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Valassis announces strong results for Q1 2010

Friday, April 30, 2010

Press release from the issuing company

Livonia, Mich. - Valassis today announced financial results for the first quarter ended March 31, 2010. We reported quarterly revenue of $550.0 million compared to $551.2 million for the prior year quarter. First quarter net earnings were $322.5 million compared to $13.0 million in the prior year quarter. As previously announced, on Feb. 4, 2010 we received a cash payment of $500.0 million as part of a litigation settlement. First-quarter net earnings included litigation settlement proceeds of $301.4 million, after estimated taxes of $188.7 million and other related payments of $9.9 million. Without the effect of this settlement, net earnings would have been $21.1 million, a 62.3% increase over the prior year quarter. Diluted earnings per share (EPS) for the quarter was $6.26 compared to $0.27 in the prior year quarter. Without the effect of this settlement, which accounted for $5.85 per share, diluted EPS would have been $0.41, a 51.9% increase compared to the prior year quarter. For the first quarter of 2010, adjusted EBITDA* was $73.9 million, an increase of 37.1% compared to $53.9 million for the prior year quarter.

"Revenue growth coupled with continued cost management in our Shared Mail, FSI and IDMS segments this quarter drove a substantial increase in gross margin and our decision to raise guidance," said Alan F. Schultz, Valassis Chairman, President and Chief Executive Officer. "As we transition our primary focus from cost management to revenue growth, the strong operating leverage of these businesses provides significant flow-through to the bottom line."

Some additional highlights include:
- Selling, General and Administrative (SG&A): First-quarter 2010 SG&A costs were $91.0 million, which includes $2.1 million in legal costs (related to the recently settled litigation) and $5.9 million in non-cash stock-based compensation. This compares to prior year quarter SG&A costs of $86.2 million, which included $2.9 million in legal costs (related to the recently settled litigation) and $1.0 million in non-cash stock-based compensation.
- Capital Expenditures: Capital expenditures for the first quarter were $3.8 million.
- Liquidity:
- We ended the first quarter of 2010 with $633.0 million in cash and a current tax liability of $175.9 million primarily as a result of the recent litigation settlement.
- On April 15, 2010, we amended our senior secured credit agreement to, among other things, allow us to use up to $325.0 million to repurchase our outstanding 8 1/4% Senior Notes due 2015, through April 15, 2011. As part of the amendment, we agreed to reduce the aggregate revolving credit commitments under our senior secured credit facility from $100.0 million to $50.0 million, and increase the applicable spread for the current LIBOR-based borrowings under our senior secured credit agreement by 50 basis points from 175 basis points to 225 basis points.

Outlook
As savings-conscious consumers look toward value-oriented media to make purchasing decisions, we believe advertisers will continue to utilize our products to stimulate sales. Based on our current outlook and results, we are raising our full-year 2010 guidance as follows: adjusted EBITDA* from approximately $280 million to approximately $300 million and diluted cash EPS* from $2.48 to $2.79. We reiterate our previously announced annual guidance of $25 million in capital expenditures. We have included a table accompanying this press release for illustrative purposes only which reflects full-year 2010 diluted cash EPS* of $3.07, which hypothetically assumes that we use $325 million in cash to repurchase a portion of our outstanding 8 1/4% Senior Notes due 2015 at the average current market price. There can be no assurance that we will repurchase any of such Notes.

Business Segment Discussion
- Shared Mail: Revenue for the first quarter of 2010 was $312.9 million, an increase of 0.6% compared to the prior year quarter. The segment experienced modest revenue growth despite our optimization efforts which resulted in a 9% reduction in packages representing an approximate 2% reduction in revenue. Segment profit for the quarter was $31.6 million, an increase of 68.1% compared to the prior year quarter. The increase in segment profit is due to effective cost management, including package optimization efforts, and SG&A reductions.
- Neighborhood Targeted Products: Revenue for the first quarter of 2010 was $99.8 million, a decrease of 11.3% compared to the prior year quarter, due to reduced client ad spend within the financial vertical in the Run-of-Press business. Segment profit for the quarter was $7.1 million, a decrease of 31.1% compared to the prior year quarter. The segment profit decline for the quarter was due primarily to the decline in revenue.
- Free-standing Inserts (FSI): Revenue for the first quarter of 2010 was $97.5 million, an increase of 4.2% compared to the prior year quarter. Segment profit for the quarter was $8.3 million, compared to $1.3 million in the prior year quarter. The improvement in segment results was primarily due to reduced costs and a 10.4% increase in industry volume of which we believe approximately 4.5% is related to an earlier Easter in 2010 versus 2009.
- International, Digital Media & Services (IDMS): Revenue for the first quarter of 2010 was $39.8 million, an increase of 16.7% compared to the prior year quarter. Segment profit for the quarter was $5.5 million, an increase of 37.5% compared to the prior year quarter despite increased investment in our In-store and Digital businesses. The improvement in segment performance was driven by the sustained increase in coupon clearing volume. According to NCH Marketing Services, Inc. (our coupon-processing and analytics subsidiary), first quarter 2010 U.S. consumer packaged goods (CPG) coupon distribution was up 14% and coupon redemption volume was up 9.7% compared to the prior year quarter. This marks the sixth consecutive quarter of CPG redemption growth.

 

 

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