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8-K - FORM 8-K - VALASSIS COMMUNICATIONS INCd526951d8k.htm

Exhibit 99.1

 

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FOR IMMEDIATE RELEASE

Valassis Announces Results for the First Quarter Ended March 31, 2013

LIVONIA, Mich., April 25, 2013: Valassis (NYSE: VCI) today announced financial results for the first quarter ended March 31, 2013. First-quarter 2013 revenues were $482.5 million, a decrease of 7.0% from $518.6 million in the prior year quarter. This decrease was due primarily to an anticipated decline in revenues in the Neighborhood Targeted segment resulting from the change in certain client contracts to a fee-based media placement model. Increased revenues in our Free-standing Inserts (FSI) segment partially offset the decline.

First-quarter 2013 net earnings were $21.7 million, a decrease of 17.8% from $26.4 million in the prior year quarter. First-quarter 2013 diluted earnings per share (EPS) was $0.54, a decrease of 10.0% from $0.60 in the prior year quarter. First-quarter 2013 adjusted EBITDA* was $58.0 million, a decrease of 13.4% from $67.0 million in the prior year quarter.

“We are focused on improving execution, growing our share and achieving top and bottom-line growth,” said Rob Mason, Valassis President and Chief Executive Officer. “I am confident that we are taking the necessary steps to expedite our progress and expect to see positive results from our efforts in the second half of the year.”

Some additional highlights include:

 

   

Selling, General and Administrative (SG&A) Costs: First-quarter 2013 SG&A costs were $76.3 million, down 1.7% compared to the prior year quarter SG&A costs.

 

   

Capital Expenditures: Capital expenditures for first-quarter 2013 were $3.3 million.

 

   

Stock Repurchases: During first-quarter 2013, we repurchased $21.2 million, or 725,512 shares, of our common stock at an average price of $29.18 per share under our stock repurchase program.

 

   

Liquidity:

 

   

We reduced total debt by $3.8 million during first-quarter 2013, and we ended the quarter with net debt (total debt less cash) of $486.6 million.

 

   

At March 31, 2013, we had $97.2 million in cash.

Outlook

Based on our overall outlook, we are revising our full-year 2013 diluted earnings per share (EPS) and adjusted EBITDA* guidance as follows:

 

   

diluted earnings per share (EPS) of between $3.05 and $3.20 (previously $3.50), and

 

   

adjusted EBITDA* of between $290.0 million and $300.0 million (previously approximately $315.0 million).

We reiterate our guidance for capital expenditures of approximately $25 million.

2013 Planned Uses of Cash:

 

   

Stock repurchase plan: We assume the use of approximately 35-40% of free cash flow* for continued stock repurchases during 2013. Our stock repurchase program does not obligate us to acquire any particular amount of shares of common stock, and may be modified or suspended at any time at our discretion.

 

   

Quarterly dividend: In December 2012, the Board approved a cash dividend policy pursuant to which Valassis intends to pay a quarterly cash dividend to holders of its common stock. The dividend for the quarter ended March 31, 2013 was $0.31 per share of common stock. Valassis may modify, suspend or discontinue the dividend policy at any time at its discretion.

 

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Business Segment Discussion

 

   

Shared Mail: Revenues for the first quarter of 2013 were $327.1 million, down 0.3% compared to the prior year quarter. Segment profit for the quarter was $38.9 million, a decrease of 8.3% compared to the prior year quarter. The decline in segment profit was driven primarily by reduced wrap revenue and the shifting of product mix to lower margin products.

 

   

Free-standing Inserts (FSI): Revenues for the first quarter of 2013 were $85.7 million, an increase of 12.3% compared to the prior year quarter. Segment profit for the quarter was $11.1 million, an increase of 105.6% compared to the prior year quarter. Segment results for the quarter were positively impacted by an increase in page volume, improved gross margin and market share gains.

 

   

Neighborhood Targeted: Revenues for the first quarter of 2013 were $23.3 million, a decrease of 67.7% compared to the prior year quarter, primarily due to the change in certain client contracts to a fee-based media placement model. Segment loss for the quarter was $4.4 million compared to segment loss in the prior year quarter of $1.6 million, due primarily to continued margin pressure.

 

   

International, Digital Media & Services (IDMS): Revenues for the first quarter of 2013 were $46.4 million, an increase of 10.5% compared to the prior year quarter, driven by growth in our in-store and digital businesses. Segment loss for the quarter was $3.9 million, compared to segment profit of $2.7 million in the prior year quarter, primarily due to continued investment in our in-store and digital businesses and a decline in coupon redemption volumes at NCH.

Segment Results Summary

 

     Quarter Ended March 31,        
     2013     2012     % Change  

Segment Revenues ($ in millions)

      

Shared Mail

   $ 327.1      $ 328.1        -0.3

Free-standing Inserts

   $ 85.7      $ 76.3        12.3

Neighborhood Targeted

   $ 23.3      $ 72.2        -67.7

International, Digital Media & Services

   $ 46.4      $ 42.0        10.5

Total Segment Revenues

   $ 482.5      $ 518.6        -7.0
     Quarter Ended March 31,        
     2013     2012     % Change  

Segment Profit (Loss) ($ in millions)

      

Shared Mail

   $ 38.9      $ 42.4        -8.3

Free-standing Inserts

   $ 11.1      $ 5.4        105.6

Neighborhood Targeted

   ($ 4.4   ($ 1.6     -175.0

International, Digital Media & Services

   ($ 3.9   $ 2.7        -244.4

Total Segment Profit

   $ 41.7      $ 48.9        -14.7

Conference Call Information

We will hold an investor call today to discuss our first-quarter 2013 results at 11 a.m. (EDT). The call-in number is 877-941-9205 (Conference ID: 4609849). The call will be simulcast on our website at www.valassis.com. This earnings release, webcast and a transcript of the conference call will be archived on our website under “Investors.”

 

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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, impairment charges and other non-recurring costs, depreciation, amortization, and stock-based compensation expense. We define free cash flow as net earnings before depreciation, amortization and stock-based compensation expense, less capital expenditures. Adjusted EBITDA and free cash flow 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. 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 free cash flow 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 and free cash flow do not reflect the impact of earnings or charges resulting from matters we consider not to be indicative of our ongoing operations;

 

   

free cash flow does not represent the residual cash flow available for discretionary expenditures because certain non-discretionary expenditures like mandatory debt service requirements are not deducted from the measure; 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 and free cash flow 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.

 

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Reconciliation of Full-year 2013 Adjusted EBITDA Guidance to Full-year 2013 Net Earnings Guidance(1):

 

     Full-year 2013
Guidance
($ in millions)
 
     Low End      High End  

Net Earnings

   $ 122.0       $ 128.2   

plus: Interest expense, net

     29.6         29.6   

Income taxes

     74.8         78.6   

Depreciation and amortization

     48.6         48.6   

Other non-cash expenses (income), net

     —            —      
  

 

 

    

 

 

 

EBITDA

   $ 275.0       $ 285.0   

plus: Stock-based compensation expense

     15.0         15.0   
  

 

 

    

 

 

 

Adjusted EBITDA

   $ 290.0       $ 300.0   
  

 

 

    

 

 

 

Reconciliation of Full-year 2013 Free Cash Flow to Full-year 2013 Net Earnings Guidance(1):

 

     Full-year 2013
Guidance
($ in millions)
 
     Low End     High End  

Net Earnings

   $ 122.0      $ 128.2   

plus: Depreciation and amortization

     48.6        48.6   

Stock-based compensation expense

     15.0        15.0   

less: Capital expenditures

     (25.0     (25.0
  

 

 

   

 

 

 

Free cash flow

   $ 160.6      $ 166.8   
  

 

 

   

 

 

 

 

(1) 

Due to the forward-looking nature of adjusted EBITDA and free cash flow, information to reconcile adjusted EBITDA and free cash flow 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.

 

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

(dollars in millions)

Unaudited

 

     Three Months Ended  
     March 31,  
     2013     2012  

Net Earnings - GAAP

   $ 21.7      $ 26.4   
  

 

 

   

 

 

 

        plus:             Income taxes

     12.7        16.2   

                              Interest expense, net

     7.6        7.0   

                              Depreciation and amortization

     13.3        14.7   

                              Other non-cash expense (income), net

     (0.3     0.4   
  

 

 

   

 

 

 

EBITDA

   $ 55.0      $ 64.7   
                             Stock-based compensation expense      3.0        2.3   
  

 

 

   

 

 

 

Adjusted EBITDA

   $ 58.0      $ 67.0   
  

 

 

   

 

 

 
                             Income taxes      (12.7     (16.2
                             Interest expense, net      (7.6     (7.0
                             Changes in operating assets and liabilities      (14.2     (29.4
  

 

 

   

 

 

 

Cash Flows from Operating Activities

   $ 23.5      $ 14.4   
  

 

 

   

 

 

 

 

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About Valassis

Valassis (NYSE: VCI) is a leader in intelligent media delivery, providing over 15,000 advertisers proven and innovative media solutions to influence consumers wherever they plan, shop, buy and share. By integrating online and offline data combined with powerful insights, Valassis precisely targets its clients’ most valuable shoppers, offering unparalleled reach and scale. Valassis subsidiaries include Brand.net, a Valassis Digital Company, and NCH Marketing Services, Inc. Valassis consumer brands include RedPlum® and save.com. Its signature Have You Seen Me?® program delivers hope to missing children and their families. To learn more, visit Valassis.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; possible consolidation in our client base, a significant decrease in the number of stores in our in-store retailer network or 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; governmental regulation or litigation affecting aspects of our business,including laws and regulations related to the internet, internet-related technologies and activities, privacy and data security; potential security measure breaches or attacks; 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; a reduction in, or discontinuance of, dividend payments or stock repurchases; 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.

Contact:

Mary Broaddus

Director, Investor Relations and Corporate Communications

734-591-7375

broaddusm@valassis.com

 

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VALASSIS COMMUNICATIONS, INC.

Consolidated Balance Sheets

(dollars in thousands)

Unaudited

 

     March 31,     Dec. 31,  
     2013     2012  

Assets

    

Current assets:

    

Cash and cash equivalents

   $ 97,204      $ 94,711   

Accounts receivable, net

     416,789        426,899   

Inventories

     39,075        43,253   

Prepaid expenses and other

     30,594        36,589   
  

 

 

   

 

 

 

Total current assets

     583,662        601,452   

Property, plant and equipment, net

     113,602        125,832   

Goodwill

     632,438        632,438   

Other intangible assets, net

     211,442        215,171   

Other assets

     13,414        14,142   
  

 

 

   

 

 

 

Total assets

   $ 1,554,558      $ 1,589,035   
  

 

 

   

 

 

 

Liabilities and Stockholders’ Equity

    

Current liabilities:

    

Current portion long-term debt

   $ 26,250      $ 22,500   

Accounts payable

     276,565        281,320   

Progress billings

     36,319        39,595   

Accrued expenses

     79,161        107,467   
  

 

 

   

 

 

 

Total current liabilities

     418,295        450,882   

Long-term debt

     557,561        565,061   

Deferred income taxes

     57,624        57,258   

Other non-current liabilities

     40,701        42,271   
  

 

 

   

 

 

 

Total liabilities

     1,074,181        1,115,472   

Stockholders’ equity:

    

Common stock

     654        654   

Additional paid-in capital

     94,738        102,373   

Retained earnings

     1,138,185        1,128,540   

Accumulated other comprehensive income

     3,080        3,574   

Treasury stock, at cost

     (756,280     (761,578
  

 

 

   

 

 

 

Total stockholders’ equity

     480,377        473,563   
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 1,554,558      $ 1,589,035   
  

 

 

   

 

 

 

More tables to follow . . .

 

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VALASSIS COMMUNICATIONS, INC.

Consolidated Statements of Operations

(in thousands, except per share data)

Unaudited

 

     Quarter Ended        
     March 31,     %  
     2013     2012     Change  

Revenues

   $ 482,522      $ 518,585        -7.0

Costs and expenses:

      

Cost of sales

     360,768        388,894        -7.2

Selling, general and administrative

     76,332        77,617        -1.7

Amortization expense

     3,729        3,156        18.2
  

 

 

   

 

 

   

 

 

 

Total costs and expenses

     440,829        469,667        -6.1
  

 

 

   

 

 

   

 

 

 

Operating income

     41,693        48,918        -14.8
  

 

 

   

 

 

   

 

 

 

Other expenses and income:

      

Interest expense

     7,679        7,054        8.9

Interest income

     (62     (58     6.9

Other expense (income), net

     (302     (697     -56.7
  

 

 

   

 

 

   

 

 

 

Total other expenses, net

     7,315        6,299        16.1
  

 

 

   

 

 

   

 

 

 

Earnings before income taxes

     34,378        42,619        -19.3

Income tax expense

     12,709        16,198        -21.5
  

 

 

   

 

 

   

 

 

 

Net earnings

   $ 21,669      $ 26,421        -18.0
  

 

 

   

 

 

   

 

 

 

Net earnings per common share, diluted

   $ 0.54      $ 0.60        -10.0

Weighted average common shares, diluted

     39,806        44,045        -9.6

Supplementary Data

      

Amortization

     3,729        3,156     

Depreciation

     9,558        11,554     

Stock-based Compensation

     2,986        2,287     

Capital Expenditures

     3,342        9,263     

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