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Valassis Reports Net Earnings Up 141% for the Second Quarter Ended June 30, 2009

Raises Full-year 2009 Adjusted EBITDA* Guidance by $30 Million

LIVONIA, Mich., July 30 /PRNewswire-FirstCall/ -- Valassis (NYSE: VCI) today announced financial results for the second quarter ended June 30, 2009. We reported quarterly revenue of $544.0 million, a decrease of 8.6% from $594.9 million for the prior year quarter attributed primarily to the economic uncertainty and its effect on our clients' marketing budgets. The quarterly revenue decline would have been 7.0% excluding $9.8 million in divested and discontinued businesses in the prior year quarter. Second-quarter net earnings was $15.9 million, an increase of 141.1% from $6.6 million(1) for the prior year quarter. Net earnings includes an after-tax gain of $0.9 million, or $0.02 per share, related to our repurchases at a discount to par of term loans under our senior secured credit facility. Earnings per share (EPS) for the quarter was $0.33, up 135.7% from $0.14(1) for the prior year quarter. For the second quarter of 2009, adjusted EBITDA* was $65.0 million, an increase of 16.1% compared to $56.0 million for the prior year quarter.

First-half revenue for 2009 was $1,095.2 million, down 8.1% compared to the first half of the prior year (down 6.7% excluding divested and discontinued businesses of $17.8 million in the prior year period). Net earnings for the first half of 2009 was $29.0 million, up 65.1% compared to $17.6(1) million for the prior year. EPS for the first half of 2009 was $0.60, up 62.2% compared to $0.37(1) for the prior year period. First-half adjusted EBITDA* was $118.9 million, flat compared to the first half of 2008.

"We continue to outperform most media companies because our product portfolio is well aligned with what research indicates is a permanent shift in shopper behavior toward value-oriented media," said Alan F. Schultz, Valassis Chairman, President and Chief Executive Officer. "In addition, we have very high retention within our diverse and stable client base who use our products to generate measurable results."

    Some additional financial highlights include:
    --  2009 Profit Maximization Plan (PMP) Continues to be Ahead of Schedule:
        Second-quarter 2009 selling, general and administrative (SG&A) costs
        were $86.7 million, which includes $3.7 million in legal costs related
        to the News America lawsuits, compared to prior year quarter SG&A
        costs of $96.9 million.  This 10.5% reduction was due primarily to
        cuts in staffing, divested and discontinued businesses and reduced
        discretionary spending.   First-half 2009 SG&A was $172.9 million
        (including $6.6 million in legal costs), down 10.9% compared to the
        first half of 2008 SG&A of $194.0 million.
    --  Capital Expenditures: Capital expenditures for the second quarter of
        2009 were $6.6 million and are on track to meet our annual target of
        $15 million to $20 million in 2009.

    --  Liquidity: Second-quarter 2009 cash flow from operations was $83.7
        million with a decrease in debt of $23.1 million. As of June 30, 2009,
        our net debt position was $952.2 million. During the quarter, we
        completed two "modified Dutch" auctions in which we repurchased and
        retired $21.6 million of our outstanding term loan B and delayed draw
        term loans under our senior secured credit facility at an average
        discount of 7.3% to par, or for an aggregate purchase price of $20.0
        million, plus fees.  Our cash interest expense for the quarter was
        $19.0 million compared to $20.3 million for the first quarter.

Outlook

We are updating full-year 2009 guidance based on our current outlook. Given continued success with our PMP and assuming no further economic downturns, we are increasing full-year 2009 adjusted EBITDA* guidance to $245.0 million from $215.0 million.

"We are very pleased with our cost management efforts in the first half which have resulted in significant margin and profit improvement," said Robert L. Recchia, Valassis Executive Vice President and Chief Financial Officer.

(1) Effective Jan.1, 2009, we adopted Financial Accounting Standards Board's Staff Position No. APB 14-1, "Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)", (FSP APB 14-1) which requires retrospective application. This adoption of FSP APB 14-1 had no effect on the current period. Previously reported net earnings and EPS for the quarter ended June 30, 2008 have been reduced by $0.7 million and $0.01, respectively, as the result of recognizing incremental non-cash interest expense of $1.1 million .during that period. Previously reported net earnings and EPS for the six months ended June 30, 2008 have been reduced by $2.2 million and $0.04, respectively, as a result of recognizing incremental non-cash interest expense of $3.3 million during that period. In May 2008, we repurchased approximately 99.95% of our convertible debt.


    Business Segment Discussion
    --  Shared Mail:  Revenue for the second quarter of 2009 was $313.6
        million, down 10.5% compared to the prior year quarter.  The decline
        was due primarily to reduced spending by clients in the mass
        merchandising vertical, lightweighting by grocery retailers and lower
        wrap revenue. Segment profit for the quarter was $23.4 million, up
        2.6% compared to the prior year quarter due to package optimization
        efforts, newspaper alliances, SG&A reductions and effective cost
        management.
    --  Neighborhood Targeted Products:  Revenue for the second quarter of
        2009 was $99.0 million, down 8.6% compared to the prior year quarter
        revenue of $108.3 million, due primarily to a decrease in spend by
        clients in the telecom and financial verticals. Segment profit for the
        quarter was $10.0 million, down 15.3% compared to $11.8 million for
        the prior year quarter. The segment profit decline for the quarter was
        due primarily to the decline in revenue and a shift in product mix.
    --  Free-standing Inserts (FSI):  Revenue for the second quarter of 2009
        was $92.1 million, up 3.8% compared to the prior year quarter.  This
        was due to an industry unit volume increase of approximately 8% as
        value-oriented media continues to gain popularity.  Segment profit for
        the quarter was $4.3 million, compared to a loss of $2.4 million in
        the prior year quarter due to increased unit volume and reduced costs.
        Management noted that our profit improvement in the FSI segment is a
        result of our cost management efforts through the PMP.  At the same
        time, the FSI business remains dramatically depressed from historical
        levels due to the unfair tying, bundling and leveraging of in-store
        products into FSI negotiations by our competitor, News America, as the
        jury unanimously found in our recent lawsuit against News America.

    --  International, Digital Media & Services:  Revenue for the second
        quarter was $39.3 million, down 17.3% compared to the prior year
        quarter.  Excluding revenue from previously announced divested and
        discontinued operations of $9.8 million and a $1.8 million impact of
        currency fluctuations, revenue was up 9.1% compared to the prior year
        quarter. Segment profit for the quarter was $6.4 million, up 146.2%
        from $2.6 million in the second quarter of 2008 (which included $0.8
        million of one-time restructuring charges) primarily due to the
        discontinuance of underperforming businesses and a significant
        increase in U.S. coupon clearing volume. NCH Marketing Services, Inc.,
        our coupon-processing subsidiary, issued a mid-year report that shows
        that consumer packaged goods coupon distribution has increased in the
        last five consecutive quarters. NCH also reported a 19% increase in
        redemption volume in the first half of 2009 compared to the prior year
        period.



    Segment Results Summary

                                         Quarter Ended
                                           June  30,
     Segment Revenue (in millions)            2009        2008  % Change
                                              ----        ----  --------
        Shared Mail                         $313.6      $350.4     -10.5%
                                            ------      ------     -----
        Neighborhood Targeted                $99.0      $108.3      -8.6%
                                             -----      ------      ----
        Free-standing Inserts                $92.1       $88.7       3.8%
                                             -----       -----       ---
        International, Digital
         Media & Services( )                 $39.3       $47.5     -17.3%
                                             -----       -----     -----
     Total Segment Revenue                  $544.0      $594.9      -8.6%
                                            ------      ------      ----



                                         Quarter Ended
                                           June 30,
     Segment Profit (in millions)            2009        2008  % Change
                                             ----        ---   --------
        Shared Mail                         $23.4       $22.8       2.6%
                                            -----       -----       ---
        Neighborhood Targeted               $10.0       $11.8     -15.3%
                                            -----       -----     -----
        Free-standing Inserts                $4.3       ($2.4)    279.2%
                                             ----       -----     -----
        International, Digital Media &
         Services                            $6.4        $2.6     146.2%
                                             ----        ----     -----
     Total Segment Profit                   $44.1       $34.8      26.7%
                                            -----       -----      ----


Conference Call Information

We will hold an investor call today to discuss our second-quarter 2009 results at 11 a.m. (ET). The call-in number is (877) 941-2332 (please reference conference #4081090). The call will be simulcast on our Web site at http://www.valassis.com and a telephonic replay of the call will be available through Aug. 12, 2009 at (800) 406-7325, pass code 4081090. This earnings release and the webcast will be archived on our Web site under "Investor."

Non-GAAP Financial Measures

*We define adjusted EBITDA as earnings before net interest expense, other non-cash expenses (income), net, income taxes, depreciation, amortization, stock-based compensation expense associated with SFAS No. 123R, non-recurring restructuring and severance costs and amortization of a client contract incentive. Adjusted EBITDA is a non-GAAP financial measure commonly used by financial analysts, investors, rating agencies and other interested parties in evaluating companies, including marketing services companies. Accordingly, management believes that adjusted EBITDA may be useful in assessing our operating performance and our ability to meet our debt service requirements. In addition, adjusted EBITDA is 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. However, this non-GAAP financial measure has limitations as an analytical tool and should not be considered in isolation from, or as an alternative to, operating income, cash flow 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 does 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 does 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
        this measure differently and as the number of differences in the way
        two different companies calculate this measure increases, the degree
        of its usefulness as a comparative measure correspondingly decreases.

Because of these limitations, adjusted EBITDA should not be considered as a measure 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 this non-GAAP financial measure only supplementally. Further important information regarding operating results and reconciliations of this non-GAAP financial measure to the most comparable GAAP measures can be found below.



    Reconciliation of 2009 Adjusted EBITDA Guidance to 2009 Net Earnings
     Guidance:

                                               Full-year 2009
                                              Revised Guidance
                                               ($in millions)
                                                -------------
    Net Earnings                                     $62.4
    ------------                                     -----
    Add back:
         Interest expense, net                        82.4
         Income taxes                                 39.2
         Depreciation and amortization                66.9
         Other non-cash income                       (15.8)

    EBITDA                                          $235.1

    Add back:
         FAS123r expense                               6.1
         Non-recurring restructuring/severance         3.8
         ------------------------                      ---
    Adjusted EBITDA                                 $245.0
    ---------------                                 ------



               Reconciliation of Adjusted EBITDA to Net Earnings
                        and Cash Flow from Operations
                            (dollars in thousands)
                                 Unaudited


                                               Three Months Ended
                                                     June 30,
                                                     ------
                                                  2009         2008
                                                  ----         ----

     Net Earnings - GAAP                       $15,948       $6,614
                                               =======       ======

       plus:  Income taxes                       9,666        4,629
              Interest expense, net             21,231       24,586
              Depreciation and amortization     17,407       17,185
       less:  Other non-cash income, net        (2,766)      (1,048)
                                                ------       ------
    EBITDA                                     $61,486      $51,966

              Stock-based compensation expense   1,719        1,973
              Amortization of client contract
               incentive                             -        1,215
              Restructuring costs / severance    1,773          810

     Adjusted EBITDA                           $64,978      $55,964
                                               -------      -------

              Interest expense, net            (21,231)     (24,586)
              Income taxes                      (9,666)      (4,629)
              Restructuring costs, cash         (1,773)        (810)
              Changes in operating assets and
               liabilities                      51,426       51,695
                                                ------       ------
    Cash Flow from Operations                  $83,734      $77,634
                                               =======      =======



                                                     Six Months Ended
                                                         June 30,
                                                         -------
                                                    2009          2008
                                                    ----          ----

    Net Earnings - GAAP                          $28,976       $17,555
                                                 =======       =======

       plus:  Income taxes                        18,320        11,652
              Interest expense, net               42,625        49,980
              Depreciation and amortization       35,067        34,823
       less:  Other non-cash income, net         (11,461)       (2,167)
                                                 -------        ------
    EBITDA                                      $113,527      $111,843

              Stock-based compensation expense     2,768         3,429
              Amortization of customer contract
               incentive                               -         2,430
              Restructuring costs / severance      2,556         1,447

    Adjusted EBITDA                             $118,851      $119,149
                                                --------      --------

              Interest expense, net              (42,625)      (49,980)
              Income taxes                       (18,320)      (11,652)
              Restructuring costs, cash           (2,556)       (1,447)
              Changes in operating assets and
               liabilities                        68,046        24,965
                                                  ------        ------
    Cash Flow from Operations                   $123,396       $81,035
                                                ========       =======


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 interactive offering - redplum.com - consumers will 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 or http://www.redplum.com.

Safe Harbor and Forward-Looking Statements

Certain statements found in this document constitute "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; our ability to comply with or obtain modifications or waivers of the financial covenants contained in our debt documents; certain covenants in our debt documents could adversely restrict our financial and operating flexibility; recent disruptions in the credit markets that make it difficult for companies to secure financing; 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; the outcome of ADVO's pending shareholder lawsuits; our current litigation with News America Incorporated may be costly and divert management's attention; possible governmental regulation or litigation affecting aspects of our business; the credit and liquidity crisis in the financial markets could continue to affect our results of operations and financial condition; reductions of our credit rating may have an adverse impact on our business; counterparties to our secured credit facility and interest rate swaps may not be able to fulfill their obligations due to disruptions in the global credit markets; 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.



                               VALASSIS COMMUNICATIONS, INC.
                                Consolidated Balance Sheets
                                   (dollars in thousands)
                                         Unaudited

    Assets                                        June 30,           Dec. 31,
                                                   2009               2008

    Current assets:

       Cash and cash equivalents                  $141,139          $126,556
       Accounts receivable                         377,159           479,749
       Inventories                                  34,086            48,173
       Refundable income taxes                       9,649            15,509
       Deferred income taxes                         1,808             1,879
       Other                                        20,725            31,235

             Total current assets                  584,566           703,101

    Property, plant and equipment, at cost         490,440           484,765

       Less accumulated depreciation              (276,794)         (250,828)

       Net property, plant and equipment           213,646           233,937

    Intangible assets, net                         886,110           892,422

    Investments                                      2,344             2,555

    Other assets                                    21,041            21,166

             Total assets                       $1,707,707        $1,853,181



                           VALASSIS COMMUNICATIONS, INC.
                      Consolidated Balance Sheets, Continued
                              (dollars in thousands)
                                     Unaudited


     Liabilities and Stockholders' Equity           June 30,      Dec. 31,
                                                      2009          2008
                                                      ----          ----

     Current liabilities:

       Current portion, long-term debt                $6,197       $90,855
       Accounts payable and accruals                 379,129       440,214
       Progress billings                              33,027        44,539


             Total current liabilities               418,353       575,608


     Long-term debt                                1,087,108     1,111,712
     Other liabilities                                61,102        66,029
     Deferred income taxes                            98,214        94,418

     Stockholders' equity:

       Common stock                                      636           635
       Additional paid-in capital                     90,072        87,305
       Retained earnings                             484,939       455,963
       Treasury stock                               (520,170)     (520,170)
       Accumulated other comprehensive loss          (12,547)      (18,319)
                                                     -------       -------

             Total stockholders' equity               42,930         5,414
                                                      ------         -----

     Total liabilities and stockholders'
      equity                                      $1,707,707    $1,853,181
                                                  ----------    ----------



                          VALASSIS COMMUNICATIONS, INC.
                     Consolidated Statements of Operations
                     (in thousands, except per share data)
                                    Unaudited


                                               Three Months Ended
                                                     June 30,             %
                                                     --------
                                                 2009          2008    Change
                                                 ----          ----     ------

     Revenue                                 $544,037      $594,925     - 8.6%

     Costs and expenses:
         Costs of products sold               410,043       460,970    - 11.0%
         Selling, general and
          administrative                       86,659        96,869    - 10.5%
         Amortization                           3,256         2,305    + 41.3%

             Total costs and expenses         499,958       560,144    - 10.7%

     Operating income                          44,079        34,781    + 26.7%

     Other expenses and income:
         Interest expense                      21,385        25,227    - 15.2%
         Interest income                         (154)         (641)   - 76.0%
         Other (income) and expenses           (2,766)       (1,048)  + 163.9%
                                               ------        ------   -------
             Total other expenses and income   18,465        23,538    - 21.6%

     Earnings before income taxes              25,614        11,243   + 127.8%

     Income taxes                               9,666         4,629   + 108.8%
                                                -----         -----   -------


     Net earnings                             $15,948        $6,614   + 141.1%
                                              -------        ------   -------

     Net earnings per common share, diluted     $0.33         $0.14   + 135.7%

     Weighted average shares
      outstanding, diluted                     48,961        48,088     + 1.8%


     Supplementary Data
     ------------------
         Amortization                          $3,256        $2,305
         Depreciation                          14,151        14,880
         Capital expenditures                   6,607         6,674



                              VALASSIS COMMUNICATIONS, INC.
                          Consolidated Statements of Operations
                          (in thousands, except per share data)
                                       Unaudited


                                                 Six Months Ended
                                                      June 30,           %
                                                      --------
                                                 2009         2008     Change
                                                 ----         ----     ------

     Revenue                              $1,095,192   $1,192,006     - 8.1%

     Costs and expenses:
         Costs of products sold              837,533      916,327     - 8.6%
         Selling, general and
          administrative                     172,887      194,048    - 10.9%
         Amortization                          6,312        4,611    + 36.9%

             Total costs and expenses      1,016,732    1,114,986     - 8.8%

     Operating income                         78,460       77,020     + 1.9%

     Other expenses and income:
         Interest expense                     43,029       51,348    - 16.2%
         Interest income                        (404)      (1,368)   - 70.5%
         Other (income) and expenses         (11,461)      (2,167)  + 428.9%
                                             -------       ------   -------
             Total other expenses and income  31,164       47,813    - 34.8%

     Earnings before income taxes             47,296       29,207    + 61.9%

     Income taxes                             18,320       11,652    + 57.2%
                                              ------       ------    ------


     Net earnings                            $28,976      $17,555    + 65.1%
                                             -------      -------    ------

     Net earnings per common share, diluted    $0.60        $0.37    + 62.2%

     Weighted average shares outstanding,
      diluted                                 48,693       48,023     + 1.4%


     Supplementary Data
     ------------------
         Amortization                         $6,312       $4,611
         Depreciation                         28,755       30,212
         Capital expenditures                  8,643       15,696

SOURCE Valassis
CONTACT:
Mary Broaddus,
+1-734-591-7375,
broaddusm@valassis.com