Advo( AD) swung to a surprise fourth-quarter loss, claiming a decline in industry market conditions.

The Windsor, Conn., direct marketer lost $3.6 million, or 12 cents a share, reversing the year-ago profit of $8.4 million, or 27 cents a share. Revenue rose 0.2% from a year ago to $344 million.

Analysts surveyed by Thomson Financial were looking for a 26-cent profit on sales of $363 million.

The fourth quarter included $7.4 million of litigation costs and merger-related costs of $4.5 million. Also included was a charge of $1.5 million related to the closure of a Memphis, Tenn., production facility, the newspaper agreements in Southern California, and the outsourcing of graphics print services.

Adjustments were made to client billings relating to advertising distributed during the third fiscal quarter. These billing adjustments related to orders entered in the company's new SDR enterprise wide order-to-cash system, and were identified during the company's fourth fiscal quarter. The billing adjustments totaled approximately 1.8% of the company's quarterly revenue, and reduced fourth quarter revenue and operating income by $6 million.

"Like other companies in our industry, Advo's performance was impacted by a decline in industry market conditions," the company said. "I am particularly proud of our people as we are weathering the industry downturn in the face of the tremendous distraction and time commitment involved with the

Valassis

(VCI)

merger announcement, the thousands of hours spent on due diligence and Valassis-imposed integration planning activities, and the enormous burden of the ensuing litigation."

Valassis and Advo agreed in July to a $1.2 billion direct-mail and newspaper advertising insert merger, but Valassis sued in August to break the deal, alleging that Advo had concealed materially damaging information about its financial health.Advo called Valassis' claims baseless and said it remains committed to the deal.