LIVONIA, Mich., -- Valassis today announced financial results for the first quarter ended March 31, 2009. We reported quarterly revenue of $551.2 million, down 7.7% from $597.1 million for the prior year quarter due primarily to the negative effect the economic slowdown has had on our clients' marketing budgets. First-quarter net earnings were $13.0 million, including an after-tax gain of $4.5 million or $0.09 per share, related to our repurchases at a discount of term loans under our senior secured credit facility, an increase of 19.1% from the prior year quarter(1). Earnings per share (EPS) for the quarter was $0.27, up from $0.23(1) for the prior year quarter. For the first quarter of 2009, adjusted EBITDA* was $53.9 million, down from adjusted EBITDA* of $63.2 million for the prior year quarter.

"This quarter's revenue declines are a direct result of the ongoing advertising recession, although we continue to outperform our media peers," said Alan F. Schultz, Valassis Chairman, President and Chief Executive Officer. "While client spending is more constricted than we anticipated, we are on plan to reach our 2009 adjusted EBITDA* guidance. We are particularly pleased with the growth in our Neighborhood Targeted preprint business driven by our new client wins and cross-selling strategy."

Some additional financial highlights include:

- 2009 Profit Maximization Plan Ahead of Schedule:  First-quarter 2009 selling, general and administrative (SG&A) costs were $86.2 million, which includes $2.9 million in legal costs related to the News America lawsuits and $0.8 million in severance costs, compared to prior year quarter SG&A costs of $97.2 million.  This 11.3% reduction was due primarily to cuts in discretionary spending and staffing. - Capital Expenditures: Capital expenditures for the first quarter of 2009 were $2.0 million and are on track to meet our annual target of $15 to $20 million in 2009.

- Liquidity: First-quarter 2009 cash flow from operations was $39.7 million with a net decrease in debt of $86.2 million.  As we previously disclosed on Jan. 26, 2009, we paid off and cancelled our 6 5/8% Senior Secured Notes that matured on Jan. 15, 2009. No other material debt maturities are scheduled until 2014.

Outlook

It is difficult to predict with precision client advertising budgets due to the prolonged economic downturn. However, based on this quarter's performance and our current outlook, we are on plan to meet our 2009 adjusted EBITDA* annual guidance of approximately $215.0 million, allowing us to comfortably exceed our debt covenant thresholds throughout 2009. Based on today's environment, we will no longer provide 2009 revenue guidance.

"We are off to a great start in the implementation of our 2009 Profit Maximization Plan and savings are coming at a faster pace than we anticipated," said Robert L. Recchia, Valassis Executive Vice President and Chief Financial Officer. "We expect to exceed our savings target of $57.5 million, and we continue to look for opportunities to reduce costs."

(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 March 31, 2008 have been reduced by $1.4 million and $0.03, respectively, as the result of recognizing incremental non-cash interest expense of $2.2 million during that period.

Business Segment Discussion

- Shared Mail:  Revenue for the first quarter of 2009 was $310.9 million, down 12.7% compared to the prior year quarter.  The decline was due primarily to reduced spending in the mass merchandising vertical, lightweighting by grocery retailers and lower wrap revenue. Segment profit for the quarter was $18.8 million compared to $30.9 million for the prior year quarter.  Margin loss related to the $45.4 million segment revenue decline was substantially mitigated by business optimization efforts, newspaper alliances and effective cost management. - Neighborhood Targeted Products:  Revenue for the first quarter of 2009 was $112.6 million, up 12.4% compared to the prior year quarter revenue of $100.2 million, due primarily to an increase in spend in the financial services and specialty retail verticals.   Segment profit for the quarter was $10.6 million compared to $11.1 million for the prior year quarter. Segment profit declines for the quarter were due primarily to a shift in client and product mix. - Free-standing Inserts (FSI):  Revenue for the first quarter of 2009 was $93.6 million, down 5.1% compared to the prior year quarter due primarily to the continued pricing deterioration. Industry unit volume was up 1.2%, benefiting from the increased popularity of value-oriented media.  Segment profit for the quarter was $1.0 million, down 50.0% compared to the prior year quarter, primarily as a result of the pricing decline.

- International, Digital Media & Services:  Revenue for the first quarter was $34.1 million, down 18.8% compared to the prior year quarter.  Excluding revenue from previously announced divested and discontinued operations and the impact of currency fluctuations, revenue was up 9.6% compared to the prior year quarter. Segment profit for the quarter was $4.0 million compared to a loss of $1.8 million for the prior year quarter primarily due to the discontinuance of underperforming businesses and a strong performance in U.S. coupon clearing volume.