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Valassis announces revenue growth of 6.6% for Q2

Friday, July 30, 2010

Press release from the issuing company

Livonia, Mich. - Valassis today announced financial results for the second quarter ended June 30, 2010. Quarterly revenues were $580.0 million, an increase of 6.6% compared to $544.0 million for the prior year quarter. Second-quarter net earnings were $11.1 million, which included $14.7 million, net of tax, in costs related to the repurchase of $297.8 million of our 8-1/4% Senior Notes due 2015. Without the effect of these debt repurchase costs, net earnings would have been $25.8 million, an increase of 62.3% compared to $15.9 million in the prior year quarter. Diluted earnings per share (EPS) for the quarter was $0.21 compared to $0.33 in the prior year quarter. Without the debt repurchase costs, which accounted for $0.28 per share, net of tax, diluted EPS would have been $0.49, a 48.5% increase compared to the prior year quarter. Charges for non-cash stock-based compensation negatively impacted second-quarter 2010 earnings by $7.9 million, or $0.09 per share, compared to $1.7 million, or $0.02 per share, in the prior year period. For the second quarter of 2010, adjusted EBITDA* was $83.4 million, an increase of 28.3% compared to $65.0 million for the prior year quarter.

"Revenue growth across all four of our business segments this quarter was driven by strong consumer demand for value and our clients' need to respond to this demand," said Alan F. Schultz, Valassis Chairman, President and Chief Executive Officer. "Our decision to raise guidance is reflective of our outlook on client spending on our media, and we believe we are well positioned to continue delivering mid-single digit revenue growth."

Some additional highlights include:

- Selling, General and Administrative (SG&A) Costs: Second-quarter 2010 SG&A costs were $92.7 million, which included $0.1 million in legal costs (related to the recently settled litigation) and $7.9 million in non-cash stock-based compensation. This compares to prior year quarter SG&A costs of $86.7 million, which included $3.7 million in legal costs (related to the recently settled litigation) and $1.7 million in non-cash stock-based compensation.
- Capital Expenditures: Capital expenditures were $4.6 million during the second quarter.
- Liquidity:
  -  During the quarter, we repurchased $297.8 million in principal amount of our 8-1/4% Senior Notes due 2015 through a tender offer and open market repurchases. The aggregate principal amount of the 8-1/4% Senior Notes due 2015 remaining outstanding as of June 30, 2010 was $242.2 million. This debt reduction will result in an approximate net interest expense savings of $12.0 million in 2010 and $22.2 million in 2011.
  - We ended the second quarter of 2010 with $228.7 million in cash and net debt (total debt less cash) of $481.1 million.
- Stock Repurchases: During the quarter, we repurchased 1,619,600 shares of our common stock at an aggregate cost of $54.6 million under the stock repurchase program reinstated in May 2010. Our 2010 stock repurchases are limited by our senior secured credit facility to an aggregate amount of $58.4 million.

Outlook
Consumer usage of value-oriented media like ours continues to strongly influence shopping behavior. Marketers have increased their promotional activity as shoppers have focused on value. Based on our current results and outlook, we are increasing our full-year 2010 guidance as follows: adjusted EBITDA* from approximately $300 million to approximately $320 million and diluted cash EPS* from $2.79 to $3.14. We reiterate our previously announced full-year 2010 guidance of $25 million in capital expenditures.

Business Segment Discussion
- Shared Mail: Revenues for the second quarter of 2010 were $326.3 million, an increase of 4.0% compared to the prior year quarter due primarily to an increase in insert volumes. Segment profit for the quarter was $40.6 million, an increase of 73.5% 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 second quarter of 2010 were $116.3 million, an increase of 17.5% compared to the prior year quarter due to an increase in Run-of-Press client spend in the energy and telecom verticals. Segment profit for the quarter was $5.3 million, a decrease of 47.0% compared to the prior year quarter due to a shift in both client and product mix and an increase in SG&A allocation.
- Free-standing Inserts (FSI): Revenues for the second quarter of 2010 were $94.6 million, an increase of 2.7% compared to the prior year quarter. Segment profit for the quarter was $11.4 million, an increase of 165.1% compared to $4.3 million in the prior year quarter. The improvement in segment results was primarily due to an increase in industry volume of 2.6% and cost reductions.
- International, Digital Media & Services (IDMS): Revenues for the second quarter of 2010 were $42.8 million, an increase of 8.9% compared to the prior year quarter. Coupon clearing volume continues to be the primary driver of revenue for this segment. Segment profit for the quarter was $3.1 million, a decrease of 51.6% compared to the prior year quarter due primarily to the continued investment in our In-store and Digital businesses. According to NCH Marketing Services, Inc., our coupon-processing and analytics subsidiary, second quarter 2010 U.S. consumer packaged goods (CPG) coupon distribution was up 8.8% and coupon redemption volume was up 6.3% compared to the prior year quarter. This marks the seventh consecutive quarter of CPG redemption volume growth.

 

 

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