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Valassis Communications, Inc

Q1 2009 Earnings Call

April 30, 2009 11:00 am ET

Executives

Alan Schultz – Chief Executive Officer

Robert Recchia – Vice President & Chief Financial Officer

Analysts

Alexia Quadrani - J.P. Morgan

Daniel Salmon – BMO Capital Management

Mick Dobray - Robert W. Baird & Company

Ned Davis - North River Capital

Grant Gandy - Oppenheimer

Jonathan Levine – Jefferies & Co

Christine Barshtak - Carlyle

Presentation

Operator

Good morning ladies and gentlemen and Thank you for standing by. And welcome to the Valassis Communication First Quarter 2009 Earnings Conference Call. During today’s presentation, all participants will be in a listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time. This conference is being recorded today Thursday, April 30th, 2009. Please refer to the Safe Harbor language on the earnings documents released this morning. This call will be governed by the language stated thereon.

I would now like to turn the call over to Mr. Alan Schultz, Chairman, President, and CEO. Go ahead, sir.

Alan Schultz

Thank you Joe. I’d like to welcome everyone to today’s call. I have with me Bob Recchia, our Chief Financial Officer, and he will also be speaking later on in the call. We plan on going through our prepared remarks, then we really look forward to answering your questions. Well, I’m never going to be satisfied with a revenue decline, on a relative basis our results weren’t bad.

Our reported revenue for the quarter was down 7.7% versus the prior year quarter compared to our media peers who are posting revenue declines in the 15% to 35% range. When you remove revenue from the prior year quarter from divested and discontinued businesses, and the impact of currency fluctuations, revenue actually declined only 6% in the quarter on a pro forma basis.

While this decline is within our expectations for the quarter, it is difficult to forecast client-marketing spending with precision in today's economic environment.

Profit for the quarter was a little bit better than we had expected, mainly for two reasons. Number one, cost savings from our previous cost management programs, and our 2009 profit maximization program, which includes significant reductions in SG&A, are coming faster than we expected.

And number two, we repurchased some of our term loans under our senior secured credit facility through Modified Dutch Auctions, that generated an aftertax gain, which increased our earnings per share by $0.09 in the first quarter. As you know, we first began to see the recession’s impact on our revenue in September of last year. Our team moved swiftly and decisively to reign in discretionary spending and build our 2009 profit maximization plan to assure we were doing everything within our power to reduce cost and navigate through this tough economic time.

Bob will be taking you through more details on our progress versus the 2009 profit maximization plan later in his remarks. Our results beg the question why we are outperforming our media peers and holding our own, while clients continue to make double-digit cuts in their ad budgets in the worst ad recession in history. The answer is a combination of our strategy, product portfolio, and execution.

As the world leadership in value distribution, our mission is to deliver value to consumers how, when, and where they want it. Value is big with consumers right now and value-oriented promotion is in vogue with our clients as it is measurable, drives traffic, and moves volume. These metrics are increasingly important to clients as advertising budgets continue to tighten. Much of our product portfolio is in sync with changes in consumer behavior.

According to our coupon clearing house NCH, coupon redemptions flattened out last year after a 14 year decline. We are now seeing an actual reversal of this trend. As consumer packaged goods coupon redemptions was up 17% in the fourth quarter of 2008, and 14% in the first quarter of 2009.

I read in a Wall Street Journal article recently that Campbell Soup has seen a 20% increase in total coupon redemptions in the last year. Marketers need to reach increasingly value-conscious consumer with their media plans, and we believe much of our product portfolio is well positioned to do just that in a highly effective manner.

Going back to our acquisition of the Shared Mail business in early 2007. There were many strategic drivers including three key opportunities. Number one, we believe that blending of our Shared Mail and newspaper distribution would help us craft superior solutions for our clients, and be a significant competitive advantage, and this value proposition would help us win new customers.

Number two, as our client bases were complimentary, there were significant cross-selling opportunities. Example, selling Shared Mail to existing Valassis clients, and selling our newspaper distributed product portfolio to our Shared Mail client base. And number three, we believe Shared Mail distribution was an effective alternative for newspaper delivered preprints. Clients need to address declining newspaper circulations and market coverage, as they still need to reach households who no longer read the newspaper.

In 2008, we generated a number of new client wins and enjoyed cross-selling success at individual accounts. But we had not yet seen these positive results flow through to make a meaningful difference in our reported numbers until now. The 12.4% revenue increase in our neighborhood targeted segment was driven by 15% growth in newspaper delivered preprints. This growth was derived directly from new client wins and cross-selling success. Just as it took time for these cross-selling and new client wins to show up in our reported numbers, the same is true for the migration of newspaper preprints to Shared Mail.

However, recent developments in the newspaper industry have created a new sense of urgency among clients. Since the Chicago Tribune filed for Chapter 11 protection in December, the newspaper industry has seen numerous closures, bankruptcy filings, and announcements substantially reducing in-home delivery in various markets.

Clients who previously were not interested in looking at blended newspaper and Shared Mail distribution are now open to the discussion and testing to accomplish their market coverage objectives.

While the newspaper industry continues to be influx, we believe newspapers are looking to maintain strength in circulation and distribution on Sunday. While cutting back and in a few cases abandoning much of their mid week or week day home distribution. The bulk of what we sell in newspapers is distributed on Sundays. So we have confidence, our strong partnership with the newspaper industry we will continue for Sunday distribution. However, approximately 98% of our Shared Mail distribution is delivered on weekdays. And it is logical and effective alternative for newspaper preprints to migrate during this turbulent time for the newspapers.

For example, here in Detroit the newspapers have reduced their home delivery to just three days a week. Thursday, Friday, and of course Sunday. For clients who need to reach these markets early in the week, our Shared Mail package is a great alternative. Changes are happening all over the country and clients need to properly penetrate individual markets and they need the ability to reach consumers at different points in time. We provide that capability on a market level and on a national basis.

I’d like to review some additional highlights on some of our business segment results. First, Shared Mail; I think one of the lessons we’ve learned is that Shared Mail is a much more cyclical business than what we originally thought.

The good news is that margins have held up reasonably well considering a $45.4 million decline in revenue in the first quarter, resulted in only a $12 million decline in segment profit in this quarter. Our efforts to significantly rework the cost structure of this business through market optimization improvements designed to reduce oversupply and deliver more profitable packages, newspaper alliances to reduce distribution cost, increases in Shared Mail production efficiencies, as well as other initiatives within our 2009 profit maximization plan, are mitigating, the loss of Shared Mail segment profit.

As we saw in the first quarter of 2008, when the top line growth in the Shared Mail business a significant portion of the revenue flows through to the bottom line. And as we have now seen in the first quarter of 2009, when the top line declines are improved cost structure in Shared Mail is protecting the bulk of our margin. When we do see revenue improvement, this business should benefit greatly.

The FSI business; we recently announced $10 million in Shared Mail distribution on our new FSI market list effective August 2009. This is up from $6.5 million on our current market list. Due to the popularity of value-oriented media in the consumer trends that I have discussed here just a few moments ago, during the first quarter the FSI industry volume was up 1.2% on unit basis.

Even though the heavy pre Easter promotional activity shifted to the second quarter in 2009, the real story in the FSI business for us however remains the lost profitability and continued price deterioration due to what we have alleged are illegal anti-competitive tactics used by our primary competitor in this business. As you all know, we have three lawsuits pending against News America Marketing at this time.

Last Friday News America Marketing’s application for leave to appeal and for a stay of the Michigan case was denied by the Michigan Court of Appeals. So, we are very much looking forward to our first day in Court, which we expect to be May 27 in Wayne County Circuit Court here in Detroit.

Profit is up in our International Digital Media and Services segments due to the strength in the coupon clearing business, and our divestiture or discontinuation of cash negative, one-to-one direct mail services, and our cash negative European Media businesses. And while our reported revenue declined for this segment was -18.8%, when you remove revenue from the divested and discontinued operations and the impact of the currency fluctuations, revenue for the segment was actually up 9.6% year-over-year for this quarter on a pro forma basis. We stoped the bleeding by divesting underperforming businesses, and we have focused our development efforts in the interactive arena, which we believe is critical to the way consumers who want to receive value and offers in the future.

We continue to add syndication partners to our redplum.com network and plan to have a total of 25 on board by the end of June. Secured coupon print volume is up over $5 million already in 2009, increasing 10 times versus one year ago. While this business is small on a relative basis and we are pleased with our momentum.

Looking forward, based on this first quarter’s performance and our outlook today, we are on plan to meet our 2009 adjusted EBITDA guidance of $215 million, in spite of the fact that we are longer providing revenue guidance based on the current environment. I like our product portfolio I like being aligned with the changes in customer behavior, but make no mistake about it, ad budgets are very difficult to predict. And I don’t believe we have quite hit the bottom of the current ad recession.

Depending on which forecast do you believe, client-advertising spending is expected to decline 8% to 12% in 2009. And every time a forecaster releases new numbers, they are predicting steeper declines. The advertising industry historically lags economic recovery by about six months. And so, as you know, economic recovery still is uncertain. Clients also continue to go out of business and reduce their footprint, and we are taking the necessary steps to ensure we are proactively managing our receivables. And while none of us really know how long the recession will last, I do believe we will continue to outperform our media peers as consumers and marketers continue to demand value.

And on the upside, we believe that the shift in consumer behavior is not a temporary one. We believe this recession is long enough and deep enough to create permanent change in consumer shopping behavior, and consumers and clients will continue to shift towards value-oriented media.

A large CPG manufacturer recently shared with me, the results of a major study which confirms these changes are likely to be permanent as consumers are increasingly planning their shopping trips around deals, coupons, and where they can get the best value. These trends continue to position our portfolio well for today and into the future.

At this time, I’d like to turn the call over to Bob Recchia, our Chief Financial Officer.

Robert Recchia

Thanks, Al. In my comments today, I am going to cover four areas. The 2009 profit maximization plan update, capital spending, liquidity, and lastly covenant cushion. We put in place our 2009 profit maximization plan in the fourth quarter of 2008 as result of the economic environment and its negative effect on ad spending.

We expected to cut approximately $57.5 million of cost from our 2008 spending levels in 2009. This is critical to achieve our guidance of $215 million in adjusted EBITDA. As a reminder, the cuts are coming in the areas of SG&A $25 million, cost of good sold $26 million and the elimination of unprofitable businesses or product lines $6.5 million. In our year-end conference call, I reported that we were on plan to achieve the $57.5 million in savings. Al mentioned in his comments that the ad recession appears to be deeper than originally expected with overall ad revenues expected to be down 8% to 12% in 2009.

As a result, we have intensified our cost-cutting efforts and expect defined savings in 2009, significantly ahead of our original goal. I believe the additional savings will be evenly split between cost of good sold and SG&A, and I’m pleased with effort and creativity of our associates as we continue to challenge ourselves to do things more efficiently and create additional savings opportunities.

We believe these additional savings should allow us to stay on track, toward our target of $215 million of adjusted EBITDA in spite of a softer ad spending market than we originally anticipated.

Our capital spending for the first quarter came in at $2 million. We still expect to be around $15 million for the year with the only caveat being that we may decide to buy certain equipment that we currently lease,that lease has expired, due to the current banking environment. In either case, we would expect to be between $15 million to $20 million as we stated in our original guidance.

In the first quarter, we paid off $86.2 million of debt including the remainder of our 6 5/8% senior secured bonds. We amended our senior secured credit facility to permit us to repurchase from tendering lenders our outstanding term loans, at prices below par through modified Dutch auctions. The amendment allows us to utilize up to a $125 million to purchase our term loan B debt through modified Dutch auctions until the end of the year. To-date we have repurchased $32.8 million at a weighted average of 23.6% discounted at par resulting in a gain of $4.5 million after fees and taxes.

In conjunction with the modified Dutch auctions. We terminated a total of $32.8 million of our interest rates swaps during the first quarter at a cost of $2.6 million. This cost is being amortized over the remaining life of the swaps through December 31, 2010 as interest expense.

This increase in interest expenses associated with the swap terminations is excluded from interest expense for debt covenant calculation purposes.

At March 31 2009 the interest rate for $47.2 million of our term loan B, was fixed under interest rates swap agreements having effective interest rate of 6.8% with the remaining $129.2 million of our term loan B subject to variable interest rates based on three month LIBOR plus in applicable spread, which in our cases 1.75% with an effective interest rate of 3.2% for the quarter.

On April 1 2009, we elected one month LIBOR as the underlying interest rate on our senior secured credit facility, which yielded an effective floating rate of 2.27% for April. And 2.18% from May, resulting in an interest saving of about $143,000 in the April, May timeframe.

As a result of this change in underlying interest rate to the one month LIBOR. We have discontinued cash flow hedge accounting treatment of interest rate swap contracts going forward.

As of March 31 2009 our covenant cushion is as follows. Our actual senior secured leverage ratio is at 2.8 to 1 versus the covenant threshold of 3.75 to 1, resulting and inclusion of 25.3%. And our actual interest coverage ratio is at 2.37 to 1, versus a convent threshold of 1.75 to 1 resulting an inclusion of 26.2%. Overall I’m pleased with the level of cost cutting we have achieved. And I believe we are executing well on the sales side of the business and it’s very difficult in ad environment. And we look forward for the remainder 2009 I’m confident that the things we are doing in both the sales and cost management will continue to provide us with an adequate level of cushion on our financial covenants and set us up for strong recovery when the economy and ad spending improves. At this point Joe you can now open it up for questions. Joe did you get that? Joe.

Alan Schultz

Joe we’d like to open the call up for questions.

Question-and-Answer Section

Operator

Thank you sir. At this time we will begin the question and answer section (Operator Instructions). And our first question comes from the line of Alexia Quadrani, with J.P. Morgan. Go ahead

Alexia Quadrani - J.P. Morgan

Hi, thank you a couple of questions. First could you give us a sense of what you saw? What you are seeing in April within the Adware business that’s fiscally around Easter Holiday how that went? And then second question on the FSI side of the business? How are the newspaper media cost trending? Are you able to get a better pricing now given maybe desperate newspaper companies are for revenue?

Alan Schultz

Alexia, your first question, what we saw is a strong pre-Easter sort of holiday there in the Shared Mail business. So it was as we would have expected to be, with that said when we looked at kind of April in total, the decline in revenue for the month looks kinds of similar what we saw in the first quarter. So, although, it’s started the month strong with the pre-Easter activity it was definitely weaker at the end of the month and the overall decline was pretty similar. For our newspaper negotiation perspective, clearly the newspapers very much, our value-oriented media because it provides value to their consumers and helps retain their circulation numbers. They have been pretty aggressive from pricing perspective and although were not detailing out profit maximization plan improvements. Bob indicated that we expect the overall $57.5 million in profit maximization. Clearly, part of that is coming from newspaper negotiations being better than we had anticipated. I also think that as we move additional circulation, moving up from $6.5 million to now a little over $10 million in Shared Mail distribution with the FSI, that has also helped us from a negotiation perspective, because of the shift could have actually been more than that had newspapers not been more flexible on their pricing with us. So we did see a fair a lot of flexibility from the newspaper and therefore we retain some circulation with them that we might not have otherwise that we may have moved in the Shared Mail. So the answer to that question is a resounding, yes.

Alexia Quadrani – J.P. Morgan

And just one last question on NCH, it looks like, it did pretty well in the quarter. Can you give us an update and I guess what’s going on with the sale of their incentive timing and completion?

Alan Schultz

Yeah, the NCH, the clearing business, it looks to be strong as we anticipated it would be and we are still in the process of evaluating NCH for the purposes of sales. So we are still in the midst to that process.

Alexia Quadrani – J.P. Morgan

Thank you.

Operator

And our next question comes from the line Dan Salmon with BMO Capital Management. Go ahead sir.

Daniel Salmon – BMO Capital Management

Good morning guys. Few quick questions, similar to the first one, less so how April look towards the first quarter, but how the first quarter revenue trend looked from January through March and if there was material difference, moving through the quarter? And then the second one, another cost cutting one, if you can give us a little color on paper cost somewhat you’re seeing there? Thank you.

Alexia Quadrani – J.P. Morgan

Dan, I would tell you, I think as we move through the first quarter I don’t think we saw a whole lot of variance from what we had anticipated from what we would see from month-to-month and there wasn’t a lot of variance among months. I will tell you and I mentioned earlier it's difficult to forecast revenue with a lot of precision, right now. Interestingly, first quarter revenue came out amazingly close to what we had budgeted for and had planned for, in terms of our model. It was scary close in fact. But as we went through the quarter, and even before the quarter and any snapshot in time, we did see a fair amount of fluctuation in our forecast for the quarter. So, although quarter came in as we anticipated it would, there were different points in time, where we thought we are better doing better or worse what we have planned on. And so, that was our comment really about how difficult it is the forecast with the high level of precision right now. As it relates to paper question, clearly, as we talk to people in the print media industry in general, whether that’s talking to the Postmaster General or ink suppliers or paper suppliers, we’re seeing a significant fall off in demand for paper. And so, I think that’s put the – all the paper companies are in a position where they have gotten significantly more aggressive from a price perspective. We had, I think the good news for us is we had pretty much unwound most of our long-term paper agreements so, we really didn’t have much in the way of long-term agreements in place. And we were buying on a spot market basis. So, clearly, starting particularly in the second quarter, we started to see much more favorable spot prices and we are actually involved in a process right now with four different paper company to look at long-term contractual relationship on paper that would go out for two or three years so, that’s kind of the paper update.

Daniel Salmon – BMO Capital Management

That’s very helpful. Thank you.

Operator

And our next question comes from the line of Mick Dobray - Robert W. Baird & Company with Robert W. Baird & Co. Go head please.

Mick Dobray - Robert W. Baird

Good morning. Just two quick questions, first one as you mentioned some additional cost savings. Could you provide a little more color on that?

Alan Schultz

I’ll turn over to Bob, he is watching the profit maximization plan on sort of a daily basis.

Robert Recchia

If you look at what we originally gave you, the savings were coming out of SG&A cost of goods sold about evenly and then the third bucket was elimination of unprofitable businesses or product lines. So if you just look at cost of goods sold and SG&A, we’re exceeding on both of those. I'm not going to quantify exact amount because there is a lot of things that are still in play between now and end of the year but we will beat the 57.5. And right now, it looks like, the excess is split evenly between cost of goods sold and SG&A but I’m a little reluctant at this point put a dollar amount on it.

Alan Schultz

As I mentioned there is still some work to be done. I was just talking about paper a second ago obviously to the extent we do lock in here in the near future on a long-term arrangement we’ll able to schedule out exactly what those papers savings will be for the balance of the year. But and so we do that there is still a question there, we have a pretty good idea of what we think it’s going to be but until we lock in we will not know for sure.

Mick Dobray - Robert W. Baird

Thank you. And my last question is on spending trends that you’re seeing from different verticals. Can you comment on that, compared to what you have seen in past perhaps for you.

Alan Schultz

I guess what I would tell you, is the other mass merchandisers continue to be relatively soft. I think the grocery and drugs business tends to be pretty stable right now. We are seeing some declines as a result of light weighting but other than that it really looks to be pretty stable. Yeah, and then when you look at some of the, like the specialty retail vertical, I think specialty retail has been fairly solid. When you think about specialty retail business, they really have to promote to drive traffic into their stores and get people in their stores and as a result of that they pretty much have to spent. So I think that business has been pretty solid and of course CPGs, as I mentioned, look like they are spending more money and I think a lot of that has to do with the research they have found on consumer seeking value, and of course one of the challenges that CGPs have to, as we seen a pretty spike up in private label brands. So, the consumer package goods companies are competing against the retailers private label brands and that’s encouraged them to spent more money. And then, from a local advertising perspective, we’ve seen local down a bit, probably not down as much as a lot of our media competitors who do business with local companies. And so, although it’s definitely down and it’s looks to me as if we are fairing significantly better.

Mick Dobray - Robert W. Baird

Thank you.

Operator

And our next question comes from the line of Ned Davis with North Weber Capital. Go ahead sir.

Ned Davis - North Weber Capital

Yes, started out. Congratulations on doing that very good job in the quarter.

Alan Schultz

Thank you

Ned Davis - North Weber Capital

I have really two questions, first of all your comment about the debt repurchase and related issues. Do you expect to do significantly more debt repurchase and is there an opportunity now under your covenants to do any more stock buy-back? That’s my first question and can I have one other one please?

Alan Schultz

Yeah, I think as it relates to the debt repurchases, we’re sort of watching the market and looking for opportunities. If we see opportunities, we may take advantage of them, but at this point in time, we are not locking in on any kind of clear plans or clear objective. It's really more opportunistic then anything else. And as it relates to stock buyback I think we do have a bucket that we could use for stock buyback, if we elected to, I want to say and I’m going from memory, but it is in our credit agreement, if you want to look at the actual document in the tune of about $25 million. It may even be more than that, it might be as high as 75, but I think it somewhere between $25 million and $75 million for stock buyback. And obviously, with stock buyback we’ve never forecasted any of our intentions as it relates stock buyback and I don’t think, we would in the future, that's also something that we’ve always tried to do on an opportunistic basis also.

Ned Davis - North Weber Capital

Did you do any in Q1?

Alan Schultz

No,

Ned Davis - North Weber Capital

No, Okay

Alan Schultz

No and we do if we do do any stock buyback, we do report it when we report the quarter and we would let you know that. We would typically make an announcement in advance, we are doing it in any particular point of time.

Ned Davis - North Weber Capital

Okay, just quickly on the pending trial. I’m glad to see that after a long wait, we are finally getting to a point where we are in a favorable, when you hopefully, have this trial. Can you give us, based on, the public filings et cetera and legal filings that are available, can you give us any sense of the parameters about your claim and if you really won and won everything, what parameters you could put on this based on public information. Is there any kind of color, you can give us on this and they were getting closer to an actual trial?

Alan Schultz

I don’t think we can do that because we like everybody in a situation like this should hire damage experts and we do have the damage expert that’s done their calculation. I don’t believe that that damage calculation is yet public information, I don’t think it’s actually available to the public. But in the midst of the trial that certainly will become public information and you get a sense of what the damages are, at that point.

Ned Davis - North Weber Capital

Any idea, how long the trial might take, any rough estimate?

Alan Schultz

I think the judge has got four or five weeks blocked out on his schedule.

Ned Davis - North Weber Capital

Okay, good. Thank you very much, appreciated.

Alan Schultz

Thank you.

Operator

(Operator Instructions) and our next question comes from the line of Grant Gandy with Oppenheimer. Go ahead please.

Grant Gandy - Oppenheimer

Hi, how many, pricing FSI that displays the higher volume? I was wondering with the people in the advertising industries, last few quarters, talk about relative costs that aside versus the other alternative that’s changed?

Alan Schultz

Yeah, I would tell you that the FSI prices have been declining down for eight years and so the FSI is ridiculously low. If you look it at on a cost per coupon delivered basis, cost coupon redeem basis, it is substantial lower than any other alternatives out there that are available. It’s really impossible to get anything that even really compares and of course that's why we are at the point now where probably over 90% of all consumer package goods, coupons delivered are delivered via in FSI’s, so there is no doubt, it's ridiculously efficient.

Grant Gandy - Oppenheimer

Okay.

Operator

And our next question comes from the line of Jonathan Levine with Jefferies. Go ahead sir.

Jonathan Levine – Jefferies & Co

Yeah I was wondering if you can, I guess quantify on the cost savings where you are, in I guess for 1Q ’09 and then when you expect to be at the full run rate, the $57.5 million run rate. At what quarter do you expect to kind of hit that during 2009, and then also I had a followup I guess what I can ask that afterwards that?

Robert Recchia

Yeah this Bob. I would tell you that the cost saves savings came in very, very quickly. Probably faster than I’d anticipated so, we won’t be at a full run rate if we do our jobs well this year because we are going to continue to find cost throughout the year so, what I told you, as we are going to beat the $57.5 million. I don’t know how much we are going to beat it by at this point, we have a plan that is actually evolving as time goes on. And as soon as we get to a point where we can kind to give you a little bit more clarity on that we will. But things are coming in better than expected, faster than expected and ideas that I would tell you probably we wouldn’t have thought about four months ago when we did this, are surfacing from our group. So, we need little bit more time to put a number on it for you.

Alan Schultz

And Jonathan,we’ve obviously integrated a number of companies together here, integrated a number of different functional areas together and we did the best job we could in terms of designing structures and processes. But right now we are going through a very big assessment process to determine whether, there are any structural changes that we could make or process changes that we could make that would even improve efficiencies more than then what we have today. So that’s a kind of little bit of a sort of a final step from an integration perspective that’s underway as we speak. So as Bob, said depending on what we find there in that assessment, that will continue to add productivity and efficiency on a going forward basis.

Jonathan Levine – Jefferies & Co

Okay, my second question was really a followup on, I guess on an earlier question in terms of kind of the buyback activity. What you thoughts in terms of really a bond buybacks and would you have any availability to kind of pursue that?

Alan Schultz

Yeah, we have, we certainly have adequate and sufficient cash available for bond buyback. If we elect the buyback we can get back in the market with another modified Dutch auction if we elect to do so.

Jonathan Levine – Jefferies & Co

And I guess, what is your restricted payment basket stand in regards to, bond buyback?

Alan Schultz

You know I’m sorry, I want to be clear about that too, Bob just looked over at me, and he had said bonds and our modified Dutch auction is about our term loan B, our senior secure credit facility is what we’ve being buying back with the modified Dutch auction. In terms of our credit agreement, there are number of issues and things that relate to the whole issue of bonds, which is a kind of a separate issue.

Jonathan Levine – Jefferies & Co

Okay. So but if you are interested given kind of where they’re trading, do you have availability and the ability to buy them back?

Unidentified Company Representative

There is differing opinions on that depending on who you talk to.

Jonathan Levine – Jefferies & Co

Okay thanks.

Unidentified Company Representative

I wish I could give you a clear answer, but it’s a not a clear answer. There are differing opinions on whether we have the ability to buyback bonds or whether we don’t.

Jonathan Levine – Jefferies & Co

Okay,

Operator

And our next question comes from the line of Christine Barshtak Carlyle, go ahead ma’am.

Christine Barshtak - Carlyle

My questions have been answered thank you.

Operator

And it appears we have no further questions at this time. I will turn it back to management for any closing remarks.

Alan Schultz

Thank you Joe, just to wrap things up I just like to say a few words about the level of dedication and commitment of our team here throughout the company really at all levels whether it’s top, bottom or in the middle. There is been an unwavering commitment to win like I’ve never seen. I’ve been at the company now for 25 years and I've never seen this level of commitment and dedication.

I don’t know if it's influenced by the fact that our headquarters is here in Detroit, where we lead the country in unemployment and we are watching what’s happening in the auto industry, but there is just an unprecedented fight in the hearts of employees at all locations throughout, latterly in the world. There is a unity, a willingness to put the company first and attitude and discipline that regardless of the environment we will emerge from these difficult times a stronger and even more competitive company. Wherever this extraordinary will power comes from, it’s here and is resolute. So on behalf of our entire team, thank you for being on the call with us this morning, and have a great day.

Operator

Ladies and Gentlemen that does concludes the conference call for today if you would like to listen to a replay of today’s conference. Please dial 303-590-3000 or 1-800-405-2236, access code 11127109 and the pound sign. Thank you for participating in today’s conference. You may now disconnect.

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Source: Valassis Communications, Inc Q1 2009 Earnings Call Transcript
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