Valassis (NYSE: VCI) today announced financial results for the fourth quarter and full year ended Dec. 31, 2011.  Fourth-quarter 2011 revenues were $595.3 million, a decrease of 5.7% from $631.2 million in the prior year quarter.  Full-year 2011 revenues were $2,236.0 million, a decrease of 4.2% from $2,333.5 million in full-year 2010.  These decreases in revenues were due primarily to the previously announced shortfall in Run-of-Press (ROP) revenues within the Neighborhood Targeted segment and reduced spending by consumer packaged goods (CPG) clients across our various business segments.

Fourth-quarter 2011 net earnings were $34.3 million, an increase of 38.2% from $24.8 million in the prior year quarter.  Fourth-quarter 2011 diluted earnings per share (EPS) was $0.76, an increase of 61.7% from $0.47 in the prior year quarter.  Fourth-quarter 2011 net earnings and diluted EPS were negatively impacted by charges in an aggregate amount of $14.0 million ($8.5 million, net of tax) and$0.19, respectively, primarily related to the restructuring of certain non-core businesses and the associated costs including write-offs of impaired assets, as well as the early termination of leases and severance costs.  

Full-year 2011 net earnings were $113.4 million and full-year 2010 net earnings were $385.4 million. Full-year 2011 adjusted net earnings* were $133.5 million, which excludes debt refinancing costs, net of tax, of $11.6 million and the charges described above, net of tax, of $8.5 million.  Full-year 2010 adjusted net earnings* were $98.7 million, which excludes debt refinancing costs of $14.7 million, net of tax, and litigation settlement proceeds, net of tax and related payments, of $301.4 million.  Full-year 2011 adjusted net earnings* increased 35.3% from full-year 2010.  Full-year 2011 diluted EPS was $2.33 and full-year 2010 diluted EPS was $7.42. Full-year 2011 adjusted diluted EPS*, which excludes a $0.41 effect from debt refinancing costs and the charges described above, was$2.74.  Full-year 2010 adjusted diluted EPS*, which excludes a net effect of $5.52 from debt refinancing costs and litigation settlement proceeds, net of tax and related payments, was $1.90.  Full-year 2011 adjusted diluted EPS increased 44.2% from full-year 2010.  

Fourth-quarter 2011 adjusted EBITDA* was $91.3 million, an increase of 12.0% from $81.5 million in the prior year quarter.  Full-year 2011 adjusted EBITDA* was $316.6 million, a decrease of 0.6% from $318.6 million in full-year 2010.  Fourth-quarter 2011 diluted cash EPS* was $1.35, an increase of 77.6% from $0.76 in the prior year quarter.  Full-year 2011 diluted cash EPS* was $3.80, an increase of 19.1% from $3.19 in full-year 2010.

"Our fourth quarter adjusted EBITDA* of $91.3 million is a single-quarter record for our company, which was driven by exceptional performance of our Shared Mail and NCH businesses. In 2012, we expect these two businesses to continue to generate positive results allowing us to invest in our new initiatives," said Rob Mason, Valassis President and Chief Executive Officer.

Some additional highlights include:

• Selling, General and Administrative (SG&A) Costs: Fourth-quarter 2011 SG&A costs were $89.3 million (which included$6.3 million in non-cash stock-based compensation expense), a decrease of 6.8% compared to the prior year quarter SG&A costs of $95.8 million (which included $9.8 million in non-cash stock-based compensation expense).  Full-year 2011 SG&A costs were $329.1 million (which included $12.9 million in non-cash stock-based compensation expense), a decrease of 11.4% compared to the full-year 2010 SG&A costs of $371.3 million (which included $32.1 million in non-cash stock-based compensation expense).
• Capital Expenditures: Capital expenditures for the fourth-quarter and full-year 2011 were $3.6 million and $21.7 million, respectively.
• Stock Repurchases: During 2011, we repurchased $215.1 million, or 8.9 million shares, of our common stock at an average price of $24.25 per share under our stock repurchase program.
• Liquidity:
  • We reduced total debt by $103.7 million during 2011, and we ended 2011 with net debt (total debt less cash) of$500.6 million.
  • At Dec. 31, 2011, we had $102.0 million in cash.

Outlook

Based on our plan, current outlook and the assumptions specified in our Dec. 13, 2011 earnings guidance press release, we reiterate full-year 2012 guidance as follows:

• Diluted earnings per share (EPS) of $3.07;
• Diluted cash EPS* of $3.97;
• Capital expenditures of approximately $32 million.

Business Segment Discussion

• Shared Mail:  Revenues for the fourth quarter of 2011 were $360.4 million, an increase of 5.4% compared to the prior year quarter.  Segment profit for the quarter was $55.9 million, an increase of 23.4% compared to the prior year quarter.  This improvement in segment results was driven primarily by an increase in pieces per package as well as incremental print revenue. Full-year 2011 revenues were $1,350.8 million, an increase of 3.3% compared to full-year 2010.  Full-year 2011 segment profit was $191.9 million, an increase of 22.4% compared to full-year 2010.  Full-year 2011 segment results were driven primarily by an increase in pieces per package and a decrease in SG&A costs.

• Neighborhood Targeted:  Revenues for the fourth quarter of 2011 were $118.9 million, a decrease of 20.7% compared to the prior year quarter. Full-year 2011 revenues were $374.7 million, a decrease of 21.9% compared to full-year 2010. Segment profit for the quarter was $4.6 million, an increase of 360% compared to the prior year quarter, which included a $4.5 millioncharge to bad debt.  Full-year 2011 segment profit was $7.7 million, a decrease of 62.6% compared to full-year 2010.  Segment results for the full year were negatively impacted by the continued margin pressure in this segment and the previously announced revenue shortfall in ROP.

• Free-standing Inserts (FSI):  Revenues for the fourth quarter of 2011 were $64.1 million, a decrease of 25.7% compared to the prior year quarter due primarily to the absence of custom co-op business and the decline in industry volume. Full-year 2011 revenues were $316.0 million, a decrease of 14.0% compared to the prior year.  Segment profit for the quarter was a loss of $0.8 million compared to the prior year quarter profit of $0.3 million. Segment profit for the full-year 2011 was $14.1 million, a decrease of 43.4% compared to the prior year. Segment results for the quarter and full year were negatively impacted by the aforementioned absence of custom co-op business and industry volume declines.

• International, Digital Media & Services (IDMS):  Revenues for the fourth quarter of 2011 were $51.9 million, a decrease of 2.3% compared to the prior year quarter. Full-year 2011 revenues were $194.5 million, an increase of 8.8% compared to the prior year. NCH Marketing Services, Inc., our coupon clearing and analytics business, and our Digital business were the key drivers of growth in this segment. Segment profit for the quarter was $9.3 million a decrease of 3.1% compared to the prior year quarter. Full-year 2011 segment profit was $24.3 million, an increase of 7.0% compared to the prior year.  The improvement in full-year 2011 segment profit results was primarily driven by the positive effect of coupon redemptions on our coupon clearing and analytics business and was partially offset by pressure on the In-Store business resulting from the reduction in consumer packaged goods spend and our continued investment in new businesses.

Segment Results Summary

Conference Call Information

We will hold an investor call today to discuss our fourth-quarter and full-year 2011 results at 11 a.m. (ET). The call-in number is (800) 762-8779 (please reference conference #4491795). 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 "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, litigation proceeds, net of related payments, impairment charges 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, impairment charges and other non-recurring costs, net of tax, litigation proceeds, net of tax and related payments, 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, litigation proceeds, net of related payments, and impairment charges 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.  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.

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

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

Reconciliations of Diluted Cash EPS to Diluted EPS for the Full-Year Ended:

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

(1) Represents estimated weighted average diluted shares outstanding for the year ended Dec. 31, 2012 and assumes the use of 50% of free cash flow for stock repurchases.