Valassis Announces Revenue Growth of 5.2% for the Third Quarter Ended Sept. 30, 2010

LIVONIA, Mich., Oct. 28 /PRNewswire-FirstCall/ -- Valassis (NYSE: VCI) today announced financial results for the third quarter ended Sept. 30, 2010.  Quarterly revenues were $572.4 million, an increase of 5.2% compared to $544.1 million for the prior year quarter.  Third-quarter net earnings were $27.0 million, an increase of 95.7% compared to $13.8 million in the prior year quarter. Diluted earnings per share (EPS) for the quarter was $0.52, an increase of 85.7% compared to $0.28 in the prior year quarter. For the third quarter of 2010, adjusted EBITDA* was $79.8 million, an increase of 24.9% compared to $63.9 million for the prior year quarter.

"Our strong results this quarter are consistent with our long-term plan to deliver annual mid-single-digit revenue growth and double-digit EPS growth," said Alan F. Schultz, Valassis Chairman, President and Chief Executive Officer.  

Some additional highlights include:

• Selling, General and Administrative (SG&A) Costs: Third quarter 2010 SG&A costs were $91.8 million, which included $8.6 million in non-cash stock-based compensation expense ($6.5 million of which is related to accelerated expense attributable to recipients of equity awards who meet certain age and service criteria under the company's recently implemented post-termination policy). This compares to the prior year quarter SG&A costs of $90.7 million, which included $2.8 million in non-cash stock-based compensation expense and $2.5 million in legal costs related to litigation settled in February of 2010.  Management is planning to recommend to its Board of Directors that certain equity award grants that would typically be granted in January of 2011 be granted in December of 2010. If approved, we anticipate approximately $10 million in non-cash stock-based compensation expense in the fourth quarter of 2010. We expect 2011 non-cash stock-based compensation expense to be approximately $16 million to $18 million based on current stock price and fair value assumptions and anticipated 2011 grants.
• Capital Expenditures: Capital expenditures were $8.0 million during the third quarter.
• Liquidity:
  • We ended the third quarter of 2010 with $208.5 million in cash and net debt (total debt less cash) of $499.5 million.
  • Total tax payments during the third quarter of 2010 were $61.8 million primarily as a result of our first quarter 2010 receipt of net proceeds from the aforementioned litigation settlement.  During the fourth quarter of 2010, we expect total tax payments of approximately $56.0 million.
• Stock Repurchases: During the quarter, we repurchased $3.6 million, or 114,072 shares, of our common stock at an average price of $31.57 per share under the stock repurchase program reinstated in May 2010. As of Sept. 30, 2010, we repurchased $58.2 million, or 1,733,672 shares, of our common stock at an average price of $33.58 per share. Our 2010 stock repurchases are limited by our senior secured credit facility to an aggregate amount of $58.4 million.

Outlook

We believe our RedPlum™ blended media solutions and products are a mainstay for both value-conscious consumers and the marketers who seek to reach them.  Based on our current results and outlook, full-year 2010 guidance is as follows: we plan to meet or exceed our guidance for adjusted EBITDA* of $320 million and are increasing diluted cash EPS* from $3.14 to $3.20. We also reiterate our previously announced full-year 2010 guidance of $25 million in capital expenditures.

Business Segment Discussion

• Shared Mail:  Revenues for the third quarter of 2010 were $326.1 million, an increase of 2.1% compared to the prior year quarter due primarily to an increase in insert volumes. Segment profit for the quarter was $39.3 million, an increase of 32.8% compared to the prior year quarter. The growth in segment profit is due to the increase in revenues, newspaper alliances and package optimization efforts.

• Neighborhood Targeted:  Revenues for the third quarter of 2010 were $114.0 million, an increase of 23.9% compared to the prior year quarter due to an increase in client spend in the energy, telecom and specialty retail verticals. Segment profit for the quarter was $7.2 million, an increase of 84.6% compared to the prior year quarter due to increased volume.

• Free-standing Inserts (FSI):  Revenues for the third quarter of 2010 were $89.2 million, a decrease of 3.7% compared to the prior year quarter.  The revenue decline is due to two less FSI publications compared to the prior year quarter.  Segment profit for the quarter was $4.9 million, an increase of 113.0% compared to $2.3 million in the prior year quarter. Segment profit improvement was due primarily to an increase in average pages per book and related cost efficiencies.

• International, Digital Media & Services (IDMS):  Revenues for the third quarter of 2010 were $43.1 million, an increase of 7.8% compared to the prior year quarter.  Coupon clearing volume continues to be the primary driver of revenues for this segment.  The increase in revenues for the third quarter was due primarily to growth in our In-Store and Digital businesses. Segment profit for the quarter was $4.5 million, a decrease of 34.8% compared to the prior year quarter due primarily to reduced volume in our European business and the continued investment in the Digital business.

Conference Call Information

We will hold an investor call today to discuss our third-quarter results at 11 a.m. (ET). The call-in number is (877) 941-2332 (please reference conference #4319120). The call will be simulcast on our website at http://www.valassis.com and a telephonic replay of the call will be available through Nov. 4, 2010 at (800) 406-7325, pass code 4319120. This earnings release, webcast and a transcript of the conference call will be archived on our website under "Investor."

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 retirement of debt, depreciation, amortization, stock-based compensation expense, non-recurring restructuring and severance costs and News America litigation settlement cash proceeds, net of related payments.  We define diluted cash EPS as net earnings plus depreciation, amortization, stock-based compensation expense and loss on retirement of debt, net of tax, less capital expenditures and News America litigation settlement cash proceeds, net of tax and related payments, divided by weighted diluted shares outstanding.  Adjusted EBITDA and diluted cash EPS 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 diluted cash EPS 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 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 diluted cash EPS, as defined above, provides 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 does 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 and diluted cash EPS 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 below.  

About Valassis

Valassis is one of the nation's leading media and marketing services companies, offering unparalleled reach and scale to more than 15,000 advertisers. Its RedPlum media portfolio delivers value on a weekly basis to over 100 million shoppers across a multi-media platform – in-home, in-store and in-motion. Through its interactive offering – redplum.com – consumers will find compelling national and local deals online. Headquartered in Livonia, Michigan with approximately 7,000 associates in 28 states and eight countries, Valassis is widely recognized for its associate and corporate citizenship programs, including its America's Looking for Its Missing Children® program. Valassis companies include Valassis Direct Mail, Inc., Valassis Canada, Promotion Watch, Valassis Relationship Marketing Systems, LLC and NCH Marketing Services, Inc.  For more information, visit http://www.valassis.com or http://www.redplum.com.

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; ongoing disruptions in the credit markets that make it difficult for companies to secure financing; 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; the credit and liquidity crisis in the financial markets could continue to 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.

SOURCE Valassis

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