VALASSIS COMMUNICATIONS INC - FORM 8-K - EX-99.1 - PRESS RELEASE

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Exhibit 99.1

FOR IMMEDIATE RELEASE

Valassis Announces Results for the Second Quarter Ended June 30, 2011

Adjusted Diluted Earnings per Share* Increases by 36.7%

Livonia, Mich., July 28, 2011: Valassis (NYSE: VCI) today announced the following financial results for the second quarter ended June 30, 2011:

•

Adjusted diluted earnings per share (EPS)* was $0.67, an increase of 36.7% from $0.49 for the prior year quarter. Diluted EPS was $0.60, including loss on debt extinguishment and related charges, net of tax, of $0.07. Diluted EPS for second-quarter 2010 was $0.21, including the loss on debt extinguishment, net of tax, of $0.28.

•

Revenues were $565.2 million, a decrease of 2.5% compared to $580.0 million for the prior year quarter due to the previously announced anticipated shortfall in Run-of-Press (ROP) revenue within the Neighborhood Targeted segment.

•

Adjusted net earnings* were $33.7 million, an increase of 30.6% from $25.8 million for the prior year quarter. Net earnings were $30.3 million, including loss on debt extinguishment and related charges, net of tax, of $3.4 million. Net earnings for second-quarter 2010 were $11.1 million, including loss on debt extinguishment, net of tax, of $14.7 million.

•

Adjusted EBITDA* was $81.1 million, a decrease of 2.8% compared to $83.4 million for the prior year quarter driven primarily by the decline in revenue.

•

Diluted cash EPS* was $0.90, an increase of 7.1% compared to $0.84 for the prior year quarter.

“Our team delivered a strong net earnings and cash flow performance this quarter. The Shared Mail business continues to be a strong contributor,” said Alan F. Schultz, Valassis Chairman, President and Chief Executive Officer. “Combined with our low-cost and flexible capital structure, we believe we are well positioned to continue to use our cash flow to create value for shareholders and invest in innovation.”

Some additional highlights include:

•

Selling, General and Administrative (SG&A) Costs: Second-quarter 2011 SG&A costs were $80.8 million, which included $2.5 million in non-cash stock-based compensation expense, compared to second quarter 2010 SG&A costs of $92.7 million, which included $7.9 million in non-cash stock-based compensation expense.

•

Capital Expenditures: Capital expenditures for the second quarter and first half of 2011 were $6.6 million and $11.6 million respectively.

•

Liquidity: Total cash was $119.0 million at June 30, 2011, a decrease of $111.2 million from March 31, 2011, due primarily to a net debt repayment of $112.2 million and share repurchases of $60.3 million; offset, in part, by cash generated from operations of $73.1 million in the quarter.

•

Debt Refinancing and Interest Rate Hedging:

•

In June 2011, we refinanced our existing senior secured credit facility with a new senior secured credit facility. The new facility includes a $300 million Term Loan A and a $100 million revolving line of credit, of which $50 million was drawn at closing (exclusive of any outstanding letters of credit). The refinancing of our senior secured credit facility is expected to save us $2.4 million in cash interest expense in the second half of 2011 and provides increased flexibility in how we can deploy cash flow.

•

We have also entered into a new swap agreement (effective June 30, 2012, upon the expiration of our existing interest rate swap agreement) to fix the underlying interest rate for a portion of our variable rate debt under our new senior secured credit facility at 1.8695%. After giving effect to the swap agreement, our effective interest rate for the notional amount of the swap, based on the current spread of 1.75%, will be 3.62% per annum through June 30, 2015. The initial notional amount is $186,250,000 and amortizes quarterly through the expiration date.

•

Stock Repurchases: During the quarter, we repurchased $60.3 million, or 2.1 million shares, of our common stock at an average price of $28.14 per share, including commissions, under the stock repurchase program. Year to date, we have repurchased $105.9 million, or 3.8 million shares, of our common stock.

VCI 2Q11 Earnings

Page 2

Outlook

Based on our overall outlook, which includes increased Shared Mail revenue growth in the second half of 2011, the aforementioned debt refinancing and cost containment efforts across the organization, our full-year 2011 guidance is as follows:

•

Diluted earnings per share (EPS) of $2.76;

•

Diluted cash EPS* of $3.71;

•

Adjusted EBITDA* of approximately $355.0 million; and

•

Capital expenditures of approximately $30 million.

Business Segment Discussion

•

Shared Mail: Revenues for the second quarter of 2011 were $337.2 million, an increase of 3.3% compared to the prior year quarter. Segment profit for the quarter was $47.7 million, an increase of 17.5% compared to the prior year quarter. The improvement in segment results was driven by the continuing trend of quarterly year-over-year growth in pieces per package. The increase in pieces per package was 2.0% to 9.8 pieces in second-quarter 2011 compared to the prior year quarter. Additionally, unused postage was a record-low of 13.8% for the quarter.

•

Neighborhood Targeted: Revenues for the second quarter of 2011 were $88.8 million, a decrease of 23.6% compared to the prior year quarter. Revenue results for this segment were primarily due to a $20.8 million decrease in ROP revenue. Segment profit for the quarter was $0.8 million, a decrease of 84.9% compared to the prior year quarter. Segment profit was negatively impacted by margin pressure associated with a changing client mix and the aforementioned ROP shortfall.

•

Free-standing Inserts (FSI): Revenues for the second quarter of 2011 were $89.2 million, a decrease of 5.7% compared to the prior year quarter due to volume declines associated with reduced market share. Segment profit for the quarter was $8.3 million, a decrease of 27.2% compared to the prior year quarter due to increased costs and the aforementioned revenue decline.

•

International, Digital Media & Services (IDMS): Revenues for the second quarter of 2011 were $50.0 million, an increase of 16.8% compared to the prior year quarter due to strong results in our coupon clearing business and triple-digit growth in our In-Store and Digital businesses. Segment profit for the quarter was $6.4 million, an increase of 106.5% compared to the prior year quarter despite increased investment in our digital business. Segment profit results were primarily driven by an increase in coupon redemption and its positive impact on NCH Marketing Services, Inc, our coupon clearing and analytics business.

Segment Results Summary


	Quarter Ended June 30,
*Segment Revenues ($ in millions)*	2011		2010		% Change
Shared Mail	$	337.2	$	326.3		3.3	%
Neighborhood Targeted	$	88.8	$	116.3		-23.6	%
Free-standing Inserts	$	89.2	$	94.6		-5.7	%
International, Digital Media & Services	$	50.0	$	42.8		16.8	%

Total Segment Revenues	$	565.2	$	580.0		-2.5	%


	Quarter Ended June 30,
*Segment Profit ($ in millions)*	2011		2010		% Change
Shared Mail	$	47.7	$	40.6		17.5	%
Neighborhood Targeted	$	0.8	$	5.3		-84.9	%
Free-standing Inserts	$	8.3	$	11.4		-27.2	%
International, Digital Media & Services	$	6.4	$	3.1		106.5	%

Total Segment Profit	$	63.2	$	60.4		4.6	%

VCI 2Q11 Earnings

Page 3

Conference Call Information

We will hold an investor call today to discuss our second-quarter 2011 results at 11 a.m. (ET). The call-in number is (877) 941-2332 (please reference conference #4443231). The call will be simulcast on our website at http://www.valassis.com. This earnings release, together with the webcast and a transcript of the conference call, will be archived on our website under “Investor.”

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, depreciation, amortization, stock-based compensation expense, and News America litigation settlement proceeds, net of related payments. We define diluted cash EPS as net earnings per common share, diluted, plus the per-share effect of depreciation, amortization, stock-based compensation expense and loss on extinguishment of debt, net of tax, less the per-share effect of capital expenditures and News America litigation settlement proceeds, net of tax and related payments. We define adjusted net earnings and adjusted diluted EPS as net earnings and diluted EPS excluding the effect of News America litigation settlement proceeds, net of tax and related payments, and loss on extinguishment of debt, net of tax. 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 a 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. 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 2Q11 Earnings

Page 4

Reconciliation of Full-year 2011 Adjusted EBITDA Guidance to Full-year 2011 Net Earnings Guidance⁽¹⁾:


	Full-year 2011 Guidance ($ in millions)
Net Earnings	$	138.3

plus: Interest expense, net		36.7
Income taxes		89.0
Depreciation and amortization		62.5
Loss on extinguishment of debt		16.3
less: Other non-cash income		(3.4	)

EBITDA	$	339.4

plus: Stock-based compensation expense		15.6


Adjusted EBITDA	$	355.0

⁽¹⁾

Due to the forward-looking nature of adjusted EBITDA, information necessary to reconcile adjusted EBITDA to cash flows from operating activities is not available without unreasonable effort. We believe that the information necessary to reconcile these measures is not reasonably estimable or predictable.

Reconciliation of Full-year 2011 Diluted Cash EPS Guidance to Full-year 2011 Diluted EPS Guidance:


	Full-year 2011 Guidance
Net Earnings (in millions)	$	138.3

Diluted EPS	$	2.60	⁽²⁾

plus effect of:
Loss on extinguishment of debt and related charges, net of tax		0.22
Depreciation		0.93
Amortization		0.24
Stock-based compensation expense		0.29

less effect of:
Capital expenditures		(0.57	)


Diluted Cash EPS	$	3.71

Shares Outstanding (in thousands)⁽³⁾		53,100

⁽²⁾	Includes the effect of $8.2 million in costs, net of tax, related to the extinguishment of our 8¹/4% Senior Notes due 2015 during the first quarter of 2011, and $3.4 million in costs, net of tax, related to the refinancing of our senior secured credit facility.

⁽³⁾

Shares outstanding for 2011 is based on the estimated 53.1 million fully diluted shares in our original full-year 2011 financial guidance reported on Dec. 15, 2010 and does not include the effect of any share repurchases, option exercises or changes in dilution caused by movement in the stock price. Actual weighted average shares outstanding, diluted, for the quarter ended June 30, 2011 was 50.2 million.

VCI 2Q11 Earnings

Page 5

Reconciliation of Adjusted Net Earnings and Adjusted Diluted EPS to Net Earnings and Diluted EPS:


	Three Months Ended
	June 30, 2011				June 30, 2010
(in millions)	Net Earnings		Diluted EPS		Net Earnings		Diluted EPS
As reported	$	30.3	$	0.60	$	11.1	$	0.21

Loss on extinguishment of debt and related charges, net of tax ⁽¹⁾		3.4		0.07		14.7		0.28

As adjusted	$	33.7	$	0.67	$	25.8	$	0.49

⁽¹⁾	Net earnings include $3.4 million, net of tax, in costs related to the refinancing of our senior secured credit facility.

Reconciliation of Diluted Cash EPS to Diluted EPS:


	Three Months Ended
	30-Jun-11			30-Jun-10
Net Earnings (in millions)	$	30.3		$	11.1

Diluted EPS	$	0.60		$	0.21

plus effect of:
Depreciation and Amortization		0.31			0.29
Stock-based compensation expense		0.05			0.15
Loss on extinguishment of debt and related charges, net of tax		0.07			0.28

less effect of:
Capital expenditures		(0.13	)		(0.09	)


Diluted Cash EPS	$	0.90		$	0.84

Shares Outstanding (in thousands)		50,167			52,499

VCI 2Q11 Earnings

Page 6

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

(dollars in thousands)

Unaudited


		Three Months Ended June 30,
		2011			2010
Net Earnings - GAAP		$	30,252		$	11,105


plus:	Income taxes		19,840			8,361
	Interest expense, net		11,604			17,589
	Loss on extinguishment of debt		2,966			23,873
	Depreciation and amortization		15,392			15,144
less:	Other non-cash income, net		(1,436	)		(561	)

EBITDA		$	78,618		$	75,511

	Stock-based compensation expense		2,455			7,891

Adjusted EBITDA		$	81,073		$	83,402


	Income taxes		(19,840	)		(8,361	)
	Interest expense, net		(11,604	)		(17,589	)
	Changes in operating assets and liabilities		23,438			(120,892	)


Cash Flows from Operating Activities		$	73,067		$	(63,440	)


		Six Months Ended June 30,
		2011			2010
Net Earnings - GAAP		$	51,663		$	333,633


plus:	Income taxes		33,136			210,197
	Interest expense, net		21,240			37,599
	Loss on extinguishment of debt		16,318			23,873
	Depreciation and amortization		31,121			30,663
less:	Other non-cash income, net		(2,312	)		(2,351	)

EBITDA		$	151,166		$	633,614

	Stock-based compensation expense		4,367			13,782
	Litigation proceeds, net of related payments		—			(490,085	)

Adjusted EBITDA		$	155,533		$	157,311


	Income taxes		(33,136	)		(210,197	)
	Interest expense, net		(21,240	)		(37,599	)
	Litigation proceeds, net of related payments		—			490,085
	Changes in operating assets and liabilities		(10,124	)		34,306


Cash Flows from Operating Activities		$	91,033		$	433,906

VCI 2Q11 Earnings

Page 7

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 offering, including redplum.com and save.com, consumers can 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, http://www.redplum.com and http://www.save.com.

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 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; 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; 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; 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.

VCI 2Q11 Earnings

Page 8

VALASSIS COMMUNICATIONS, INC.

Consolidated Balance Sheets

(dollars in thousands)

Unaudited


	June 30, 2011		Dec. 31, 2010
Assets

Current assets:

Cash and cash equivalents	$	118,962	$	245,935
Accounts receivable		411,423		459,952
Inventories		39,219		41,987
Prepaid expenses and other		62,622		38,657


Total current assets		632,226		786,531

Property, plant and equipment, net		162,399		175,567

Goodwill and other intangible assets, net		863,977		870,288

Other assets		17,573		13,272


Total assets	$	1,676,175	$	1,845,658

More tables to follow . . .

VCI 2Q11 Earnings

Page 9

VALASSIS COMMUNICATIONS, INC.

Consolidated Balance Sheets, Continued

(dollars in thousands)

Unaudited


	June 30, 2011			Dec. 31, 2010
Liabilities and Stockholders’ Equity

Current liabilities:

Current portion, long-term debt	$	15,000		$	7,058
Accounts payable and accrued expenses		405,782			429,214
Progress billings		44,615			53,001


Total current liabilities		465,397			489,273

Long-term debt		595,060			699,169
Other liabilities		45,830			49,568
Deferred income taxes		80,003			78,764

Stockholders’ equity:

Common stock		654			653
Additional paid-in capital		123,898			124,988
Retained earnings		959,799			908,136
Treasury stock		(601,242	)		(508,192	)
Accumulated other comprehensive income		6,776			3,299


Total stockholders’ equity		489,885			528,884


Total liabilities and stockholders’ equity	$	1,676,175		$	1,845,658

More tables to follow . . .

VCI 2Q11 Earnings

Page 10

VALASSIS COMMUNICATIONS, INC.

Consolidated Statements of Operations

(in thousands, except per share data)

Unaudited


	Quarter Ended June 30,						%
	2011			2010			Change

Revenues	$	565,252		$	579,950			- 2.5	%

Costs and expenses:
Costs of sales		418,040			423,765			- 1.4	%
Selling, general and administrative		80,831			92,663			- 12.8	%
Amortization		3,155			3,155			+ 0.0	%

Total costs and expenses		502,026			519,583			- 3.4	%


Operating income		63,226			60,367			+ 4.7	%


Other expenses and income:
Interest expense		11,726			17,837			- 34.3	%
Interest income		(122	)		(248	)		- 50.8	%
Loss on extinguishment of debt		2,966			23,873			- 87.6	%
Other income		(1,436	)		(561	)		+ 156.0	%

Total other expenses and income		13,134			40,901			- 67.9	%


Earnings before income taxes		50,092			19,466			+ 157.3	%

Income taxes		19,840			8,361			+ 137.3	%


Net earnings	$	30,252		$	11,105			+ 172.4	%


Net earnings per common share, diluted	$	0.60		$	0.21			+ 185.7	%

Weighted average shares outstanding, diluted		50,167			52,499			- 4.4	%

Supplementary Data
Amortization	$	3,155		$	3,155
Depreciation		12,237			11,989
Capital expenditures		6,602			4,580

More tables to follow . . .

VCI 2Q11 Earnings

Page 11

VALASSIS COMMUNICATIONS, INC.

Consolidated Statements of Operations

(in thousands, except per share data)

Unaudited


	Six Months Ended June 30,						%
	2011			2010			Change

Revenues	$	1,112,231		$	1,129,952			- 1.6	%

Costs and expenses:
Costs of sales		826,617			827,154			- 0.1	%
Selling, general and administrative		159,258			183,621			- 13.3	%
Amortization		6,311			6,311			+ 0.0	%

Total costs and expenses		992,186			1,017,086			- 2.4	%

Gain from litigation settlement		—			490,085			- 100.0	%


Operating income		120,045			602,951			- 80.1	%


Other expenses and income:
Interest expense		21,501			37,993			- 43.4	%
Interest income		(261	)		(394	)		- 33.8	%
Loss on extinguishment of debt		16,318			23,873			- 31.6	%
Other income		(2,312	)		(2,351	)		- 1.7	%

Total other expenses and income		35,246			59,121			- 40.4	%


Earnings before income taxes		84,799			543,830			- 84.4	%

Income taxes		33,136			210,197			- 84.2	%


Net earnings	$	51,663		$	333,633			- 84.5	%


Net earnings per common share, diluted	$	1.01		$	6.41			- 84.2	%

Weighted average shares outstanding, diluted		51,250			52,028			- 1.5	%

Supplementary Data
Amortization	$	6,311		$	6,311
Depreciation		24,810			24,352
Capital expenditures		11,626			8,401

###

Contact: Mary Broaddus

Earnings Release

Tel 734.591.7375

broaddusm@valassis.com

19975 Victor Parkway, Livonia, MI 48152