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Valassis Reports 20% Revenue Growth in the Second Quarter

Press release from the issuing company

LIVONIA, Mich., July 24 -- Valassis, the leading company in marketing services and Connective Media(TM), announced results for the second quarter ended June 30, 2003. The company reported quarterly revenues of $243.1 million, up 20% from the second quarter of 2002. Second-quarter net earnings were $27.5 million, or $0.53 in earnings per share (EPS), including a refinancing charge incurred in May of $2.5 million net of tax related to the partial buy-back of the convertible debt issued in 2001. Without this charge, EPS was $0.57 and within the previously published quarterly EPS range of $0.55 to $0.61. "Our revenue growth is a direct result of the steps we have taken to expand our product portfolio and customer base," said Alan F. Schultz, Chairman, President and CEO. "We are committed to restoring our co-op free- standing insert (FSI) market share to a historical level, and we still face intense competitive pricing pressure in this area of our business." Mass Marketing Products - Products that provide mass reach at low cost: Free-standing insert (FSI) revenue was down 7.5% for the second quarter to $129.3 million, due to the reduction in market share and price. Management noted that unit growth in the co-op FSI industry continued to be strong. Run of press (ROP) revenue, generated from the brokering of advertising space on behalf of newspapers, was up 100% for the quarter to $15.4 million, due to the company's increased sales focus and strategy to grow the customer base. Cluster Targeted Products - Products targeted around geographic and demographic clusters: Cluster targeted product revenues were up 42.3%, versus the second quarter of 2002, to $64.3 million. "Our strategy to develop customers in new sectors such as specialty retail has contributed to the growth of our solo insert and polybag sampling and advertising businesses," said MaryAnn Rivers, Vice President of U.S. Sales and Marketing for Valassis. "This broader customer base will position us for enhanced growth as we provide these customers with integrated solutions." 1 to 1 Products - Products and services that pinpoint individuals to build loyalty to a brand: The 1 to 1 product group is comprised of PreVision Marketing, Valassis Relationship Marketing Systems (VRMS) and direct mail. 1 to 1 revenues increased to $9.1 million, a 21.3% increase over the second quarter of 2002. This increase is attributed to the consolidation of VRMS starting in July of 2002. VRMS continues to make progress and the company is now the exclusive provider of co-op frequent shopper database direct mail programs. During the second quarter, the company increased its ownership of PreVision to 100%. International & Services - Marketing services and products available internationally: International & Services is comprised of NCH Marketing Services, Inc. (NCH), Valassis Canada, and Promotion Watch. International & Services revenues were $25.0 million for the second quarter, up from $2.4 million for the first quarter of 2002, due primarily to the acquisition of NCH. NCH continues to perform well, meeting or exceeding all expectations set at the time of acquisition. Costs and Expenses FSI costs were relatively flat for the second quarter on a CPM basis. Interest expense remained stable at $3.3 million for the quarter. SG&A expenses were up 39% to $31 million, due primarily to the consolidation of NCH and VRMS. Debt Reduction/Share Repurchase During the second quarter, the company issued $160 million in 30-year convertible senior notes. The majority of the proceeds from this offering were used to repurchase $111 million of the convertible bonds issued in 2001. The company's debt position, net of cash, was $163.5 million at quarter-end. While the company is still authorized to repurchase shares up to 75% of the company's free cash flow, Valassis did not repurchase any shares during the second quarter. The company ended the quarter with $147.4 million in cash. "While we are still committed long-term to our share repurchase strategy, we chose not to repurchase shares this quarter in order to strengthen the balance sheet. We believe a strong balance sheet is one of the ways to accelerate our return to a normalized co-op FSI pricing environment," said Robert L. Recchia, Executive Vice President and Chief Financial Officer.

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