LIVONIA, Mich., Oct. 21 -- Valassis, the leading company in marketing services and Connective Media(TM), today announced financial results for the third quarter ended Sept. 30, 2004. The company reported quarterly revenues of $247.6 million, up 7.6% from the third quarter of 2003. Third-quarter net earnings were $22.4 million, or $0.43 in earnings per share (EPS), at the top of the previously published quarterly EPS range of $0.37 to $0.43. "Strong demand for our diversified product portfolio and integrated marketing solutions has driven another quarter of solid revenue growth," said Alan F. Schultz, Chairman, President and CEO. "While we still have more selling to do in the fourth quarter, we have the opportunity to reach the significant milestone of $1 billion in revenue for 2004." Schultz then commented on the company's co-op free-standing insert (FSI) price improvement initiative. "During the past quarter, we have seen some evidence of an improving pricing environment in the FSI industry. Since these observations are based on customer-specific events, the question is whether these positive signs will continue as various pricing scenarios unfold. For now, we are encouraged by these developments and we will continue to build on the FSI pricing strategy we announced on the previous earnings call." Detailed guidance for 2005 follows later in this press release. Valassis will hold an investor call today to discuss its third-quarter results at 11 a.m. (EDT). The call-in number is (800) 366-7417. The call will simulcast on the company's Web site, at http://www.valassis.com , and replay through Nov. 3, 2004 at (800) 405-2236, pass code 566836. This press release and the Webcast will be archived on the company's Web site under "Investor." Mass Products - Products that reach large markets at a low cost: Co-op free-standing insert (FSI) revenues for the third quarter were down 5.2% to $117.0 million, due to a reduction in co-op FSI pricing. Management noted there was solid co-op FSI industry unit growth for the ninth consecutive quarter. Run of press (ROP) revenues, generated from the brokering of advertising space on behalf of newspapers, were up 14.3% in the third quarter to $21.6 million. Cluster Targeted Products - Products that reach neighborhoods based on geographic and demographic characteristics: Cluster Targeted product revenues were up 19.0%, versus the third quarter of 2003, to $72.7 million, with particularly strong demand from the direct marketing customer segment. The gross margin percentage for the Cluster Targeted products segment continued to improve, rising over 250 basis points year over year. 1 to 1 Products - Products and services that pinpoint individuals or households to build loyalty to a brand: The 1 to 1 product revenues are comprised of PreVision Marketing, Valassis Relationship Marketing Systems (VRMS) and direct mail. 1 to 1 revenues increased 82.5% to $14.6 million for the quarter. This robust growth was driven by increased demand for direct mail programs based on frequent shopper data. On Sept. 17, 2004, the company acquired Catalina Marketing's direct mail division, Catalina Direct Marketing Services, positioning Valassis as the clear leader in frequent shopper-based direct mail programs. This acquisition contributed less than $750,000 in revenue during the quarter. International & Services - Marketing products and services available in the United States, Canada, France, Germany, Italy, Mexico, Spain and the United Kingdom: International & Services is comprised of NCH Marketing Services (NCH), Valassis Canada and Promotion Watch. International & Services revenues were $21.7 million for the third quarter, up 16.0% year over year. This increase is being driven by continued strength in the company's international business with substantial growth from Canada. Costs and Expenses FSI cost of goods sold was up slightly for the third quarter on a cost per thousand (CPM) basis due to an increase in the cost of paper. Net interest expense was down 22.2% to $2.1 million for the quarter. SG&A expense was up 9.6% to $31.9 million for the third quarter due to increases in performance- based incentive plans and investments being made in future growth opportunities. Debt Position/Share Repurchase The company's debt position, net of cash, was $68.6 million at quarter- end. During the third quarter, the company repurchased 345,400 shares of its stock. The company ended the quarter with $205.1 million in cash. During the December 2004 Board of Directors meeting, the company will consider various future uses of cash. Outlook For the year ending Dec. 31, 2004, management indicated they are increasing the annual revenue guidance since the company is driving toward $1 billion in revenue for the year, which could result in approximately 10% revenue growth year over year. Management also indicated they plan on being at the high-end of the most recently stated earnings per share range for 2004 of $1.73 to $1.85. For the full year 2005, the company expects revenue to be up by a mid- single digit percentage. The company expects earnings per share for 2005 to be between $1.80 and $2.00. "2005 will be a year of transition," said Schultz. "While we are cautiously optimistic about the co-op FSI pricing environment, it is important to note that even with a positive change in the pricing environment, it would take time to replace lower-priced contracts. In the meantime, our diversified product portfolio continues to expand in its contribution, our integrated solutions are experiencing increased demand from our growing customer base and our cash position is strong. We will continue to leverage these strengths to generate substantial earnings per share and cash flow."