GUARANTOR AND NON-GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS

6 Months Ended

Jun. 30, 2013

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

June 30, 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	$	58,374		$	14,097		$	16,174		$	—		$	88,645
Accounts receivable, net	84,814			277,442			25,769			—			388,025
Inventories	28,418			7,631			3			—			36,052
Prepaid expenses and other (including intercompany)	1,845,826			4,736,260			2,365			(6,529,430		)	55,021
Total current assets	2,017,432			5,035,430			44,311			(6,529,430		)	567,743
Property, plant and equipment, net	20,431			91,385			1,030			—			112,846
Goodwill	23,700			601,750			6,988			—			632,438
Other intangible assets, net	11,523			196,190			—			—			207,713
Investments	693,702			18,852			—			(709,274		)	3,280
Intercompany note receivable (payable)	316,406			(305,009		)	(11,397		)	—			—
Other assets	6,988			3,388			12			—			10,388
Total assets	$	3,090,182		$	5,641,986		$	40,944		$	(7,238,704	)	$	1,534,408
Liabilities and Stockholders’ Equity
Current liabilities:
Current portion, long-term debt	$	30,000		$	—		$	—		$	—		$	30,000
Accounts payable and intercompany payable	1,973,111			4,811,153			13,175			(6,529,430		)	268,009
Progress billings	12,309			11,899			13,051			—			37,259
Accrued expenses	58,968			31,501			6,962			—			97,431
Total current liabilities	2,074,388			4,854,553			33,188			(6,529,430		)	432,699
Long-term debt	535,004			—			—			—			535,004
Deferred income taxes	(3,547		)	65,398			(4,009		)	—			57,842
Other non-current liabilities	15,604			31,321			(6,795		)	—			40,130
Total liabilities	2,621,449			4,951,272			22,384			(6,529,430		)	1,065,675
Stockholders’ equity	468,733			690,714			18,560			(709,274		)	468,733
Total liabilities and stockholders’ equity	$	3,090,182		$	5,641,986		$	40,944		$	(7,238,704	)	$	1,534,408

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 EndedJune 30, 2013

(in thousands of U.S. dollars)

	Parent Company			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidating Adjustments			Consolidated Total
Revenues	$	135,044		$	448,591		$	17,477		$	(105,225	)	$	495,887
Costs and expenses:
Cost of sales	103,890			301,696			12,436			(53,479		)	364,543
Selling, general and administrative	28,271			97,779			3,419			(51,746		)	77,723
Amortization expense	5			3,724			—			—			3,729
Total costs and expenses	132,166			403,199			15,855			(105,225		)	445,995
Earnings from operations	2,878			45,392			1,622			—			49,892
Other expenses and income:
Interest expense	7,498			—			—			—			7,498
Interest income	(34		)	—			(12		)	—			(46		)
Intercompany interest	(2,183		)	2,183			—			—			—
Other expenses (income), net	(65		)	(1,336		)	780			—			(621		)
Total other expenses, net	5,216			847			768			—			6,831
Earnings (loss) before income taxes	(2,338		)	44,545			854			—			43,061
Income tax expense	595			15,553			127			—			16,275
Equity in net earnings of subsidiaries	29,719			727			—			(30,446		)	—
Net earnings	$	26,786		$	29,719		$	727		$	(30,446	)	$	26,786
Other comprehensive loss	(191		)	(514		)	(514		)	1,028			(191		)
Comprehensive income	$	26,595		$	29,205		$	213		$	(29,418	)	$	26,595

Condensed Consolidating Statement of Comprehensive Income

Three Months EndedJune 30, 2012

(in thousands of U.S. dollars)

	Parent Company			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidating Adjustments			Consolidated Total
Revenues	$	171,537		$	457,664		$	14,504		$	(103,467	)	$	540,238
Costs and expenses:
Cost of sales	145,141			294,725			13,616			(49,755		)	403,727
Selling, general and administrative	33,439			100,689			3,107			(53,712		)	83,523
Amortization expense	5			3,151			—			—			3,156
Goodwill impairment	3,985			3,600			—			—			7,585
Total costs and expenses	182,570			402,165			16,723			(103,467		)	497,991
Earnings (loss) from operations	(11,033		)	55,499			(2,219		)	—			42,247
Other expenses and income:
Interest expense	6,755			—			—			—			6,755
Interest income	(38		)	—			(32		)	—			(70		)
Intercompany interest	(1,788		)	1,741			47			—			—
Other expenses (income), net	129			(107		)	(99		)	—			(77		)
Total other expenses (income), net	5,058			1,634			(84		)	—			6,608
Earnings (loss) before income taxes	(16,091		)	53,865			(2,135		)	—			35,639
Income tax expense (benefit)	(5,005		)	18,548			389			—			13,932
Equity in net earnings (loss) of subsidiaries	32,793			(2,524		)	—			(30,269		)	—
Net earnings (loss)	$	21,707		$	32,793		$	(2,524	)	$	(30,269	)	$	21,707
Other comprehensive income (loss)	(372		)	203			203			(406		)	(372		)
Comprehensive income (loss)	$	21,335		$	32,996		$	(2,321	)	$	(30,675	)	$	21,335

Condensed Consolidating Statement of Comprehensive Income

Six Months EndedJune 30, 2013

(in thousands of U.S. dollars)

	Parent Company			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidating Adjustments			Consolidated Total
Revenues	$	272,114		$	889,032		$	32,299		$	(215,036	)	$	978,409
Costs and expenses:
Cost of sales	212,333			600,709			23,172			(110,903		)	725,311
Selling, general and administrative	49,896			201,604			6,688			(104,133		)	154,055
Amortization expense	11			7,447			—			—			7,458
Total costs and expenses	262,240			809,760			29,860			(215,036		)	886,824
Earnings from operations	9,874			79,272			2,439			—			91,585
Other expenses and income:
Interest expense	15,177			—			—			—			15,177
Interest income	(52		)	—			(56		)	—			(108		)
Intercompany interest	(11,233		)	11,233			—			—			—
Other income, net	(58		)	(624		)	(241		)	—			(923		)
Total other expenses (income), net	3,834			10,609			(297		)	—			14,146
Earnings before income taxes	6,040			68,663			2,736			—			77,439
Income tax expense	1,536			27,025			423			—			28,984
Equity in net earnings of subsidiaries	43,951			2,313			—			(46,264		)	—
Net earnings	$	48,455		$	43,951		$	2,313		$	(46,264	)	$	48,455
Other comprehensive loss	(685		)	(1,636		)	(1,636		)	3,272			(685		)
Comprehensive income	$	47,770		$	42,315		$	677		$	(42,992	)	$	47,770

Condensed Consolidating Statement of Comprehensive Income

Six Months EndedJune 30, 2012

(in thousands of U.S. dollars)

	Parent Company			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidating Adjustments			Consolidated Total
Revenues	$	342,828		$	887,678		$	31,886		$	(203,569	)	$	1,058,823
Costs and expenses:
Cost of sales	290,283			577,820			25,544			(101,026		)	792,621
Selling, general and administrative	53,809			203,483			6,391			(102,543		)	161,140
Amortization expense	11			6,301			—			—			6,312
Goodwill impairment	3,985			3,600			—			—			7,585
Total costs and expenses	348,088			791,204			31,935			(203,569		)	967,658
Earnings (loss) from operations	(5,260		)	96,474			(49		)	—			91,165
Other expenses and income:
Interest expense	13,809			—			—			—			13,809
Interest income	(60		)	—			(68		)	—			(128		)
Intercompany interest	(10,755		)	10,708			47			—			—
Other income, net	(15		)	(723		)	(36		)	—			(774		)
Total other expenses (income), net	2,979			9,985			(57		)	—			12,907
Earnings (loss) before income taxes	(8,239		)	86,489			8			—			78,258
Income tax expense (benefit)	(2,587		)	31,908			809			—			30,130
Equity in net earnings (loss) of subsidiaries	53,780			(801		)	—			(52,979		)	—
Net earnings (loss)	$	48,128		$	53,780		$	(801	)	$	(52,979	)	$	48,128
Other comprehensive income (loss)	(426		)	553			553			(1,106		)	(426		)
Comprehensive income (loss)	$	47,702		$	54,333		$	(248	)	$	(54,085	)	$	47,702

Condensed Consolidating Statement of Cash Flows

Six Months EndedJune 30, 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	$	14,400		$	72,957		$	(3,938	)	$	—	$	83,419
Cash flows from investing activities:
Additions to property, plant and equipment	(1,122		)	(9,034		)	(252		)	—		(10,408		)
Proceeds from sale of property, plant and equipment	79			5,100			9			—		5,188
Net cash used in investing activities	(1,043		)	(3,934		)	(243		)	—		(5,220		)
Cash flows from financing activities:
Cash provided by (used in) intercompany activity	65,671			(65,671		)	—			—		—
Repayments of long-term debt	(22,557		)	—			—			—		(22,557		)
Dividends paid on common shares and restricted stock	(24,035		)	—			—			—		(24,035		)
Repurchases of common stock	(53,412		)	—			—			—		(53,412		)
Proceeds from issuance of common stock	16,514			—			—			—		16,514
Net cash used in financing activities	(17,819		)	(65,671		)	—			—		(83,490		)
Effect of exchange rate changes on cash and cash equivalents	—			—			(775		)	—		(775		)
Net increase (decrease) in cash and cash equivalents	(4,462		)	3,352			(4,956		)	—		(6,066		)
Cash and cash equivalents at beginning of period	62,836			10,745			21,130			—		94,711
Cash and cash equivalents at end of period	$	58,374		$	14,097		$	16,174		$	—	$	88,645

Condensed Consolidating Statement of Cash Flows

Six Months EndedJune 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	$	113,898		$	(34,935	)	$	(9,160	)	$	—	$	69,803
Cash flows from investing activities:
Additions to property, plant and equipment	(3,419		)	(8,164		)	(187		)	—		(11,770		)
Digital acquisitions, net of cash acquired	—			(18,362		)	—			—		(18,362		)
Proceeds from sale of property, plant and equipment	211			—			6			—		217
Net cash used in investing activities	(3,208		)	(26,526		)	(181		)	—		(29,915		)
Cash flows from financing activities:
Cash provided by (used in) intercompany activity	(58,297		)	58,297			—			—		—
Repayments of long-term debt	(7,500		)	—			—			—		(7,500		)
Repurchases of common stock	(65,900		)	—			—			—		(65,900		)
Proceeds from issuance of common stock	6,305			—			—			—		6,305
Net cash provided by (used in) financing activities	(125,392		)	58,297			—			—		(67,095		)
Effect of exchange rate changes on cash and cash equivalents	—			—			473			—		473
Net decrease in cash and cash equivalents	(14,702		)	(3,164		)	(8,868		)	—		(26,734		)
Cash and cash equivalents at beginning of period	68,887			7,543			25,541			—		101,971
Cash and cash equivalents at end of period	$	54,185		$	4,379		$	16,673		$	—	$	75,237