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"This quarter's revenue declines are a direct result of the ongoing advertising recession, although we continue to outperform our media peers," said Alan F. Schultz, Valassis Chairman, President and Chief Executive Officer. "While client spending is more constricted than we anticipated, we are on plan to reach our 2009 adjusted EBITDA* guidance. We are particularly pleased with the growth in our Neighborhood Targeted preprint business driven by our new client wins and cross-selling strategy."
Some additional financial highlights include:
-- 2009 Profit Maximization Plan Ahead of Schedule: First-quarter 2009
selling, general and administrative (SG&A) costs were $86.2 million,
which includes $2.9 million in legal costs related to the News America
lawsuits and $0.8 million in severance costs, compared to prior year
quarter SG&A costs of $97.2 million. This 11.3% reduction was due
primarily to cuts in discretionary spending and staffing.
-- Capital Expenditures: Capital expenditures for the first quarter of 2009
were $2.0 million and are on track to meet our annual target of $15 to
$20 million in 2009.
-- Liquidity: First-quarter 2009 cash flow from operations was $39.7
million with a net decrease in debt of $86.2 million. As we previously
disclosed on Jan. 26, 2009, we paid off and cancelled our 6 5/8% Senior
Secured Notes that matured on Jan. 15, 2009. No other material debt
maturities are scheduled until 2014.
Outlook
It is difficult to predict with precision client advertising budgets due to the prolonged economic downturn. However, based on this quarter's performance and our current outlook, we are on plan to meet our 2009 adjusted EBITDA* annual guidance of approximately $215.0 million, allowing us to comfortably exceed our debt covenant thresholds throughout 2009. Based on today's environment, we will no longer provide 2009 revenue guidance.
"We are off to a great start in the implementation of our 2009 Profit Maximization Plan and savings are coming at a faster pace than we anticipated," said Robert L. Recchia, Valassis Executive Vice President and Chief Financial Officer. "We expect to exceed our savings target of $57.5 million, and we continue to look for opportunities to reduce costs."
(1)Effective Jan. 1, 2009, we adopted Financial Accounting Standards Board's Staff Position No. APB 14-1, "Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)", (FSP APB 14-1) which requires retrospective application. This adoption of FSP APB 14-1 had no effect on the current period. Previously reported net earnings and EPS for the quarter ended March 31, 2008 have been reduced by $1.4 million and $0.03, respectively, as the result of recognizing incremental non-cash interest expense of $2.2 million during that period.
Business Segment Discussion
-- Shared Mail: Revenue for the first quarter of 2009 was $310.9 million,
down 12.7% compared to the prior year quarter. The decline was due
primarily to reduced spending in the mass merchandising vertical,
lightweighting by grocery retailers and lower wrap revenue. Segment
profit for the quarter was $18.8 million compared to $30.9 million for
the prior year quarter. Margin loss related to the $45.4 million
segment revenue decline was substantially mitigated by business
optimization efforts, newspaper alliances and effective cost management.
-- Neighborhood Targeted Products: Revenue for the first quarter of 2009
was $112.6 million, up 12.4% compared to the prior year quarter revenue
of $100.2 million, due primarily to an increase in spend in the
financial services and specialty retail verticals. Segment profit for
the quarter was $10.6 million compared to $11.1 million for the prior
year quarter. Segment profit declines for the quarter were due primarily
to a shift in client and product mix.
-- Free-standing Inserts (FSI): Revenue for the first quarter of 2009 was
$93.6 million, down 5.1% compared to the prior year quarter due
primarily to the continued pricing deterioration. Industry unit volume
was up 1.2%, benefiting from the increased popularity of value-oriented
media. Segment profit for the quarter was $1.0 million, down 50.0%
compared to the prior year quarter, primarily as a result of the pricing
decline.
-- International, Digital Media & Services: Revenue for the first
quarter was $34.1 million, down 18.8% compared to the prior year
quarter. Excluding revenue from previously announced divested and
discontinued operations and the impact of currency fluctuations, revenue
was up 9.6% compared to the prior year quarter. Segment profit for the
quarter was $4.0 million compared to a loss of $1.8 million for the
prior year quarter primarily due to the discontinuance of
underperforming businesses and a strong performance in U.S. coupon
clearing volume.
Segment Results Summary
Quarter Ended
March 31,
Segment Revenue (in millions) 2009 2008 % Change
Shared Mail $310.9 $356.3 -12.7%
Neighborhood Targeted $112.6 $100.2 12.4%
Free-standing Inserts $93.6 $98.6 -5.1%
International, Digital
Media & Services $34.1 $42.0 -18.8%
Total Segment Revenue $551.2 $597.1 -7.7%
Quarter Ended
March 31,
Segment Profit (in millions) 2009 2008 % Change
Shared Mail $18.8 $30.9 -39.2%
Neighborhood Targeted $10.6 $11.1 -4.5%
Free-standing Inserts $1.0 $2.0 -50.0%
International, Digital Media &
Services $4.0 ($1.8) 322.2%
Total Segment Profit $34.4 $42.2 -18.6%
Conference Call Information
We will hold an investor call today to discuss our first-quarter 2009 results at 11 a.m. (ET). The call-in number is (800) 218-4007. The call will simulcast on our Web site at http://www.valassis.com and telephonic replay of the call will be available through May 13, 2009 at (800) 405-2236, pass code 11127109. This earnings release and the webcast will be archived on our Web site under "Investor."
Non-GAAP Financial Measures
*We define adjusted EBITDA as earnings before net interest and other non-cash expenses (income), net, income taxes, depreciation, amortization, stock-based compensation expense associated with SFAS No. 123R and amortization of a client contract incentive. Adjusted EBITDA is a non-GAAP financial measure commonly used by financial analysts, investors, rating agencies and other interested parties in evaluating companies, including marketing services companies. Accordingly, management believes that adjusted EBITDA may be useful in assessing our operating performance and our ability to meet our debt service requirements. In addition, adjusted EBITDA is used by management to measure and analyze our operating performance and, along with other data, as our internal measure for setting annual operating budgets, assessing financial performance of business segments and as a performance criteria for incentive compensation. However, this non-GAAP financial measure has limitations as an analytical tool and should not be considered in isolation from, or as an alternative to, operating income, cash flow or other income or cash flow data prepared in accordance with GAAP. Some of these limitations are:
-- adjusted EBITDA does not reflect our cash expenditures for capital
equipment or other contractual commitments;
-- although depreciation and amortization are non-cash charges, the assets
being depreciated or amortized may have to be replaced in the future,
and adjusted EBITDA does not reflect cash capital expenditure
requirements for such replacements;
-- adjusted EBITDA does not reflect changes in, or cash requirements for,
our working capital needs;
-- adjusted EBITDA does not reflect the significant interest expense or the
cash requirements necessary to service interest or principal payments on
our indebtedness;
-- adjusted EBITDA does not reflect income tax expense or the cash
necessary to pay income taxes;
-- adjusted EBITDA does not reflect the impact of earnings or charges
resulting from matters we consider not to be indicative of our ongoing
operations;
-- other companies, including companies in our industry, may calculate this
measure differently and as the number of differences in the way two
different companies calculate this measure increases, the degree of its
usefulness as a comparative measure correspondingly decreases.
Because of these limitations, adjusted EBITDA should not be considered as a measure of discretionary cash available to us to invest in the growth of our business or reduce indebtedness. We compensate for these limitations by relying primarily on our GAAP results and using this non-GAAP financial measure only supplementally. Further important information regarding operating results and reconciliations of this non-GAAP financial measure to the most comparable GAAP measures can be found below.
Reconciliation of 2009 Adjusted EBITDA Guidance to 2009 Net Earnings
Guidance:
Full-year
2009
Guidance
($in millions)
Net Earnings $36.2
Add back:
Interest and other, net 82.0
Income taxes 23.1
Depreciation and
amortization 65.0
EBITDA $206.3
Add back:
FAS123r expense 8.7
Adjusted EBITDA $215.0
Reconciliation of Adjusted EBITDA to Net Earnings and Cash Flow from
Operations
(dollars in thousands)
Unaudited
Three Months Ended
March 31,
2009 2008
Net Earnings - GAAP $13,028 $10,942
plus: Income taxes 8,654 7,022
Interest expense, net 21,394 25,394
Depreciation and amortization 17,660 17,638
less: Other non-cash income, net (8,695) (1,119)
EBITDA $52,041 $59,877
Stock-based compensation expense (SFAS
No. 123R) 1,049 1,456
Amortization of customer contract
incentive - 1,215
Restructuring costs/severance 783 637
Adjusted EBITDA $53,873 $63,185
Interest expense, net (21,394) (25,394)
Income taxes (8,654) (7,022)
Restructuring costs, cash (783) (637)
Changes in operating assets and
liabilities 16,620 (26,731)
Cash Flow from Operations $39,662 $3,401
About Valassis
Valassis is one of the nation's leading media and marketing services companies, offering unparalleled reach and scale to more than 15,000 advertisers. Its RedPlum media portfolio delivers value on a weekly basis to over 100 million shoppers across a multi-media platform - in-home, in-store and in-motion. Through its interactive offering - redplum.com - consumers will find compelling national and local deals online. Headquartered in Livonia, Michigan with approximately 7,000 associates in 28 states and eight countries, Valassis is widely recognized for its associate and corporate citizenship programs, including its America's Looking for Its Missing Children(R) program. Valassis companies include Valassis Direct Mail, Inc., Valassis Canada, Promotion Watch, Valassis Relationship Marketing Systems, LLC and NCH Marketing Services, Inc. For more information, visit http://www.valassis.com or http://www.redplum.com.
Safe Harbor and Forward-Looking Statements
Certain statements found in this document 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 our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, the following: price competition from our existing competitors; new competitors in any of our businesses; a shift in client preference for different promotional materials, strategies or coupon delivery methods, including, without limitation, as a result of declines in newspaper circulation; an unforeseen increase in paper or postal costs; changes which affect the businesses of our clients and lead to reduced sales promotion spending, including, without limitation, a decrease of marketing budgets which are generally discretionary in nature and easier to reduce in the short-term than other expenses; our substantial indebtedness, and ability to refinance such indebtedness, if necessary, and our ability to incur additional indebtedness, may affect our financial health; the financial condition, including bankruptcies, of our clients, suppliers, senior secured credit facility lenders or other counterparties; our ability to comply with or obtain modifications or waivers of the financial covenants contained in our debt documents; certain covenants in our debt documents could adversely restrict our financial and operating flexibility; recent disruptions in the credit markets that make it difficult for companies to secure financing; we do not currently comply with the continued listing requirements of The New York Stock Exchange and therefore our common stock may be delisted; fluctuations in the amount, timing, pages, weight and kinds of advertising pieces from period to period, due to a change in our clients' promotional needs, inventories and other factors; our failure to attract and retain qualified personnel may affect our business and results of operations; a rise in interest rates could increase our borrowing costs; we may be required to recognize additional impairment charges against goodwill and intangible assets in the future; the outcome of ADVO's pending shareholder lawsuits; our current litigation with News America Incorporated may be costly and divert management's attention; possible governmental regulation or litigation affecting aspects of our business; the credit and liquidity crisis in the financial markets could continue to affect our results of operations and financial condition; reductions of our credit rating may have an adverse impact on our business; counterparties to our secured credit facility and interest rate swaps may not be able to fulfill their obligations due to disruptions in the global credit markets; uncertainty in the application and interpretation of applicable state sales tax laws may expose us to additional sales tax liability; and general economic conditions, whether nationally, internationally, or in the market areas in which we conduct our business, including the adverse impact of the ongoing economic downturn on the marketing expenditures and activities of our clients and prospective clients as well as our vendors, with whom we rely on to provide us with quality materials at the right prices and in a timely manner. These and other risks and uncertainties related to our business are described in greater detail in our filings with the United States Securities and Exchange Commission, including our reports on Forms 10-K and 10-Q and the foregoing information should be read in conjunction with these filings. We disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
VALASSIS COMMUNICATIONS, INC.
Consolidated Balance Sheets
(dollars in thousands)
Unaudited
Assets Mar. 31, Dec. 31,
2009 2008
Current assets:
Cash and cash equivalents $84,993 $126,556
Accounts receivable 430,941 479,749
Inventories 46,089 48,173
Refundable income taxes 10,445 15,509
Deferred income taxes 1,861 1,879
Other 19,985 31,235
Total current assets 594,314 703,101
Property, plant and equipment, at cost 485,581 484,765
Less accumulated depreciation (264,537) (250,828)
Net property, plant and equipment 221,044 233,937
Intangible assets, net 889,366 892,422
Investments 2,091 2,555
Other assets 20,693 21,166
Total assets $1,727,508 $1,853,181
VALASSIS COMMUNICATIONS, INC.
Consolidated Balance Sheets, Continued
(dollars in thousands)
Unaudited
Liabilities and Stockholders' Equity Mar. 31, Dec. 31,
2009 2008
Current liabilities:
Current portion, long-term debt $6,254 $90,855
Accounts payable and accruals 381,380 440,214
Progress billings 49,207 44,539
Total current liabilities 436,841 575,608
Long-term debt 1,110,163 1,111,712
Other liabilities 64,022 66,029
Deferred income taxes 94,280 94,418
Stockholders' equity:
Common stock 636 635
Additional paid-in capital 88,347 87,305
Retained earnings 468,991 455,963
Treasury stock (520,170) (520,170)
Accumulated other comprehensive loss (15,602) (18,319)
Total stockholders' equity 22,202 5,414
Total liabilities and stockholders'
equity $1,727,508 $1,853,181
VALASSIS COMMUNICATIONS, INC.
Consolidated Statements of Operations
(in thousands, except per share data)
Unaudited
Three Months Ended
March 31, %
2009 2008 Change
Revenue $551,155 $597,081 - 7.7%
Costs and expenses:
Costs of products sold 427,490 455,357 - 6.1%
Selling, general and
administrative 86,228 97,179 - 11.3%
Amortization 3,056 2,306 + 32.5%
Total costs and expenses 516,774 554,842 - 6.9%
Operating income 34,381 42,239 - 18.6%
Other expenses and (income):
Interest expense 21,644 26,121 - 17.1%
Interest income (250) (727) - 65.6%
Other income (8,695) (1,119) - 677.0%
Total other expenses 12,699 24,275 - 47.7%
Earnings before income taxes 21,682 17,964 + 20.7%
Income taxes 8,654 7,022 + 23.2%
Net earnings $13,028 $10,942 + 19.1%
Net earnings per common share, + 17.4%
diluted $0.27 $0.23
Weighted average shares
outstanding, diluted 47,948 47,933 -
Supplementary Data
Amortization $3,056 $2,306
Depreciation 14,604 15,332
Capital expenditures 2,036 9,022
SOURCE Valassis
http://www.valassis.com
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