Revises Outlook and Implements 2009 Profit Maximization Plan
LIVONIA, Mich., Nov. 6 /PRNewswire-FirstCall/ -- Valassis (NYSE: VCI)
today announced financial results for the third quarter ended Sept. 30, 2008.
We reported quarterly revenue of $563.7 million, down 7.2% from $607.2 million
for the prior year quarter due primarily to the challenging global
macroeconomic environment and its impact on revenue across all of our business
segments. We also reported a net loss of $5.2 million or $0.11 per share for
the third quarter compared to net earnings of $16.4 million or $0.34 per share
in the prior year quarter. For the third quarter of 2008, adjusted EBITDA* was
$35.1 million, down from adjusted EBITDA* of $71.5 million for the prior year
quarter.
"The unprecedented economic downturn had a significant effect on our
third-quarter results," said Alan F. Schultz, Valassis Chairman, President and
Chief Executive Officer. "In response, we have implemented a plan to best
position ourselves in this uncertain environment which we anticipate will
continue to adversely affect our clients' marketing budgets. We expect that
our 2009 Profit Maximization Plan will significantly reduce costs, increase
production efficiencies and focus on the greatest growth and profit
opportunities for the future. In the face of these external challenges, we
will continue to provide our clients with innovative, value-oriented media
that consumers increasingly desire."
Some additional financial highlights include:
-- Increase in 2009 Cost Synergies: Total cost synergies resulting from
the acquisition of ADVO, Inc., are on track to meet our 2008 target of $38
million. In addition, the Company increased its estimated 2009 cost synergies
resulting from the acquisition of ADVO, Inc. to $49 million.
-- Reduction of SG&A: Third-quarter 2008 SG&A costs were $93.9 million
including $1.8 million in legal costs related to the News America lawsuit,
compared to the prior year quarter SG&A costs of $96.3 million. This 2.5%
reduction was due to decreases in incentive-based compensation and
discretionary spending.
-- Reduction of Capital Expenditures: Capital expenditures for the third
quarter of 2008 were $3.7 million. We expect 2008 annual capital expenditures
to be approximately $26 million, well below our annual 2008 guidance of $35
million.
-- Liquidity: In July 2008, we applied the net proceeds of $28.8 million
from the sale and leaseback of the Company's Windsor facilities to the delayed
draw and term loan portions of our Senior Secured Credit Facility as
previously announced. In addition, the Company plans to use existing cash to
repay the Secured Notes due in January 2009 and has no significant debt
repayments scheduled until 2014.
Outlook
The slowdown in the global economy has resulted in a combination of
factors that have negatively affected our business including a significant
decline in both retail sales and client marketing budgets. Based on current
forecasts, we expect fourth quarter 2008 adjusted EBITDA* to be approximately
$65.0 million before restructuring costs. Accordingly, we have revised our
full-year 2008 adjusted EBITDA* estimate to be $219.3 million compared to our
previously announced adjusted EBITDA* guidance of between $260 and $280
million. Second-half 2008 revenue is expected to be down approximately 6-7%
versus the previously announced guidance of low- to mid-single digit revenue
growth. Adjusted Cash EPS* for full-year 2008 is expected to be approximately
$1.71 versus the previously announced guidance of between $2.14 and $2.39.
We cannot predict with certainty the extent or duration of the current
economic conditions or its negative effect on our 2009 results. A continuation
of these conditions makes definitive forecasting difficult. Nevertheless, we
assume the current reduced level of activity that we have seen in the second
half of 2008 will continue throughout 2009, resulting in a mid-single digit
decline in revenue in the first half of 2009 and flat to slightly down revenue
in the second half of 2009. Management noted that the Company's Profit
Maximization Plan should result in a total cost savings of $50 to $60 million
for 2009. These assumptions should yield a 2009 adjusted EBITDA* of
approximately $215.0 million which would provide a comfortable covenant
cushion throughout 2009.
"We are confident in our ability to successfully meet these cost-reduction
goals and minimize capital spending," said Robert L. Recchia, Valassis
Executive Vice President and Chief Financial Officer. "While we cannot control
the uncertain state of the economy and its impact on our clients and consumer
spending, our focus is on what is within our control."
Business Segment Discussion
-- Shared Mail: Revenue for the third quarter of 2008 was $327.0 million,
down 5.7% compared to the prior year. Segment profit for the quarter was
$13.2 million versus $23.7 million from the prior year quarter. The revenue
decline was driven by cancellations, order reductions and a shift in wrap
volume toward lower paying client verticals.
-- Neighborhood Targeted Products: Revenue for the third quarter of 2008
was $107.0 million, down 8.9% compared to the prior year quarter. Segment
profit for the quarter was $5.0 million compared to $19.8 million for the
prior year quarter. Segment profit declines for the quarter were due primarily
to a reduction in newspaper preprints and its effect on plant cost absorption,
increased SG&A expenses in the segment allocations and a shift in customer mix
to lower margin Run of Press customers.
-- Market Delivered Free-standing Inserts (FSI): FSI revenue for the
third quarter of 2008 was $91.4 million, down 10.9% compared to the prior year
quarter, due to the anticipated reduction in FSI pricing and lower page
volumes. The co-op FSI industry experienced a unit decline of 5.2% for the
quarter. Management noted Valassis expects a low single-digit page growth in
the fourth quarter. FSI cost of goods sold was up for the quarter on a cost
per thousand (CPM) basis as a result of higher paper prices. Segment profit
for the quarter was $0.2 million compared to $3.7 million for the prior year
quarter.
-- International, Digital Media & Services: Revenue for the quarter was
$38.3 million, down 5.7% compared to the prior year quarter due primarily to
the sale of the French business. This segment experienced a loss of $4.0
million, $3.5 million of which came from new business initiatives.
Segment Results Summary
Quarter Ended Sept. 30,
Revenue by Segment (in millions) 2008 2007 % Change
Shared Mail $327.0 $346.6 -5.7%
Neighborhood Targeted $107.0 $117.4 -8.9%
Free-standing Insert $91.4 $102.6 -10.9%
International, Digital Media
& Services (1) $38.3 $40.6 -5.7%
Total Segment Revenue $563.7 $607.2 -7.2%
Quarter Ended Sept. 30,
Segment Profit (in millions) 2008 2007 % Change
Shared Mail $13.2 $23.7 -44.3%
Neighborhood Targeted $5.0 $19.8 -74.7%
Free-standing Insert $0.2 $3.7 -94.6%
International, Digital Media
& Services (1) ($4.0) $1.8 -322.2%
Total Segment Profit $14.4 $49.0 -70.6%
(1) The segments previously known as International and Services and
Household Targeted were 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.
Conference Call Information
We will hold an investor call today to discuss our third-quarter 2008
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 replay through Nov.
19, 2008 at (800) 405-2236, pass code 11102665. 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
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 also a relevant measure of the
performance of the business in addition to 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 $44.2 million in 2008;
-- adjusted cash flow does not reflect the residual cash flow available
for discretionary expenditures since certain non-discretionary expenditures
are not deducted from the measure;
-- other companies, including companies in our industry, may calculate
these measures differently and as the number of differences in the way two
different companies calculate these measures increases, the degree of their
usefulness as a comparative measure correspondingly decreases.
Because of these limitations, adjusted EBITDA, adjusted cash EPS and
adjusted cash flow should not be considered as measures of discretionary cash
available to us to invest in the growth of our business or reduce
indebtedness. We compensate for these limitations by relying primarily on our
GAAP results and using these non-GAAP financial measures only supplementally.
Further important information regarding operating results and reconciliations
of these non-GAAP financial measures to the most comparable GAAP measures can
be found below.
Projected Adjusted Cash Flow and Adjusted Cash EPS Reconciliation*:
2008
($ in millions)
Net Earnings $27.9
Add back non-cash items:
Depreciation 61.0
Amortization 9.2
FAS123r expense 7.5
Contract incentive amortization 2.4
Less:
Capital Expenditures (26.0)
Adjusted Cash Flow* $82.0
Weighted Shares Outstanding 48,018
Adjusted Cash EPS* $1.71
* Does not include an approximate $15 million recapture tax to be paid in
2008 related to the Senior Convertible Notes put to us in May 2008.
Projected Adjusted EBITDA Reconciliation:
4Q 2008 2008 2009
($ in ($ in ($ in
millions) millions) millions)
Net Earnings $13.4 $27.9 $36.2
Add back:
Interest and other, net 22.6 90.4 82.0
Income taxes 8.5 17.6 23.1
Depreciation and 18.0 70.2 65.0
amortization
$62.5 $206.1 $206.3
EBITDA
Add back: 2.1 7.5 8.7
FAS123r expense - 2.4 -
Contract incentive .4 3.3 -
amortization
Restructuring costs
Adjusted EBITDA $65.0 $219.3 $215.0
Reconciliation of Adjusted EBITDA to Net Earnings (Loss) and Cash Flow from
Operations
Quarter and Nine Months Ended Sept. 30, 2008
(dollars in thousands)
Three Months Ended Three Months Ended
Sept. 30, 2008 Sept. 30, 2007
Net Earnings (Loss) - GAAP $(5,203) $16,443
plus: Income taxes (3,682) 9,978
Interest and other expense, net 23,313 22,543
Depreciation and amortization 17,332 18,807
EBITDA $31,760 $67,771
Stock-based compensation
expense (SFAS No. 123R) 1,934 1,768
Amortization of customer
contract incentive - 1,215
Restructuring costs 1,422 263
Asset write-off charge - 503
Adjusted EBITDA $35,116 $71,520
Interest and other expense, net (23,313) (22,543)
Income taxes 3,682 (9,978)
Restructuring costs, cash (415) (263)
Changes in operating assets
and liabilities (31,367) (18,010)
Cash Flow from Operations $(16,297) $20,726
Nine Months Ended
Sept. 30, 2008
Net Earnings - GAAP $14,513
plus: Income taxes 9,133
Interest and other expense, net 67,802
Depreciation and amortization 52,155
EBITDA $143,603
Acquisition/litigation-related expenses -
Stock-based compensation expense
(SFAS No. 123R) 5,363
Amortization of customer contract
incentive 2,430
Restructuring costs 2,869
Asset impairment -
Adjusted EBITDA $154,265
Interest and other expense, net (67,802)
Income taxes (9,133)
Acquisition/litigation-related expenses -
Restructuring costs, cash (1,862)
Changes in operating assets and liabilities (10,730)
Cash Flow from Operations $64,738
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 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, including,
without limitation, as a result of declines in newspaper circulation; 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, 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; the Company's substantial indebtedness,
and ability to refinance such indebtedness, if necessary; and its ability to
incur additional indebtedness, may affect the Company's financial health; the
financial condition of the Company's clients, suppliers or other
counterparties; the adverse impact of the ongoing economic downturn on the
marketing expenditures and activities of the Company's clients and prospective
clients; the Company's ability to comply with or obtain modifications or
waivers of the financial covenants contained in the Company's debt documents;
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.
Tables to follow ...
VALASSIS COMMUNICATIONS, INC.
Consolidated Balance Sheets
(dollars in thousands)
Assets Sept. 30, Dec. 31,
2008 2007
Current assets:
Cash and cash equivalents $147,560 $125,239
Accounts receivable 417,490 515,490
Inventories 47,717 43,591
Refundable income taxes 6,631 6,553
Other 33,229 19,379
Total current assets 652,627 710,252
Property, plant and equipment, at cost 495,092 506,383
Less accumulated depreciation (242,583) (201,832)
Net property, plant and
equipment 252,509 304,551
Intangible assets 1,231,688 1,229,124
Less accumulated amortization (90,112) (83,195)
Net intangible assets 1,141,576 1,145,929
Investments 6,956 7,159
Other assets 22,879 22,562
Total assets $2,076,547 $2,190,453
VALASSIS COMMUNICATIONS, INC.
Consolidated Balance Sheets, Continued
(dollars in thousands)
Liabilities and Stockholders' Equity Sept. 30, Dec. 31,
2008 2007
Current liabilities:
Current portion, long-term debt $106,244 $30,900
Accounts payable and accruals 367,954 462,410
Progress billings 53,750 45,616
Deferred income taxes - 2,470
Total current liabilities 527,948 541,396
Long-term debt 1,146,079 1,279,640
Other liabilities 38,192 29,026
Deferred income taxes 123,134 120,500
Stockholders' equity:
Common stock 635 634
Additional paid-in capital 56,719 51,482
Retained earnings 706,776 692,263
Treasury stock (520,169) (520,227)
Accumulated other
comprehensive gain (loss) (2,767) (4,261)
Total stockholders' equity 241,194 219,891
Total liabilities and stockholders'
equity $2,076,547 $2,190,453
VALASSIS COMMUNICATIONS, INC.
Consolidated Statements of Operations
(dollars in thousands, except per share data)
Quarter Ended Quarter Ended
Sept. 30, Sept. 30, %
2008 2007 Change
Revenue $563,651 $607,233 -7.2%
Costs and expenses:
Costs of products sold 453,045 459,553 -1.4%
Selling, general and administrative 93,872 96,327 -2.5%
Amortization 2,306 2,389 -3.5%
Total costs and expenses 549,223 558,269 -1.6%
Operating income 14,428 48,964 -70.5%
Other expenses (income):
Interest expense 23,948 24,575 -2.6%
Other (income) expense, net (635) (2,032) -68.8%
Total other expenses (income) 23,313 22,543 +3.4%
Earnings (loss) before income taxes (8,885) 26,421 -133.6%
Income taxes (3,682) 9,978 -136.9%
Net earnings (loss) $(5,203) $16,443 -131.6%
Net earnings (loss) per common share,
diluted $(0.11) $0.34 -132.4%
Weighted average shares outstanding,
diluted 47,875 47,912 -0.1%
Supplementary Data
Amortization $2,306 $2,389
Depreciation 15,026 16,418
Capital expenditures 3,699 7,899
VALASSIS COMMUNICATIONS, INC.
Consolidated Statements of Operations
(in thousands, except per share data)
Nine Months Nine Months
Ended Ended
Sept. 30, Sept. 30, %
2008 2007 Change
Revenue $1,755,657 $1,580,684 +11.1%
Costs and expenses:
Costs of products sold 1,369,372 1,211,392 +13.0%
Selling, general and
administrative 287,920 247,217 +16.5%
Amortization 6,917 5,609 +23.3%
Total costs and expenses 1,664,209 1,464,218 +13.7%
Operating income 91,448 116,466 -21.5%
Other expenses (income):
Interest expense 71,972 60,422 +19.1%
Other (income) expenses, net (4,170) (5,695) -26.8%
Total other expenses (income) 67,802 54,727 +23.9%
Earnings before income taxes 23,646 61,739 -61.7%
Income taxes 9,133 24,287 -62.4%
Net earnings $14,513 $37,452 -61.2%
Net earnings per common share,
diluted $0.30 $0.78 -61.5%
Weighted average shares outstanding,
diluted 47,995 47,903 +0.2%
Supplementary Data
Amortization $6,917 $5,609
Depreciation 45,238 38,479
Capital expenditures 19,395 20,124
SOURCE
Valassis
CONTACT:
Mary Broaddus, Valassis, +1-734-591-7375,
broaddusm@valassis.com
Guidelines & Ratings
