LIVONIA, Mich., July 25 -- Valassis, the leading company in marketing services and Connective Media, announced second quarter ended June 30, 2002 net earnings of $33.8 million, up 0.3% versus the year ago period, or 62 cents in earnings per share. "Our clients are very cost-conscious during this lingering ad recession," said Alan F. Schultz, Chairman, President and CEO. "As a result, they are looking for highly efficient alternatives to market their brands. This bodes well for our value-oriented newspaper products, but continues to put pressure on our premium products and services." FINANCIAL HIGHLIGHTS (in millions, except per share data) Three Months Ended Six Months Ended June 30 June 30 '02 '01 % Chg '02 '01 % Chg Total Revenues $203.3 $217.3 -6.4% $408.1 $445.1 -8.3% Net earnings $33.8 $33.7 +0.3% $66.4 $66.2 +0.3% Net EPS, diluted $0.62 $0.62 -- $1.22 $1.22 -- Mass-Distributed Products -- Products which provide mass reach at low cost: Free-standing Insert revenue was down 4.1% for the second quarter, to $141.6 million, demonstrating that FSIs bottomed out in the first quarter of 2002. (FSI revenues were down 6.7% in the first quarter.) Run-of-Press revenue was up 5.5% versus the year-ago quarter, to $7.7 million, due to expansion in business with both new and existing customers. Cluster-Targeted Products -- Products targeted around geographic and demographic clusters: Cluster-targeted revenues were down 12.6% versus the second quarter of 2001, to $45.2 million, due largely to continued weak demand for polybag sampling/advertising. Solo insert revenues were up slightly, but continued to experience some pressure due to the soft ad environment. As a result, the company is revising its previous guidance of increased revenues, and now expects its cluster-targeted sales to be down a single-digit percentage for the year. However, activity in solo insert quotes and client queries has picked up recently, an indication of increasing demand. One-to-One Products -- Products and services that pinpoint individuals to build loyalty to a brand: Consolidated one-to-one revenues, which include PreVision Marketing, Direct Mail and Promotion Watch Security Consulting, were down 21.7% for the quarter, to $8.3 million, due to the continued advertising recession. Valassis Relationship Marketing Systems (the company's grocery store loyalty marketing joint venture with VNU) will be consolidated starting July 1, 2002, as Valassis announced it has increased its ownership position of the venture to 88%. Although its one-to-one initiative began building only two years ago, the company expects to post approximately $40 million in revenues for the full year 2002. Costs and Expenses FSI costs (on a CPM basis) were down for the quarter, due primarily to decreases in paper costs. Management remains confident that it can drive a significant decrease in paper costs for the full year versus 2001. The company also successfully placed the majority of its paper requirements under multi-year contracts, providing long-term cost stability. Both SG&A and interest expense were also down for the quarter. Share Repurchase/Debt Position On May 14, 2002, Valassis increased its projected spending for share repurchase to 75% of its free cash flow for the balance of the year; and repurchased 752,000 shares of its stock during the second quarter. The company ended the second quarter with debt, net of $51.5 million in cash, of $203.2 million. * Outlook * 2002 projections remain as previously announced: * On October 26, 2001, in its Third Quarter 2001 earnings release, the company announced that it expected 2002 earnings-per-share to increase 2%-12% over 2001, and provided the following quarterly guidance in its Fourth Quarter 2001 release, on February 21, 2002: Quarter Projected EPS Range Actual Results 1 $0.58 - 0.64 $0.60 2 $0.56 - 0.62 $0.62 3 $0.57 - 0.63 4 $0.59 - 0.65