Credit Suisse Global Services Conference. February 25, 2008

Transcription

1 Credit Suisse Global Services Conference February 25, 2008

2 Safe Harbor Certain statements found in this document constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 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. 2

3 Delivering value to consumers how, when and where they want In-store Industry Size: $1 billion Strategy: Growth Shared Mail Direct Mail Industry Size: $33 billion Valassis Revenue*: $1.4 billion Strategy: Growth and Grow Share Interactive Industry Size: $18 billion Strategy: Growth Sampling Industry Size: $2 billion Valassis Revenue*: $54 million Strategy: Grow Share Newspaper Industry Size/Valassis Revenue*: ROP: $25 billion/$147 million FSI: $1 billion/$401 million Preprint: $14 billion/$279 million Strategy: Grow Share *Revenue figures based on Valassis calendar year 2007 revenue (including ADVO for Jan/Feb, 2007). 3

4 Diversification Revenue by Client Revenue by Product 4

5 Shared Mail Shared mail wrap Targeted inserts Saturation mail List services MailCoups/Mail Marketing Systems, Inc. (MMSI) Neighborhood Targeted Preprinted inserts On-page newspaper advertising (ROP) Newspaper polybag sampling/advertising Door hanger sampling/advertising (Direct-to-Door) Market Delivered Free-standing insert (FSI) - Co-op newspaper inserts International & Services Coupon and promotion clearing European and Canadian media operations Sweepstakes/security consulting In-store partnerships China: minority interest point-of-sale marketing company Household Targeted Direct mail sampling/advertising Loyalty marketing software Internet-delivered promotions 2007 Revenue $1,418.8M *Includes Jan & Feb 07 pre-acquisition revenue. $480.5M $401.2M $119.4M $45.7M 2007 Total Revenue $2,465.6M Media Solutions & Services

6 Unique Market Position - Unmatched Product Offering Ad Large Metro Agencies Newspapers Distribution Channel Newspaper Co-op FSI Run of Press Preprinted Inserts Polybag/Sampling Mail Shared Mail Loyalty Mail In Store In Aisle Point-of-Sale (POS) Internet (Value-oriented Content) Direct-to-Door We offer the only industry turnkey solution including targeting, media optimization and placement, printing and back-end analytics.

7 2008 Business Focus Shared Mail FSI Cost Savings Achieve cost synergies Complete shared mail optimization Mitigate the paper increases Control SG&A Profitable Revenue Growth Cross-selling portfolio Newspaper to shared mail Proprietary targeting system Sales training Sales compensation program Local content Improved centralized clearing operations Innovation Differentiate the FSI Proprietary targeting system RedPlum and consumer experience Ultimate source of value Relevant, timely offers and information Multi-channel delivery (mailbox, newspaper, online, in store) redplum.com 7

8 Cost Synergies Update ($ in millions) Paper $ 4 $ 0 $ 0 Print Media Alliances Facility Consolidation Data Center SG&A Total $26 $38 $42 8

9 Strong Execution Dictates Success - Elasticity Within Ad Recession $160,000 $3,000 $140,000 $2,500 $120,000 Industry Ad Spending (millions) $100,000 $80,000 $60, Ad Recession Industry: -3.2% Valassis: +1.0% $2,000 $1,500 $1,000 Valassis Revenue (Pro forma) (millions) $40,000 $500 $20,000 $ $0 Sources: Industry Ad Spend, TNS 2007 Valassis Revenue, Internal Tracking Industry Ad Spending Total (millions) Valassis Revenue (millions) 9

10 2008 Guidance (1) ($ in millions) Adjusted EBITDA Range per Public Guidance: $260 - $280 Capital Expenditures: $35.0 Revenue Growth: Low-to-mid single digit Positives and negatives impacting projected 2008 Adjusted EBITDA: (+) Expected organic growth; (+) Management expects cost synergies to increase to $38 million in 2008; (+) Consolidation of January and February ADVO results; (+) Business optimization improving Shared Mail package profit; (-) Increased paper costs; (-) Increased selling, general and administrative costs; (-) Decreased Free-standing Insert (FSI) margin from price pressure; and (-) Reduction in profit associated with the elimination of the Detached Address Label (DAL). (1) Important information regarding operating results and reconciliations of non-gaap financial measures to the most comparable GAAP measures may be found in the Reconciliation of Non-GAAP measures on slide

11 Acquisition Financing Capital Structure Cash and equivalents $125.2 ($ in millions) Senior Secured Debt: Senior Convertible Notes $ /8% 5/22/2008 (1) fixed rate Senior Notes /8% 1/15/2009 fixed rate Senior Secured Credit Facility fixed portion % 3/31/2014 swaps expire 12/31/10 Senior Secured Credit Facility floating portion % (2) 3/31/2014 LIBOR +175 Senior Secured Credit Facility Delayed Draw - $160mm (3) % (2) 3/31/2014 LIBOR +175 Senior Secured Revolving Credit Facility $120mm (4) % (2) 3/31/2012 LIBOR +225 Total Secured Debt $770.5 Senior Unsecured Notes /4% 3/31/2015 fixed rate Total Debt $1,310.5 Total Net Debt $1,185.3 Current Market Capitalization $ mm shares at 2/21/08 Total Capitalization $1,744.3 As of 12/31/07 Rate Due Comments closing price of $11.67 (1) These notes may be put to Valassis on 5/22/08. The maturity date is in (2) Based on three-month LIBOR as of 2/21/08 of 3.09% plus spread. (3) The DDTL is available until June 2008 to refinance the 2033 Senior Convertible Notes (1-5/8%), including in the event the holders exercise their put rights in May (4) $120 million (less approx. $11.2 million in letters of credit) is current available credit. 11

12 Acquisition Financing Covenant Analysis As of 12/31/07 Consolidated Senior Secured Leverage Ratio: Senior Secured Debt (1) $770.5 Adjusted EBITDA (2) $248.8 Covenant Ratio Level (3) 4.00x Consolidated Senior Secured Leverage Ratio 3.10x Test Pass Covenant Cushion % 22.6% ($ in millions) Consolidated Interest Coverage Ratio: As of 12/31/07 Consolidated Interest Expense $80.8 Adjusted EBITDA (2) $248.8 Covenant Ratio Level (4) 1.60x Consolidated Interest Coverage Ratio 3.08x Test Pass (1) An incremental $25 million was paid on the senior secured credit facility on Feb. 20, 2008, lowering this figure to $745.5 million. (2) Calculated pursuant to the terms of the senior secured credit facility for the trailing twelve-month period ended Dec. 31, Adjusted EBITDA under the senior secured credit facility is calculated differently than the Company s publicly disclosed Adjusted EBITDA because the senior secured credit facility definition does not permit certain adjustments the Company has included in its publicly disclosed Adjusted EBITDA. Important information regarding the reconciliation of this non-gaap financial measure to the most comparable GAAP measure may be found in the Reconciliation of Non-GAAP Measures on slide (3) Ratio decreases to 3.75x on Dec. 31, (4) Ratio increases to 1.75x on Dec. 31, 2008.

13 Net Earnings to Adjusted Free Cash Flow Reconciliation of Net Earnings to Adjusted Free Cash Flow Year Ended (unaudited) Dec. 31, 2007 (1) Net Earnings - GAAP $ 58.0 Depreciation and amortization 62.5 Stock-based compensation expense (SFAS No. 123R) 7.3 Amortization of customer contract incentive 4.9 Asset write-off charge 2.0 Working Capital Changes 22.1 Cash Flow from Operations $ less: Capital Expenditures (2) (38.3) Cash Flow Available for Debt Repayment $ Add back non-recurring items: Acquisition/litigation related costs, net of tax 1.3 Cash restructuring costs, net of tax 4.7 Adjusted Cash Flow Available for Debt Repayment $ Senior Secured Term Loan B Payments 79.4 (3) (3) ($ in millions) (1) Includes Valassis for the full-year and ADVO for the period of March 2, 2007 through Dec. 31, (2) Estimated capital expenditures are $35 million per year for 2008 through (3) An additional $25 million was paid on the senior secured credit facility on February 20, 2008, increasing debt repayment since acquisition to $104.4 million. 13

14 Why Invest in Valassis? Unmatched Offering Diversified and Proven Product Portfolio Blue Chip Client Base Proprietary Distribution System Shared Mail Business Model Experienced, Results-oriented Team Cost and capital management expertise Strong Free Cash Flow 14

15 Appendix

16 Reconciliation of Non-GAAP Measures ($ in millions) Reconciliation of Consolidated Net Earnings to Consolidated Adjusted EBITDA per Credit Agreement to Company Publicly Disclosed Adjusted EBITDA ADVO Stub Period Ending Fiscal Quarters Ending 3/1/2007 3/31/2007 (1) 6/30/2007(1) 9/30/ /31/2007 Total Consolidated Net Earnings $ (19.0) $ 11.2 $ 9.8 $ 16.4 $ 20.6 plus: Income taxes (11.9) Interest and other expense, net Depreciation and amortization EBITDA $ (21.7) $ 34.2 $ 58.5 $ 67.7 $ 67.7 plus: Acquisition/litigation-related expenses Stock-based compensation expense Amortization of customer contract incentive Asset write-off charge Consolidated Adj EBITDA per Credit Agreement $ 3.4(2) $ 39.6 $ 62.6 $ 71.2 $ 72.0 $ plus: Additional non-recurring costs (2) Restructuring costs Company Publicly Disclosed Adjusted EBITDA $ 8.2(3) $ 39.6 (4) $ 63.1 $ 71.5 $ 78.5 (1) Includes Valassis for the full-quarter and ADVO for the period of March 2, 2007 through March 31, (2) Includes non-recurring credits, rebills and bad debts above the normalized level and associated with the implementation of ADVO s enterprisewide SDR system. (3) Adjusted EBITDA for ADVO for this period was adjusted to add-back customer credits and bad debts in excess of a normalized run-rate. Previously, the Company also included an add-back for a change in customer ship date. After further analysis, it was determined that this change did not affect the Adjusted EBITDA figure. 16

17 Reconciliation of Non-GAAP Measures (cont d) ($ in millions) Reconciliation of Net Earnings to Company Publicly Disclosed Projected Adjusted EBITDA Guidance Fiscal Year 2008 Guidance Low End High End Net Earnings $ 53.5 $ 65.9 plus: Income taxes Interest and other expense, net Depreciation and amortization EBITDA $ $ plus: FAS123r expense Contract incentive amortization Company Publicly Disclosed Projected Adjusted EBITDA Guidance $ $

18 Reconciliation of Non-GAAP Measures (cont d) We define adjusted EBITDA as earnings before net interest and other expenses, income taxes, depreciation, amortization, acquisition/litigation-related expenses, stock-based compensation expense associated with SFAS No. 123R, amortization of a customer contract incentive and other non-cash and non-recurring charges. We define adjusted free cash flow as net earnings plus depreciation, amortization, stock-based compensation expense, acquisition/litigation-related expenses and other non-cash and non-recurring items, less capital expenditures. Adjusted EBITDA and adjusted free 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 and adjusted free 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 determine our operating performance and, along with other data, as internal measures for setting annual operating budgets, assessing financial performance of numerous business segments and as a measurement component of 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; adjusted free cash flow does not represent our residual cash flow available for discretionary expenditures since we have mandatory debt service requirements and other required expenditures that are not deducted from adjusted free cash flow; adjusted free cash flow does not capture debt repayment and/or the receipt of proceeds from the issuance of debt; 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 a comparative measure correspondingly decreases. Because of these limitations, adjusted EBITDA and adjusted free 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 as a supplement. 18