BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP principles for complete financial statements. In the opinion of management, the information contained herein reflects all adjustments necessary for a fair presentation of the information presented. All such adjustments are of a normal recurring nature. The results of operations for the interim periods are not necessarily indicative of results to be expected for the fiscal year. For further information, refer to the consolidated financial statements and footnotes thereto included in the Valassis Communications, Inc. (“Valassis,” “we,” and “our”) Annual Report on Form 10-K for the year ended December 31, 2011, as amended (the “2011 Form 10-K”).

Significant Accounting Policies

Accounts Receivable

The allowance for doubtful accounts was $6.9 million as of June 30, 2012 and December 31, 2011.

Income Taxes

We are required to adjust our effective tax rate each quarter to be consistent with our estimated annual effective tax rate. We are also required to record the tax impact of certain unusual or infrequently occurring items, including the effects of changes in tax laws or rates, in the interim period in which they occur. The effective tax rate during a particular quarter may be higher or lower as a result of the timing of actual earnings versus annual projections.

Inventories

Inventories are accounted for at the lower of cost, determined on a first in, first out (“FIFO”) basis, or market. Inventories included on the condensed consolidated balance sheets consisted of:



(in thousands of U.S. dollars)	June 30, 2012		December 31, 2011
Raw materials	$	23,241	$	28,075
Work in progress	7,125		13,045
Inventories	$	30,366	$	41,120

Property, Plant and Equipment

The following table summarizes the costs and ranges of useful lives of the major classes of property, plant and equipment and the total accumulated depreciation related to property, plant and equipment, net included on the condensed consolidated balance sheets:



	Useful Lives	June 30, 2012			December 31, 2011
	(in years)	(in thousands of U.S. dollars)
Land, at cost	N/A	$	7,176		$	7,167
Buildings, at cost	10 - 30	37,742			37,511
Machinery and equipment, at cost	3 - 20	226,823			217,764
Office furniture and equipment, at cost	3 - 10	235,591			236,994
Leasehold improvements, at cost	5 - 10	29,284			28,563
		536,616			527,999
Less accumulated depreciation		(398,546		)	(379,094		)
Property, plant and equipment, net		$	138,070		$	148,905