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Valassis Communications Inc. Reports Operating Results (10-Q)

November 08, 2010 | About:
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10qk

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Valassis Communications Inc. (VCI) filed Quarterly Report for the period ended 2010-09-30.

Valassis Communications Inc. has a market cap of $1.61 billion; its shares were traded at around $32.78 with a P/E ratio of 17.25 and P/S ratio of 0.72. VCI is in the portfolios of HOTCHKIS & WILEY of HOTCHKIS & WILEY Capital Management LLC, Richard Pzena of Pzena Investment Management LLC, James Barrow of Barrow, Hanley, Mewhinney & Strauss, Jeremy Grantham of GMO LLC, George Soros of Soros Fund Management LLC.

Highlight of Business Operations:

Selling, general and administrative (SG&A) costs were $91.8 million and $90.6 million for the three months ended September 30, 2010 and 2009, respectively. SG&A costs were $275.4 million and $263.6 million for the nine months ended September 30, 2010 and 2009, respectively. These increases were due primarily to increases in stock-based compensation expense of $5.8 million and $16.8 million in the three and nine months ended September 30, 2010, respectively, compared to the corresponding prior year periods, which resulted from the accelerated recognition of previously unrecognized stock-based compensation expense related to the following:

On February 4, 2010, we executed a settlement agreement and release (the Settlement Agreement) settling our outstanding lawsuits against News America Incorporated, a/k/a News America Marketing Group, News America Marketing, FSI, Inc. a/k/a News America Marketing FSI, LLC and News America Marketing In-Store Services, Inc. a/k/a News America Marketing In-Store Services, LLC (collectively News). Pursuant to the terms of the Settlement Agreement, News paid us $500.0 million. During the first quarter of 2010, in connection with the successful settlement of these lawsuits, we made $9.9 million in related payments, including special bonuses to certain of our employees (including our executive officers identified as the named executive officers in our proxy statement filed with the SEC on March 30, 2010) in an aggregate amount of $8.1 million. These expenses were netted against the $500.0 million of proceeds received, and the net proceeds of $490.1 million have been recorded as a separate line item Gain from litigation settlement in our condensed consolidated statement of income for the nine months ended September 30, 2010.

During the three and nine months ended September 30, 2009, we repurchased, at a discount to par, aggregate principal amounts of $39.3 million and $93.7 million, respectively, of outstanding term loans under our senior secured credit facility pursuant to modified Dutch auctions for aggregate purchase prices of $38.7 million and $84.3 million, respectively, including fees. As a result of these repurchases, during the three and nine months ended September 30, 2009, we recognized pre-tax gains of $0.6 million and $9.4 million, respectively, which represent the difference between the face amounts (par value) of the term loans repurchased and the actual repurchase prices of the term loans, including fees. The period during which such repurchases were permitted pursuant to the First Amendment (as defined below) expired on December 31, 2009.

Shared Mail segment profit was $39.3 million for the three months ended September 30, 2010, increasing $9.7 million, or 32.8%, from $29.6 million for the three months ended September 30, 2009. Shared Mail segment profit was $111.5 million for the nine months ended September 30, 2010, increasing $39.7 million, or 55.3%, from the comparable prior year period. Shared Mails segment profit as a percentage of revenues was 12.1% and 11.6% for the three and nine months ended September 30, 2010, respectively, increasing 2.8 and 4.0 percentage points, respectively, from the comparable prior year periods. The increases for these periods resulted from the increases in revenues, newspaper alliances and package optimization efforts.

FSI segment revenues were $89.2 million for the three months ended September 30, 2010, compared to $92.6 million for the three months ended September 30, 2009. This decrease of 3.7% was due to two less FSI publications compared to the prior year quarter. Revenues for the nine months ended September 30, 2010 were $281.3 million, an increase of 1.1% from $278.3 million in the comparable prior year period. Industry units grew approximately 2.9% and 5.5% during the three and nine months ended September 30, 2010, respectively, as compared to the corresponding prior year periods. FSI cost of goods sold decreased for the three and nine months ended September 30, 2010 from the prior year periods on a cost-per-thousand (CPM) basis due primarily to lower paper costs and efficiencies gained in media and print costs resulting from increased average pages per book. As a result of increased volumes and reductions in cost of goods sold, FSI segment profit for the three and nine months ended September 30, 2010 increased to $4.9 million and $24.6 million, respectively, from $2.3 million and $7.1 million during the corresponding prior year periods.

Revenues for this segment were $43.1 million for the three months ended September 30, 2010, an increase of 7.8% from $40.0 million for the three months ended September 30, 2009. Revenues for this segment were $125.7 million for the nine months ended September 30, 2010, an increase of 10.8% from $113.4 million for the nine months ended September 30, 2009. This growth was primarily driven by increased revenues in our In-Store and Digital businesses and continued strength in U.S. coupon clearing volumes. Segment profit for three and nine months ended September 30, 2010 decreased to $4.5 million and $13.1 million, respectively, from $6.9 million and $17.2 million for the three and nine months ended September 30, 2009, respectively. These decreases in segment profit primarily resulted from reduced volume in our European business and continued investment in our In-Store and Digital businesses.

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