Valassis Writes Down $245 Million in Assets; Legal Bills Running at 10% of Profits

Last Updated Feb 17, 2009 10:48 AM EST

Direct mail giant Valassis wrote down $245.7 million of its assets in a non-cash impairment charge related to goodwill and other intangibles. The move resulted in the company making a loss of $222 million in Q4 2008.

The write-down raises questions about how much of the remaining $892 million of intangible assets on Valassis's balance sheet is at risk. Intangible assets often include things like "goodwill" or the value of brand names bought in acquisitions. In recessions, those assets become worthless as goodwill cannot be bought or traded easily.

If you factor out the charge on intangibles and focus on the actual business Valassis is doing, you find that the company's legal costs are still a huge percentage of its profit. Without the charge, the company would have made a profit of $23.7 million. Valassis's legal bills were $2.5 million. Put another way, the company gives about 10 percent of its entire profit for the quarter to its lawyers.

Valassis is embroiled in a high-risk lawsuit against News America Marketing Group, which it believes is engaged in a price-fixing conspiracy against it. The company spent $1.8 million in Q3 and $4.5 million in Q2. If Valassis loses, and the judge awards costs against Valassis, it could be disastrous for the company.

More generally, Valassis saw revenue slump 5.3 percent down to $626.3 million for Q4 2008. Management blamed "the impact of the continued uncertainty in the global macroeconomic environment."

The company also spent $4.2 million in "severance" costs associated with laying off employees and another $7.6 million in "non-recurring" charges.