LIVONIA, Mich., July 27 -- Valassis, the leading company in marketing services and Connective Media(TM), today announced financial results for the second quarter ended June 30, 2006. The company reported quarterly revenues of $260.6 million, down 5.7% from the second quarter of 2005. Second-quarter net earnings were $19.7 million, or $0.41 in earnings per share (EPS), within the company's revised EPS guidance range for the quarter of $0.38 to $0.42. EPS for the first six months of 2006 was $0.79 compared to $1.05* in 2005. "The first half of 2006 has been disappointing for our business and the industry in general," said Alan F. Schultz, Chairman, President and CEO of Valassis. "We are working toward improved revenue results and cost control for the back half of 2006. We are excited about the prospects of our pending acquisition of ADVO and the positive impact we believe the combination will have in creating value for both customers and shareholders." Quarterly Highlights -- Entered into a definitive merger agreement to acquire ADVO, Inc., the nation's leading direct mail media company. The combined company will be positioned to capture growth across the expanded product and service portfolio, delivering customized, targeted marketing solutions on a national, regional, ZIP code, sub-ZIP code and household basis. -- Signed a strategic alliance with Insignia Systems, Inc., a developer and marketer of in-store promotions, enabling Valassis to sell the Insignia POPSigns product line as a complement to the company's existing product portfolio. -- Elected Joseph B. Anderson, Jr., Chairman and CEO of TAG Holdings, LLC, to the Valassis Board of Directors. Anderson's success in building businesses in the United States and Asia and his experience and accomplishments as a leader will prove an asset to shareholders and employees. -- Named to IndustryWeek's "50 Best Manufacturing Companies" list for the third consecutive year. Valassis was distinguished for its outstanding manufacturing and financial performance. -- SG&A expense was down 12.0%, despite an additional $1.3 million in stock option expense, to $30.7 million for the second quarter due to reductions in headcount and incentive compensation expenses. -- Cash and auction-rate securities at the end of the quarter were $148.7 million. -- The company's debt position, net of cash and auction-rate securities, was $111.3 million at quarter-end. The company noted that on June 6, 2006, the majority holders of the remaining Valassis Zero Coupon Senior Convertible Notes due 2021 put their notes to the company for $14.4 million in cash. The remaining $97,000 of these notes was called by Valassis on June 28, 2006 with an expected settlement in cash during the third quarter. -- Capital expenditures through the first six months of 2006 were $4.4 million in comparison to $15.8 million for the first six months of 2005. -- On July 6, 2006 the company announced it entered into a definitive merger agreement to acquire all outstanding common shares of ADVO stock for $37 per share in cash. The fully financed transaction is valued at approximately $1.3 billion (on a diluted basis), including approximately $125 million in existing ADVO debt which Valassis expects to refinance. Business Segment Discussion -- Market Delivered Free-standing Insert (FSI): Co-op FSI revenues for the second quarter were $117.0 million, down 12.9% from the second quarter of 2005. This decrease was due to a reduction in FSI pricing and a decline in industry volume, coupled with a slight decrease in market share, compared to the second quarter of 2005. Management noted that FSI cost of goods sold was down by a percentage in the mid-single digits for the quarter on a cost per thousand (CPM) basis due to a slight reduction in the cost of paper and a decrease in media costs resulting from higher page counts per book during the quarter and lower negotiated media rates -- Market Delivered Run of Press (ROP): ROP revenues, generated from the brokering of advertising space on behalf of newspapers, were up 26.0% in the second quarter to $34.4 million due to a rebound in business from the telecommunications industry and new business from the pharmaceutical customer category. The ROP business segment earned $3.7 million in profit for the quarter, an increase of 146.7% over the second quarter of 2005. -- Neighborhood Targeted Products (Cluster Targeted): Neighborhood Targeted product revenues decreased 6.6% for the quarter to $67.4 million. This segment was impacted by a pullback in spending due to industry consolidations in the telecommunications and appliance manufacturing industries, and the reduction in spending of a specialty retail customer. The company also noted the timing of large sampling programs is skewed to the third quarter compared to 2005. Segment gross margin percentage declined over 300 basis points due to lower volumes and pricing pressure. -- Household Targeted Products (1 to 1): Household Targeted product revenues for the second quarter were $14.2 million, down 15.0% primarily due to the discontinuance of PreVision's agency business. The Household Targeted product segment was profitable for the quarter. -- International & Services: International & Services revenues are comprised of NCH Marketing Services, Valassis Canada and Promotion Watch. International & Services reported revenues of $27.6 million for the second quarter, up 7.0%, driven by new media products in France and Germany and increased revenue from Valassis Canada. Management also noted that the U.S. coupon clearing revenue and profit were down as a result of a reduced number of coupons distributed and redeemed. Outlook On June 26, 2006, the company announced that it lowered its diluted earnings per share (EPS) range for 2006 to be between $1.60 and $1.80. This EPS range excludes any impact of the pending acquisition of ADVO. Due to this pending acquisition expected to close in the September to October 2006 timeframe, the company has not provided specific guidance for the third and fourth quarter. The company expects to provide 2007 earnings guidance for the combined company before calendar year end, assuming the acquisition is closed.