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| Valassis Announces Results for the Second Quarter Ended June 30, 2008 |
First Half On Plan: Shared Mail Mitigates Newspaper Decline LIVONIA, Mich., July 31 /PRNewswire-FirstCall/ -- Valassis (NYSE: VCI) today announced financial results for the second quarter ended June 30, 2008. The Company reported quarterly revenues of $594.9 million, down 2.8% compared to $612.1 million for the prior year quarter. Second quarter net earnings were $7.3 million, down 25.0% from $9.8 million in the prior year quarter. Earnings per share (EPS) for the quarter were $0.15, down from $0.20 in the prior year quarter. For the second quarter of 2008, adjusted EBITDA* was $56.0 million, down 11.3% from adjusted EBITDA* of $63.1 million for the second quarter of 2007. First half revenues for 2008 were $1,192.0 million, up 22.5% compared to the prior year corresponding period (which excludes revenue for ADVO, Inc. for the period of Jan. 1, 2007 through March 1, 2007). On a pro forma basis, first half revenues for 2008 were flat compared to pro forma revenue for the first half of 2007. First half adjusted EBITDA* was $119.1 million, up 16.0% from $102.7 million compared to the first half of 2007 (which excludes results for ADVO, Inc. for the period of Jan. 1, 2007 through March 1, 2007) and up 12.3% from $106.1 million on a pro forma basis. "We continue to drive improvements in the Shared Mail business with segment profit up 18% this quarter versus the second quarter of 2007. In the first half, our success in accelerating cross-selling and new client acquisition is offsetting the cyclical declines in revenue from newspaper-distributed products," said Alan F. Schultz, Valassis Chairman, President and Chief Executive Officer. "In addition, consumer usage of promotional media is on the rise positioning our RedPlum portfolio of value-oriented media well for the future." Some additional highlights include: Continued Momentum in Cost Management -- Business Optimization: Our shared mail optimization initiative, designed to reduce over-supply and deliver more profitable packages, has increased the profitability of this segment and contributed significantly to our performance since our acquisition of ADVO in March 2007. During the second quarter of 2008, we eliminated 21 million packages versus the prior year. The revenue associated with this reduction, combined with the revenue loss from the discontinuation of the detached address label (DAL) which occurred in mid-May 2007, represented a 1.8% revenue drag in the second quarter of 2008. -- Cost Synergies: Total cost synergies are on track to meet our 2008 target of $38 million. -- Data Center Insourcing: In July 2008, we successfully insourced our data center. We expect to begin realizing annualized cost savings of approximately $4.5 million in the fourth quarter of 2008. During the second quarter, the Company incurred approximately $1.0 million of additional expense associated with the redundant cost incurred in the insourcing of its data center. -- European Restructuring: The official opening of our facility in Poland in July 2008 marked a critical step in our efforts to improve the profit margin of our European clearing operations. -- SG&A: First half 2008 SG&A costs were $194.0 million, including $4.5 million of legal costs related to the News America lawsuit. Without these charges, SG&A was $189.5 million, down 1.6% compared to $192.6 million for the first half of 2007 on a pro forma basis (derived by adding $41.7 million of SG&A of ADVO, Inc. for the period of Jan. 1, 2007 through March 1, 2007 to the reported SG&A of $150.9 million.) Driving Profitable Revenue Growth -- Cross-selling: We are pleased with our first half cross-selling successes and our ability to secure additional advertising dollars from our clients. We experienced a 9.0% increase in revenue among clients who purchased additional RedPlum products in the first half of 2008 versus the first half of 2007. We expect this momentum to build and positively impact future results. -- New Client: We are on track to meet our 2008 objective of 4000 new local clients by securing 2049 in the first half. -- Targeting System Launch: Since its April 2008 launch, Integrated Media Optimization (IMO) is gaining traction with clients. We have engaged in IMO planning for over 50 key accounts. Liquidity "With the sale and leaseback of our Windsor facilities, we have further strengthened our liquidity position. We will repay the $100 million of Secured Notes due in January 2009 out of existing cash and have no further liquidity events until 2014," said Robert L. Recchia, Executive Vice President and Chief Financial Officer. -- Delayed Draw Term Loan: As previously announced, in April 2008 we closed on the delayed draw term loan portion of our Senior Secured Credit Facility which is priced at LIBOR plus 175 bps and the proceeds were used to pay the Senior Secured Convertible Notes that were put to Valassis in the amount of approximately $159.9 million in May 2008. -- Debt Repayment: As disclosed in June 2008, we consummated the sale and leaseback plan for our Windsor, Connecticut locations. The net cash proceeds for this sale were $28.8 million. The Company signed long-term leases on two of the three facilities. In July 2008, as required under our Senior Secured Credit Facility, we applied the net proceeds from the sale to repay a portion of the Company's term loan B and delayed draw term loan portions of our Senior Secured Credit Facility. Since closing the ADVO acquisition, we have made $136.2 million in debt repayments under this facility. Outlook Based on current forecasts, Management expects increased adjusted EBITDA* of between $260 and $280 million as originally announced on Dec. 18, 2007. We expect low- to mid-single digit revenue growth in the second half of 2008. In 2008, we expect adjusted cash EPS* of between $2.14 and $2.39. Business Segment Discussion -- Shared Mail: Shared Mail revenues for the second quarter were $350.4 million, up $1.4 million or 0.4%, from the prior year quarter. Excluding the impact of the elimination of the DAL and our continued business optimization efforts that have reduced the volume of packages distributed, revenue was up 2.2% compared to the prior year quarter. Segment profit for the quarter was $22.8 million, up $3.5 million, or 18.1%, from the prior year. Growth in segment profit was driven by lower distribution costs from continued business optimization efforts and operational efficiencies. -- Neighborhood Targeted Products: Revenues for the second quarter of 2008 were $108.3 million, down 9.9% compared to the prior year quarter. Segment profit for the quarter was $11.8 million, down 18.6% from the prior year quarter. Decreased client newspaper budgets associated with downward newspaper trends and the migration of Neighborhood Targeted business to Shared Mail contributed to segment results for the second quarter of 2008. -- Market Delivered Free-standing Inserts (FSI): Co-op FSI revenues for the second quarter of 2008 were $88.7 million, down 10.1% from the prior year quarter, due to the anticipated reduction in FSI pricing by a percentage in the low- to mid-single digits and a decrease in market share. The co-op FSI industry also experienced a unit decline of 4.2% for the quarter and was down about 1% for the first half. Management expects a slight increase in industry pages in the second half of 2008, as well as an increase in market share in the second half versus the first half of the year. FSI cost of goods sold was up for the quarter on a cost per thousand (CPM) basis. This segment experienced a loss of $2.4 million. Management also notes that to date, the test results for the FSI being delivered via Shared Mail are very positive. -- International, Digital Media & Services: Revenues for the quarter were $47.5 million, up 7.5% compared to the second quarter of 2007 due primarily to increased coupon clearing in the United States and the United Kingdom. Segment profit was $2.6 million, up 4.0% for the quarter and includes $0.8 million in charges related to our European restructuring. Restructuring charges of $0.5 million were incurred in the second quarter of 2007. Without these charges in either year, segment profit for the second quarter of 2008 would have been $3.4 million, up 17.2% from $2.9 million for the second quarter 2007. In addition, the Company incurred approximately $1.5 million of expense on new initiatives including redplum.com and its China initiative during the second quarter.
Segment Results Summary
Quarter Ended June 30,
Revenue by Segment (in millions) 2008 2007 % Change
Shared Mail $350.4 $349.0 0.4%
Neighborhood Targeted $108.3 $120.2 -9.9%
Free-standing Insert $88.7 $98.7 -10.1%
International, Digital
Media & Services (1) $47.5 $44.2 7.5%
Total Segment Revenue $594.9 $612.1 -2.8%
Quarter Ended June 30,
Segment Profit (in millions) 2008 2007 % Change
Shared Mail $22.8 $19.3 18.1%
Neighborhood Targeted $11.8 $14.5 -18.6%
Free-standing Insert ($2.4) $5.4 -144.4%
International, Digital
Media & Services (1) $2.6 $2.5 4.0%
Total Segment Profit $34.8 $41.7 -16.5%
(1) The segments previously known as International and Services and Household Targeted have been aggregated into one segment, International, Digital Media and Services, due to their immateriality versus the remaining segments. Also as of Jan. 1, 2008, the ADVO Canada business previously accounted for in the Shared Mail segment was merged into Valassis Canada and is now included in International, Digital Media and Services. Prior year pro forma revenue has been reclassified here for comparison purposes. Non-GAAP Financial Measures *We define adjusted EBITDA as earnings before net interest and other expenses, income taxes, depreciation, amortization, stock-based compensation expense associated with SFAS No. 123R and amortization of a client contract incentive. We define adjusted cash EPS as net earnings plus depreciation, amortization, stock-based compensation expense associated with SFAS No. 123R and amortization of a client contract incentive, less capital expenditures, divided by weighted shares outstanding. We define adjusted cash flow as earnings before depreciation, amortization, stock-based compensation expense and amortization of a client contract incentive less capital expenditures. Adjusted EBITDA, adjusted cash EPS and adjusted cash flow are non-GAAP financial measures 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, adjusted cash EPS and adjusted cash flow 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, these non-GAAP financial measures have limitations as analytical tools 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; -- management believes adjusted cash EPS is a better measure of the performance of the business than reported GAAP EPS. The primary reason for this is because depreciation and amortization charged against earnings to calculate GAAP EPS are expected to be in excess of capital expenditures by approximately $39.6 million in 2008; -- adjusted cash flow does not reflect the residual cash flow available for discretionary expenditures since certain non-discretionary expenditures are not deducted from the measure; -- other companies, including companies in our industry, may calculate these measures differently and as the number of differences in the way two different companies calculate these measures increases, the degree of their usefulness as a comparative measure correspondingly decreases. Because of these limitations, adjusted EBITDA, adjusted cash EPS and adjusted cash flow should not be considered as measures of discretionary cash available to us to invest in the growth of our business or reduce indebtedness. We compensate for these limitations by relying primarily on our GAAP results and using these non-GAAP financial measures only supplementally. Further important information regarding operating results and reconciliations of these non-GAAP financial measures to the most comparable GAAP measures can be found below.
2008 Guidance: Projected Adjusted Cash Flow and Adjusted Cash EPS
Reconciliation*:
Plan Low End High End
($ in millions) ($ in millions)
Net Earnings $53.5 $65.9
Add back non-cash items:
Depreciation 65.0 65.0
Amortization 9.6 9.6
FAS123r expense 7.7 7.7
Contract incentive amortization 2.4 2.4
Less:
Capital Expenditures (35.0) (35.0)
Adjusted Cash Flow* $103.2 $115.6
Weighted Shares Outstanding 48,331 48,331
Adjusted Cash EPS* $2.14 $2.39
*Does not include an approximate $15 million recapture tax to be paid in 2008 related to the Senior Convertible Notes put to us in May 2008.
2008 Guidance: Projected Adjusted EBITDA Reconciliation:
Plan Low End High End
($ in millions) ($ in millions)
Net Earnings $53.5 $65.9
Add back:
Interest and other, net 89.1 89.1
Income taxes 32.7 40.3
Depreciation and amortization 74.6 74.6
EBITDA $249.9 $269.9
Add back:
FAS123r expense 7.7 7.7
Contract incentive amortization 2.4 2.4
Adjusted EBITDA $260.0 $280.0
Reconciliation of Adjusted EBITDA to Net Earnings and Cash Flow from
Operations
Quarter and Six Months Ended June 30, 2008
(dollars in thousands)
Three Months Three Months
Ended Ended
June 30, June 30,
2008 2007
Net Earnings - GAAP $7,334 $9,776
plus: Income taxes 5,017 7,130
Interest and other
expense, net 22,430 23,743
Depreciation and
amortization 17,185 17,876
EBITDA $51,966 $58,525
Acquisition/litigation-
related expenses - 1,082
Stock-based compensation
expense (SFAS No. 123R) 1,973 1,777
Amortization of customer
contract incentive 1,215 1,215
Restructuring costs 810 543
Adjusted EBITDA $55,964 $63,142
Interest and other
expense, net (22,430) (23,743)
Income taxes (5,017) (7,130)
Acquisition/litigation-
related expenses - (1,082)
Restructuring costs, cash (810) (543)
Changes in operating
assets and liabilities 49,927 (73)
Cash Flow from Operations $77,634 $30,571
Six Months Six Months
Ended Ended
June 30, June 30,
2008 2007
Net Earnings - GAAP $19,716 $21,009
plus: Income taxes 12,815 14,309
Interest and other
expense, net 44,489 32,184
Depreciation and
amortization 34,823 25,282
EBITDA $111,843 $92,784
Acquisition/litigation-
related expenses - 1,987
Stock-based compensation
expense (SFAS No. 123R) 3,429 3,530
Amortization of customer
contract incentive 2,430 2,430
Restructuring costs 1,447 543
Asset impairment - 1,460
Adjusted EBITDA $119,149 $102,734
Interest and other
expense, net (44,489) (32,184)
Income taxes (12,815) (14,309)
Acquisition/litigation-
related expenses - (1987)
Restructuring costs, cash (1,447) (543)
Changes in operating
assets and liabilities 20,637 42,996
Cash Flow from Operations $81,035 $96,707
Conference Call Information
Valassis will hold an investor call today to discuss its second-quarter 2008 results at 11 a.m. (EDT). The call-in number is (800) 218-4007. The call will simulcast on Valassis' Web site, at http://www.valassis.com, and replay through August 13, 2008 at (800) 405-2236, pass code 11102665. This earnings release and the webcast will be archived on Valassis' Web site under "Investor." About Valassis Valassis is one of the nation's leading media, 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 newest 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 nine 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 the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, the following: price competition from the Company's existing competitors; new competitors in any of the Company's businesses; a shift in client preference for different promotional materials, strategies or coupon delivery methods; an unforeseen increase in the Company's paper or postal costs; changes which affect the businesses of the Company's clients and lead to reduced sales promotion spending; challenges and costs of achieving synergies and cost savings in connection with the ADVO acquisition and integrating ADVO's operations may be greater than expected; the Company's substantial indebtedness, and its ability to incur additional indebtedness, may affect the Company's financial health; certain covenants in the Company's debt documents could adversely restrict the Company's financial and operating flexibility; fluctuations in the amount, timing, pages, weight and kinds of advertising pieces from period to period, due to a change in the Company's clients' promotional needs, inventories and other factors; the Company's failure to attract and retain qualified personnel may affect its business and results of operations; a rise in interest rates could increase the Company's borrowing costs; the outcome of ADVO's pending shareholder lawsuits; possible governmental regulation or litigation affecting aspects of the Company's business; and general economic conditions, whether nationally or in the market areas in which the Company conducts its business, may be less favorable than expected. These and other risks and uncertainties related to the Company's business are described in greater detail in its filings with the United States Securities and Exchange Commission, including the Company's reports on Forms 10-K and 10-Q, and the foregoing information should be read in conjunction with these filings. The Company disclaims 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)
Assets June 30, Dec. 31,
2008 2007
Current assets:
Cash and cash equivalents $191,827 $125,239
Accounts receivable 412,933 515,490
Inventories 52,783 43,591
Refundable income taxes - 6,553
Other 37,566 19,379
Total current assets 695,109 710,252
Property, plant and equipment, at cost 495,443 506,383
Less accumulated
depreciation (230,301) (201,832)
Net property, plant and
equipment 265,142 304,551
Intangible assets 1,227,778 1,229,124
Less accumulated
amortization (87,806) (83,195)
Net intangible assets 1,139,972 1,145,929
Investments 6,888 7,159
Other assets 24,265 22,562
Total assets $2,131,376 $2,190,453
VALASSIS COMMUNICATIONS, INC.
Consolidated Balance Sheets, Continued
(dollars in thousands)
Liabilities and Stockholders' Equity June 30, Dec. 31,
2008 2007
Current liabilities:
Current portion, long-term
debt $136,268 $30,900
Accounts payable and
accruals 397,377 462,410
Progress billings 35,448 45,616
Income taxes payable 14,874 -
Deferred income taxes - 2,470
Total current
liabilities 583,967 541,396
Long-term debt 1,146,397 1,279,640
Other liabilities 34,733 29,026
Deferred income taxes 122,505 120,500
Stockholders' equity:
Common stock 635 634
Additional paid-in capital 54,839 51,482
Retained earnings 711,979 692,263
Treasury stock (520,170) (520,227)
Accumulated other
comprehensive gain (loss) (3,509) (4,261)
Total stockholders'
equity 243,774 219,891
Total liabilities and stockholders'
equity $2,131,376 $2,190,453
VALASSIS COMMUNICATIONS, INC.
Consolidated Statements of Operations
(dollars in thousands, except per share data)
Quarter Quarter
Ended Ended
June 30, June 30, %
2008 2007 Change
Revenue $594,925 $612,147 -2.8%
Costs and expenses:
Costs of products sold 460,970 472,822 -2.5%
Selling, general and
administrative 96,869 96,364 +0.5%
Amortization 2,305 2,312 -0.3%
Total costs and expenses 560,144 571,498 -2.0%
Operating income 34,781 40,649 -14.4%
Other expenses and income:
Interest expense 24,119 25,228 -4.4%
Other income (1,689) (1,485) +13.7%
Total other expenses 22,430 23,743 -5.5%
Earnings before income taxes 12,351 16,906 -26.9%
Income taxes 5,017 7,130 -29.6%
Net earnings $7,334 $9,776 -25.0%
Net earnings per common share,
diluted $0.15 $0.20 -25.0%
Weighted average shares outstanding,
diluted 48,088 47,877 +0.4%
Supplementary Data
Amortization $2,305 $2,312
Depreciation 14,880 15,564
Capital expenditures 6,674 6,610
VALASSIS COMMUNICATIONS, INC.
Consolidated Statements of Operations
(in thousands, except per share data)
Six Months Six Months
Ended Ended
June 30, June 30, %
2008 2007 Change
Revenue $1,192,006 $973,451 +22.5%
Costs and expenses:
Costs of products sold 916,327 751,839 +21.9%
Selling, general and
administrative 194,048 150,890 +28.6%
Amortization 4,611 3,220 +43.2%
Total costs and expenses 1,114,986 905,949 +23.1%
Operating income 77,020 67,502 +14.1%
Other expenses and income:
Interest expense 48,024 35,847 +34.0%
Other (income) and expenses (3,535) (3,663) -3.5%
Total other expenses and
(income) 44,489 32,184 +38.2%
Earnings before income taxes 32,531 35,318 -7.9%
Income taxes 12,815 14,309 -10.4%
Net earnings $19,716 $21,009 -6.2%
Net earnings per common share,
diluted $0.41 $0.44 -6.8%
Weighted average shares outstanding,
diluted 48,024 47,873 +0.3%
Supplementary Data
Amortization $4,611 $3,220
Depreciation 30,212 22,062
Capital expenditures 15,696 12,225
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