Locks in Favorable Costs to Set Stage for Revenue Recovery Profit Expansion LIVONIA, Mich., April 25 -- Valassis, the leading company in marketing services and Connective Media, announced first quarter ended March 31, 2002 net earnings of $32.6 million, up 0.3% versus the year ago period, or 60 cents in earnings per share. The company maintained earnings despite a revenue decrease for the quarter of 10.1%, at $204.8 million, due to its highly favorable cost environment. Management still projects that its revenues for the full year will be flat to down slightly. "We continue to feel the effects of the worst advertising recession since the great depression -- but I believe we saw the bottom of the revenue comparison curve this quarter. Fortunately, we've been able to protect our earnings, due to lower costs. These have been driven by economically sensitive paper, a tight rein on SG&A expense and improvements to our balance sheet yielding lower, fixed rate interest," said Alan F. Schultz, Chairman, President and CEO. "We've also taken the important step of locking in as much of our costs as possible, at low numbers. When our industry experiences a revenue recovery, the signs of which we believe we've begun to witness, Valassis is exceptionally well-positioned to benefit from increased sales, combined with one of the most favorable cost environments in our company's history." FINANCIAL HIGHLIGHTS (in millions, except per share data) March 31, March 31, % 2002 2001 Change Total Revenues $204.8 $227.8 -10.1% Net Earnings $32.6 $32.5 +0.3% Net EPS, diluted $0.60 $0.60 --- Mass-Distributed Products - Products which provide mass reach at low cost: Free-standing insert revenue was down 6.7% for the first quarter, to $148.4 million. The decline was primarily due to a loss in market share, as a result of the company's attempted price increase not taking hold. Management expects market share to increase to normalized levels, and FSI revenues to be down slightly, for the year. Run-of-Press revenue was up 85.1% for the quarter, to $8.7 million. The company has recently added both technological and human resources to this division, resulting in increased business among existing customers, as well as new customer wins. The short lead times associated with ROP, combined with technological advancements, have made this medium attractive for last-minute marketing decisions, particularly with advertising agencies. Cluster-Targeted Products - Products targeted around geographic and demographic clusters: Cluster-targeted revenues were down 30.8% versus the first quarter of 2001, to $37.8 million. Competition in solo inserts continued to cause moderate downward pressure on revenue. Larger declines occurred in polybag sampling/advertising, due to a difficult comparison from the year prior period, when these products experienced their largest revenue quarter to date. Management noted that the number of new product introductions being launched by its customers affects this product line. Management also believes that solo inserts will pick up quickly in an economic upturn, since lead times are very short. 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 5.2% for the quarter, to $9.0 million. However, the company still expects positive revenue and profit increases from this growth area for the full year. Valassis Relationship Marketing Systems (the company's grocery store loyalty marketing joint venture with VNU) experienced a 443% revenue increase from its Shopper Connection product versus the first quarter 2001. This equity investment is not consolidated. 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 10%-15% average decrease in paper costs for the full year versus 2001. The company also placed the majority of its paper requirements under long-term contracts with a number of paper suppliers, providing protection and hedges against future paper price increases. Both SG&A and interest expense were down for the quarter, due to a company-wide heightened focus on cost- containment in response to the industry advertising recession. Share Repurchase/Debt Reduction During the first quarter, Valassis repurchased 629,200 shares of its stock, completing its prior authorization, and beginning its new 5 million- share authorization, announced in January. A board of directors meeting will take place on May 14, at which time the company will decide on deployment of free cash and whether it will accelerate its level of share repurchase, beyond current levels. After decreasing debt by $70 million during 2001, the company ended the first quarter with debt, net of cash, of $215 million.