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SuperMedia Announces Second Quarter 2011 Results

About SuperMedia

SuperMedia Inc. (NASDAQ: SPMD) helps small- and medium-sized businesses grow through effective local marketing solutions across print, online, mobile and social media. SuperMedia solutions include: the award-winning SuperGuarantee® program, Superpages® directories, published for Verizon®, FairPoint® and Frontier®, Superpages.com®, EveryCarListed.com®, Superpages for your mobile and Superpages direct mail products. For more information, visit  www.supermedia.com.

SPMD-G

1 Advertising sales for the three and six months ended June 30, 2011 include negative adjustments of $2 million, or 0.4 percent, and $11 million, or 1.1 percent, respectively, related to the financial distress and operational wind down of a single certified marketing representative firm in our third-party national sales channel. Excluding this impact, advertising sales for the three and six months ended June 30, 2011 would have reflected a decline of 16.3 percent and 16.4 percent, respectively. As of June 2011, responsibility for these accounts has been transitioned to other certified marketing representative firms.

2 Advertising sales for the three and six months ended June 30, 2011 include negative adjustments of $2 million, or 0.4 percent, and $11 million, or 1.1 percent, respectively, related to the financial distress and operational wind down of a single certified marketing representative firm in our third-party national sales channel. Excluding this impact, advertising sales for the three and six months ended June 30, 2011 would have reflected a decline of 16.3 percent and 16.4 percent, respectively. As of June 2011, responsibility for these accounts has been transitioned to other certified marketing representative firms.

 
SuperMedia Inc.
Consolidated Statements of Operations
         
Reported (GAAP)

Six Months Ended June 30, 2011 Compared to Six Months Ended June 30, 2010 (3)

(dollars in millions, except per share amounts)
 
6 Mos. Ended 6 Mos. Ended
Unaudited       6/30/11     6/30/10     % Change    
 
Operating Revenue $ 859 $ 401 114.2
 
Operating Expense
Selling 228 222 2.7
Cost of sales (exclusive of depreciation and amortization) 216 192 12.5
General and administrative 118 97 21.6
Depreciation and amortization   88     95   (7.4 )
Total Operating Expense 650 606 7.3
 
Operating Income (Loss) 209 (205 ) NM
Interest expense, net   114     143   (20.3 )

Income (Loss) Before Reorganization Items and Provision (Benefit) for Income Taxes

 

95 (348 ) NM
 
Reorganization items   1     3   (66.7 )
 
Income (Loss) Before Provision (Benefit) for Income Taxes

 

94 (351 ) NM
Provision (benefit) for income taxes   35     (125 ) NM
Net Income (Loss) $ 59   $ (226 ) NM
 
Basic and Diluted Earnings (Loss) per Common Share (1) (2) $ 3.79 $ (15.10 ) NM
Basic and diluted weighted-average common

shares outstanding

15.1 15.0
 
These schedules are preliminary and subject to change pending the Company's filing of its Form 10-Q.
Our 2010 financial results were impacted by our adoption of fresh start accounting in December 2009.
As a result, our 2011 financial results are not comparable to our 2010 financial results.
 
Notes:
 
(1) Equity based awards granted had no impact on the calculation of diluted earnings per common share.
 

(2) Net income allocated to participating securities (unvested restricted stock awards) which are eligible to receive dividend equivalents is excluded from the calculation of EPS. The amount excluded from earnings per common share was $2 million for the six months ended June 30, 2011.

 
(3) Results for the six months ended June 30, 2010 include a $16 million general and administrative expense reduction related to the favorable non-recurring, non-cash resolution of state operating tax claims.
 
     
SuperMedia Inc.
Consolidated Statements of Operations
 
Reported (GAAP)
Three Months Ended June 30, 2011 Compared to Three Months Ended June 30, 2010 (3)
(dollars in millions, except per share amounts)
 
3 Mos. Ended 3 Mos. Ended
Unaudited       6/30/11     6/30/10 % Change    
 
Operating Revenue $ 421 $ 247 70.4
 
Operating Expense
Selling 112 113 (0.9 )
Cost of sales (exclusive of depreciation and amortization) 106 103 2.9
General and administrative 53 45 17.8
Depreciation and amortization   44     47   (6.4 )
Total Operating Expense 315 308 2.3
 
Operating Income (Loss) 106 (61 ) NM
Interest expense, net   57     71   (19.7 )

Income (Loss) Before Reorganization Items and Provision (Benefit) for Income Taxes

 

49 (132 ) NM
 
Reorganization items   1     1   -
 
Income (Loss) Before Provision (Benefit) for Income Taxes

 

48 (133 ) NM
Provision (benefit) for income taxes   19     (50 ) NM
Net Income (Loss) $ 29   $ (83 ) NM
 
Basic and Diluted Earnings (Loss) per Common Share (1) (2) $ 1.89 $ (5.55 ) NM
Basic and diluted weighted-average common

shares outstanding

15.1 15.0
 
Notes:
 
(1) Equity based awards granted had no impact on the calculation of diluted earnings per common share.
 
(2) Net income allocated to participating securities (unvested restricted stock awards) which are eligible to receive dividend equivalents is excluded from the calculation of EPS. The amount excluded from earnings per common share was $1 million for the three months ended June 30, 2011.
 
(3) Results for the three months ended June 30, 2010 include a $16 million general and administrative expense reduction related to the favorable non-recurring, non-cash resolution of state operating tax claims.
 
       
SuperMedia Inc.
Consolidated Statements of Operations
 
Adjusted and Adjusted Pro Forma (Non-GAAP) (1)
Six Months Ended June 30, 2011 Compared to Six Months Ended June 30, 2010 (4)
(dollars in millions, except per share amounts)
 
6 Mos. Ended 6 Mos. Ended
Unaudited       6/30/11     6/30/10   % Change  
 
Operating Revenue $ 859 $ 1,045 (17.8 )
 
Operating Expense
Selling 228 298 (23.5 )
Cost of sales (exclusive of depreciation and amortization) 216 274 (21.2 )
General and administrative 109 145 (24.8 )
Depreciation and amortization   88     95 (7.4 )
Total Operating Expense 641 812 (21.1 )
 
Operating Income 218 233 (6.4 )
Interest expense, net   114     143 (20.3 )

Income Before Reorganization Items and Provision for Income Taxes

 

104 90 15.6
 
Reorganization items   -     - NM
 
Income Before Provision for Income Taxes

 

104 90 15.6
Provision for income taxes   39     32 21.9
Net Income $ 65   $ 58 12.1
 
Basic and Diluted Earnings per Common Share (2) (3) $ 4.21 $ 3.84 9.4
Basic and diluted weighted-average common

shares outstanding

15.1 15.0
 
 
Notes:
 
(1) These consolidated statements of operations provide a comparison of the six months ended June 30, 2011 adjusted results to the six months ended June 30, 2010 adjusted pro forma results. The following schedules provide reconciliations from our reported GAAP results to adjusted and adjusted pro forma non-GAAP results for the periods shown above.
 
(2) Equity based awards granted had no impact on the calculation of diluted earnings per common share.
 
(3) Net income allocated to participating securities (unvested restricted stock awards) which are eligible to receive dividend equivalents is excluded from the calculation of EPS. The amount excluded from earnings per common share was $2 million for the six months ended June 30, 2011.
 
(4) Results for the six months ended June 30, 2010 include a $16 million general and administrative expense reduction related to the favorable non-recurring, non-cash resolution of state operating tax claims.
 
       
SuperMedia Inc.
Consolidated Statements of Operations
 
Adjusted and Adjusted Pro Forma (Non-GAAP) (1)
Three Months Ended June 30, 2011 Compared to Three Months Ended June 30, 2010 (4)
(dollars in millions, except per share amounts)
 
3 Mos. Ended 3 Mos. Ended
Unaudited       6/30/11     6/30/10   % Change  
 
Operating Revenue $ 421 $ 512 (17.8 )
 
Operating Expense
Selling 112 146 (23.3 )
Cost of sales (exclusive of depreciation and amortization) 106 136 (22.1 )
General and administrative 51 65 (21.5 )
Depreciation and amortization   44     47 (6.4 )
Total Operating Expense 313 394 (20.6 )
 
Operating Income 108 118 (8.5 )
Interest expense, net   57     71 (19.7 )

Income Before Reorganization Items and Provision for Income Taxes

 

51 47 8.5
 
Reorganization items   -     - NM
 
Income Before Provision for Income Taxes

 

51 47 8.5
Provision for income taxes   20     14 42.9
Net Income $ 31   $ 33 (6.1 )
 
Basic and Diluted Earnings per Common Share (2) (3) $ 2.02 $ 2.15 (6.0 )
Basic and diluted weighted-average common

shares outstanding

15.1 15.0
 
 
Notes:
 
(1) These consolidated statements of operations provide a comparison of the three months ended June 30, 2011 adjusted results to the three months ended June 30, 2010 adjusted pro forma results. The following schedules provide reconciliations from our reported GAAP results to adjusted and adjusted pro forma non-GAAP results for the periods shown above.
 
(2) Equity based awards granted had no impact on the calculation of diluted earnings per common share.
 
(3) Net income allocated to participating securities (unvested restricted stock awards) which are eligible to receive dividend equivalents is excluded from the calculation of EPS. The amount excluded from earnings per common share was $1 million for the three months ended June 30, 2011.
 
(4) Results for the three months ended June 30, 2010 include a $16 million general and administrative expense reduction related to the favorable non-recurring, non-cash resolution of state operating tax claims.
 
       
SuperMedia Inc.
Consolidated Statements of Operations
 
Reconciliation from Reported (GAAP) to Adjusted (Non-GAAP)
Six Months Ended June 30, 2011    
(dollars in millions, except per share amounts)
 
Adjustments

Unaudited

   

6 Mos. Ended

6/30/11

Reported

(GAAP)

 

Severance

Costs &

Reorganization

Items (3)

 

6 Mos. Ended

6/30/11

Adjusted

(Non-GAAP)

 
Operating Revenue $ 859 $ - $ 859
 
Operating Expense
Selling 228 - 228
Cost of sales (exclusive of depreciation and amortization) 216 - 216
General and administrative 118 (9 ) 109
Depreciation and amortization   88       -       88  
Total Operating Expense   650       (9 )     641  
 
Operating Income 209 9 218
Interest expense, net   114       -       114  

Income Before Reorganization Items and Provision for Income Taxes

95 9 104
 
Reorganization items   1       (1 )     -  
 

Income Before Provision for Income Taxes

 

94 10 104
Provision for income taxes   35       4       39  
Net Income $ 59     $ 6     $ 65  
 
 
Basic and Diluted Earnings per Common Share $ 3.79 $ 0.42 $ 4.21
 
 
Operating Income $ 209 $ 9 $ 218
Depreciation and Amortization   88       -       88  
EBITDA (non-GAAP) (1) $ 297     $ 9     $ 306  
 
 
Operating income margin (2) 24.4 % 25.4 %
Impact of depreciation and amortization   10.2 %         10.2 %
EBITDA margin (non-GAAP) (1)   34.6 %         35.6 %
 
Notes:
 
(1) EBITDA is a non-GAAP measure that represents earnings before interest, taxes, depreciation and amortization. EBITDA margin is a non-GAAP measure calculated by dividing EBITDA by operating revenue.
 
(2) Operating income margin is calculated by dividing operating income by operating revenue.
 
(3) Severance costs of $9 million are associated with headcount reductions. Reorganization items of $1 million represent charges that are directly associated with the process of reorganizing the business under Chapter 11 of the United States Bankruptcy Code.
 
   
SuperMedia Inc
Consolidated Statements of Operations
 
Reconciliation from Reported (GAAP) to Adjusted (Non-GAAP)
Three Months Ended June 30, 2011
    (dollars in millions, except per share amounts)
 
Adjustments  
Unaudited    

3 Mos. Ended

6/30/11

Reported

(GAAP)

 

Severance

Costs &

Reorganization

Items (3)

 

3 Mos. Ended

6/30/11 Adjusted

(Non-GAAP)

 
Operating Revenue $ 421 $ - $ 421
 
Operating Expense
Selling 112 - 112
Cost of sales (exclusive of depreciation and amortization) 106 - 106
General and administrative 53 (2 ) 51
Depreciation and amortization   44       -       44  
Total Operating Expense   315       (2 )     313  
 
Operating Income 106 2 108
Interest expense, net   57       -       57  

Income Before Reorganization Items and Provision for Income Taxes

49 2 51
 
Reorganization items   1       (1 )     -  
 
Income Before Provision for Income Taxes

 

48 3 51
Provision for income taxes   19       1       20  
Net Income $ 29     $ 2     $ 31  
 
 
Basic and Diluted Earnings per Common Share $ 1.89 $ 0.13 $ 2.02
 
 
Operating Income $ 106 $ 2 $ 108
Depreciation and Amortization   44       -       44  
EBITDA (non-GAAP) (1) $ 150     $ 2     $ 152  
 
 
Operating income margin (2) 25.2 % 25.7 %
Impact of depreciation and amortization   10.4 %         10.4 %
EBITDA margin (non-GAAP) (1)   35.6 %         36.1 %
 
Notes:
 

(1) EBITDA is a non-GAAP measure that represents earnings before interest, taxes, depreciation and amortization. EBITDA margin is a non-GAAP measure calculated by dividing EBITDA by operating revenue.

 
(2) Operating income margin is calculated by dividing operating income by operating revenue.
 

(3) Severance costs of $2 million are associated with headcount reductions. Reorganization items of $1 million represent charges that are directly associated with the process of reorganizing the business under Chapter 11 of the United States Bankruptcy Code.

 
SuperMedia Inc.
Consolidated Statements of Operations
                 
Reconciliation from Reported (GAAP) to Adjusted Pro Forma (Non-GAAP) (7)
Six Months Ended June 30, 2010
(dollars in millions, except per share amounts)
 
Adjustments

Pro Forma

Items

Unaudited    

6 Mos. Ended

6/30/10

Reported

(GAAP)

 

Restructuring

Costs (3)

 

Reorganization

Items (4)

 

Health Care

Reform Act (5)

 

6 Mos. Ended

6/30/10

Adjusted

(Non-GAAP)

 

Fresh Start

Accounting Items

(6)

   

6 Mos. Ended

6/30/10 Adjusted

Pro Forma

(Non-GAAP)

 
 
Operating Revenue $ 401 $ - $ - $ - $ 401 $ 644 $ 1,045
 
Operating Expense
Selling 222 - - - 222 76 298
Cost of sales (exclusive of depreciation and amortization) 192 - - - 192 82 274
General and administrative 97 (4 ) - - 93 52 145
Depreciation and amortization   95       -       -       -       95       -       95  
Total Operating Expense   606       (4 )     -       -       602       210       812  
 
Operating Income (Loss) (205 ) 4 - - (201 ) 434 233
Interest expense, net   143       -       -       -       143       -       143  

Income (Loss) Before Reorganization Items and Provision (Benefit) for Income Taxes

(348 ) 4 - - (344 ) 434 90
 
Reorganization items   3       -       (3 )     -       -       -       -  
 
Income (Loss) Before Provision (Benefit) for Income Taxes (351 ) 4 3 - (344 ) 434 90
Provision (benefit) for income taxes   (125 )     1       1       (7 )     (130 )     162       32  
Net Income (Loss) $ (226 )   $ 3     $ 2     $ 7     $ (214 )   $ 272     $ 58  
 
 
Basic and Diluted Earnings (Loss) per Common Share $ (15.10 ) $ 0.18 $ 0.12 $ 0.48 $ (14.32 ) $ 18.16 $ 3.84
 
 
Operating Income (Loss) $ (205 ) $ 4 $ - $ - $ (201 ) $ 434 $ 233
Depreciation and Amortization   95       -       -       -       95       -       95  
EBITDA (non-GAAP) (1) $ (110 )   $ 4     $ -     $ -     $ (106 )   $ 434     $ 328  
 
 
Operating income (loss) margin (2) -51.1 % -50.1 % 22.3 %
Impact of depreciation and amortization   23.7 %                 23.7 %           9.1 %
EBITDA margin (non-GAAP) (1)   -27.4 %                 -26.4 %           31.4 %
 
Notes:
 
(1) EBITDA is a non-GAAP measure that represents earnings before interest, taxes, reorganization items, depreciation and amortization. EBITDA margin is a non-GAAP measure calculated by dividing EBITDA by operating revenue.
 
(2) Operating income (loss) margin is calculated by dividing operating income (loss) by operating revenue.
 
(3) Restructuring costs are associated with strategic organizational cost savings initiatives.
 
(4) Reorganization items represent charges that are directly associated with the process of reorganizing the business under Chapter 11 of the United States Bankruptcy Code.
 
(5) As a result of the passage of the Health Care Reform Act in March of 2010, the future benefit of certain deferred tax assets was eliminated, resulting in a charge in the six months ended June 30, 2010.
 

(6) Fresh start accounting items include adjustments for revenue and expense items that would have been otherwise amortized into the Company's statement of operations but were written off at December 31, 2009 as prescribed by United States Generally Accepted Accounting Principles.

 

(7) Results include a $16 million general and administrative expense reduction related to the favorable non-recurring, non-cash resolution of state operating tax claims.

             
SuperMedia Inc.
Consolidated Statements of Operations
 
Reconciliation from Reported (GAAP) to Adjusted Pro Forma (Non-GAAP) (6)
Three Months Ended June 30, 2010
(dollars in millions, except per share amounts)
 
Adjustments

Pro Forma

Items

 
Unaudited    

3 Mos. Ended

6/30/10

Reported

(GAAP)

 

Restructuring

Costs (3)

 

Reorganization

Items (4)

 

3 Mos. Ended

6/30/10

Adjusted

(Non-GAAP)

 

Fresh Start

Accounting

Items (5)

 

3 Mos. Ended

6/30/10 Adjusted

Pro Forma

(Non-GAAP)

 
Operating Revenue $ 247 $ - $ - $ 247 $ 265 $ 512
 
Operating Expense
Selling 113 - - 113 33 146
Cost of sales (exclusive of depreciation and amortization) 103 - - 103 33 136
General and administrative 45 (2 ) - 43 22 65
Depreciation and amortization   47       -       -       47       -     47  
Total Operating Expense   308       (2 )     -       306       88     394  
 
Operating Income (Loss) (61 ) 2 - (59 ) 177 118
Interest expense, net   71       -       -       71       -     71  

Income (Loss) Before Reorganization Items and Provision (Benefit) for Income Taxes

(132 ) 2 - (130 ) 177 47
 
Reorganization items 1 - (1 ) - - -
 
Income (Loss) Before Provision (Benefit) for Income Taxes

 

(133 ) 2 1 (130 ) 177 47
Provision (benefit) for income taxes   (50 )     -       -       (50 )     64     14  
Net Income (Loss) $ (83 )   $ 2     $ 1     $ (80 )   $ 113   $ 33  
 
 
Basic and Diluted Earnings (Loss) per Common Share $ (5.55 ) $ 0.09 $ 0.04 $ (5.42 ) $ 7.57 $ 2.15
 
 
Operating Income (Loss) $ (61 ) $ 2 $ - $ (59 ) $ 177 $ 118
Depreciation and Amortization   47       -       -       47       -     47  
EBITDA (non-GAAP) (1) $ (14 )   $ 2     $ -     $ (12 )   $ 177   $ 165  
 
 
Operating income (loss) margin (2) -24.7 % -23.9 % 23.0 %
Impact of depreciation and amortization   19.0 %             19.0 %         9.2 %
EBITDA margin (non-GAAP) (1)   -5.7 %             -4.9 %         32.2 %
 
 
Notes:
 
(1) EBITDA is a non-GAAP measure that represents earnings before interest, taxes, reorganization items, depreciation and amortization. EBITDA margin is a non-GAAP measure calculated by dividing EBITDA by operating revenue.
 
(2) Operating income (loss) margin is calculated by dividing operating income (loss) by operating revenue.
 
(3) Restructuring costs are associated with strategic organizational realignment and market exit initiatives.
 
(4) Reorganization items represent charges that are directly associated with the process of reorganizing the business under Chapter 11 of the United States Bankruptcy Code.
 

(5) Fresh start accounting items include adjustments for revenue and expense items that would have been otherwise amortized into the Company's statement of operations but were written off at December 31, 2009 according to the rules of fresh start accounting.

 

(6) Results include a $16 million general and administrative expense reduction related to the favorable non-recurring, non-cash resolution of state operating tax claims.

       
SuperMedia Inc.
Consolidated Balance Sheets
 
Reported (GAAP)
As of June 30, 2011 and December 31, 2010
(dollars in millions)
 
 
Unaudited       6/30/2011       12/31/2010    

$ Change

 
 
Assets
Current assets:
Cash and cash equivalents $ 180 $ 174 $ 6
Accounts receivable, net of allowances of $81 and $89 175 210 (35 )
Accrued taxes receivable 3 - 3
Deferred directory costs 183 199 (16 )
Prepaid expenses and other   18       13       5    
Total current assets   559       596       (37 )  
Property, plant and equipment 121 122 (1 )
Less: accumulated depreciation   40       28       12    
  81       94       (13 )  
Goodwill 1,707 1,707 -
Intangible assets, net 411 481 (70 )
Pension assets 47 42 5
Other non-current assets   4       6       (2 )  
Total Assets $ 2,809     $ 2,926     $ (117 )  
 
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Accounts payable and accrued liabilities $ 123 $ 236 $ (113 )
Deferred revenue 96 114 (18 )
Deferred tax liabilities 10 2 8
Other   17       17       -    
Total current liabilities   246       369       (123 )  
Long-term debt 2,135 2,171 (36 )
Employee benefit obligations 351 355 (4 )
Non-current deferred tax liabilities 4 22 (18 )
Unrecognized tax benefits 39 37 2
Other liabilities - 2 (2 )
 
Stockholders' equity (deficit):
Common stock ($.01 par value; 60 million shares authorized, 15,507,322 and 15,489,936 shares issued and outstanding in 2011 and 2010, respectively)
 
- - -
Additional paid-in capital 208 206 2
Retained earnings (deficit) (137 ) (196 ) 59
Accumulated other comprehensive (loss)   (37 )     (40 )     3    
Total stockholders' equity (deficit)   34       (30 )     64    
Total Liabilities and Stockholders' Equity (Deficit) $ 2,809     $ 2,926     $ (117 )  
 
SuperMedia Inc.
Consolidated Statements of Cash Flows
         
Reported (GAAP) and Non-GAAP Financial Reconciliation - Free Cash Flow
Six Months Ended June 30, 2011 Compared to Six Months Ended June 30, 2010
(dollars in millions)
 
Unaudited    

6 Mos. Ended

6/30/11

 

6 Mos. Ended

6/30/10

 

$ Change

 
 
Cash Flows from Operating Activities
Net Income (Loss) $ 59 $ (226 ) $ 285

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Depreciation and amortization expense 88 95 (7 )
Employee retirement benefits 9 6 3
Deferred income taxes (12 ) (171 ) 159
Provision for uncollectible accounts 35 30 5
Stock-based compensation expense 2 2 -
Changes in current assets and liabilities
Accounts receivable and unbilled accounts receivable - 558 (558 )
Deferred directory costs 16 (144 ) 160
Other current assets (5 ) - (5 )
Accounts payable and accrued liabilities (132 ) 143 (275 )
Other, net   (11 )     (7 )     (4 )  
Net cash provided by operating activities   49       286       (237 )  
 
Cash Flows from Investing Activities
Capital expenditures (including capitalized software)   (7 )     (21 )     14    
Net cash used in investing activities   (7 )     (21 )     14    
 
Cash Flows from Financing Activities
Repayment of long-term debt   (36 )     (177 )     141    
Net cash used in financing activities   (36 )     (177 )     141    
Increase in cash and cash equivalents 6 88 (82 )
Cash and cash equivalents, beginning of year   174       212       (38 )  
Cash and cash equivalents, end of period $ 180     $ 300     $ (120 )  
 
 
Non-GAAP Financial Reconciliation - Free Cash Flow    

6 Mos. Ended

6/30/11

 

6 Mos. Ended

6/30/10

 

$ Change

 
Unaudited
 
Net cash provided by operating activities $ 49 $ 286 $ (237 )
Less: Capital expenditures (including capitalized software)   (7 )     (21 )     14    
Free Cash Flow $ 42     $ 265     $ (223 )  
SuperMedia Inc.
Advertising Sales
  (dollars in millions)
             
3 Mos. Ended 3 Mos. Ended 3 Mos. Ended 6 Mos. Ended 6 Mos. Ended 6 Mos. Ended
Unaudited 6/30/11   6/30/10   6/30/09     6/30/11   6/30/10   6/30/09    
 
Net Advertising Sales (1) (2) $ 399 $ 479 $ 573 $ 797 $ 966 $ 1,183
% Change year-over-year (16.7 %) (16.4 %) (17.5 %) (18.3 %)
                           
 
Notes:
 
(1) Net advertising sales is an operating measure used by the Company to compare advertising sales for current advertising periods to corresponding sales for previous periods. It is important to distinguish net advertising sales from operating revenue, which on our financial statements is recognized under the deferral and amortization method.
 

(2) Advertising sales for the three and six months ended June 30, 2011 include negative adjustments of $2 million, or 0.4 percent, and $11 million, or 1.1 percent, respectively, related to the financial distress and operational wind down of a single certified marketing representative firm in our third-party national sales channel. Excluding this impact, advertising sales for the three and six months ended June 30, 2011 would have reflected a decline of 16.3 percent and 16.4 percent, respectively. As of June 2011, responsibility for these accounts has been transitioned to other certified marketing representative firms.





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