VALASSIS COMMUNICATIONS INC - FORM 8-K - EX-99.1 - EXHIBIT 99.1

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8-K - FORM 8-K - VALASSIS COMMUNICATIONS INC	d385807d8k.htm

Contact: Mary Broaddus

Tel 734.591.7375

broaddusm@valassis.com

19975 Victor Parkway, Livonia, MI 48152

FOR IMMEDIATE RELEASE

Valassis Announces Results for the Second Quarter Ended June 30, 2012

Livonia, Mich., July 26, 2012: Valassis (NYSE: VCI) today announced financial results for the second quarter ended June 30, 2012. Second-quarter 2012 revenues were $540.2 million, a decrease of 4.4% from $565.2 million in the prior year quarter. This decrease in revenues was due primarily to the absence of custom co-op programs within our FSI segment and continued reduced spending by consumer packaged goods (CPG) clients across our various business segments.

Second-quarter 2012 net earnings were $21.7 million, which included $10.7 million, net of tax, of non-recurring restructuring charges and asset impairments resulting from the discontinuance of the sampling and solo direct mail products, as well as other cost reductions across our remaining product lines. This represents a decrease of 28.4% from $30.3 million in the prior year quarter, which included a loss on extinguishment of debt and related charges, net of tax, of $3.4 million. Excluding these non-recurring charges, second-quarter 2012 adjusted net earnings* were $32.4 million compared to second-quarter 2011 adjusted net earnings* of $33.7 million.

Second-quarter 2012 diluted earnings per share (EPS) was $0.51, which included the negative impact of the aforementioned restructuring charges of $0.25. This represents a decrease of 15.0% from $0.60 in the prior year quarter, which included the negative impact of the aforementioned loss on extinguishment of debt of $0.07. Excluding these non-recurring charges, second-quarter 2012 adjusted diluted EPS* was $0.76, compared to second-quarter 2011 adjusted diluted EPS* of $0.67.

Second-quarter 2012 diluted cash EPS* was $1.10, an increase of 22.2% from $0.90 in the prior year quarter. Second quarter 2012 adjusted EBITDA* was $76.8 million, a decrease of 5.3% from $81.1 million in the prior year quarter.

“During the quarter, we executed a plan to improve our company’s ability to drive future growth in our core and innovation businesses,” said Rob Mason, President and Chief Executive Officer. “We increased our investment in digital media with the acquisition of Brand.net, exited our solo direct mail and newspaper sampling businesses, and right sized our organization.”

Some additional highlights include:

•

Selling, General and Administrative (SG&A) Costs: Second-quarter 2012 SG&A costs were $83.5 million (which included $5.9 million in restructuring and other non-recurring costs) compared to prior year quarter SG&A costs of $80.8 million.

•

Capital Expenditures: Capital expenditures for the second quarter and first half of 2012 were $2.5 million and $11.8 million, respectively.

•

Stock Repurchases: During second-quarter 2012, we repurchased $64.5 million, or 3.2 million shares, of our common stock at an average price of $19.94 per share under our stock repurchase program.

•

Liquidity:

•

We reduced total debt by $3.7 million during second-quarter 2012, and we ended the quarter with net debt (total debt less cash) of $519.8 million.

•

At June 30, 2012, we had $75.2 million in cash.

Outlook

Based on our plan, the recent acquisition of Brand.net and current outlook, we are updating full-year 2012 guidance as follows:

•

diluted EPS of $2.86 (previously $3.07) which reflects the non-recurring restructuring and other costs described above offset by a reduction in the number of shares outstanding due to the acceleration in stock repurchases (which results in adjusted diluted EPS* of $3.11 primarily due to such acceleration in stock repurchases) and

•

diluted cash EPS* of $4.18 (previously $3.97) due to the reduction in capital expenditures to approximately $26 million (previously approximately $32 million).

VCI 2Q12 Earnings

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Business Segment Discussion

•

Shared Mail: Revenues for the second quarter of 2012 were $348.8 million, an increase of 3.4% compared to the prior year quarter. Segment profit for the quarter was $52.3 million, an increase of 9.6% compared to the prior year quarter. The improvement in segment results was driven primarily by an increase in volume and lower segment SG&A costs; however, segment profit was negatively impacted by reduced Wrap revenue.

•

Neighborhood Targeted: Revenues for the second quarter of 2012 were $77.5 million, a decrease of 12.7% compared to the prior year quarter. Segment loss for the quarter was $2.4 million compared to segment profit in the prior year quarter of $0.8 million, due to the aforementioned revenue declines. Segment results were negatively impacted primarily by the decline in newspaper inserts and sampling.

•

Free-standing Inserts (FSI): Revenues for the second quarter of 2012 were $70.5 million, a decrease of 21.0% compared to the prior year quarter. Segment profit for the quarter was $7.3 million, a decrease of 12.0% compared to the prior year quarter. Segment results for the quarter were negatively impacted by the absence of custom co-op business and continued reduced spending by CPG marketers.

•

International, Digital Media & Services (IDMS): Revenues for the second quarter of 2012 were $43.4 million, a decrease of 13.2% compared to the prior year quarter. Segment profit for the quarter was $2.3 million, a decrease of 64.1% compared to the prior year quarter. Segment results were negatively impacted by reduced CPG spend in solo direct mail, in-store and NCH, our coupon clearing business, which more than offset the increase in revenues and profits in our digital business.

Segment Results Summary


	Quarter Ended June 30,
*Segment Revenues ($ in millions)*	2012			2011		% Change
Shared Mail	$	348.8		$	337.2		3.4	%
Neighborhood Targeted	$	77.5		$	88.8		-12.7	%
Free-standing Inserts	$	70.5		$	89.2		-21.0	%
International, Digital Media & Services	$	43.4		$	50.0		-13.2	%

Total Segment Revenues	$	540.2		$	565.2		-4.4	%


	Quarter Ended June 30,
*Segment Profit ($ in millions)*	2012			2011		% Change
Shared Mail	$	52.3		$	47.7		9.6	%
Neighborhood Targeted	$	(2.4	)	$	0.8		-400.0	%
Free-standing Inserts	$	7.3		$	8.3		-12.0	%
International, Digital Media & Services	$	2.3		$	6.4		-64.1	%

Total Segment Profit	$	59.5		$	63.2		-5.9	%

Conference Call Information

We will hold an investor call today to discuss our second-quarter 2012 results at 11 a.m. (ET). The call-in number is 1-877-941-0844 (please reference conference #4541698). The call will be simulcast on our website at http://www.valassis.com. This earnings release, webcast and a transcript of the conference call will be archived on our website under “Investors.”

VCI 2Q12 Earnings

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Non-GAAP Financial Measures

*We define adjusted EBITDA as net earnings before interest expense, net, other non-cash expenses (income), net, income taxes, gain or loss on extinguishment of debt, restructuring and other non-recurring costs, depreciation, amortization, and stock-based compensation expense. We define diluted cash EPS as net earnings per common share, diluted, plus the per-share effect of depreciation, amortization, stock-based compensation expense, restructuring and other non-recurring costs, net of tax, and loss on extinguishment of debt and related charges, net of tax, less the per-share effect of capital expenditures. We define adjusted net earnings and adjusted diluted EPS as net earnings and diluted EPS excluding the effect, net of tax, of loss on extinguishment of debt and related charges, and restructuring and other non-recurring costs. Adjusted EBITDA, adjusted net earnings, adjusted diluted EPS and diluted cash EPS are non-GAAP financial measures commonly used by financial analysts, investors, rating agencies and other interested parties in evaluating companies, including marketing services companies. Accordingly, management believes that these non-GAAP measures may be useful in assessing our operating performance and our ability to meet our debt service requirements. In addition, these non-GAAP measures are 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 performance criteria for incentive compensation. Management also believes that diluted cash EPS is useful to investors because it provides a measure of our profitability on a more comparable basis to historical periods and provides a more meaningful basis for forecasting future performance, by replacing non-cash amortization and depreciation expenses, which are currently running significantly higher than our annual capital needs, with actual and forecasted capital expenditures. Diluted cash EPS is being used solely as a measure of our performance and not as a liquidity measure and is not an alternative to cash flows from operating activities. Additionally, because of management’s focus on generating shareholder value, of which profitability is a primary driver, management believes these non-GAAP measures, as defined above, provide an important measure of our results of operations.

However, these non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation from, or as alternatives to, operating income, cash flow, EPS 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 and diluted cash EPS do 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, adjusted net earnings, adjusted diluted EPS, and diluted cash EPS do 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 these measures differently and as the number of differences in the way two different companies calculate these measures increases, the degree of their usefulness as comparative measures correspondingly decreases.

Because of these limitations, adjusted EBITDA, adjusted net earnings, adjusted diluted EPS, and diluted cash EPS should not be considered as measures 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 these non-GAAP financial measures only supplementally. Further important information regarding reconciliations of these non-GAAP financial measures to their respective most comparable GAAP measures can be found below.

VCI 2Q12 Earnings

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Reconciliation of Adjusted Net Earnings and Adjusted Diluted EPS to Net Earnings and Diluted EPS (in millions except for per share data):


	Quarter ended June 30, 2012				Quarter ended June 30, 2011
	Net Earnings		Diluted EPS		Net Earnings		Diluted EPS
As reported	$	21.7	$	0.51	$	30.3	$	0.60
Exclude, net of tax:
Restructuring and other non-recurring charges		10.7		0.25		—		—
Loss on extinguishment of debt and related charges, net of tax⁽¹⁾		—		—		3.4		0.07

As adjusted	$	32.4	$	0.76	$	33.7	$	0.67

⁽¹⁾	Represents costs, net of tax, related to the refinancing of our senior secured credit facility.

Reconciliation of Diluted Cash EPS to Diluted EPS for the Quarter Ended:


	June 30, 2012			June 30, 2011
Net earnings (in millions)	$	21.7		$	30.3

Diluted EPS	$	0.51		$	0.60
Restructuring and other non-recurring costs	$	0.25		$	—
Loss on extinguishment of debt and related charges, net of tax		—			0.07

Adjusted Diluted EPS	$	0.76		$	0.67

plus effect of:
Depreciation and amortization		0.34			0.31
Stock-based compensation expense		0.06			0.05

less effect of:
Capital expenditures		(0.06	)		(0.13	)

Diluted Cash EPS	$	1.10		$	0.90

Weighted Average Diluted Shares Outstanding (in thousands)		42,719			50,167

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Reconciliation of Full-year 2012 Diluted Cash EPS Guidance to Full-year 2012 Diluted EPS Guidance:


	Full-Year 2012 Guidance
Net earnings (in millions)	$	120.1

Diluted EPS	$	2.86
Restructuring and other non-recurring costs	$	0.25

Adjusted diluted EPS	$	3.11

plus effect of:
Depreciation		1.09
Amortization		0.30
Stock-based compensation expense		0.30

less effect of:
Capital expenditures		(0.62	)

Diluted Cash EPS	$	4.18

Weighted Average Diluted Shares Outstanding (in thousands)⁽¹⁾		42,034

⁽¹⁾	Represents estimated weighted average diluted shares outstanding for the year ended Dec. 31, 2012 and assumes the use of 50% of annual free cash flow for stock repurchases. As of June 30, 2012, $65.9 million had been used for share repurchases year to date.

Reconciliation of Adjusted EBITDA to Net Earnings and Cash Flows from Operating Activities

(dollars in thousands)

Unaudited


		Three Months Ended
		June 30,
		2012			2011
Net Earnings - GAAP		$	21,707		$	30,252

plus:	Income taxes		13,932			19,840
	Interest expense, net		6,685			11,604
	Loss on extinguishment of debt		—			2,966
	Depreciation and amortization		14,387			15,392
	Other non-cash expenses (income), net		319			(1,436	)

EBITDA		$	57,030		$	78,618

	Restructuring and other non-recurring charges		17,229			—
	Stock-based compensation expense		2,515			2,455

Adjusted EBITDA		$	76,774		$	81,073

	Income taxes		(13,932	)		(19,840	)
	Interest expense, net		(6,685	)		(11,604	)
	Changes in operating assets and liabilities		(728	)		23,438

Cash Flows from Operating Activities		$	55,429		$	73,067

VCI 2Q12 Earnings

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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 digital offerings, including redplum.com and save.com, consumers can find compelling national and local deals. 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, NCH Marketing Services, Inc. and Brand.net. For more information, visit http://www.valassis.com, http://www.redplum.com and http://www.save.com. To learn about advertising opportunities with RedPlum, please call 1-800-437-0479.

Cautionary Statements Regarding Forward-looking Statements

This document contains “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 preferences for different promotional materials, strategies or coupon delivery methods, including, without limitation, as a result of declines in newspaper circulation and/or increased competition from new media formats including digital; 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; certain covenants in our debt documents could adversely restrict our financial and operating flexibility; 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, including, without limitation, high levels of coupon redemption rates; 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; possible governmental regulation or litigation affecting aspects of our business; clients experiencing financial difficulties, or otherwise being unable to meet their obligations as they become due, could affect our results of operations and financial condition; 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.

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VALASSIS COMMUNICATIONS, INC.

Consolidated Balance Sheets

(dollars in thousands)

Unaudited


	June 30, 2012			Dec. 31, 2011
	June 30, 2012			Dec. 31, 2011
Assets
Current assets:
Cash and cash equivalents	$	75,237		$	101,971
Accounts receivable, net		378,706			448,320
Inventories		30,366			41,120
Prepaid expenses and other		54,269			37,655

Total current assets		538,578			629,066
Property, plant and equipment, net		138,070			148,905
Goodwill		628,886			636,471
Other intangible assets, net		224,666			213,613
Other assets		15,212			16,392

Total assets	$	1,545,412		$	1,644,447

Liabilities and Stockholders’ Equity
Current liabilities:
Current portion long-term debt	$	15,000		$	15,000
Accounts payable		257,072			334,378
Progress billings		39,296			39,975
Accrued expenses		90,257			98,409

Total current liabilities		401,625			487,762
Long-term debt		580,061			587,560
Deferred income taxes		66,798			67,404
Other non-current liabilities		53,023			52,187

Total liabilities		1,101,507			1,194,913

Stockholders’ equity:
Common stock		654			654
Additional paid-in capital		113,865			123,881
Retained earnings		1,069,694			1,021,566
Accumulated other comprehensive income		2,349			2,775
Treasury stock, at cost		(742,657	)		(699,342	)

Total stockholders’ equity		443,905			449,534

Total liabilities and stockholders’ equity	$	1,545,412		$	1,644,447

More tables to follow . . .

VCI 2Q12 Earnings

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VALASSIS COMMUNICATIONS, INC.

Consolidated Statements of Operations

(in thousands, except per share data)

Unaudited


	Quarter Ended June 30,						%
	2012			2011			Change
Revenues	$	540,238		$	565,252			-4.4	%

Costs and expenses:
Cost of sales		403,727			418,040			-3.4	%
Selling, general and administrative		83,523			80,831			3.3	%
Amortization expense		3,156			3,155			0.0	%
Impairment charge		7,585			—

Total costs and expenses		497,991			502,026			-0.8	%

Operating income		42,247			63,226			-33.2	%

Other expenses and income:
Interest expense		6,755			11,726			-42.4	%
Interest income		(70	)		(122	)		-42.6	%
Loss on extinguishment of debt		—			2,966
Other income, net		(77	)		(1,436	)		-94.6	%

Total other expenses, net		6,608			13,134			-49.7	%

Earnings before income taxes		35,639			50,092			-28.9	%
Income tax expense		13,932			19,840			-29.8	%

Net earnings	$	21,707		$	30,252			-28.2	%

Net earnings per common share, diluted	$	0.51		$	0.60			-15.0	%

Weighted average common shares, diluted		42,719			50,167			-14.8	%

Supplementary Data
Amortization		3,156			3,155
Depreciation		11,231			12,237
Capital Expenditures		2,507			6,602

VCI 2Q12 Earnings

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VALASSIS COMMUNICATIONS, INC.

Consolidated Statements of Operations

(in thousands, except per share data)

Unaudited


	Six Months Ended June 30,						%
	2012			2011			Change
Revenues	$	1,058,823		$	1,112,231			-4.8	%

Costs and expenses:
Cost of sales		792,621			826,617			-4.1	%
Selling, general and administrative		161,140			159,258			1.2	%
Amortization expense		6,312			6,311			0.0	%
Impairment charge		7,585			—

Total costs and expenses		967,658			992,186			-2.5	%

Operating income		91,165			120,045			-24.1	%

Other expenses and income:
Interest expense		13,809			21,501			-35.8	%
Interest income		(128	)		(261	)		-51.0	%
Loss on extinguishment of debt		—			16,318
Other income, net		(774	)		(2,312	)		-66.5	%

Total other expenses, net		12,907			35,246			-63.4	%

Earnings before income taxes		78,258			84,799			-7.7	%
Income tax expense		30,130			33,136			-9.1	%

Net earnings	$	48,128		$	51,663			-6.8	%

Net earnings per common share, diluted	$	1.11		$	1.01			9.9	%

Weighted average common shares, diluted		43,382			51,250			-15.4	%

Supplementary Data
Amortization		6,312			6,311
Depreciation		22,785			24,810
Capital Expenditures		11,770			11,626

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