Exhibit 99.1
VALASSIS REPORTS REVENUES OF $248.9 MILLION IN THE THIRD QUARTER
COMPANY FOCUSES ON STRATEGIC GROWTH INITIATIVE
LIVONIA, Mich., Oct. 26 /PRNewswire-FirstCall/ -- Valassis (NYSE: VCI), the
leading company in marketing services and Connective Media(TM), today announced
financial results for the third quarter ended Sept. 30, 2006. The company
reported quarterly revenues of $248.9 million, down 6.5% from the third quarter
of 2005. Third-quarter net earnings were $6.6 million, or $0.14 in earnings per
share (EPS). Earnings prior to $10.1 million (net of tax) in charges related to
the proposed acquisition of ADVO and the subsequent lawsuit to rescind the
agreement and $2.3 million (net of tax) of non-recurring charges taken in the
third quarter were $19.0 million, or $0.40 in EPS.
"While we have made important progress in some areas of our business,
year-to-date, our 2006 performance has fallen short of expectations," said Alan
F. Schultz, Valassis Chairman, President and CEO. "Clearly, the free- standing
insert (FSI) industry continues to be very price competitive, and in fact, the
revenue and profit decline in this segment of our business in Q3 is entirely
attributable to pricing. This competitive pricing environment will also
negatively impact 2007 FSI revenue and profitability.
"Accordingly, we have refocused our efforts on our Strategic Growth
Initiative, which has been geared toward attaining sustainable growth and the
enhancement of shareholder value. We are confident in and committed to this plan
for growth, which addresses four key strategies designed to: grow and diversify
our revenue base; restore and enhance profit margins across all business units;
leverage data, technology and analytics to enhance our competitive advantage;
and enrich and evolve our strong traditions and culture," Schultz added.
Financial Highlights
Three Months Ended Nine Months Ended
Sept. 30, Sept. 30,
(in millions -------------------------------------- --------------------------------------
except per share data) 2006 2005(3) %Change 2006 2005(3) %Change
- ------------------------------ ---------- ---------- ---------- ---------- ---------- ----------
Total Revenues $ 248.9 $ 266.1 -6.5% $ 757.1 $ 821.8 -7.9%
Earnings, Prior to ADVO
Transaction-related Costs
and Non-recurring Items $ 19.0 $ 21.3 -10.8% $ 56.8 $ 75.1 -24.4%
ADVO Transaction-related
Costs -10.1(1) $ 0.0 n/a -10.1(1) $ 0.0 n/a
Non-recurring Items $ -2.3(2) $ 0.0 n/a $ -2.3(2) $ 0.0 n/a
Net Earnings $ 6.6 $ 21.3 -68.9% $ 44.4 $ 75.1 -40.9%
EPS, diluted $ 0.14 $ 0.42 -66.7% $ 0.93 $ 1.47 -36.7%
EPS, Prior to ADVO
Transaction-related Costs
and Non-recurring Items,
diluted(4) $ 0.40 $ 0.42 -4.8% $ 1.19 $ 1.47 -19.0%
(1) During the third quarter of 2006, the following charges related to the
proposed acquisition of ADVO and the subsequent lawsuit to rescind the
merger agreement were incurred: $8.2 million, net of tax, related to the
termination of a swap contract and the premium on a swaption contract
both entered into in contemplation of the financing of the proposed ADVO
transaction pursuant to a merger agreement which Valassis is now seeking
to rescind; and $1.9 million, net of tax, in legal and professional
costs related to the proposed ADVO transaction and subsequent lawsuit to
rescind.
(2) Costs related to the close-down of both the French agency business and
the eSettlement business unit of NCH.
(3) Excludes the pro-forma effect of stock option expense; including this
expense, earnings for the three months ended Sept. 30, 2005 would have
been $18.9 million and EPS would have been $0.38, while earnings for the
nine months ended Sept. 30, 2005 would have been $69.1 million and EPS
would have been $1.36.
(4) EPS, prior to ADVO transaction-related costs and non-recurring items, is
considered by management to be a more comparable measure of the
company's performance versus prior years and is consistent with the
information used to develop the earnings guidance shared with investors.
-- SG&A expense for the third quarter of 2006 includes $6.4 million in
costs related to the close-down of both the French agency business and
the eSettlement business unit of NCH and expenses related to the
proposed ADVO acquisition and subsequent efforts to rescind the merger
agreement. Without these charges, SG&A expense was down 3.9% to $32.2
million compared to the third quarter of 2005 due to reductions in
headcount and incentive compensation expenses, partially offset by the
inclusion of $1.4 million in stock option expense in accordance with
FAS123R.
-- Cash and auction-rate securities at the end of the quarter were $167.5
million.
-- The company's debt position, net of cash and auction-rate securities,
was $92.4 million at quarter-end.
-- On Oct. 2, 2006 Valassis paid a cash settlement in the amount of $11.3
million in connection with the termination of a $400 million
interest-rate swap contract. In addition, Valassis did not exercise its
$400 million interest-rate swaption contract which expired Sept. 28,
2006 for which it paid a premium of approximately $1.0 million. Both of
these contracts were entered into as a bridge hedge for a portion of the
acquisition financing related to the proposed ADVO transaction pursuant
to a merger agreement which Valassis is now seeking to rescind. These
charges have been included in interest expense during the quarter ended
Sept. 30, 2006. In addition, on Sept. 28, 2006, the company replaced its
bridge hedge by entering into a new $400 million swaption contract. The
premium paid for the new swaption was approximately $2.1 million,
representing the maximum cost to be recognized as interest expense as
the swaption is marked to market over the reporting period through Feb.
28, 2007. For further details, refer to the Form 8-K filed by Valassis
with the Securities and Exchange Commission on Oct. 5, 2006.
-- Capital expenditures through the first nine months of 2006 were $8.4
million in comparison to $22.0 million for the first nine months of
2005. The company expects capital expenditures to be substantially less
than the $20 million level originally forecasted for 2006.
Business Segment Discussion
-- Market Delivered Free-standing Insert (FSI): Co-op FSI revenues for the
third quarter were $105.9 million, down 7.1% from the third quarter of
2005. This decrease was due to a reduction in FSI pricing compared to
the third quarter of 2005. As expected, Valassis' FSI market share
during the third quarter of 2006 was up modestly versus the first half
of 2006. Management noted that FSI cost of goods sold was down by
approximately 3% for the quarter on a cost per thousand (CPM) basis due
to reductions in media insertion rates and the cost of paper.
-- Market Delivered Run of Press (ROP): ROP revenues, generated from the
brokering of advertising space on behalf of newspapers, were down 17.4%
in the third quarter to $24.6 million due to a change in mix to more
fee-based business versus margin-based business. While ROP revenues were
down, the company earned $4.4 million in profit for ROP for the quarter,
an increase of 104.4% over the third quarter of 2005.
-- Neighborhood Targeted Products (Cluster Targeted): Neighborhood Targeted
product revenues decreased 10.0% for the quarter to $79.0 million. This
segment continued to be impacted by a pullback in spending due to
industry consolidations in the telecommunications and appliance
manufacturing industries, and the reduction in spending of a specialty
retail customer. As expected, the company had a strong quarter in the
sampling business.
-- Household Targeted Products (1 to 1): Household Targeted product
revenues were flat for the third quarter at $12.6 million, as a result
of securing new business to offset the loss of revenue associated with
the discontinuance of PreVision's agency business. The Household
Targeted product segment continued to be profitable.
-- International & Services: International & Services revenues are
comprised of NCH Marketing Services, Valassis Canada and Promotion
Watch. International & Services reported revenues of $26.8 million for
the third quarter, up 22.4%, driven by increased revenue from the French
media business and Valassis Canada. During the quarter, the company
recognized a $1.7 million non-recurring charge, net of tax, related to
the close-down of the French agency business as it continues to
transition to a media-based business model. The company also closed down
the eSettlement unit of NCH with an associated $0.6 million
non-recurring charge, net of tax.
Outlook
"Regarding our current 2006 EPS guidance range of $1.60 to $1.80 per share,
we still have some selling time left in the year and some hard work to do to get
to the low end of this range, excluding transaction costs and other, one-time
charges," said Schultz.
"Additionally, several factors, including the pending outcome of the ADVO
litigation and continuing negotiations of the remaining FSI business to be
contracted for 2007, suggest that now is not the best time to provide 2007 EPS
guidance. At the same time, we believe existing contracts and those currently in
negotiation are expected to lead to a pricing decline next year, similar to the
one experienced in 2006, which is approximately 10 percent," Schultz concluded.
Conference Call Information
Valassis will hold an investor call today to discuss its third-quarter
results at 11 a.m. (EDT). The call-in number is (800) 218-0204. The call will
simulcast on the company's Web site, at http://www.valassis.com , and replay
through Nov. 8, 2006 at (800) 405-2236, pass code 11040294. This earnings
release and the Webcast will be archived on the company's Web site under
"Investor."
About Valassis
Valassis offers a wide range of marketing services to consumer packaged
goods manufacturers, retailers, technology companies and other customers with
operations in the United States, Europe, Mexico and Canada. Valassis' products
and services portfolio includes: newspaper-delivered promotions and
advertisements such as inserts, sampling, polybags and on-page advertisements;
direct-to-door advertising and sampling; direct mail; Internet-delivered
marketing; loyalty marketing software; coupon and promotion clearing; and
promotion planning and analytic services. Valassis has been listed as one of
FORTUNE magazine's "Best Companies to Work For" for nine consecutive years.
Valassis subsidiaries include Valassis Canada, Promotion Watch, Valassis
Relationship Marketing Systems, LLC and NCH Marketing Services, Inc. For
additional information, visit the company Web site at http://www.valassis.com .
Safe Harbor and Forward-Looking Statements
Certain statements found in this document constitute "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 the actual results, performance
or achievements of Valassis 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 Valassis' existing competitors; new competitors in any of Valassis'
businesses; a shift in customer preference for different promotional materials,
strategies or coupon delivery methods; an unforeseen increase in Valassis' paper
costs; economic disruptions caused by terrorist activity, armed conflict or
changes in general economic conditions; changes which affect the businesses of
Valassis customers and lead to reduced sales promotion spending; the uncertainty
with respect to, and the ultimate outcome of, the ongoing litigation initiated
by Valassis to rescind the merger agreement with ADVO; and if Valassis does not
prevail in such litigation, risks associated with the availability, timing and
cost of financing, failure to achieve synergies in connection with the merger
and failure to successfully integrate ADVO's operations. Valassis disclaims any
intention or obligation to update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise.
VALASSIS COMMUNICATIONS, INC.
Consolidated Balance Sheets
(in thousands)
Sept. 30, Dec. 31,
Assets 2006 2005
- ---------------------------------------- ----------- -----------
Current assets:
Cash and cash equivalents $ 86,865 $ 64,320
Auction-rate securities 80,611 72,031
Accounts receivable 281,986 273,863
Inventories 30,469 25,235
Refundable income taxes 6,945 -
Deferred income taxes 2,565 2,573
Other 22,001 12,894
Total current assets 511,442 450,916
Property, plant and equipment, at cost 258,325 255,472
Less accumulated depreciation (152,578) (147,325)
Net property, plant and equipment 105,747 108,147
Intangible assets 208,689 208,689
Less accumulated amortization (75,140) (74,724)
Net intangible assets 133,549 133,965
Investments 3,792 614
Other assets 12,400 4,041
Total assets $ 766,930 $ 697,683
VALASSIS COMMUNICATIONS, INC.
Consolidated Balance Sheets, Continued
(in thousands)
Sept. 30, Dec. 31,
Liabilities and Stockholders' Equity 2006 2005
- ---------------------------------------- ----------- -----------
Current liabilities:
Current portion, long-term debt $ - $ 14,260
Accounts payable and accruals 294,047 264,877
Progress billings 45,236 44,314
Total current liabilities 339,283 323,451
Long-term debt 259,922 259,896
Other liabilities 10,827 10,811
Stockholders' equity:
Common stock 632 632
Additional paid-in capital 42,213 38,177
Retained earnings 631,295 586,927
Treasury stock (520,323) (523,600)
Accumulated other comprehensive gain 3,081 1,389
Total stockholders' equity 156,898 103,525
Total liabilities and stockholders' equity $ 766,930 $ 697,683
VALASSIS COMMUNICATIONS, INC.
Consolidated Statements of Operations
(in thousands, except per share data)
Quarter Quarter
Ended Ended
Sept. 30, Sept. 30, %
2006 2005 Change
----------- ----------- ----------
Revenues $ 248,883 $ 266,086 -6.5%
Costs and expenses:
Costs of products sold 187,233 199,163 -6.0%
Selling, general and administrative 38,593 33,455 +15.4%
Total costs and expenses 225,826 232,618 -2.9%
Earnings from operations 23,057 33,468 -31.1%
Other expenses and income:
Interest expense 15,861 2,797 +467.1%
Other (income) and expenses (2,575) (2,176) +18.3%
Total other expenses and income 13,286 621 +2039.5%
Earnings before income taxes 9,771 32,847 -70.3%
Income taxes 3,149 11,542 -72.7%
Net earnings $ 6,622 $ 21,305 -68.9%
Net earnings per common share, diluted $ 0.14 $ 0.42 -66.7%
Weighted average shares outstanding,
diluted 47,807 50,432 -5.2%
Supplementary Data
Amortization $ 139 $ 139
Depreciation 3,486 3,954
Capital expenditures 4,025 6,264
VALASSIS COMMUNICATIONS, INC.
Consolidated Statements of Operations
(in thousands, except per share data)
9 Months 9 Months
Ended Ended
Sept. 30, Sept. 30, %
2006 2005 Change
----------- ----------- ----------
Revenue $ 757,121 $ 821,797 -7.9%
Costs and expenses:
Costs of products sold 570,474 598,828 -4.7%
Selling, general and administrative 102,126 102,353 -0.2%
Total costs and expenses 672,600 701,181 -4.1%
Earnings from operations 84,521 120,616 -29.9%
Other expenses and income:
Interest expense 20,932 8,169 +156.2%
Other (income) and expenses (4,657) (3,997) +16.5%
Total other expenses and income 16,275 4,172 +290.1%
Earnings before income taxes 68,246 116,444 -41.4%
Income taxes 23,878 41,373 -42.3%
Net earnings $ 44,368 $ 75,071 -40.9%
Net earnings per common share, diluted $ 0.93 $ 1.47 -36.7%
Weighted average shares outstanding,
diluted 47,779 50,902 -6.1%
Supplementary Data
Amortization $ 417 $ 460
Depreciation 10,567 11,283
Capital expenditures 8,411 22,001
SOURCE Valassis
-0- 10/26/2006
/CONTACT: Sherry Lauderback of Valassis, +1-734-591-7374,
Fax: +1-734-591-4503, lauderbacks@valassis.com /
/Web site: http://www.valassis.com /