Attached files
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| 8-K - FORM 8-K - VALASSIS COMMUNICATIONS INC | d8k.htm |
 Investor Presentation
August 2011
Exhibit 99.1
1 |
 2
Safe Harbor
Cautionary
Statements
Regarding
Forward-looking
Statements
This
document
contains
“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;
certain
covenants
in
our
debt
documents
could
adversely
restrict
our
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 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; possible governmental regulation or litigation
affecting aspects of our business; clients experiencing financial difficulties, or otherwise
being
unable
to
meet
their
obligations
as
they
become
due,
could
affect
our
results
of
operations
and
financial
condition;
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. |
 Delivering
value
how,
when
and
where
consumers want it
Shared Mail
•
70 million households
•
31 billion inserts distributed
Digital
•
13,000+ websites in the RedPlum Digital Network
•
75 million opt-in email list
In-Store
•
Nearly 3,000 stores in the network
at the end of first quarter 2011
Newspaper
•
15,000+ newspapers
•
6 billion inserts distributed
•
90 billion FSI pages
(including Shared Mail distribution)
Information for the year ended 12/31/10
except where noted otherwise
3 |
 4
RedPlum Shared Mail
Free-standing inserts (FSI) -
Co-op newspaper inserts
Coupon and promotion clearing
Digital portfolio
In-store media
Canadian media operations
Sweepstakes/security consulting
Direct mail sampling/advertising
Loyalty marketing software
Newspaper inserts
On-page newspaper advertising (ROP)
Newspaper polybag sampling/advertising
Door hanger sampling/advertising (Direct-to-Door)
Shared mail wrap
Shared mail inserts
Saturation mail
List services
Neighborhood Targeted
RedPlum Free-standing Inserts
International, Digital
Media & Services
$479.9
M +7.9%*
$367.6M +1.7%*
$178.8M +12.5%*
$1,307.2
M +2.2%*
2010 Segment
Revenue/Profit
$156.8M +42.3%*
2010 Total
$2,333.5M +4.0%*
$225.0M*** +23.0%*
$20.6M -43.3%*
$24.9M +116.5%*
$22.7M
-9.2%* *Compared to 2009
segment revenue and profit, respectively **Compared to 2Q10 segment revenue
and profit, respectively ***Total segment profit is a non-GAAP financial
measure. Important information regarding operating results and
reconciliations
of
non-GAAP
financial
measures
to
the
most
comparable
GAAP
measures
may
be
found
under
“Reconciliation of Non-GAAP Financial Measures”
on slides 18-22.
$88.8
M -23.6%**
$89.2M -5.7%** $50.0M +16.8%**
$337.2
M +3.3%**
2Q11 Segment
Revenue/Profit
(unaudited)
$47.7M
+17.5%**
2Q11 Total
$565.2M
-2.5%** $63.2M*** +4.6%** $0.8M
-84.9%** $8.3M
-27.2%** $6.4M
+106.5%** |
 5
Diversification -
2010
Revenue by Product
Revenue by Client
Other
1.9%
Direct Marketers, 1.9%
Financial, 2.2%
Discount Stores, 3.2%
Satellite
5.0%
Telecom
7.5%
Consumer Services
8.8%
Restaurants
12.2%
Specialty Retail
16.4%
Grocery & Drug
19.7%
Consumer
Packaged Goods
21.2%
Shared Mail
56.0%
Neighborhood
Targeted
20.6%
Free-standing
Insert
15.7%
IDMS
7.7% |
 Shared
Mail Performance – Newspaper Coverage Correlation
Sources:
Valassis Internal Tracking for Shared Mail pieces per package data for calendar
year 2010. Newspaper Penetration: Audited and Paid newspapers (major and
local) with over 100k circulation in the Top 75 Designated Marketing Areas (DMA’s) for 2010 where shared mail is distributed.
There is no newspaper coverage greater than 40% in the Top 75 DMA's.
Low Newspaper Coverage = Larger Shared Mail Packages
7.0
8.0
9.0
10.0
11.0
12.0
< 15%
15-20%
21-25%
26-30%
31-35%
36-40%
Newspaper Penetration
Combined SM Pieces Per Package is 10.7 in
DMA’s with 25% or less newspaper coverage
Combined SM Pieces Per Package is 8.5
in DMA’s with > 26% newspaper coverage |
 7
Source: BIGresearch Simultaneous Media Survey, June 2010
Power of Value-Oriented Products
Purchase Category
Electronics
Apparel
Home
Improvement
Grocery
Eating
Out
Word of Mouth
43%
34%
33%
39%
50%
Circulars/ Inserts
24%
26%
21%
40%
27%
TV Broadcast
28%
23%
22%
26%
26%
Internet
25%
19%
12%
13%
15%
Email
24%
26%
11%
15%
20%
Coupons
21%
31%
18%
71%
53% |
 8
What Sets Valassis Apart? Our Targeting & Portfolio
Hypothetical Retail Example
Newspaper Only
Buy
Valassis
Optimized
Recommendation
# of Stores
45
45
Newspaper
370,583
188,747
Shared Mail
0
180,449
Total Distribution
370,583
369,196
% of Stores Covered
43.5%
66.4%
% of Targeted HH’s Covered
40.3%
91.1%
Sales Dollars Covered
$7.1M
$10.8M |
 9
Long-term Growth Strategy
Drive sustainable revenue and profit growth
•
Shared Mail
–
Benefits from declining newspaper circulations
–
3 billion more Shared Mail inserts delivered in 2010 vs. 2009
–
Strong operating leverage
•
FSI
–
Marketers’
response to consumers’
demand for value drives unit
growth;
89.6%
of
all
coupon
delivery
(1)
–
Marketers distributed a record-breaking
332
billion
coupons
in
2010
(2)
•
In-Store
–
Better concept for retailers and consumers
–
Unique business model for retailers
–
Retailer network is growing
(1)
Source:
NCH
Coupon
Fact
Report
–
Mid-year
2011
(NCH
Marketing
Services,
Inc.
is
a
Valassis
company)
(2)
Source:
NCH
Coupon
Fact
Report
–
Year-end
2010 |
 10
Long-term Growth Strategy (continued)
•
Digital
–
Ongoing investment
–
Expanding digital portfolio
–
Opportunity for integration of offline and online media
•
Cash Flow Utilization
–
Improve EPS
Share repurchase
–
Invest in the business
New client development
New product development
Acquisitions
Secure print
Email
Display ads
Coupon to Card/ID
Mobile offer to ID
Drive sustainable revenue and profit growth |
 11
2011 Guidance
Full-year
2011
Guidance
(as
of
7/28/11)
(1)
Diluted earnings per share
Diluted
cash
earnings
per
share
(2)
Adjusted EBITDA
(2)
Capital expenditures
$2.76
$3.71
Approximately $355 million
Approximately $30 million
(1)
All data are as of July 28, 2011. This guidance by management was based on
the economic environment as of such date. Actual results may differ materially. No
reference (oral or written) to such data should be construed as an update,
revision, confirmation or clarification of same. (2)
Diluted cash earnings per share and Adjusted EBITDA are non-GAAP financial
measures. Important information regarding operating results and reconciliations of non-
GAAP
financial
measures
to
the
most
comparable
GAAP
measures
may
be
found
under
“Reconciliation
of
Non-GAAP
Financial
Measures”
on
slides
18-22. |
 12
($ in millions)
(1)
On 12/17/09, we entered into an interest rate swap agreement effective 12/31/10
fixing an amortizing notional amount (initially $300 million) of the variable rate debt under
our senior secured credit facility at an effective interest rate, based on the
current spread of 1.75%, of 3.755% per annum through 6/30/12. For additional details, refer to our
10-Q
filed
with
the
SEC
on
8/9/11
and
slide
23
for
the
amortization
schedule.
(2)
On 7/6/11, we entered into a forward-starting interest rate swap agreement
which, effective 6/30/12 (the expiration date of our existing interest rate swap agreement), will fix
an
amortizing
notional
amount
(initially
$186.25
million)
of
the
variable
rate
debt
under
our
senior
secured
credit
facility
at
an
effective
interest
rate,
based
on
the
current
spread
of
1.75%,
of
3.62%
per
annum
through
6/30/15.
For
additional
details,
refer
to
our
8-K
filed
with
the
SEC
on
7/6/11
and
slide
23
for
the
amortization
schedule.
(3)
Based on three-month LIBOR as of 6/27/11 of 0.250% plus spread.
(4)
$100 million less $50 million previously drawn and less approximately $11.0 million
in letters of credit is current available credit. Capital Structure
As of
6/30/11
Interest
Rate
Due
Cash and
equivalents
$119.0
Senior Secured Debt:
Senior
Secured
Credit
Facility
–
fixed
portion
220.0
3.755%
6/27/2016
current swap expires 6/30/12
(1)(2)
Senior
Secured
Credit
Facility
–
floating
portion
80.0
2.000%
(3)
6/27/2016
LIBOR +175
Senior
Secured
Credit
Facility
–
Revolver
-
$100mm
(4)
50.0
2.000%
(3)
6/27/2016
LIBOR +175
Senior Secured Convertible Notes
0.1
--
5/22/2033
interest no longer payable
Total Secured Debt
$350.1
Senior Unsecured Notes
260.0
6.625%
2/1/2021
fixed rate
Total Debt
$610.1
Total Net Debt
$491.1
Current Market Capitalization
1,174.4
50.167M fully diluted shares
Total Capitalization
$1,665.5
8/9/11 closing price of $23.41
Comments |
 13
Debt Refinancing and Interest Rate Hedging
•
Refinanced our existing senior secured credit facility with a new
senior secured credit facility in June 2011.
–
Includes a $300 million Term Loan A and a $100 million revolving
line of
credit, of which $50 million was drawn at closing (exclusive of any
outstanding letters of credit).
–
Expected to save $2.4 million in cash interest expense in the second
half of 2011.
–
Provides increased flexibility in how we can deploy cash flow.
•
Entered into a new swap agreement in July 2011 (effective June 30,
2012, upon the expiration of our existing interest rate swap
agreement).
–
Fixed the underlying interest rate for a portion of our variable
rate debt
under our new senior secured credit facility at 1.8695%.
–
After giving effect to the swap agreement, our effective interest rate for
the notional amount of the swap, based on the current spread of 1.75%,
will be 3.62% per annum through June 30, 2015.
–
The initial notional amount is $186,250,000 and amortizes quarterly
through the expiration date. For the amortization schedule see slide
23. |
 14
Second Quarter 2011 Financial Highlights
•
2Q11
Adjusted
Net
Earnings
(1)
were
$33.7
million,
an
increase
of
30.6%
from
$25.8
million
for
the
prior
year
quarter.
•
2Q11
Adjusted
Diluted
Earnings
Per
Share
(1)
was
$0.67,
an
increase of 36.7% from $0.49 for the prior year quarter.
•
Total cash was $119.0 million at June 30, 2011, a decrease of
$111.2 million from March 31, 2011, due primarily to a net debt
repayment of $112.2 million and share repurchases of $60.3 million;
offset, in part, by cash generated from operations of $73.1 million in
the quarter.
•
Stock Repurchase Update: During the quarter, we repurchased
$60.3 million, or 2.1 million shares, of our common stock at an
average price of $28.14 per share, including commissions, under
our stock repurchase program. During the first half of the year, we
have repurchased $105.9 million, or 3.8 million shares, of our
common stock.
(2)
(1)
Adjusted net earnings and adjusted diluted earnings per share are non-GAAP
financial measures. Important information regarding operating
results
and
reconciliations
of
non-GAAP
financial
measures
to
the
most
comparable
GAAP
measures
may
be
found
under
“Reconciliation
of
Non-GAAP
Financial
Measures”
on
slides
18-22.
(2)
Our ability to make stock repurchases may be limited by the documents governing our
indebtedness. |
 15
•
Consumer demand for value-oriented media and clients’
desire for measurable results
•
Value proposition
–
long-term newspaper coverage declines = shift to shared mail
(improved margins)
–
one-of-a-kind shared mail distribution
–
shared mail and newspaper blended solution (plus integration
of online media)
–
digital and in-store contribution
•
Low-cost capital structure
•
Cash flow yield
•
Experienced, results-oriented management team
Summary |
 16
Questions |
 17
Appendix |
 18
Reconciliation of Non-GAAP Financial Measures
Non-GAAP Financial Measures
*We define adjusted EBITDA as net earnings before interest expense, net, other
non-cash expenses (income), net, income taxes, gain or loss on
extinguishment of debt, depreciation, amortization, stock-based compensation
expense, and News America litigation settlement proceeds, net of related
payments.
We
define
diluted
cash
EPS
as
net
earnings
per
common
share,
diluted,
plus
the
per-share
effect
of
depreciation,
amortization,
stock-based
compensation expense and loss on extinguishment of debt, net of tax, less the
per-share effect of capital expenditures and News America litigation
settlement proceeds, net of tax and related payments. We define adjusted net
earnings and adjusted diluted EPS as net earnings and diluted EPS
excluding
the
effect
of
News
America
litigation
settlement
proceeds,
net
of
tax
and
related
payments,
and
loss
on
extinguishment
of
debt,
net
of
tax.
We
define total segment profit as earnings from operations excluding a gain from News
America litigation settlement proceeds, net of related payments. Adjusted
EBITDA, adjusted net earnings, adjusted diluted EPS, diluted cash EPS and total segment profit 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 these non-GAAP measures may be useful in
assessing our operating performance and our ability to meet our debt service
requirements. In addition, these non-GAAP measures are 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. Management also believes
that diluted cash EPS is useful to investors because it provides a measure
of our profitability on a more comparable basis to historical periods and provides
a more meaningful basis for forecasting future performance, by
replacing
non-cash
amortization
and
depreciation
expenses,
which
are
currently
running
significantly
higher
than
our
annual
capital
needs,
with
actual
and forecasted capital expenditures. Additionally, because of
management’s focus on generating shareholder value, of which profitability is a primary
driver,
management
believes
these
non-GAAP
measures,
as
defined
above,
provide
an
important
measure
of
our
results
of
operations.
However,
these
non-GAAP
financial
measures
have
limitations
as
analytical
tools
and
should
not
be
considered
in
isolation
from,
or
as
alternatives
to,
operating income, cash flow, EPS 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
and
diluted
cash
EPS
do
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, adjusted net earnings, adjusted diluted EPS, diluted cash EPS and
total segment profit do not reflect the impact of earnings or charges
resulting from matters we consider not to be indicative of our ongoing operations; and
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 comparative measures correspondingly decreases. Because of
these limitations, adjusted EBITDA, adjusted net earnings, adjusted diluted EPS, diluted cash EPS and total segment profit 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
reconciliations
of
these
non-GAAP
financial
measures
to
their
respective
most
comparable
GAAP
measures
can
be
found
on
slides 19-22. |
 19
Reconciliation of Full-year 2011 Adjusted EBITDA Guidance to
Full-year
2011
Net
Earnings
Guidance
(1)
:
Full-year 2011
Guidance
($ in millions)
Net Earnings
$138.3
plus: Interest expense, net
Income taxes
Depreciation and amortization
Loss on extinguishment of debt
less: Other non-cash income
EBITDA
plus: Stock-based compensation expense
36.7
89.0
62.5
16.3
(3.4)
$339.4
15.6
Adjusted EBITDA
$355.0
(1)
Due to the forward-looking nature of adjusted EBITDA, information necessary to
reconcile adjusted EBITDA to cash flows from operating activities is not
available without unreasonable effort. We believe that the information necessary to reconcile these
measures is not reasonably estimable or predictable.
|
 20
Reconciliation of Full-year 2011 Diluted Cash EPS Guidance to
Full-year 2011 Diluted EPS Guidance:
Full-year
2011
Guidance
Net Earnings (in millions)
$138.3
Diluted EPS
plus effect of:
Loss on extinguishment of debt and related charges, net
of tax
Depreciation
Amortization
Stock-based compensation expense
less effect of:
Capital expenditures
$2.60
(1)
0.22
0.93
0.24
0.29
(0.57)
Diluted Cash EPS
$3.71
Shares Outstanding (in thousands)
53,100
(2)
(1)
Includes the effect of $8.2 million in costs, net of tax, related to the
extinguishment of our 8¼% Senior Notes due 2015 during the first quarter of
2011, and $3.4 million in costs, net of tax, related to the refinancing of our
senior secured credit facility. (2)
Shares outstanding for 2011 is based on the estimated 53.1 million fully diluted
shares in our original full-year 2011 financial guidance reported on
Dec. 15, 2010 and does not include the effect of any share repurchases, option exercises or changes in dilution caused by movement in the
stock price. Actual weighted average shares outstanding, diluted, for the
quarter ended June 30, 2011 was 50.2 million. |
 21
Reconciliation of Adjusted EBITDA to Net Earnings and Cash
Flows from Operating Activities
($ in millions)
Three Months Ended
Six Months Ended
6/30/2011
6/30/2011
Net Earnings - GAAP
30.3
$
51.7
$
plus:
Income taxes
19.8
33.1
Interest expense, net
11.6
21.2
Loss on extinguishment of debt
2.9
16.3
Depreciation and amortization
15.4
31.1
less:
Other non-cash income, net
(1.4)
(2.3)
EBITDA
78.6
$
151.1
$
Stock-based compensation expense
2.5
4.4
Adjusted EBITDA
81.1
$
155.5
$
Income taxes
(19.8)
(33.1)
Interest expense, net
(11.6)
(21.2)
Changes in operating assets and liabilities
23.4
(10.2)
Cash Flows from Operating Activities
73.1
$
91.0
$
|
 22
Reconciliation of Adjusted Net Earnings and Adjusted Diluted
EPS to Net Earnings and Diluted EPS:
Three Months Ended
June 30, 2011
June 30, 2010
(in millions)
Net Earnings
Diluted EPS
Net Earnings
Diluted EPS
As reported
$30.3
$0.60
$11.1
$0.21
Loss on extinguishment of debt
and related charges, net of tax
(1)
3.4
0.07
14.7
0.28
As adjusted
$33.7
$0.67
$25.8
$0.49
(1)
Net earnings for three months ended June 30, 2011 include $3.4 million, net of tax,
in costs related to the refinancing of our senior secured credit facility and net earnings for three
months
ended
June
30,
2010
include
$14.7
million,
net
of
tax,
in
costs
related
to
the
repurchase
of
$297.8
million
of
our
8¼%
senior
notes
due
2015.
Reconciliation of Segment Profit to Earnings from Operations
Year Ended
Three Months Ended
December 31, 2010
Total segment profit
$225.0
Unallocated amounts:
Gain from litigation settlement
490.1
Earnings from operations
$715.1
$63.2
June 30, 2011
(in millions)
$63.2
--- |
 23
Senior Secured Credit Facility Principal Balance and
Interest
Rate
Swaps
Schedule
(1)
(1)
The total principal balances reflected in the table represent the average balance
per quarter shown. However, pursuant to the terms of the credit agreement, the principal
amount of the term loan A amortizes on the last day of each quarter in the amount
of $3.75 million for each of the quarters shown above. The amounts included in this
schedule assume that no further amounts will be drawn or repaid on the revolving
line of credit. (2)
The fixed amounts are the quarterly notional amounts of (i) our $300 million
December 2009 interest rate swap that amortizes by $40 million per quarter through June 2012,
and (ii) our $186.25 million July 2011 forward-starting interest rate swap that
amortizes quarterly by $2,812,000 from 6/30/12 through 9/30/13 and terminates on 6/30/15. For
additional details on the amortization schedule after 9/30/13, refer to our 8-K
filed with the SEC on 7/6/11. (3)
The
floating
amount
represents
the
difference
between
the
outstanding
principal
amounts
of
the
term
loan
A
and
revolving
line
of
credit
less
the
notional
amount
of
the
applicable interest rate swap, each as of the date indicated.
(4)
The rate applied to the fixed amounts indicated above is based on the interest rate
swap agreement in effect as of the date indicated. See footnote (2) and slide 12 for
additional information.
(5)
The actual spread will be based upon the applicable margin in effect at the
time. As of 6/30/11, the applicable margin was 1.75%. (6)
For
the
definition
of
Adjusted
LIBOR,
see
the
definition
for
“Adjusted
LIBO
Rate”
included
in
our
credit
agreement
filed
as
an
exhibit
to
the
8-K
filed
with
the
SEC
on
7/1/11.
(000's)
Sep-11
Dec-11
Mar-12
Jun-12
Sep-12
Dec-12
Fixed
amount
(2)
220,000
$
180,000
$
140,000
$
100,000
$
186,250
$
183,438
$
Floating
amount
(3)
130,000
166,250
202,500
238,750
148,750
147,813
Total
350,000
$
346,250
$
342,500
$
338,750
$
335,000
$
331,250
$
Applicable fixed rate
(4)
Swap rate
2.0050%
2.0050%
2.0050%
2.0050%
1.8695%
1.8695%
+
Spread
(5)
1.5% to 2.0%
Effective fixed rate
Applicable floating rate
Adjusted
LIBOR
(6)
+
Spread
(5)
1.5% to 2.0%
Effective floating rate
Senior
Secured
Credit
Facility
Principal
Balance
During
Quarter
Ended
(1) |