LIVONIA, Mich., April 21 -- Valassis, the leading company in marketing services and Connective Media(TM), today announced financial results for the first quarter ended March 31, 2005. The company reported quarterly revenues of $279.3 million, up 17.7% from the first quarter of 2004. First-quarter net earnings were $28.2 million, up 14.7% from the comparable period last year. The company delivered diluted earnings per share (EPS) of $0.55, at the high end of its previously published EPS range for the quarter of $0.50 to $0.56. "The past two quarters are clear evidence that our strategies to expand our customer base and broaden our product portfolio are delivering sustainable results," said Alan F. Schultz, Chairman, President and CEO of Valassis. "Our consultative selling process is enhancing our ability to provide effective, integrated solutions to our customers, while our new business development focus is laying the groundwork for future growth. We are off to a great start in 2005 and we are confident in our ability to deliver results consistent with our guidance for the year." Quarterly Highlights * Named to Business Ethics magazine's "100 Best Corporate Citizens" list for the second consecutive year. The ratings are based on quantitative measures of corporate service to eight stakeholder groups including stockholders. * Delivered 25 integrated solutions, campaigns utilizing three or more Valassis products synergistically, in the first quarter of 2005. The company anticipates delivering 100 integrated solutions in 2005, compared to 65 in 2004 and 20 in 2003. * Gained SysTrust certification on the company's co-op free-standing insert (FSI) process. Valassis is the only company to offer this certification for FSIs, providing additional assurance to marketers concerned about Sarbanes-Oxley, as well as FSI security, processing integrity and confidentiality controls. * Named to FORTUNE magazine's "100 Best Companies to Work for" list for the eighth consecutive year. Valassis was inducted into the magazine's "Hall of Fame." * Launched the new homeowner direct mail program, a cooperative product allowing restaurants, retail and service advertisers, and consumer packaged goods companies to target advertisements and promotions to new homeowners. * Installed eSettlement, a unique, Web-based system that links retailers and manufacturers in the management and settlement of trade promotions, at a leading regional grocery retailer. * Revenues increased 17.7% primarily due to organic, double-digit revenue growth in the Run of Press, Neighborhood Targeted and Household Targeted business segments. The Free-standing Insert and International & Services segments also experienced moderate growth. Management noted that the movement of pre-Easter holiday advertising from the second quarter to the first quarter also drove additional demand during the first quarter. * Net interest expense was down 32.1% to $1.9 million for the quarter. * SG&A expense was up 11.5% to $34.1 million for the first quarter due to increases in performance-based incentive plans, investments being made in future growth opportunities and the consolidation of the acquired Direct Marketing Services division of Catalina Marketing in September of 2004. * Cash and auction-rate securities at the end of the quarter were $196.2 million. * The company's debt position, net of cash and auction-rate securities, was $77.6 million at quarter-end. * The company repurchased 871,181 shares of its stock during the first quarter of 2005. The company plans to use 75% of free cash flow from operations in 2005 for share repurchase. Reclassification of Auction-rate Securities As of March 31, 2005, Valassis owned $92.5 million in auction-rate securities. Like many other companies that invest in auction-rate securities, the company has determined, in consultation with the audit committee, that the company's investments in auction-rate securities should be reclassified as such. Historically, the company had classified these investments as cash and cash equivalents. As a result of this reclassification, restatements of financial statements for prior fiscal years will be required and the company is in the process of preparing such restated financial statements. The effect of the restatements will not have any impact on previously reported total assets, net earnings, net earnings per share, or the company's consolidated statements of income. Business Segment Discussion * Market Delivered Free-standing Insert (FSI): Co-op FSI revenues for the first quarter were $131.7 million, up 3.4%. This increase was due to continued industry unit growth and increases in market share compared to the prior year first quarter, offsetting the reduction in co-op FSI pricing. In regard to FSI pricing, management noted that the company will continue its strategy. The results of this strategy are presently inconclusive. Management also noted the company is maintaining its co-op FSI market share. FSI cost of goods sold was relatively flat for the quarter on a cost per thousand (CPM) basis with lower media and production costs offsetting the increase in the cost of paper. * Market Delivered Run of Press (ROP): ROP revenues, generated from the brokering of advertising space on behalf of newspapers, were up in the first quarter from $21.7 million to $30.1 million, or 38.7%, year over year. Management noted the revenue growth was organic and gross profit contribution exceeded management's plan for the quarter. * Neighborhood Targeted Products (Cluster Targeted): Neighborhood Targeted product revenues increased 40.5% for the quarter to $74.3 million. The increase in revenue was primarily attributed to growth in preprinted inserts related to the telecommunications and retail customer verticals. Management noted that this revenue growth was accompanied by an improved gross margin, consistent with the company's guidance. * Household Targeted Products (1 to 1): Household Targeted product revenues are comprised of PreVision Marketing, Valassis Relationship Marketing Systems (VRMS) and direct mail. Household Targeted product revenues increased 55.7% to $19.0 million for the quarter, due to the growing interest in frequent shopper-based data among consumer packaged goods companies. * International & Services: International & Services revenues are comprised of NCH Marketing Services, Valassis Canada and Promotion Watch. International & Services reported revenues of $24.2 million for the first quarter, up 4.3%. As previously announced, the company is continuing to test new media products and services in Europe this year. Outlook 2005 guidance remains as previously announced. In its Oct. 21, 2004 third-quarter earnings release, the company provided full-year revenue and EPS guidance for 2005. The company expects revenue to be up by a percentage in the mid-single digits for 2005, with EPS between $1.80 and $2.00.