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Valassis Reports an Increase in Net Earnings of $19 Million and an Increase in Adjusted EBITDA* of $29 Million for the Third Quarter Ended September 30, 2009
Raises 2009 Adjusted EBITDA* Guidance to be Between $255 and $265 Million From $245 Million

LIVONIA, Mich., Oct. 29 /PRNewswire-FirstCall/ -- Valassis (NYSE: VCI) today announced financial results for the third quarter ended Sept. 30, 2009. We reported quarterly revenue of $544.1 million, a decrease of 3.5% from $563.7 million for the prior year quarter. The quarterly revenue decline would have been 2.8% excluding revenue of $3.8 million from divested and discontinued businesses in the prior year quarter. Third-quarter net earnings was $13.8 million compared to a loss of $5.2 million for the prior year quarter. Earnings per share (EPS) for the quarter was $0.28 compared to a loss of $0.11 for the prior year quarter. Net earnings for the quarter includes non-cash interest expense of $2.8 million ($1.7 million net of taxes), or $0.04 per share, related to the fair value of the interest rate swap contracts. For the third quarter of 2009, adjusted EBITDA* was $63.9 million, an increase of 82.0% compared to $35.1 million for the prior year quarter.

"We continue to outperform most media companies and are beginning to see signs of revenue stability," said Alan F. Schultz, Valassis Chairman, President and Chief Executive Officer. "Evidenced by a growing body of research, there is a permanent change in the mindset of today's shopper. We believe this deal-seeking lifestyle is a long-term phenomenon which favors our value-oriented media."

Some additional highlights include:

    --  Cost Management:  Our cost management plan continues to be on track for
        2009. Third-quarter 2009 selling, general and administrative (SG&A)
        costs were $90.7 million, which includes $2.5 million (an $0.8 million
        increase) in legal costs related to the News America lawsuits and a $3.9
        million increase in incentive-based compensation, including option
        expense, compared to prior year quarter SG&A costs of $93.9 million.
    --  Capital Expenditures: Capital expenditures for the third quarter of 2009
        were $4.9 million, and we expect full-year 2009 expenditures of
        approximately $20 million.
    --  Liquidity: Third-quarter 2009 cash flows from operating activities was
        $14.0 million with a decrease in debt of $40.9 million.  Year to date,
        we have paid down $150.1 million in debt.  As of Sept. 30, 2009, our net
        debt position was $941.6 million. During the quarter, we completed four
        "modified Dutch" auctions in which we repurchased and retired $39.3
        million of our outstanding term loan B and delayed draw term loans under
        our senior secured credit facility at an average discount of 2.6% to par
        resulting in an after-tax net gain of $0.4 million.
    --  Interest Expense: Cash interest expense for the quarter was $19.3
        million compared to $23.0 million for the prior year quarter, a decrease
        of 16.1%. Total interest expense for the third quarter decreased by $0.8
        million from the prior year quarter and includes $2.8 million of
        non-cash interest expense related to the fair value of the interest rate
        swap contracts.
    --  News America Lawsuits: As announced on July 23, 2009, a Wayne County
        Circuit Court jury awarded Valassis $300 million for compensatory
        damages in the first of three lawsuits against News America Incorporated
        ("News America").  This award accumulates interest on a compounding
        basis beginning March 9, 2007. Our Federal trial against News America is
        scheduled for Feb. 2, 2010 in the U.S. District Court, Eastern District
        of Michigan.

    --  Settlement of (ADVO) Shareholder Lawsuit: On Oct. 28, 2009, the parties
        to the securities class action Kelleher v. ADVO, Inc. et al. entered
        into an agreement providing for the settlement of the action and filed
        papers seeking preliminary approval of the settlement agreement in the
        U.S. District Court for the District of Connecticut.  The settlement is
        subject to approval by the court, and the settlement amount of $12.5
        million will be paid from the proceeds of ADVO's directors and officers'
        insurance policy, with no adverse impact to our financial statements.
        The complaint alleged that certain former ADVO executives, who left the
        company at the time of the ADVO merger, made false and misleading
        statements concerning ADVO's business and financial results in
        connection with the proposed merger with Valassis.

Outlook

Given our current outlook and assuming no increased volatility in marketers' ad spend, we are increasing full-year 2009 adjusted EBITDA* guidance to be between $255 million and $265 million from $245 million. We expect to provide full-year 2010 guidance in December 2009.

"We are once again raising guidance as our employees' continued cost management and optimization efforts have exceeded our expectations," said Robert L. Recchia, Valassis Executive Vice President and Chief Financial Officer. "As we begin to see signs of revenue stabilizing, we believe that our cost structure positions us well for earnings growth as we enter 2010."

Business Segment Discussion

    --  Shared Mail:  Revenue for the third quarter of 2009 was $319.5 million,
        down 2.3% compared to the prior year quarter primarily resulting from a
        reduction in unprofitable packages. Segment profit for the quarter was
        $29.6 million, up 124.2% compared to the prior year quarter due to
        effective cost management, including package optimization efforts,
        newspaper alliances and SG&A reductions.
    --  Neighborhood Targeted Products:  Revenue for the third quarter of 2009
        was $92.0 million, down 14.0% compared to the prior year quarter revenue
        of $107.0 million.  Preprints revenue remained strong and was up for the
        quarter as a result of our cross-selling efforts.  Run-of-Press revenue
        was down related to reduced client ad spend within the wireless and
        financial verticals. Revenue in Sampling was down due to its cyclical
        nature. Segment profit for the quarter was $3.9 million, down 22.0%
        compared to $5.0 million for the prior year quarter. The decline in
        segment profit for the quarter was due primarily to the decline in
        revenue.
    --  Free-standing Inserts (FSI):  Revenue for the third quarter of 2009 was
        $92.6 million, up 1.3% compared to the prior year quarter.  This was due
        to an industry unit volume increase of approximately 3.4% as the FSI
        continues to be an important medium for marketers who need to reach
        deal-seeking consumers.  Segment profit for the quarter was $2.3
        million, compared to $0.2 million in the prior year quarter due to
        increased unit volume and reduced costs. Management noted that our
        profit improvement in the FSI segment is primarily due to our cost
        management efforts. At the same time, the FSI business remains
        dramatically depressed from historical levels due to the unfair tying,
        bundling and leveraging of in-store products into FSI negotiations by
        our competitor, News America, as the jury unanimously found in our
        recent lawsuit against News America.

    --  International, Digital Media & Services:  Revenue for the third quarter
        was $40.0 million, up 4.4% compared to the prior year quarter.
        Excluding revenue from previously announced divested and discontinued
        operations of $3.8 million and a $0.9 million impact of currency
        fluctuations, revenue was up 18.6% compared to the prior year quarter.
        Segment profit for the quarter was $6.9 million compared to a loss of
        $4.0 million in the prior year quarter due primarily to the increase in
        U.S. coupon clearing volume and the discontinuance of underperforming
        businesses. According to NCH Marketing Services, Inc. (our
        coupon-processing and analytics subsidiary), year-to-date reports show
        consumer packaged goods coupon distribution up 11% and coupon redemption
        up 23% compared to the same period last year.

Segment Results Summary


                                                Quarter Ended
                                                  Sept. 30,
     Segment Revenue ($ in millions)          2009        2008  % Change
                                                                --------
        Shared Mail                         $319.5      $327.0      -2.3%
                                            ------      ------      ----
        Neighborhood Targeted                $92.0      $107.0     -14.0%
                                             -----      ------     -----
        Free-standing Inserts                $92.6       $91.4       1.3%
                                             -----       -----       ---
        International, Digital Media &
         Services                            $40.0       $38.3       4.4%
                                             -----       -----       ---
     Total Segment Revenue                  $544.1      $563.7      -3.5%
                                            ------      ------      ----



                                               Quarter Ended
                                                 Sept. 30,
     Segment Profit ($ in millions)          2009        2008   % Change
                                                                --------
        Shared Mail                         $29.6       $13.2      124.2%
                                            -----       -----      -----
        Neighborhood Targeted                $3.9        $5.0      -22.0%
                                             ----        ----      -----
        Free-standing Inserts                $2.3        $0.2    1,050.0%
                                             ----        ----   --------
        International, Digital Media &
         Services                            $6.9       ($4.0)       N/A
                                             ----       -----        ---
     Total Segment Profit                   $42.7       $14.4      196.5%
                                            -----       -----      -----

Conference Call Information

We will hold an investor call today to discuss our third-quarter 2009 results at 11 a.m. (ET). The call-in number is (877) 941-2332 (please reference conference #4148870). The call will be simulcast on our Web site at http://www.valassis.com and a telephonic replay of the call will be available through Nov. 12, 2009 at (800) 406-7325, pass code 4148870. This earnings release and the webcast will be archived on our Web site under "Investor."

Non-GAAP Financial Measures

*We define adjusted EBITDA as earnings before net interest expense, other non-cash expenses (income), net, income taxes, depreciation, amortization, stock-based compensation expense associated with SFAS No. 123R, non-recurring restructuring and severance costs and amortization of a client contract incentive. Adjusted EBITDA is a non-GAAP financial measure 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 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. However, this non-GAAP financial measure has limitations as an analytical tool and should not be considered in isolation from, or as an alternative to, operating income, cash flow 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 does 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 this
        measure differently and as the number of differences in the way two
        different companies calculate this measure increases, the degree of its
        usefulness as a comparative measure correspondingly decreases.

Because of these limitations, adjusted EBITDA should not be considered as a measure 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 this non-GAAP financial measure only supplementally. Further important information regarding operating results and reconciliations of this non-GAAP financial measure to the most comparable GAAP measures can be found below.

Reconciliation of Full-year 2009 Adjusted EBITDA Guidance to Full-year 2009 Net Earnings Guidance:


                                                  Revised Full-year 2009
                                                         Guidance
                                                      ($in millions)
                                                  Low End       High End
                                               --------------------------
    Net Earnings                                    $64.8          $71.0
    ------------                                    -----          -----
    plus:  Interest expense, net*                    86.1           86.1
           Income taxes                              39.7           43.5
           Depreciation and amortization             66.8           66.8
    less:  Other non-cash income                    (14.5)         (14.5)

    EBITDA                                         $242.9         $252.9

    plus:  FAS123r expense                            7.7            7.7
           Non-recurring
            restructuring/severance                   4.4            4.4
            ------------------------                  ---            ---
    Adjusted EBITDA                                $255.0         $265.0
    ---------------                                ------         ------

    * does not include any effect related to the fair value of interest rate
      swaps for the fourth quarter of 2009



          Reconciliation of Adjusted EBITDA to Net Earnings and Cash Flows
                             from Operating Activities
                              (dollars in thousands)
                                    Unaudited

                                                   Three Months Ended
                                                      September 30,
                                              ---------------------------
                                                2009                2008
                                              ------------ --------------

    Net Earnings (Loss) - GAAP                $13,800             $(5,203)
                                              ============= =============

       plus: Income taxes (benefit)             7,582              (3,682)
             Interest expense, net             23,085              23,193
             Depreciation and amortization     16,958              17,332
       less: Other non-cash (income)
              expenses, net                    (1,791)                120
                                              -------------- ------------
    EBITDA                                    $59,634             $31,760

             Stock-based compensation
              expense                           2,804               1,934
             Restructuring costs / severance    1,464               1,422
                                              -------------- ------------

    Adjusted EBITDA                           $63,902             $35,116
                                              -------------- ------------

             Interest expense, net            (23,085)            (23,193)
             Income taxes                      (7,582)              3,682
             Restructuring costs, cash         (1,464)               (415)
             Changes in operating assets and
              liabilities                     (17,811)            (31,487)
                                              -------------- ------------

    Cash Flows from Operating Activities      $13,960            $(16,297)
                                              ============= =============


                                                    Nine Months Ended
                                                      September 30,
                                             ----------------------------
                                                  2009              2008
                                             ------------- --------------
    Net Earnings - GAAP                       $42,776             $12,352
                                             ============= ==============
       plus: Income taxes                      25,902              27,970
             Interest expense, net             65,710              73,173
             Depreciation and amortization     52,025              52,155
       less: Other non-cash income, net       (13,252)             (2,047)
                                             ------------- --------------

    EBITDA                                   $173,161            $143,600

             Stock-based compensation expense   5,572               5,363
             Amortization of customer
              contract incentive                    -               2,430
             Restructuring costs / severance    4,020               2,869
                                             ------------- --------------
    Adjusted EBITDA                          $182,753            $154,265
                                             ------------- --------------

             Interest expense, net            (65,710)            (73,173)
             Income taxes                     (25,902)             (7,970)
             Restructuring costs, cash         (4,020)             (1,862)
             Changes in operating assets and
              liabilities                      50,235              (6,522)
                                             ------------- --------------
    Cash Flows from Operating Activities     $137,356             $64,738
                                             ============= ==============

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.

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 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; our ability to comply with or obtain modifications or waivers of the financial covenants contained in our debt documents; 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; court approval of the settlement agreement among the parties to the pending ADVO securities class action lawsuit; our current litigation with News America Incorporated may be costly and divert management's attention; 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; reductions of our credit ratings may have an adverse impact on our business; counterparties to our secured credit facility and interest rate swaps may not be able to fulfill their obligations due to disruptions in the global credit markets; 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.


                        VALASSIS COMMUNICATIONS, INC.
                          Consolidated Balance Sheets
                           (dollars in thousands)
                                  Unaudited

    Assets                                    Sept. 30,          Dec. 31,
                                                 2009              2008
                                             -------------   -------------
    Current assets:

      Cash and cash equivalents                $110,865          $126,556
      Accounts receivable                       416,046           479,749
      Inventories                                34,324            48,173
      Refundable income taxes                    23,434            15,509
      Deferred income taxes                       1,731             1,879
      Other                                      25,820            31,235
                                             -------------   -------------

        Total current assets                    612,220           703,101

    Property, plant and equipment, at cost      495,199           484,765

      Less accumulated depreciation            (290,271)         (250,828)
                                             -------------   -------------

      Net property, plant and equipment         204,928           233,937

    Intangible assets, net                      882,106           892,422

    Investments                                   2,481             2,555

    Other assets                                 19,458            21,166
                                             -------------   -------------

        Total assets                         $1,721,193        $1,853,181
                                             =============   =============


                              More tables to follow  . . .



                            VALASSIS COMMUNICATIONS, INC.
                      Consolidated Balance Sheets, Continued
                               (dollars in thousands)
                                     Unaudited

    Liabilities and Stockholders' Equity       Sept. 30,     Dec. 31,
                                                  2009         2008
                                             ------------ ------------
    Current liabilities:

           Current portion, long-term debt       $6,197       $90,855
           Accounts payable and accruals        406,091       440,214
           Progress billings                     40,306        44,539
                                             ------------ ------------

               Total current liabilities        452,594       575,608

    Long-term debt                            1,046,229     1,111,712
    Other liabilities                            59,192        66,029
    Deferred income taxes                        99,639        94,418

    Stockholders' equity:

           Common stock                             636           635
           Additional paid-in capital            93,425        87,305
           Retained earnings                    498,739       455,963
           Treasury stock                      (520,170)     (520,170)
           Accumulated other comprehensive
            loss                                 (9,091)      (18,319)
                                             ------------ ------------

               Total stockholders' equity        63,539         5,414
                                             ------------ ------------
    Total liabilities and stockholders'
     equity                                  $1,721,193    $1,853,181
                                             ============ ============


                              More tables to follow  . . .



                           VALASSIS COMMUNICATIONS, INC.
                      Consolidated Statements of Operations
                      (in thousands, except per share data)
                                    Unaudited

                                         Three Months Ended
                                              Sept. 30,
                                       ---------------------         %
                                          2009         2008       Change
                                       ----------------------------------

    Revenue                            $544,064     $563,651       - 3.5%

    Costs and expenses:
           Costs of products sold       407,572      453,045      - 10.0%
           Selling, general and
            administrative               90,660       93,872       - 3.4%
           Amortization                   3,156        2,306      + 36.9%
                                       ---------- ----------- -----------

              Total costs and
               expenses                 501,388      549,223       - 8.7%

    Operating income                     42,676       14,428     + 195.8%

    Other expenses and income:
           Interest expense              23,172       23,948       - 3.2%
           Interest income                  (87)        (755)     - 88.5%
           Other (income) and expenses   (1,791)         120    + 1592.5%
                                       ---------- ----------- -----------
              Total other expenses
               and income                21,294       23,313       - 8.7%

    Earnings (loss) before income taxes  21,382       (8,885)        N/A

    Income taxes (benefit)                7,582       (3,682)        N/A
                                       ---------- -----------

    Net earnings (loss)                 $13,800      $(5,203)        N/A
                                       ========== =========== ===========

    Net earnings (loss) per common
     share, diluted                       $0.28       $(0.11)        N/A

    Weighted average shares outstanding,
     diluted                             49,586       47,875       + 3.6%

    Supplementary Data
           Amortization                  $3,156       $2,306
           Depreciation                  13,802       15,026
           Capital expenditures           4,862        3,699


                              More tables to follow  . . .



                          VALASSIS COMMUNICATIONS, INC.
                       Consolidated Statements of Operations
                       (in thousands, except per share data)
                                    Unaudited

                                         Nine Months Ended
                                             Sept. 30,
                                    ------------------------          %
                                         2009         2008          Change
                                    --------------------------------------
    Revenue                          $1,639,256   $1,755,657        - 6.6%

    Costs and expenses:
           Costs of products sold     1,245,105    1,369,372        - 9.1%
           Selling, general and
            Administrative              263,547      287,920        - 8.5%
           Amortization                   9,468        6,917       + 36.9%
                                    -----------   ----------     ---------

             Total costs and expenses 1,518,120    1,664,209        - 8.8%

    Operating income                    121,136       91,448       + 32.5%

    Other expenses and income:
           Interest expense              66,201       75,296       - 12.1%
           Interest income                 (491)      (2,123)      - 76.9%
           Other (income) and
            expenses                    (13,252)      (2,047)     + 547.4%
                                    -----------   ----------     ---------
             Total other expenses and
              income                     52,458       71,126       - 26.2%

    Earnings before income taxes         68,678       20,322      + 237.9%

    Income taxes                         25,902        7,970      + 225.0%
                                    -----------   ----------     ---------

    Net earnings                        $42,776      $12,352      + 246.3%
                                    ===========   ==========     =========

    Net earnings per common share,
     diluted                              $0.87        $0.26      + 234.6%

    Weighted average shares outstanding,
     diluted                             49,343       47,995        + 2.8%

    Supplementary Data
           Amortization                  $9,468       $6,917
           Depreciation                  42,557       45,238
           Capital expenditures          13,505       19,395

SOURCE Valassis

Mary Broaddus of Valassis, +1-734-591-7375, broaddusm@valassis.com