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Valassis Reports Revenues of $247.6 Million in the Q1

Press release from the issuing company

LIVONIA, Mich., April 25 -- Valassis, the leading company in marketing services and Connective Media, today announced financial results for the first quarter ended March 31, 2006. The company reported quarterly revenues of $247.6 million, down 11.3% from the first quarter of 2005. First-quarter net earnings were $18.1 million, down 36.1% from the comparable period last year. The company delivered diluted earnings per share (EPS) of $0.38, within its previously published EPS range for the quarter of $0.38 to $0.44. "During the first quarter, we had some very exciting business developments that strengthened our foundation for the future," said Alan F. Schultz, Chairman, President and CEO. "Despite the difficult quarter for the promotional media industry, we met the low end of the published EPS guidance range. These advances made during the quarter will positively affect the rest of the year, particularly the second half." Quarterly Highlights -- Secured a major grocery retailer's frequent shopper card data. This addition, combined with targeting refinements, has created additional interest in frequent shopper direct-mail programs. -- Earned back run of press and preprint business from a major telecommunications customer previously lost as a result of consolidation in the telecom industry. -- Named Gary Yost to the newly created position of President, International Media Properties. In this position, Yost will be responsible for accelerating international media product development and sales. The company began market evaluation efforts in China, including the opening of an office in Shanghai. -- Returned the Household Targeted business segment to profitability. -- Launched an "Advertising Initiative" in January to capture television advertising dollars being reallocated to other media due to the decline in effectiveness. -- SG&A expense was down 3.5%, despite an additional $1 million in stock option expense, to $32.9 million for the first quarter due to reductions in headcount and decreases in bonus and profit sharing programs. -- Net interest expense was $2.0 million for the quarter. -- Cash and auction-rate securities at the end of the quarter were $135.4 million. -- The company's debt position, net of cash and auction-rate securities, was $138.9 million at quarter-end. -- The company repurchased 137,300 shares of its stock during the first quarter of 2006. The company has 6,091,825 of remaining shares as of March 31, 2006 under its current share repurchase authorizations. Share repurchases were appreciably lower than previous quarters. Management noted it is reviewing a variety of alternatives to improve shareholder value and that these alternatives would be better facilitated by building cash reserves. Management also noted that the company continues to view share repurchase as an excellent use of cash to enhance shareholder value. Business Segment Discussion -- Market Delivered Free-standing Insert (FSI): Co-op FSI revenues for the first quarter were $115.3 million, down 12.5%. This decrease was due to a mid- to high-single digit reduction in FSI pricing and a decline in industry volume compared to the prior year first quarter. FSI cost of goods sold was relatively flat for the quarter on a cost per thousand (CPM) basis. The movement of pre-Easter holiday advertising to the second quarter also negatively impacted industry volumes during the first quarter. -- Market Delivered Run of Press (ROP): ROP revenues, generated from the brokering of advertising space on behalf of newspapers, were down 32.6% in the first quarter to $20.3 million. The revenue decline resulted from the loss of business due to consolidation in the telecommunications industry and a large customer's shift of budget dollars to later quarters in 2006. As previously noted, the company recently won back business which will positively affect future quarters. The ROP business segment earned $1.5 million in profit for the quarter. -- Neighborhood Targeted Products: Neighborhood Targeted product revenues decreased 10.0% for the quarter to $66.9 million. This segment was impacted by the overall decline in the promotional media industry. Management noted that this segment will be positively affected by the shift in pre-Easter advertising in the second quarter and increased interest in targeted sampling and preprints in the second half. -- Household Targeted Products: Household Targeted product revenues for the first quarter were $18.2 million, down 4.2% due to a decline in direct- mail pieces distributed and the discontinuance of PreVision's agency business. As previously noted, the company secured a major grocery retailer's frequent shopper card data, creating additional interest in direct-mail programs. This segment earned $2.4 million in profit for the quarter. -- International & Services: International & Services revenues are comprised of NCH Marketing Services, Valassis Canada and Promotion Watch. International & Services reported revenues of $26.9 million for the first quarter, up 11.2%, driven by an increase in market share in the NCH coupon redemption business in the United States and increased revenue from Valassis Canada. Outlook 2006 guidance remains as previously announced. In its Oct. 20, 2005 third- quarter earnings release, the company provided full-year EPS guidance for 2006. For the full-year 2006, the company expects EPS to be between $1.95 to $2.15 after the expensing of stock options in accordance with SFAS 123R.

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