of Estimates
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The preparation of financial statements in conformity with generally accepted
accounting principles requires plan management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. While management believes that the estimates and related assumptions in
the preparation of these financial statements are appropriate, actual results
could differ from those estimates.
C. Investments
The Plan's investments are primarily held by bank-administered trust funds. The
following table presents the fair value of investments. Investments that
represent 5% or more of the Plan's assets available for plan benefits are
separately identified by the following "*".
December 31,
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2002 2001
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Cash $ 3,217 $ 3,121
Collective Investment Funds:
Merrill Lynch Income Accumulation Fund -- 9,239,356 *
Merrill Lynch Retirement Preservation Trust 12,148,405 * --
Barclays Global Investors Asset Allocation Fund 8,314,611 * 9,471,071 *
Barclays Global Investors S&P MidCap Stock Fund 6,812,202 * 6,041,626 *
Mutual Funds
Templeton Foreign Fund 2,858,711 2,952,642
Barclays Global Investors S&P 500 Stock Fund 14,773,382 * 17,575,977 *
Lord Abbett Developing Growth Fund 2,138,499 2,389,022
Merrill Lynch Retirement Reserves Money Fund 6,272,877 * 5,493,808 *
ADVO Custom Funds:
ADVO AXP New Dimensions Fund 11,228,010 * 13,864,215 *
ADVO Stock Fund 4,959,684 * 5,680,370 *
Participant Loans 2,851,184 2,557,746
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TOTAL $ 72,360,782 $ 75,268,954
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ADVO, Inc
401(k) Savings Plan
Notes to Financial Statements
December 31, 2002
During 2002 and 2001, the Plan's investments (including investments purchased,
sold as well as held during the year) depreciated in fair value as determined by
quoted market prices as follows:
Net Realized and Unrealized
Depreciation In Fair
Value of Investments
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2002 2001
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Collective Investment Funds $ 2,402,731 $ 717,082
Mutual Funds 5,646,951 4,149,112
ADVO Custom Funds 4,459,345 2,771,256
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$ 12,509,027 $ 7,637,450
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D. Differences Between Financial Statements and Form 5500
The following is a reconciliation of assets available for plan benefits per the
financial statements to the Plan's Form 5500:
December 31,
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2002 2001
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Assets available for plan benefits
per the financial statements $ 72,936,893 $ 75,816,132
Transfer from the MailCoups, Inc.
401(k) Savings Plan -- 805,045
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Assets available for plan benefits
per the Form 5500 $ 72,936,893 $ 76,621,177
================ ================
The following is a reconciliation of benefit payments per the financial
statements to the Plan's Form 5500:
Year Ended December 31,
--------------------------------------
2002 2001
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Benefit payments per
the financial statements $ 6,967,216 $ 9,064,320
Less: Prior year amounts allocated
to withdrawn participants -- (429,623)
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Benefits paid to participants per
the Form 5500 $ 6,967,216 $ 8,634,697
================ ==============
Amounts allocated to withdrawn participants are recorded on the Form 5500 for
benefit claims that have been processed and approved for payment prior to
year-end but not yet paid.
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ADVO, Inc
401(k) Savings Plan
Notes to Financial Statements
December 31, 2002
E. Income Tax Status
The Plan has received a determination letter from the Internal Revenue Service
dated October 30, 2002, stating the Plan is qualified under Section 401(a) of
the Internal Revenue Code (the "Code") and, therefore, the related trust is
exempt from taxation. Once qualified, the Plan is required to operate in
conformity with the Code to maintain its qualification. The plan administrator
believes the Plan is being operated in compliance with the applicable
requirements of the Code and, therefore, believes that the Plan, is qualified
and the related trust is tax exempt.
- 9 -
Schedule I
ADVO, Inc.
401(k) Savings Plan
Employer Identification Number 06-0885252, Plan Number 001
Schedule H, Line 4i - Schedule of Assets (Held at End of Year)
December 31, 2002
Description of Investment,
Identity of Issue, Borrower, Lessor Including Maturity Date, Rate of
or Similar Party Interest, Par or Maturity Value Current Value
----------------------------------- -------------------------------- -------------
Cash -- $ 3,217
Collective Investment Funds:
Merrill Lynch Retirement Preservation Trust 12,148,405 units 12,148,405
Barclays Global Investors Asset Allocation Fund 276,233 units 8,314,611
Barclays Global Investors S&P MidCap Stock Fund 212,948 units 6,812,202
Mutual Funds:
Templeton Foreign Fund 344,009 units 2,858,711
Barclays Global Investors S&P 500 Stock Fund 138,444 units 14,773,382
Lord Abbett Developing Growth Fund 200,987 units 2,138,499
Merrill Lynch Retirement Reserves Money Fund 6,272,877 units 6,272,877
*ADVO Custom Funds:
ADVO AXP New Dimensions Fund 490,838 units 11,228,010
ADVO Stock Fund 188,380 units 4,959,684
Participant Loans Bear interest at rates ranging
from 5.25%-10.50% with
varying maturity dates 2,851,184
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TOTAL $ 72,360,782
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* Indicates party-in-interest to the Plan.
Cost column is not applicable because all investment programs are fully
participant directed.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
ADVO, Inc., Associate Savings Committee has duly caused this annual report to be
signed on its behalf by the undersigned hereunto duly authorized.
ADVO, Inc.
401(k) Savings Plan
Date: June 27, 2003 By: /s/ SCOTT ESPOSITO
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Scott Esposito
Vice President, Human Resources