Summary of Q3 Earnings Call By Ann Levine October 31, 2003 – Valassis Communications Inc., (NYSE: VCI) announced third quarter earnings of $26.7 million or $0.51 in earnings per diluted share. Revenues were $230.1 million up 7.4% from the same period last year. Topics of this summary: * Market Trends * Product Segment Performance * Fourth Quarter Guidance * Q & A Market Trends Today's conference call began with an outline of significant trends impacting the company: * Clients and advertising agencies can no longer ignore television fragmentation where products enable consumers to block commercials. * A link between spending and revenue generation where network TV ranks last on ROI. * Households signing up for the “Do Not Call” list will have a $6 billion impact on advertising. * Coupons affecting private label products. * Large clients have increased use of products that have outperformed the competitors. * Economic Recovery. Regardless of market trends, Valassis has experienced both positive and negative impacts. On the negative side, News Corp., a major competitor continues its aggressive strategy affecting prices, overcapacity in the print industry, the economy and the performance of PreVision. On the positive side, the company is exceeding its plan to gain market share, reducing costs of goods sold, and, News Corp. has announced a new president which may signal a change in strategy. Additionally Valassis maintains a positive cash flow and a strong balance sheet, and when all combined, has positioned the company for growth. Segment Performance In the Mass Marketing Segment, the ROP revenue was up 39% for the quarter or $18.9 million. In 2004 Valassis should report substantially greater revenue. FSI revenue was down due to the pricing situation in the co-op freestanding insert. In the Cluster target segment, revenues were up 40.1% to $61.1 million over the third quarter in 2002 due to strong product sampling. In the 1:1 product segment, revenues declined 22.3 % or to $8 million primarily due to performance of PreVision. In 2004, it is expected this segment will drive 20-25% of revenue growth. In the International and Services segment, revenues were up $18.7 million from $1.9 million for the same period last year due to the acquisition of NCH. Guidance For the quarter ending December 31, 2003, Valassis expects earnings per diluted share to be in the range of $0.41-$0.45. Full year earnings are expected in the range of $1.65 - $1.85 per diluted share. Q & A 1. On the international side of the business, there has been some fall off of sequential revenues from the second to the third quarters due to seasonality in the business. 2. Analysts noted and questioned the change in the guidance for the fourth quarter. Company officials noted that more than 50% of the change is related to the FSI business and the subsequent pricing changes. Additional reasons for the change included the 1:1 segment performance and the lack of a share repurchase at this time. 3. Since new pricing tactics have been introduced into the market place, new offerings have included retroactive price breaks. Lower pricing is currently built into the fourth quarter assumptions and continuation will depend on if the competitive environment will continue through 2004. Some contracts may be in jeopardy or will be affected by pricing and discounts and may have to be renegotiated. 4. Retroactive prices increases are typical. Average contract length as bumped up to 27 months from a previous average of 24 months. 5. Valassis is on track from a revenue perspective with market share gains from more volume than anticipated. But the company is not on track from a profitability perspective. 6. The FSI industry has been growing for the last five quarters. There has been a reduction in price but it has been insignificant. It is hard to make the case about price elasticity and growing demand. 7. Valassis plans to hit its revenue goal with custom co-ops and raise percentage points up by 3 in 2004. 8. When asked to comment on recent reports regarding newspaper contracts, company officials reported that contracts vary from newspaper to newspapers. Recent actions are not reflective of a new approach but rather reflect actions of the last 10 years. Every year newspapers are deleted and added to the company's list of clients for a number of reasons. 9. Valassis is working hard to create an exceptionally strong balance sheet and a diversified revenue stream. It will continue to build cash on the books and continue with a strong balance sheet before deciding whether to buy back stock. Much of the decision will depend on any change from News Corp. 10. In the FSI business 85% of the pages that will run in 2004 are under contract. The remaining 15% will be bid. Approximately 50% of the pages for 2004 were negotiated in 2002 and 50% were negotiated in 2003. For 2005, 50-55% of the pages are signed already. 11. The decision on the stock repurchase will be strategic and not based on price. The stock repurchase will be discussed at the company's December Board meeting. Valassis would want to buy at the best possible price. 12. Past experience in gaining market share has been for the market leader to set a floor price. Valassis would like to see a price increase but cannot lead one because the company does not have the market share to lose. 13. Valassis stated CPM pricing is lower than what it should be and lower than what is fair. 14. Although the 1:1 category showed a decline, PreVision is the only group that is down. There were issues with direction and strategy of the company. Valassis made changes in Junes and took control of the company in July. Valassis is also repositioning products and taking advantage of cost side synergies in the 1:1 segment that should provide a double digit up-tick in the next year. 15. Contract lengths are not extending as the company delivers to the client's comfort level. There was a move from 24 to 27 months as an average length that was client driven. 16. Preprint revenues showed strong unit growth across the board. There has been a strong co-op challenge with News Corp. that has driven prices down. The volume continues to grow and Valassis representatives believe that at some point equilibrium will be reached and prices will start to rise.