Valassis Announces Results for the Third Quarter Ended Sept. 30, 2013 PR Newswire LIVONIA, Mich., Oct. 24, 2013 LIVONIA, Mich., Oct. 24, 2013 /PRNewswire/ --Valassis (NYSE: VCI) today announced financial results for the third quarter ended Sept. 30, 2013. Third-quarter 2013 revenues were $489.4 million, a decrease of 6.6% from $523.8 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, as well as the discontinuance of the sampling and solo direct mail products. Without the effect of these changes, third-quarter 2013 adjusted revenues^* increased 4.3%. Third-quarter 2013 net earnings were $27.7 million, which included $0.6 million of restructuring costs, net of tax, a decrease of 24.5% from $36.7 million in the prior year quarter, which included a favorable income tax adjustment of $5.0 million resulting from the expiration of certain tax reserves. Excluding these restructuring costs and favorable tax adjustment, third-quarter 2013 adjusted net earnings^* were $28.3 million and third-quarter 2012 adjusted net earnings^* were $31.7 million. Third-quarter 2013 diluted earnings per share (EPS) was $0.70, which included the negative impact of the aforementioned restructuring costs of $0.02, a decrease of 22.2% from $0.90 in the prior year quarter, which included the positive impact of the aforementioned income tax adjustment of $0.12. Excluding these adjustments, third-quarter 2013 adjusted diluted EPS^* was $0.72 and third-quarter 2012 adjusted diluted EPS^* was $0.78. Third quarter adjusted EBITDA^* was $65.3 million, a decrease of 13.2% from $75.2 million in the prior year quarter. "Given our year-to-date results, I recognize a clear need for change. We are executing our plan to strategically refocus, restructure and right-size our company," said Rob Mason, Valassis President and Chief Executive Officer. "We project this plan will deliver approximately $28 million in annualized cost savings, putting our company in a better position to jumpstart and accelerate growth moving forward." Some additional highlights include: oSelling, General and Administrative (SG&A) Costs: Third-quarter 2013 SG&A costs were $74.6 million (including $0.7 million in restructuring costs), compared to the prior year quarter SG&A costs of $73.4 million. oCapital Expenditures: Capital expenditures for third-quarter 2013 were $4.3 million. oReturn of Capital: During third-quarter 2013, we returned approximately $18.6 million to shareholders through a combination of stock repurchases and the payment of a cash dividend. Under our stock repurchase program, we repurchased $6.9 million or 242,712 shares of our common stock, at an average price of $28.49 per share. We paid a cash dividend of $0.31 per share of common stock, for a total of approximately $11.7 million. oLiquidity: oWe reduced total debt by $28.6 million during third-quarter 2013 (including voluntary payments/repurchases of $21.1 million), and we ended the quarter with net debt (total debt less cash) of $461.4 million. oAt Sept. 30, 2013, we had $75.0 million in cash. Outlook Based on our current performance and outlook, we are revising our full-year 2013 guidance as follows: odiluted earnings per share (EPS) of between $2.74 and $2.84 (previously between $3.05 and $3.20), oadjusted EBITDA^* of between $270.0 million and $275.0 million (previously between $290.0 million and $300.0 million), and ocapital expenditures of approximately $20 million (previously approximately $25 million). 2013 Planned Uses of Cash: oStock repurchase program: We assume the use of approximately 35-40% of free cash flow^* for 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. oQuarterly dividend: Pursuant to our cash dividend policy, we intend to pay a quarterly cash dividend to holders of our common stock. The dividend for the quarter ended Sept. 30, 2013 was $0.31 per share of common stock. Business Segment Discussion oShared Mail: Revenues for the third quarter of 2013 were $342.5 million, an increase of 3.3% compared to the prior year quarter, driven by increases in packages, postage, the variable data postcard and distribution alliances. Segment profit for the quarter was $47.5 million, a decrease of 9.2% compared to the prior year quarter.The decline in segment profit was driven primarily by changes in volume mix and continued softness in wrap revenues, which offset gains from the variable data postcard and distribution alliances. oFree-standing Inserts (FSI): Revenues for the third quarter of 2013 were $75.5 million, an increase of 4.6% compared to the prior year quarter, primarily driven by an increase in page volume. Segment profit for the quarter was $7.7 million, an increase of 1.3% compared to the prior year quarter, primarily driven by an increase in volume, offset by client mix and price. oNeighborhood Targeted: Revenues for the third quarter of 2013 were $23.7 million, a decrease of 68.7% 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 $2.1 million compared to segment loss in the prior year quarter of $1.1 million, due primarily to continued margin pressure. oInternational, Digital Media & Services (IDMS): Revenues for the third quarter of 2013 were $47.7 million, an increase of 7.4% compared to the prior year quarter, driven by increased coupon clearing volumes and growth in our in-store business. Segment loss for the quarter was $2.4 million, compared to segment profit of $0.1 million in the prior year quarter, primarily due to losses associated with our in-store and digital businesses. Segment Results Summary Three Months Ended Sept. 30, Segment Revenues ($ in millions) 2013 2012 % Change Shared Mail $342.5 $331.4 3.3% Free-standing Inserts $75.5 $72.2 4.6% Neighborhood Targeted $23.7 $75.8 -68.7% International, Digital Media & $47.7 $44.4 7.4% Services^ Total Segment Revenues $489.4 $523.8 -6.6% Three Months Ended Sept. 30, Segment Profit (Loss) ($ in millions) 2013 2012 % Change Shared Mail $47.5 $52.3 -9.2% Free-standing Inserts $7.7 $7.6 1.3% Neighborhood Targeted ($2.1) ($1.1) -90.9% International, Digital Media & ($2.4) $0.1 ** Services Total Segment Profit $50.7 $58.9 -13.9% ^**Not Meaningful Conference Call Information We will hold an investor call today to discuss our third-quarter 2013 results at 11 a.m. (EDT). The call-in number is 877-941-0844 (Conference ID: 4639008). 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." ^*Non-GAAP Financial Measures We define adjusted EBITDA as net earnings before interest expense, net, other non-cash expenses (income), net, income taxes, restructuring costs and other non-recurring charges, depreciation, amortization, and stock-based compensation expense. We define adjusted revenues as revenues adjusted to (i)a net basis, for client contracts to which we were a principal and recordedrevenues on a gross basis in 2012 that, in 2013, transitioned to a fee-based media placement model and were recorded on a net basis, and (ii)exclude revenues related to discontinued businesses. We define adjusted net earnings and adjusted diluted EPS as net earnings and diluted EPS excluding the effect, net of tax, of restructuring costs, asset impairments and other non-recurring charges and the expiration of certain tax reserves. We define free cash flow as net earnings before depreciation, amortization and stock-based compensation expense, less capital expenditures. Adjusted EBITDA, adjusted revenues, adjusted net earnings, adjusted diluted EPS 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: oadjusted EBITDA does not reflect our cash expenditures for capital equipment or other contractual commitments; oalthough 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; oadjusted EBITDA and free cash flow do not reflect changes in, or cash requirements for, our working capital needs; oadjusted EBITDA does not reflect the significant interest expense or the cash requirements necessary to service interest or principal payments on our indebtedness; oadjusted EBITDA does not reflect income tax expense or the cash necessary to pay income taxes; oadjusted EBITDA, adjusted revenues, adjusted net earnings, adjusted diluted EPS 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; ofree 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 oother 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 revenues, adjusted net earnings, adjusted diluted EPS 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. Reconciliation of Adjusted Net Earnings and Adjusted Diluted EPS to Net Earnings and Diluted EPS ($ in millions except for per share data) Three Months Ended Sept. 30, 2013 2012 Net Earnings Diluted EPS Net Earnings Diluted EPS As reported $ $ $ $ 27.7 0.70 36.7 0.90 Exclude, net of tax: Restructuring costs and other non-recurring 0.6 0.02 - - charges Tax benefit due to expiration of certain tax - - (5.0) (0.12) reserves As adjusted $ $ $ $ 28.3 0.72 31.7 0.78 Reconciliation of Adjusted Revenues to Revenues ($ in millions) Three Months Ended Sept. 30, 2013 2012 Revenues, as reported $ $ 489.4 523.8 Adjustment to a net basis of revenues previously contracted and recorded as principal on a - (51.5) gross basis in 2012 Adjustment for discontinued businesses - (2.9) Adjusted Revenues $ $ 489.4 469.4 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 $ $ 109.2 113.2 plus: Interest expense, net 29.4 29.4 Income taxes 67.0 68.0 Depreciation and amortization 46.9 46.9 Other non-cash expenses (0.9) (0.9) (income), net EBITDA $ $ 251.6 256.6 plus: Stock-based compensation 16.0 16.0 expense Restructuring costs 2.4 2.4 Adjusted EBITDA $ $ 270.0 275.0 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 $ $ 109.2 113.2 plus: Depreciation and amortization 46.9 46.9 Stock-based compensation 16.0 16.0 expense less: Capital expenditures (20.0) (20.0) Free cash flow $ $ 152.1 156.1 ^(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. Reconciliation of Adjusted EBITDA to Net Earnings and Cash Flows from Operating Activities ($ in millions) Unaudited Three Months Ended Sept. 30, 2013 2012 Net Earnings - GAAP $ $ 27.7 36.7 plus: Income taxes 16.5 14.4 Interest expense, net 7.3 7.5 Depreciation and amortization 11.1 13.9 Other non-cash (income) expense, (1.2) 0.5 net EBITDA $ $ 61.4 73.0 Restructuring costs and other 1.0 - non-recurring charges Stock-based compensation expense 2.9 2.2 Adjusted EBITDA $ $ 65.3 75.2 Income taxes (16.5) (14.4) Interest expense, net (7.3) (7.5) Changes in operating assets and (19.1) (11.9) liabilities Cash Flows from Operating Activities $ $ 22.4 41.4 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. RedPlum^® is its consumer brand. Its signature Have You Seen Me?^® program delivers hope to missing children and their families. For insights on intelligent media delivery, visit www.valassis.com and follow Valassis on Twitter at @ValassisVCI. 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; 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. VALASSIS COMMUNICATIONS, INC. Consolidated Balance Sheets (dollars in thousands) Unaudited Sept. 30, Dec. 31, 2013 2012 Assets Current assets: Cash and cash equivalents $ 74,985 $ 94,711 Accounts receivable, net 408,322 426,899 Inventories 36,705 43,253 Prepaid expenses and other 49,006 36,589 Total current assets 569,018 601,452 Property, plant and equipment, 109,826 125,832 net Goodwill 632,438 632,438 Other intangible assets, net 203,984 215,171 Other assets 13,436 14,142 Total assets $ 1,528,702 $ 1,589,035 Liabilities and Stockholders' Equity Current liabilities: Current portion long-term $ 33,750 $ 22,500 debt Accounts payable 264,144 281,320 Progress billings 38,084 39,595 Accrued expenses 96,342 107,467 Total current liabilities 432,320 450,882 Long-term debt 502,650 565,061 Deferred income taxes 57,968 57,258 Other non-current liabilities 38,002 42,271 Total liabilities 1,030,940 1,115,472 Stockholders' equity: Common stock 654 654 Additional paid-in capital 84,866 102,373 Retained earnings 1,169,075 1,128,540 Accumulated other 3,796 3,574 comprehensive income Treasury stock, at cost (760,629) (761,578) Total stockholders' equity 497,762 473,563 Total liabilities and $ 1,528,702 $ 1,589,035 stockholders' equity More tables to follow . . . VALASSIS COMMUNICATIONS, INC. Consolidated Statements of Operations (in thousands, except per share data) Unaudited Three Months Ended Sept. 30, % 2013 2012 Change Revenues $ $ -6.6% 489,383 523,822 Costs and expenses: Cost of sales 361,337 388,284 -6.9% Selling, general and 74,577 73,358 1.7% administrative Amortization expense 3,729 3,245 14.9% Total costs and expenses 439,643 464,887 -5.4% Operating income 49,740 58,935 -15.6% Other expenses and income: Interest expense 7,287 7,563 -3.6% Interest income (30) (46) -34.8% Other (income) expense, net (1,713) 249 -788.0% Total other expenses, net 5,544 7,766 -28.6% Earnings before income taxes 44,196 51,169 -13.6% Income tax expense 16,483 14,429 14.2% Net earnings $ $ -24.6% 27,713 36,740 Net earnings per common share, $ $ -22.2% diluted 0.70 0.90 Weighted average common shares, 38,684 40,832 -5.3% diluted Supplementary Data Amortization 3,729 3,245 Depreciation 7,363 10,680 Stock-based Compensation 2,906 2,220 Capital Expenditures 4,338 4,013 VALASSIS COMMUNICATIONS, INC. Consolidated Statements of Operations (in thousands, except per share data) Unaudited Nine Months Ended Sept. 30, % 2013 2012 Change Revenues $ 1,467,792 $ -7.3% 1,582,645 Costs and expenses: Cost of sales 1,086,648 1,180,905 -8.0% Selling, general and 228,632 234,498 -2.5% administrative Amortization expense 11,187 9,557 17.1% Goodwill impairment - 7,585 -100.0% Total costs and expenses 1,326,467 1,432,545 -7.4% Operating income 141,325 150,100 -5.8% Other expenses and income: Interest expense 22,464 21,372 5.1% Interest income (138) (174) -20.7% Other income, net (2,636) (525) 402.1% Total other expenses, net 19,690 20,673 -4.8% Earnings before income 121,635 129,427 -6.0% taxes Income tax expense 45,467 44,559 2.0% Net earnings $ $ -10.3% 76,168 84,868 Net earnings per common $ $ -4.5% share, diluted 1.91 2.00 Weighted average common 39,147 42,532 -8.0% shares, diluted Supplementary Data Amortization 11,187 9,557 Depreciation 24,610 33,465 Stock-based Compensation 9,401 7,021 Capital Expenditures 14,746 15,783 SOURCE Valassis Website: http://www.valassis.com Contact: Mary Broaddus, Director, Investor Relations and Corporate Communications, 734-591-7375, firstname.lastname@example.org; or April Masters, Manager, Investor Relations, 734-432-2778, email@example.com
Valassis Announces Results for the Third Quarter Ended Sept. 30, 2013
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