11.

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 existing and future 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. 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 following tables present the condensed consolidating balance sheets as of June 30, 2011 and December 31, 2010, the condensed consolidating statements of income for the three and six months ended June 30, 2011 and 2010, and the condensed consolidating statements of cash flows for the six months ended June 30, 2011 and 2010. As a result of combining our general ledgers of record into an existing, single general ledger module within our enterprise resource planning system on July 1, 2010, the condensed consolidating statements of income for the three and six months ended June 30, 2011 below reflect certain revenues and costs and expenses between the Parent Company and the Guarantor Subsidiaries differently than the condensed consolidating statements of income for the three and six months ended June 30, 2010. Although it is not practicable to reclassify the amounts presented for the three and six months ended June 30, 2010 to reflect these changes in presentation, if such reclassifications could be made they would have no effect on any of the “Consolidated Total” amounts included below and would have no effect on the net income of the Parent Company or the Non-Guarantor Subsidiaries.

Condensed Consolidating Balance Sheet

June 30, 2011

(in thousands of U.S. dollars)


Assets	Parent Company			Guarantor Subsidiaries		Non-Guarantor Subsidiaries			Consolidating Adjustments			Consolidated Total
Current assets:
Cash and cash equivalents	$	84,913		$	5,480	$	28,569		$	—		$	118,962
Accounts receivable, net		114,688			273,820		22,915			—			411,423
Inventories		30,941			8,275		3			—			39,219
Prepaid expenses and other (including intercompany)		1,008,120			1,047,338		1,712			(1,994,548	)		62,622

Total current assets		1,238,662			1,334,913		53,199			(1,994,548	)		632,226


Property, plant and equipment, net		26,154			134,415		1,830			—			162,399
Goodwill and other intangible assets, net		42,735			814,253		6,989			—			863,977
Investments		399,493			21,137		—			(417,566	)		3,064
Intercompany note receivable (payable)		(73,639	)		86,187		(12,548	)		—			—
Other assets		10,478			2,948		1,083			—			14,509

Total assets	$	1,643,883		$	2,393,853	$	50,553		$	(2,412,114	)	$	1,676,175


Liabilities and Stockholders’ Equity	Parent Company			Guarantor Subsidiaries		Non-Guarantor Subsidiaries			Consolidating Adjustments			Consolidated Total
Current liabilities:
Current portion, long-term debt	$	15,000		$	—	$	—		$	—		$	15,000
Accounts payable and intercompany payable		464,676			1,840,636		9,429			(1,994,548	)		320,193
Progress billings		14,800			14,170		15,645			—			44,615
Accrued expenses		42,876			35,601		7,112			—			85,589

Total current liabilities		537,352			1,890,407		32,186			(1,994,548	)		465,397


Long-term debt		595,060			—		—			—			595,060
Deferred income taxes		(3,616	)		87,614		(3,995	)		—			80,003
Other non-current liabilities		25,202			18,377		2,251			—			45,830

Total liabilities		1,153,998			1,996,398		30,442			(1,994,548	)		1,186,290
Stockholders’ equity		489,885			397,455		20,111			(417,566	)		489,885

Total liabilities and stockholders’ equity	$	1,643,883		$	2,393,853	$	50,553		$	(2,412,114	)	$	1,676,175

Condensed Consolidating Balance Sheet

December 31, 2010

(in thousands of U.S. dollars)


Assets	Parent Company			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidating Adjustments			Consolidated Total
Current assets:
Cash and cash equivalents	$	211,933		$	8,026		$	25,976		$	—		$	245,935
Accounts receivable, net		175,115			259,001			25,836			—			459,952
Inventories		33,305			8,679			3			—			41,987
Prepaid expenses and other (including intercompany)		278,489			630,972			2,083			(872,887	)		38,657

Total current assets		698,842			906,678			53,898			(872,887	)		786,531


Property, plant and equipment, net		31,475			142,006			2,086			—			175,567
Goodwill and other intangible assets, net		42,745			820,554			6,989			—			870,288
Investments		400,404			12,486			—			(409,744	)		3,146
Intercompany note receivable (payable)		479,365			(460,369	)		(18,996	)		—			—
Other assets		6,982			3,130			14			—			10,126

Total assets	$	1,659,813		$	1,424,485		$	43,991		$	(1,282,631	)	$	1,845,658


Liabilities and Stockholders’ Equity	Parent Company			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidating Adjustments			Consolidated Total
Current liabilities:
Current portion, long-term debt	$	7,058		$	—		$	—		$	—		$	7,058
Accounts payable and intercompany payable		323,277			866,614			12,598			(872,887	)		329,602
Progress billings		26,353			11,751			14,897			—			53,001
Accrued expenses		51,035			41,300			7,277			—			99,612

Total current liabilities		407,723			919,665			34,772			(872,887	)		489,273


Long-term debt		699,169			—			—			—			699,169
Deferred income taxes		(4,044	)		86,804			(3,996	)		—			78,764
Other non-current liabilities		28,081			19,575			1,912			—			49,568

Total liabilities		1,130,929			1,026,044			32,688			(872,887	)		1,316,774
Stockholders’ equity		528,884			398,441			11,303			(409,744	)		528,884

Total liabilities and stockholders’ equity	$	1,659,813		$	1,424,485		$	43,991		$	(1,282,631	)	$	1,845,658

Condensed Consolidating Statement of Income

Three Months Ended June 30, 2011

(in thousands of U.S. dollars)


	Parent Company			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidating Adjustments			Consolidated Total
Revenues	$	200,589		$	444,629		$	20,281		$	(100,247	)	$	565,252

Cost and expenses:
Cost of sales		168,597			286,880			13,973			(51,410	)		418,040
Selling, general and administrative		21,461			104,561			3,646			(48,837	)		80,831
Amortization expense		5			3,150			—			—			3,155

Total costs and expenses		190,063			394,591			17,619			(100,247	)		502,026

Earnings from operations		10,526			50,038			2,662			—			63,226


Other expenses and income:
Interest expense		11,726			—			—			—			11,726
Interest income		(96	)		—			(26	)		—			(122	)
Intercompany interest		(3,157	)		2,995			162			—			—
Loss on extinguishment of debt		2,966			—			—			—			2,966
Other income, net		9			(1,481	)		36			—			(1,436	)

Total other expenses, net		11,448			1,514			172			—			13,134

Earnings (loss) before income taxes		(922	)		48,524			2,490			—			50,092
Income tax expense		241			18,844			755			—			19,840
Equity in net earnings of subsidiaries		31,415			1,735			—			(33,150	)		—

Net earnings	$	30,252		$	31,415		$	1,735		$	(33,150	)	$	30,252

Condensed Consolidating Statement of Income

Three Months Ended June 30, 2010

(in thousands of U.S. dollars)


	Parent Company			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidating Adjustments			Consolidated Total
Revenues	$	210,345		$	375,691		$	19,016		$	(25,102	)	$	579,950

Cost and expenses:
Cost of sales		164,074			271,879			12,914			(25,102	)		423,765
Selling, general and administrative		36,274			52,619			3,770			—			92,663
Amortization expense		5			3,150			—			—			3,155

Total costs and expenses		200,353			327,648			16,684			(25,102	)		519,583

Earnings from operations		9,992			48,043			2,332			—			60,367


Other expenses and income:
Interest expense		17,837			—			—			—			17,837
Interest income		(230	)		1			(19	)		—			(248	)
Intercompany interest		(16,298	)		16,186			112			—			—
Loss on extinguishment of debt		23,873			—			—			—			23,873
Other income, net		280			(860	)		19			—			(561	)

Total other expenses (income), net		25,462			15,327			112			—			40,901

Earnings (loss) before income taxes		(15,470	)		32,716			2,220			—			19,466
Income tax (benefit) expense		(3,325	)		10,906			780			—			8,361
Equity in net earnings of subsidiaries		23,250			1,440			—			(24,690	)		—

Net earnings	$	11,105		$	23,250		$	1,440		$	(24,690	)	$	11,105

Condensed Consolidating Statement of Income

Six Months Ended June 30, 2011

(in thousands of U.S. dollars)


	Parent Company			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidating Adjustments			Consolidated Total
Revenues	$	398,755		$	873,897		$	37,650		$	(198,071	)	$	1,112,231

Cost and expenses:
Cost of sales		334,934			564,712			26,292			(99,321	)		826,617
Selling, general and administrative		45,975			204,939			7,094			(98,750	)		159,258
Amortization expense		11			6,300			—			—			6,311

Total costs and expenses		380,920			775,951			33,386			(198,071	)		992,186

Earnings from operations		17,835			97,946			4,264			—			120,045


Other expenses and income:
Interest expense		21,501			—			—			—			21,501
Interest income		(214	)		—			(47	)		—			(261	)
Intercompany interest		(14,354	)		14,192			162			—			—
Loss on extinguishment of debt		16,318			—			—			—			16,318
Other income, net		(218	)		(2,270	)		176			—			(2,312	)

Total other expenses, net		23,033			11,922			291			—			35,246

Earnings (loss) before income taxes		(5,198	)		86,024			3,973			—			84,799
Income tax expense		566			31,308			1,262			—			33,136
Equity in net earnings of subsidiaries		57,427			2,711			—			(60,138	)		—

Net earnings	$	51,663		$	57,427		$	2,711		$	(60,138	)	$	51,663

Condensed Consolidating Statement of Income

Six Months Ended June 30, 2010

(in thousands of U.S. dollars)


	Parent Company			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidating Adjustments			Consolidated Total
Revenues	$	404,373		$	737,009		$	36,956		$	(48,386	)	$	1,129,952

Cost and expenses:
Cost of sales		312,663			537,913			24,964			(48,386	)		827,154
Selling, general and administrative		72,194			104,290			7,137			—			183,621
Amortization expense		11			6,300			—			—			6,311

Total costs and expenses		384,868			648,503			32,101			(48,386	)		1,017,086

Gain from litigation settlement, net		490,085			—			—			—			490,085

Earnings from operations		509,590			88,506			4,855			—			602,951


Other expenses and income:
Interest expense		37,993			—			—			—			37,993
Interest income		(373	)		3			(24	)		—			(394	)
Intercompany interest		(33,544	)		33,432			112			—			—
Loss on extinguishment of debt		23,873			—			—			—			23,873
Other income, net		(813	)		(1,416	)		(122	)		—			(2,351	)

Total other expenses (income), net		27,136			32,019			(34	)		—			59,121

Earnings before income taxes		482,454			56,487			4,889			—			543,830
Income tax expense		188,743			20,178			1,276			—			210,197
Equity in net earnings of subsidiaries		39,922			3,613			—			(43,535	)		—

Net earnings	$	333,633		$	39,922		$	3,613		$	(43,535	)	$	333,633

Condensed Consolidating Statement of Cash Flows

Six Months Ended June 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	$	134,756		$	(45,665	)	$	1,942		$	—	$	91,033

Cash flows from investing activities:
Additions to property, plant and equipment		(7,124	)		(4,428	)		(74	)		—		(11,626	)
Proceeds from sale of property, plant and equipment		20			—			—			—		20
Proceeds from sale of available-for-sale securities		1,494			—			—			—		1,494

Net cash used in investing activities		(5,610	)		(4,428	)		(74	)		—		(10,112	)


Cash flows from financing activities:
Cash provided by (used in) intercompany activity		(47,547	)		47,547			—			—		—
Borrowings of long-term debt		610,000			—			—			—		610,000
Repayments of long-term debt		(706,169	)		—			—			—		(706,169	)
Debt issuance costs		(11,266	)		—			—			—		(11,266	)
Repurchases of common stock		(105,856	)		—			—			—		(105,856	)
Proceeds from issuance of common stock		4,672			—			—			—		4,672

Net cash provided (used in) by financing activities		(256,166	)		47,547			—			—		(208,619	)

Effect of exchange rate changes on cash and cash equivalents		—			—			725			—		725
Net increase (decrease) in cash and cash equivalents		(127,020	)		(2,546	)		2,593			—		(126,973	)
Cash and cash equivalents at beginning of period		211,933			8,026			25,976			—		245,935

Cash and cash equivalents at end of period	$	84,913		$	5,480		$	28,569		$	—	$	118,962

Condensed Consolidating Statement of Cash Flows

Six Months Ended June 30, 2010

(in thousands of U.S. dollars)


	Parent Company			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidating Adjustments		Consolidated Total
Net cash provided by operating activities	$	339,620		$	86,971		$	7,315		$	—	$	433,906

Cash flows from investing activities:
Additions to property, plant and equipment		(5,393	)		(2,861	)		(147	)		—		(8,401	)
Proceeds from sale of property, plant and equipment		36			—			—			—		36

Net cash used in investing activities		(5,357	)		(2,861	)		(147	)		—		(8,365	)


Cash flows from financing activities:
Cash provided by (used in) intercompany activity		90,923			(90,923	)		—			—		—
Repayments of long-term debt		(301,312	)		—			—			—		(301,312	)
Repurchase of common stock		(54,623	)		—			—			—		(54,623	)
Proceeds from issuance of common stock		30,433			—			—			—		30,433

Net cash provided by (used in) financing activities		(234,579	)		(90,923	)		—			—		(325,502	)

Effect of exchange rate changes on cash and cash equivalents		—			—			(1,177	)		—		(1,177	)

Net increase (decrease) in cash and cash equivalents		99,684			(6,813	)		5,991			—		98,862
Cash and cash equivalents at beginning of period		104,477			7,614			17,755			—		129,846

Cash and cash equivalents at end of period	$	204,161		$	801		$	23,746		$	—	$	228,708