GUARANTOR AND NON-GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS

3 Months Ended

Mar. 31, 2013

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

March 31, 2013

(in thousands of U.S. dollars)



	Parent Company			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Consolidating Adjustments			Consolidated Total
Assets
Current assets:
Cash and cash equivalents	$	66,820		$	13,699		$	16,685		$	—		$	97,204
Accounts receivable, net	105,193			288,152			23,444			—			416,789
Inventories	31,976			7,096			3			—			39,075
Prepaid expenses and other (including intercompany)	1,676,941			4,214,870			1,994			(5,863,211		)	30,594
Total current assets	1,880,930			4,523,817			42,126			(5,863,211		)	583,662
Property, plant and equipment, net	22,775			89,721			1,106			—			113,602
Goodwill	23,699			601,750			6,989			—			632,438
Other intangible assets, net	11,529			199,913			—			—			211,442
Investments	664,519			17,471			—			(679,264		)	2,726
Intercompany note receivable (payable)	328,973			(312,717		)	(16,256		)	—			—
Other assets	7,420			3,256			12			—			10,688
Total assets	$	2,939,845		$	5,123,211		$	33,977		$	(6,542,475	)	$	1,554,558

Liabilities and Stockholders’ Equity
Current liabilities:
Current portion, long-term debt	$	26,250		$	—		$	—		$	—		$	26,250
Accounts payable and intercompany payable	1,799,764			4,325,807			14,205			(5,863,211		)	276,565
Progress billings	18,145			6,934			11,240			—			36,319
Accrued expenses	45,067			27,524			6,570			—			79,161
Total current liabilities	1,889,226			4,360,265			32,015			(5,863,211		)	418,295
Long-term debt	557,561			—			—			—			557,561
Deferred income taxes	(3,765		)	65,398			(4,009		)	—			57,624
Other non-current liabilities	16,446			35,466			(11,211		)	—			40,701
Total liabilities	2,459,468			4,461,129			16,795			(5,863,211		)	1,074,181
Stockholders’ equity	480,377			662,082			17,182			(679,264		)	480,377
Total liabilities and stockholders’ equity	$	2,939,845		$	5,123,211		$	33,977		$	(6,542,475	)	$	1,554,558

Condensed Consolidating Balance Sheet

December 31, 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	$	62,836		$	10,745		$	21,130		$	—		$	94,711
Accounts receivable, net	116,821			287,230			22,848			—			426,899
Inventories	35,421			7,829			3			—			43,253
Prepaid expenses and other (including intercompany)	1,520,526			3,706,682			1,998			(5,192,617		)	36,589
Total current assets	1,735,604			4,012,486			45,979			(5,192,617		)	601,452
Property, plant and equipment, net	19,159			105,667			1,006			—			125,832
Goodwill	23,699			601,750			6,989			—			632,438
Other intangible assets, net	11,534			203,637			—			—			215,171
Investments	645,411			15,375			—			(658,355		)	2,431
Intercompany note receivable (payable)	364,921			(360,830		)	(4,091		)	—			—
Other assets	7,543			4,157			11			—			11,711
Total assets	$	2,807,871		$	4,582,242		$	49,894		$	(5,850,972	)	$	1,589,035

Liabilities and Stockholders’ Equity
Current liabilities:
Current portion, long-term debt	$	22,500		$	—		$	—		$	—		$	22,500
Accounts payable and intercompany payable	1,653,928			3,804,209			15,800			(5,192,617		)	281,320
Progress billings	16,459			7,758			15,378			—			39,595
Accrued expenses	61,741			38,878			6,848			—			107,467
Total current liabilities	1,754,628			3,850,845			38,026			(5,192,617		)	450,882
Long-term debt	565,061			—			—			—			565,061
Deferred income taxes	(4,131		)	65,398			(4,009		)	—			57,258
Other non-current liabilities	18,750			22,722			799			—			42,271
Total liabilities	2,334,308			3,938,965			34,816			(5,192,617		)	1,115,472
Stockholders’ equity	473,563			643,277			15,078			(658,355		)	473,563
Total liabilities and stockholders’ equity	$	2,807,871		$	4,582,242		$	49,894		$	(5,850,972	)	$	1,589,035

Condensed Consolidating Statement of Comprehensive Income

Three Months Ended March 31, 2013

(in thousands of U.S. dollars)



	Parent Company			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidating Adjustments			Consolidated Total
Revenues	$	137,070		$	440,441		$	14,822		$	(109,811	)	$	482,522
Costs and expenses:
Cost of sales	108,443			299,013			10,736			(57,424		)	360,768
Selling, general and administrative	21,625			103,825			3,269			(52,387		)	76,332
Amortization expense	6			3,723			—			—			3,729
Total costs and expenses	130,074			406,561			14,005			(109,811		)	440,829
Earnings from operations	6,996			33,880			817			—			41,693
Other expenses and income:
Interest expense	7,679			—			—			—			7,679
Interest income	(18		)	—			(44		)	—			(62		)
Intercompany interest	(9,050		)	9,050			—			—			—
Other expenses (income), net	7			712			(1,021		)	—			(302		)
Total other expenses (income), net	(1,382		)	9,762			(1,065		)	—			7,315
Earnings before income taxes	8,378			24,118			1,882			—			34,378
Income tax expense	941			11,472			296			—			12,709
Equity in net earnings of subsidiaries	14,232			1,586			—			(15,818		)	—
Net earnings	$	21,669		$	14,232		$	1,586		$	(15,818	)	$	21,669
Other comprehensive loss	(494		)	(1,112		)	(1,112		)	2,224			(494		)
Comprehensive income	$	21,175		$	13,120		$	474		$	(13,594	)	$	21,175

Condensed Consolidating Statement of Comprehensive Income

Three Months Ended March 31, 2012

(in thousands of U.S. dollars)



	Parent Company			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidating Adjustments			Consolidated Total
Revenues	$	171,291		$	430,014		$	17,382		$	(100,102	)	$	518,585
Costs and expenses:
Cost of sales	145,142			283,095			11,928			(51,271		)	388,894
Selling, general and administrative	20,370			102,794			3,284			(48,831		)	77,617
Amortization expense	6			3,150			—			—			3,156
Total costs and expenses	165,518			389,039			15,212			(100,102		)	469,667
Earnings from operations	5,773			40,975			2,170			—			48,918
Other expenses and income:
Interest expense	7,054			—			—			—			7,054
Interest income	(22		)	—			(36		)	—			(58		)
Intercompany interest	(8,967		)	8,967			—			—			—
Other expenses (income), net	(144		)	(616		)	63			—			(697		)
Total other expenses (income), net	(2,079		)	8,351			27			—			6,299
Earnings before income taxes	7,852			32,624			2,143			—			42,619
Income tax expense	2,418			13,360			420			—			16,198
Equity in net earnings of subsidiaries	20,987			1,723			—			(22,710		)	—
Net earnings	$	26,421		$	20,987		$	1,723		$	(22,710	)	$	26,421
Other comprehensive income (loss)	(54		)	350			350			(700		)	(54		)
Comprehensive income	$	26,367		$	21,337		$	2,073		$	(23,410	)	$	26,367

Condensed Consolidating Statement of Cash Flows

Three Months Ended March 31, 2013

(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	$	13,200		$	13,877		$	(3,627	)	$	—	$	23,450
Cash flows from investing activities:
Additions to property, plant and equipment	(568		)	(2,577		)	(197		)	—		(3,342		)
Proceeds from sale of property, plant and equipment	—			5,099			—			—		5,099
Net cash provided by (used in) investing activities	(568		)	2,522			(197		)	—		1,757
Cash flows from financing activities:
Cash provided by (used in) intercompany activity	13,445			(13,445		)	—			—		—
Repayments of long-term debt	(3,750		)	—			—			—		(3,750		)
Dividends paid on common shares and restricted stock	(12,011		)	—			—			—		(12,011		)
Repurchases of common stock	(21,168		)	—			—			—		(21,168		)
Proceeds from issuance of common stock	14,836			—			—			—		14,836
Net cash used in financing activities	(8,648		)	(13,445		)	—			—		(22,093		)
Effect of exchange rate changes on cash and cash equivalents	—			—			(621		)	—		(621		)
Net increase (decrease) in cash and cash equivalents	3,984			2,954			(4,445		)	—		2,493
Cash and cash equivalents at beginning of period	62,836			10,745			21,130			—		94,711
Cash and cash equivalents at end of period	$	66,820		$	13,699		$	16,685		$	—	$	97,204

Condensed Consolidating Statement of Cash Flows

Three Months Ended March 31, 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	$	35,072		$	(19,760	)	$	(938	)	$	—	$	14,374
Cash flows from investing activities:
Additions to property, plant and equipment	(2,372		)	(6,736		)	(157		)	—		(9,265		)
Proceeds from sale of property, plant and equipment	79			—			—			—		79
Net cash used in investing activities	(2,293		)	(6,736		)	(157		)	—		(9,186		)
Cash flows from financing activities:
Cash provided by (used in) intercompany activity	(24,889		)	24,889			—			—		—
Repayments of long-term debt	(3,750		)	—			—			—		(3,750		)
Repurchases of common stock	(1,366		)	—			—			—		(1,366		)
Proceeds from issuance of common stock	5,685			—			—			—		5,685
Net cash provided by (used in) financing activities	(24,320		)	24,889			—			—		569
Effect of exchange rate changes on cash and cash equivalents	—			—			(529		)	—		(529		)
Net increase (decrease) in cash and cash equivalents	8,459			(1,607		)	(1,624		)	—		5,228
Cash and cash equivalents at beginning of period	68,887			7,543			25,541			—		101,971
Cash and cash equivalents at end of period	$	77,346		$	5,936		$	23,917		$	—	$	107,199