LIVONIA, Mich. -- Valassis 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.