Valassis Revenues drop 5.3%
Monday, February 23, 2009
Press release from the issuing companyLIVONIA, Mich. -- Valassis today announced financial results for the fourth quarter and full-year ended Dec. 31, 2008. We reported quarterly revenue of $626.3 million, down 5.3% from $661.5 million for the prior year quarter due primarily to the impact of the continued uncertainty in the global macroeconomic environment. For the fourth quarter of 2008, adjusted EBITDA* was $62.6 million, down from adjusted EBITDA* of $78.5 million for the prior year quarter. During the fourth quarter of 2008, we reported a $245.7 million pre-tax, non-cash impairment charge related to goodwill and other intangible assets that resulted in a quarterly net loss of $222.0 million, or $4.63 per share, compared to net earnings of $20.6 million, or $0.43 per share, in the prior year quarter. Without the impairment charge, net earnings for the quarter would have been $1.4 million or $0.03 per share.
Full-year 2008 revenue was $2,381.9 million, up 6.2% from reported full- year 2007 revenue of $2,242.2 million (which excludes revenue for ADVO, Inc. for the period of Jan. 1, 2007 through March 1, 2007). Full-year 2008 revenue decreased 3.4% compared to pro forma revenue for full-year 2007 of $2,465.7 million. Full-year 2008 adjusted EBITDA* was $216.8 million, as compared to full-year 2007 adjusted EBITDA* of $252.8 million. With the aforementioned impairment charge, full-year 2008 net loss was $207.5 million, or $4.32 per share, as compared to full-year 2007 net earnings of $58.0 million. Net earnings for the year would have been $15.9 million, or $0.33 per share without this charge.
"As the prolonged economic downturn continues to constrict client advertising budgets, we remain focused on what we can control - our strategy, execution and costs," said Alan F. Schultz, Valassis Chairman, President and Chief Executive Officer. "A number of our products are well positioned in this recessionary environment, as they deliver value to a growing list of today's deal-seeking consumers."
Some additional financial highlights include:
-- Achieved 2008 Cost Synergies: Total 2008 cost synergies resulting from our acquisition of ADVO, Inc., were $38.4 million compared to our target of $38.0 million.
-- Reduction of SG&A Costs: Fourth-quarter 2008 SG&A costs were $97.9 million, which includes $2.5 million in legal costs related to the News America lawsuit and $4.2 million in severance costs, compared to the prior year quarter SG&A costs of $107.1 million which included $7.6 million in non- recurring charges. This 8.6% reduction was due primarily to decreases in incentive-based compensation, discretionary spending and staffing.
-- Reduction of Capital Expenditures: Capital expenditures for the fourth quarter of 2008 were $5.3 million. Full-year 2008 capital expenditures were $24.7 million, well below our full-year 2008 guidance of $35.0 million.
-- Liquidity: During 2008 we generated $96.3 million in Cash Flow from Operations and had a net decrease in debt of $108.0 million. We subsequently 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. We announced on Jan. 26, 2009, that we amended our senior secured credit facility to, among other things, permit us to use up to $125 million to repurchase from tendering lenders our outstanding term loans at prices below par through one or more "modified Dutch" auctions during 2009. In addition, we also agreed to voluntarily reduce the availability on our revolving credit portion of the senior secured credit facility from $120 million to $100 million. The amendment also permits us to exclude from the definition of Consolidated Interest Expense swap breakage costs in connection with any repurchases or payments on outstanding term loans.
-- Pre-Tax, Non-Cash, Impairment Charge: In accordance with SFAS No. 142, "Goodwill and Other Intangible Assets," we recorded a pre-tax, non-cash, impairment charge of $245.7 million. The charge represents a decrease in the market value of our business and does not affect our cash flow or day-to-day operations. In addition, we recorded a write-down of $4.8 million related to our investment in China.
Management noted that it continues to see declines in client marketing budgets due to adverse economic conditions. Based on current forecasts, we reiterate our guidance announced on Nov. 6, 2008: we assume 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, which should result in 2009 adjusted EBITDA* of approximately $215.0 million and allow us to meet our covenant requirements throughout 2009.
"Our 2009 Profit Maximization Plan is on track to reach its total cost savings goal of $50 to $60 million for 2009," said Robert L. Recchia, Valassis Executive Vice President and Chief Financial Officer. "We are quickly adapting to the changing economic environment and doing the right things to control costs, minimize risk and maintain a strong balance sheet and cash flow."
Business Segment Discussion
-- Shared Mail: Revenue for the fourth quarter of 2008 was $337.1 million, down 11.0% compared to the prior year revenue for the quarter. The decline was due to reduced spending in the mass merchandising vertical, lightweighting by grocery retailers and lower wrap revenue. Segment profit for the quarter was $22.8 million compared to $34.4 million for the prior year quarter. Full-year 2008 segment revenue was $1,370.8 million compared to pro forma full-year 2007 segment revenue of $1,406.9 million. Full-year 2008 segment profit was $89.8 million.
-- Neighborhood Targeted Products: Revenue for the fourth quarter of 2008 was $153.8 million, up 8.0% compared to the prior year quarter revenue of $142.4 million, due primarily to an increase in spend in the financial, insurance and telecom verticals. Segment profit for the quarter was $11.0 million compared to $16.1 million for the prior year quarter. Segment profit declines for the quarter were due primarily to a shift in product mix. Full- year 2008 segment revenue was $469.2 million, down 2.4% from full-year 2007. Full-year 2008 segment profit was $38.8 million, down 36.7% from full-year 2007.
-- Market Delivered Free-standing Inserts (FSI): Revenue for the fourth quarter of 2008 was $91.5 million, up 1.4% compared to the prior year quarter due to an increase in industry unit volume of 5.2%. 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 $2.0 million compared to $1.2 million for the prior year quarter. Full-year 2008 segment revenue was $370.2 million, down 7.7% from full-year 2007 due primarily to a mid-single digit price decline. Full-year 2008 segment profit was $1.8 million, down 91.3% from full-year 2007.
-- International, Digital Media & Services: Revenue for the fourth quarter was $43.9 million, down 12.5% compared to the prior year quarter due primarily to our sale of the French and one-to-one direct mail services businesses and the discontinuance of media business in other European countries. Without these businesses, revenue for the quarter would have been $41.8 million compared to $39.1 million in the prior year quarter, an increase of 6.9%. Segment profit for the quarter was $3.8 million, including restructuring charges of $0.6 million, compared to a loss of $2.4 million for the prior year quarter which included restructuring charges of $7.6 million. Full-year 2008 segment revenue was $171.7 million, down 1.7% from full-year 2007. Without the discontinued businesses previously discussed, revenue would have been $147.1 million for 2008 compared to $142.6 million in full-year 2007, an increase of 3.2%. Segment profit for the full-year 2008 was $0.6 million and included restructuring charges of $2.5 million, down 77.8% from full-year 2007, due primarily to continued investment in our interactive initiative.
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