GUARANTOR AND NON-GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS

9 Months Ended

Sep. 30, 2012

GUARANTOR AND NON-GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS

GUARANTOR AND NON-GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS

The following information is presented in accordance with Rule 3-10 of Regulation S-X. The operating and investing activities of the separate legal entities included in the consolidated financial statements are fully interdependent and integrated. Revenues and operating expenses of the separate legal entities include intercompany charges for management and other services. The 2021 Notes issued by Valassis (referred to for purposes of this note only as the “Parent Company”) are guaranteed by substantially all of the Parent Company’s domestic wholly-owned subsidiaries (collectively, the “Guarantor Subsidiaries”) on a senior unsecured basis. Each of the Guarantor Subsidiaries is 100% owned, directly or indirectly, by the Parent Company and has guaranteed the 2021 Notes on a joint and several, full and unconditional basis, subject to certain customary exceptions. Pursuant to the terms of the 2021 Indenture, the Guarantor Subsidiaries are subject to release under certain customary conditions as described below. Non-wholly-owned subsidiaries, joint ventures, partnerships and foreign subsidiaries (collectively, the “Non-Guarantor Subsidiaries”) are not guarantors of these obligations. Substantially all of the Guarantor Subsidiaries also guarantee the Parent Company’s Senior Secured Credit Facility.

The 2021 Indenture provides for a Guarantor Subsidiary to be automatically and unconditionally released and discharged from its guarantee obligations in certain circumstances, including:

• The sale or other transfer or disposition of all of the Guarantor Subsidiary's capital stock to any person that is not an affiliate of the Parent Company;

• The sale or other transfer of all or substantially all the assets or capital stock of a Guarantor Subsidiary, by way of merger, consolidation or otherwise, to any person that is not an affiliate of the Parent Company;

• If a Guarantor Subsidiary ceases to be a “Domestic Restricted Subsidiary” for purposes of the indenture covenants; and

• Legal defeasance or covenant defeasance of the indenture obligations when provision has been made for them to be fully satisfied.

Condensed Consolidating Balance Sheet

September 30, 2012

(in thousands of U.S. dollars)

	Parent Company			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Consolidating Adjustments			Consolidated Total
Assets
Current assets:
Cash and cash equivalents	$	58,768		$	7,530		$	24,046		$	—		$	90,344
Accounts receivable, net	107,972			274,327			17,042			—			399,341
Inventories	24,273			7,584			3			—			31,860
Prepaid expenses and other (including intercompany)	1,382,334			3,214,001			1,309			(4,542,564		)	55,080
Total current assets	1,573,347			3,503,442			42,400			(4,542,564		)	576,625
Property, plant and equipment, net	18,871			111,655			1,040			—			131,566
Goodwill	23,699			598,198			6,989			—			628,886
Other intangible assets, net	11,540			209,863			—			—			221,403
Investments	627,723			15,100			—			(639,432		)	3,391
Intercompany note receivable (payable)	344,146			(340,069		)	(4,077		)	—			—
Other assets	8,116			4,564			14			—			12,694
Total assets	$	2,607,442		$	4,102,753		$	46,366		$	(5,181,996	)	$	1,574,565
Liabilities and Stockholders’ Equity
Current liabilities:
Current portion, long-term debt	$	18,750		$	—		$	—		$	—		$	18,750
Accounts payable and intercompany payable	1,475,441			3,334,726			16,870			(4,542,564		)	284,473
Progress billings	16,449			11,764			12,339			—			40,552
Accrued expenses	42,259			33,059			6,690			—			82,008
Total current liabilities	1,552,899			3,379,549			35,899			(4,542,564		)	425,783
Long-term debt	572,561			—			—			—			572,561
Deferred income taxes	(3,573		)	74,242			(3,997		)	—			66,672
Other non-current liabilities	20,456			24,363			(369		)	—			44,450
Total liabilities	2,142,343			3,478,154			31,533			(4,542,564		)	1,109,466
Stockholders’ equity	465,099			624,599			14,833			(639,432		)	465,099
Total liabilities and stockholders’ equity	$	2,607,442		$	4,102,753		$	46,366		$	(5,181,996	)	$	1,574,565

Condensed Consolidating Balance Sheet

December 31, 2011

(in thousands of U.S. dollars)

	Parent Company			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Consolidating Adjustments			Consolidated Total
Assets
Current assets:
Cash and cash equivalents	$	68,887		$	7,543		$	25,541		$	—		$	101,971
Accounts receivable, net	123,558			302,096			22,666			—			448,320
Inventories	32,159			8,958			3			—			41,120
Prepaid expenses and other (including intercompany)	1,157,263			1,993,450			23,217			(3,136,275		)	37,655
Total current assets	1,381,867			2,312,047			71,427			(3,136,275		)	629,066
Property, plant and equipment, net	24,790			122,565			1,550			—			148,905
Goodwill	23,584			605,898			6,989			—			636,471
Other intangible assets, net	11,558			202,055			—			—			213,613
Investments	547,366			21,385			—			(565,261		)	3,490
Intercompany note receivable (payable)	359,649			(333,683		)	(25,966		)	—			—
Other assets	9,710			5,271			(2,079		)	—			12,902
Total assets	$	2,358,524		$	2,935,538		$	51,921		$	(3,701,536	)	$	1,644,447
Liabilities and Stockholders’ Equity
Current liabilities:
Current portion, long-term debt	$	15,000		$	—		$	—		$	—		$	15,000
Accounts payable and intercompany payable	1,210,296			2,246,381			13,976			(3,136,275		)	334,378
Progress billings	15,952			10,358			13,665			—			39,975
Accrued expenses	52,675			38,543			7,191			—			98,409
Total current liabilities	1,293,923			2,295,282			34,832			(3,136,275		)	487,762
Long-term debt	587,560			—			—			—			587,560
Deferred income taxes	(2,840		)	74,241			(3,997		)	—			67,404
Other non-current liabilities	30,347			20,887			953			—			52,187
Total liabilities	1,908,990			2,390,410			31,788			(3,136,275		)	1,194,913
Stockholders’ equity	449,534			545,128			20,133			(565,261		)	449,534
Total liabilities and stockholders’ equity	$	2,358,524		$	2,935,538		$	51,921		$	(3,701,536	)	$	1,644,447

Condensed Consolidating Statement of Comprehensive Income

Three Months EndedSeptember 30, 2012

(in thousands of U.S. dollars)

	Parent Company			Guarantor Subsidiaries		Non-Guarantor Subsidiaries			Consolidating Adjustments			Consolidated Total
Revenues	$	172,888		$	445,063	$	12,868		$	(106,997	)	$	523,822
Costs and expenses:
Cost of sales	145,467			286,533		9,093			(52,809		)	388,284
Selling, general and administrative	23,033			101,614		2,899			(54,188		)	73,358
Amortization expense	6			3,239		—			—			3,245
Total costs and expenses	168,506			391,386		11,992			(106,997		)	464,887
Earnings from operations	4,382			53,677		876			—			58,935
Other expenses and income:
Interest expense	7,563			—		—			—			7,563
Interest income	(20		)	3		(29		)	—			(46		)
Intercompany interest	(9,062		)	9,062		—			—			—
Other expenses, net	49			197		3			—			249
Total other expenses (income), net	(1,470		)	9,262		(26		)	—			7,766
Earnings before income taxes	5,852			44,415		902			—			51,169
Income tax expense (benefit)	(3,429		)	17,632		226			—			14,429
Equity in net earnings of subsidiaries	27,459			4,276		—			(31,735		)	—
Net earnings	$	36,740		$	31,059	$	676		$	(31,735	)	$	36,740
Other comprehensive income (loss)	(9		)	197		197			(394		)	(9		)
Comprehensive income	$	36,731		$	31,256	$	873		$	(32,129	)	$	36,731

Condensed Consolidating Statement of Comprehensive Income

Three Months EndedSeptember 30, 2011

(in thousands of U.S. dollars)

	Parent Company			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidating Adjustments			Consolidated Total
Revenues	$	173,543		$	443,671		$	17,008		$	(105,831	)	$	528,391
Costs and expenses:
Cost of sales	148,817			287,173			12,368			(52,630		)	395,728
Selling, general and administrative	30,065			100,223			3,433			(53,201		)	80,520
Amortization expense	5			3,151			—			—			3,156
Total costs and expenses	178,887			390,547			15,801			(105,831		)	479,404
Earnings (loss) from operations	(5,344		)	53,124			1,207			—			48,987
Other expenses and income:
Interest expense	8,148			—			—			—			8,148
Interest income	(28		)	—			(26		)	—			(54		)
Intercompany interest	(1,179		)	1,179			—			—			—
Other expenses (income), net	(2,877		)	(972		)	(7		)	—			(3,856		)
Total other expenses (income), net	4,064			207			(33		)	—			4,238
Earnings (loss) before income taxes	(9,408		)	52,917			1,240			—			44,749
Income tax expense	(10		)	16,891			374			—			17,255
Equity in net earnings of subsidiaries	36,892			866			—			(37,758		)	—
Net earnings	$	27,494		$	36,892		$	866		$	(37,758	)	$	27,494
Other comprehensive loss	(3,992		)	(1,254		)	(1,254		)	2,508			(3,992		)
Comprehensive income (loss)	$	23,502		$	35,638		$	(388	)	$	(35,250	)	$	23,502

Condensed Consolidating Statement of Comprehensive Income

Nine Months EndedSeptember 30, 2012

(in thousands of U.S. dollars)

	Parent Company			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidating Adjustments			Consolidated Total
Revenues	$	515,716		$	1,332,741		$	44,754		$	(310,566	)	$	1,582,645
Costs and expenses:
Cost of sales	435,750			864,353			34,637			(153,835		)	1,180,905
Selling, general and administrative	76,842			305,097			9,290			(156,731		)	234,498
Amortization expense	17			9,540			—			—			9,557
Goodwill impairment	3,985			3,600			—			—			7,585
Total costs and expenses	516,594			1,182,590			43,927			(310,566		)	1,432,545
Earnings (loss) from operations	(878		)	150,151			827			—			150,100
Other expenses and income:
Interest expense	21,372			—			—			—			21,372
Interest income	(80		)	3			(97		)	—			(174		)
Intercompany interest	(19,817		)	19,770			47			—			—
Other expenses (income), net	34			(526		)	(33		)	—			(525		)
Total other expenses (income), net	1,509			19,247			(83		)	—			20,673
Earnings (loss) before income taxes	(2,387		)	130,904			910			—			129,427
Income tax expense (benefit)	(6,016		)	49,540			1,035			—			44,559
Equity in net earnings (loss) of subsidiaries	81,239			3,475			—			(84,714		)	—
Net earnings (loss)	$	84,868		$	84,839		$	(125	)	$	(84,714	)	$	84,868
Other comprehensive income (loss)	(435		)	750			750			(1,500		)	(435		)
Comprehensive income	$	84,433		$	85,589		$	625		$	(86,214	)	$	84,433

Condensed Consolidating Statement of Comprehensive Income

Nine Months EndedSeptember 30, 2011

(in thousands of U.S. dollars)

	Parent Company			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidating Adjustments			Consolidated Total
Revenues	$	572,298		$	1,317,568		$	54,658		$	(303,902	)	$	1,640,622
Costs and expenses:
Cost of sales	483,751			851,885			38,660			(151,951		)	1,222,345
Selling, general and administrative	76,040			305,162			10,527			(151,951		)	239,778
Amortization expense	16			9,451			—			—			9,467
Total costs and expenses	559,807			1,166,498			49,187			(303,902		)	1,471,590
Earnings from operations	12,491			151,070			5,471			—			169,032
Other expenses and income:
Interest expense	29,649			—			—			—			29,649
Interest income	(242		)	—			(73		)	—			(315		)
Intercompany interest	(15,533		)	15,371			162			—			—
Loss on extinguishment of debt	16,318			—			—			—			16,318
Other expenses (income), net	(3,095		)	(3,242		)	169			—			(6,168		)
Total other expenses, net	27,097			12,129			258			—			39,484
Earnings (loss) before income taxes	(14,606		)	138,941			5,213			—			129,548
Income tax expense	556			48,199			1,636			—			50,391
Equity in net earnings of subsidiaries	94,319			3,577			—			(97,896		)	—
Net earnings	$	79,157		$	94,319		$	3,577		$	(97,896	)	$	79,157
Other comprehensive loss	(515		)	(447		)	(447		)	894			(515		)
Comprehensive income	$	78,642		$	93,872		$	3,130		$	(97,002	)	$	78,642

Condensed Consolidating Statement of Cash Flows

Nine Months EndedSeptember 30, 2012

(in thousands of U.S. dollars)

	Parent Company			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidating Adjustments		Consolidated Total
Net cash provided by (used in) operating activities	$	153,569		$	(40,611	)	$	(1,764	)	$	—	$	111,194
Cash flows from investing activities:
Additions to property, plant and equipment	(4,472		)	(11,100		)	(211		)	—		(15,783		)
Digital acquisitions, net of cash acquired	—			(18,344		)	—			—		(18,344		)
Proceeds from sale of property, plant and equipment	250			—			6			—		256
Net cash used in investing activities	(4,222		)	(29,444		)	(205		)	—		(33,871		)
Cash flows from financing activities:
Cash provided by (used in) intercompany activity	(70,042		)	70,042			—			—		—
Repayments of long-term debt	(11,250		)	—			—			—		(11,250		)
Repurchases of common stock	(87,130		)	—			—			—		(87,130		)
Proceeds from issuance of common stock	8,956			—			—			—		8,956
Net cash provided by (used in) by financing activities	(159,466		)	70,042			—			—		(89,424		)
Effect of exchange rate changes on cash and cash equivalents	—			—			474			—		474
Net decrease in cash and cash equivalents	(10,119		)	(13		)	(1,495		)	—		(11,627		)
Cash and cash equivalents at beginning of period	68,887			7,543			25,541			—		101,971
Cash and cash equivalents at end of period	$	58,768		$	7,530		$	24,046		$	—	$	90,344

Condensed Consolidating Statement of Cash Flows

Nine Months EndedSeptember 30, 2011

(in thousands of U.S. dollars)

	Parent Company			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidating Adjustments		Consolidated Total
Net cash provided by (used in) operating activities	$	246,069		$	(120,960	)	$	(1,911	)	$	—	$	123,198
Cash flows from investing activities:
Additions to property, plant and equipment	(11,101		)	(6,829		)	(197		)	—		(18,127		)
Proceeds from sale of property, plant and equipment	46			—			—			—		46
Proceeds from sale of available-for-sale securities	1,494			—			—			—		1,494
Net cash used in investing activities	(9,561		)	(6,829		)	(197		)	—		(16,587		)
Cash flows from financing activities:
Cash provided by (used in) intercompany activity	(121,522		)	121,522			—			—		—
Borrowings of long-term debt	610,000			—			—			—		610,000
Repayments of long-term debt	(709,919		)	—			—			—		(709,919		)
Debt issuance costs	(11,580		)	—			—			—		(11,580		)
Repurchases of common stock	(155,817		)	—			—			—		(155,817		)
Proceeds from issuance of common stock	5,646			—			—			—		5,646
Net cash provided by (used in) financing activities	(383,192		)	121,522			—			—		(261,670		)
Effect of exchange rate changes on cash and cash equivalents	—			—			158			—		158
Net decrease in cash and cash equivalents	(146,684		)	(6,267		)	(1,950		)	—		(154,901		)
Cash and cash equivalents at beginning of period	211,933			8,026			25,976			—		245,935
Cash and cash equivalents at end of period	$	65,249		$	1,759		$	24,026		$	—	$	91,034