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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-Q





(Mark One)

|x | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|- | ---------------------------------------------------------------------------------------

For the Quarterly Period Ended September 30, 2010



| ̈ | Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|- | ----------------------------------------------------------------------------------------

Commission File Number: 1-10991





VALASSIS
COMMUNICATIONS, INC.

(Exact Name of Registrant as Specified in its Charter)







|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 38-2760940                          
|(State or Other Jurisdiction of
Incorporation or Organization) |  | (IRS Employer Identification Number)

19975 Victor Parkway

Livonia, Michigan 48152

(address of principal executive offices)

Registrants Telephone
Number: (734) 591-3000





Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90
days:    Yes  x    No   ̈

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files).    Yes   ̈    No   ̈

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act (check one):



|                        |  |                                                  |  |                           |  |  
|----------------------- |  | ------------------------------------------------ |  | ------------------------- |  | -
|Large accelerated filer |  |  ̈                                                |  | Accelerated filer         |  | x
|                        |  |                                                  | 
|Non-accelerated filer   |  |  ̈  (Do not check if a smaller reporting company) |  | Smaller reporting company |  |  ̈

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act):    Yes   ̈    No  x

As of November 1, 2010, there were 49,655,221 shares of the Registrants Common Stock outstanding.









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##### Table of Contents



Valassis Communications, Inc.

Index to Quarterly Report on Form 10-Q

Quarter Ended September 30,
2010



|          |  |                                                                                                                          |    |      |    | 
|--------- |  | ------------------------------------------------------------------------------------------------------------------------ | -- | ---- | -- | 
|          |  |                                                                                                                          |    | Page |   
|          |  | Part I - Financial Information                                                                                           |    |      |    | 
|          |  |                                                                                                                         
|Item 1.   |  | Financial Statements                                                                                                     |    |      |    | 
|          |  |                                                                                                                         
|          |  | Condensed Consolidated Balance Sheets at September 30, 2010 and December 31, 2009
(Unaudited)                            |    |      | 1  | 
|          |  |                                                                                                                         
|          |  | Condensed Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2010 and 2009
 (Unaudited) |    |      | 3  | 
|          |  |                                                                                                                         
|          |  | Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2010 and 2009 (Unaudited)        |    |      | 4  | 
|          |  |                                                                                                                         
|          |  | Notes to Condensed Consolidated Financial Statements (Unaudited)                                                         |    |      | 5  | 
|          |  |                                                                                                                         
|Item 2.   |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                    |    |      | 22 | 
|          |  |                                                                                                                         
|Item 3.   |  | Quantitative and Qualitative Disclosures About Market Risk                                                               |    |      | 35 | 
|          |  |                                                                                                                         
|Item 4.   |  | Controls and Procedures                                                                                                  |    |      | 35 | 
|          |  |                                                                                                                         
|          |  | Part II - Other Information                                                                                              |    |      |    | 
|          |  |                                                                                                                         
|Item 1.   |  | Legal Proceedings                                                                                                        |    |      | 36 | 
|          |  |                                                                                                                         
|Item 1A.  |  | Risk Factors                                                                                                             |    |      | 36 | 
|          |  |                                                                                                                         
|Item 2.   |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                              |    |      | 37 | 
|          |  |                                                                                                                         
|Item 3.   |  | Defaults Upon Senior Securities                                                                                          |    |      | 37 | 
|          |  |                                                                                                                         
|Item 4.   |  | Reserved                                                                                                                 |    |      | 37 | 
|          |  |                                                                                                                         
|Item 5.   |  | Other Information                                                                                                        |    |      | 37 | 
|          |  |                                                                                                                         
|Item 6.   |  | Exhibits                                                                                                                 |    |      | 37 | 
|          | 
|Signature |  |                                                                                                                          | 38 |     



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Part I - Financial Information



|Item 1. | Financial Statements
|------- | --------------------

VALASSIS COMMUNICATIONS, INC.

Condensed Consolidated Balance Sheets

(U.S. dollars in thousands)

(unaudited)



|                                                                                                                           |  |                   |           |   |                  |   |           |  
|-------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | --------- | - | ---------------- | - | --------- | -
|Assets                                                                                                                     |  | September 30,2010 |           |   | December 31,2009 |  
|                                                                                                                           |  |                  
|Current assets:                                                                                                            |  |                   |           |   |                  |   |           |  
|Cash and cash equivalents                                                                                                  |  | $                 | 208,520   |   |                  | $ | 129,846   |  
|Accounts receivable (less allowance for doubtful accounts of $6,934 at September 30, 2010 and $7,593 at December 31,
2009) |  |                   | 419,259   |   |                  |   | 428,836   |  
|Inventories:                                                                                                               |  |                   |           |   |                  |   |           |  
|Raw materials                                                                                                              |  |                   | 31,049    |   |                  |   | 23,263    |  
|Work in progress                                                                                                           |  |                   | 12,712    |   |                  |   | 17,209    |  
|Prepaid expenses and other                                                                                                 |  |                   | 37,397    |   |                  |   | 37,046    |  
|Refundable income taxes                                                                                                    |  |                   |          |   |                  |   | 12,578    |  
|                                                                                                                           |  |                   |           |   |                  |   |           |  
|                                                                                                                           |  |                  
|Total current assets                                                                                                       |  |                   | 708,937   |   |                  |   | 648,778   |  
|                                                                                                                           |  |                   |           |   |                  |   |           |  
|                                                                                                                           |  |                  
|Property, plant and equipment, at cost:                                                                                    |  |                   |           |   |                  |   |           |  
|Land and buildings                                                                                                         |  |                   | 44,613    |   |                  |   | 44,285    |  
|Machinery and equipment                                                                                                    |  |                   | 220,422   |   |                  |   | 218,397   |  
|Office furniture and equipment                                                                                             |  |                   | 219,369   |   |                  |   | 206,931   |  
|Automobiles                                                                                                                |  |                   | 1,212     |   |                  |   | 1,266     |  
|Leasehold improvements                                                                                                     |  |                   | 28,325    |   |                  |   | 28,896    |  
|                                                                                                                           |  |                   |           |   |                  |   |           |  
|                                                                                                                           |  |                  
|                                                                                                                           |  |                   | 513,941   |   |                  |   | 499,775   |  
|Less accumulated depreciation and amortization                                                                             |  |                   | (336,259  | ) |                  |   | (301,874  | )
|                                                                                                                           |  |                   |           |   |                  |   |           |  
|                                                                                                                           |  |                  
|Net property, plant and equipment                                                                                          |  |                   | 177,682   |   |                  |   | 197,901   |  
|                                                                                                                           |  |                   |           |   |                  |   |           |  
|                                                                                                                           |  |                  
|Intangible assets (Note 3):                                                                                                |  |                   |           |   |                  |   |           |  
|Goodwill                                                                                                                   |  |                   | 636,471   |   |                  |   | 640,073   |  
|Other intangible assets, net                                                                                               |  |                   | 236,973   |   |                  |   | 238,859   |  
|                                                                                                                           |  |                   |           |   |                  |   |           |  
|Net intangible assets                                                                                                      |  |                   | 873,444   |   |                  |   | 878,932   |  
|                                                                                                                           |  |                   |           |   |                  |   |           |  
|                                                                                                                           |  |                  
|Investments                                                                                                                |  |                   | 2,782     |   |                  |   | 2,298     |  
|Other assets                                                                                                               |  |                   | 13,002    |   |                  |   | 16,113    |  
|                                                                                                                           |  |                   |           |   |                  |   |           |  
|Total assets                                                                                                               |  | $                 | 1,775,847 |   |                  | $ | 1,744,022 |  
|                                                                                                                           |  |                   |           |   |                  |   |           |  

See accompanying notes to condensed consolidated financial statements.



1



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VALASSIS COMMUNICATIONS, INC.

Condensed Consolidated Balance Sheets, Continued

(U.S. dollars in thousands)

(unaudited)





|                                                                                                                                                                                                                                                                         |  |                   |           |   |                  |   |           |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ----------------- | --------- | - | ---------------- | - | --------- | -
|Liabilities and Stockholders Equity                                                                                                                                                                                                                                     |  | September 30,2010 |           |   | December 31,2009 |  
|                                                                                                                                                                                                                                                                         |  |                  
|Current liabilities:                                                                                                                                                                                                                                                     |  |                   |           |   |                  |   |           |  
|Current portion long-term debt (Note 4)                                                                                                                                                                                                                                  |  | $                 | 7,074     |   |                  | $ | 6,197     |  
|Accounts payable                                                                                                                                                                                                                                                         |  |                   | 293,810   |   |                  |   | 338,418   |  
|Accrued interest                                                                                                                                                                                                                                                         |  |                   | 1,742     |   |                  |   | 15,103    |  
|Accrued compensation and benefits                                                                                                                                                                                                                                        |  |                   | 47,572    |   |                  |   | 53,258    |  
|Accrued other expenses                                                                                                                                                                                                                                                   |  |                   | 38,886    |   |                  |   | 59,275    |  
|Progress billings                                                                                                                                                                                                                                                        |  |                   | 51,453    |   |                  |   | 40,532    |  
|Income taxes payable                                                                                                                                                                                                                                                     |  |                   | 12,160    |   |                  |   |          |  
|Deferred income taxes                                                                                                                                                                                                                                                    |  |                   | 66        |   |                  |   | 22        |  
|                                                                                                                                                                                                                                                                         |  |                   |           |   |                  |   |           |  
|Total current liabilities                                                                                                                                                                                                                                                |  |                   | 452,763   |   |                  |   | 512,805   |  
|                                                                                                                                                                                                                                                                         |  |                   |           |   |                  |   |           |  
|                                                                                                                                                                                                                                                                         |  |                  
|Long-term debt (Note 4)                                                                                                                                                                                                                                                  |  |                   | 700,919   |   |                  |   | 1,004,875 |  
|Other non-current liabilities                                                                                                                                                                                                                                            |  |                   | 51,141    |   |                  |   | 40,567    |  
|Deferred income taxes                                                                                                                                                                                                                                                    |  |                   | 90,952    |   |                  |   | 87,914    |  
|Commitments and contingencies (Note 5)                                                                                                                                                                                                                                   |  |                   |           |   |                  |   |           |  
|                                                                                                                                                                                                                                                                         |  |                  
|Stockholders equity:                                                                                                                                                                                                                                                    |  |                   |           |   |                  |   |           |  
|Preferred stock ($0.01 par value; 25,000,000 shares authorized; no shares issued or outstanding at September 30, 2010 and
December 31, 2009                                                                                                                              |  |                   |           |   |                  |   |           |  
|Common stock ($0.01 par value; 100,000,000 shares authorized; 65,071,749 and 64,241,359 shares issued at September 30, 2010
and December 31, 2009, respectively; 49,577,162 and 48,762,242 shares outstanding at September 30, 2010 and December 31, 2009, respectively) |  |                   | 651       |   |                  |   | 642       |  
|Additional paid-in capital                                                                                                                                                                                                                                               |  |                   | 122,203   |   |                  |   | 98,927    |  
|Retained earnings                                                                                                                                                                                                                                                        |  |                   | 883,343   |   |                  |   | 522,731   |  
|Accumulated other comprehensive income (loss)                                                                                                                                                                                                                            |  |                   | 574       |   |                  |   | (4,269    | )
|Treasury stock, at cost (15,494,587 and 15,479,117 shares at September 30, 2010 and December 31, 2009,
respectively)                                                                                                                                                     |  |                   | (526,699  | ) |                  |   | (520,170  | )
|                                                                                                                                                                                                                                                                         |  |                   |           |   |                  |   |           |  
|Total stockholders equity                                                                                                                                                                                                                                               |  |                   | 480,072   |   |                  |   | 97,861    |  
|                                                                                                                                                                                                                                                                         |  |                   |           |   |                  |   |           |  
|                                                                                                                                                                                                                                                                         |  |                  
|Total liabilities and stockholders equity                                                                                                                                                                                                                               |  | $                 | 1,775,847 |   |                  | $ | 1,744,022 |  
|                                                                                                                                                                                                                                                                         |  |                   |           |   |                  |   |           |  

See accompanying notes to condensed consolidated financial statements.



2



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VALASSIS COMMUNICATIONS, INC.

Condensed Consolidated Statements of Income

(U.S. dollars in thousands,
except per share data)

(unaudited)



|                                                                                 |  |                                 |         |   |                                |   |         |      |  |   |           |   |  |   |           |  
|-------------------------------------------------------------------------------- |  | ------------------------------- | ------- | - | ------------------------------ | - | ------- | ---- |  | - | --------- | - |  | - | --------- | -
|                                                                                 |  | Three Months EndedSeptember 30, |         |   | Nine Months EndedSeptember 30, |  
|                                                                                 |  | 2010                            |         |   | 2009                           |   |         | 2010 |  |   | 2009      |  
|                                                                                 |  |                                 |         |  
|Revenues                                                                         |  | $                               | 572,406 |   |                                | $ | 544,064 |      |  | $ | 1,702,358 |   |  | $ | 1,639,256 |  
|                                                                                 |  |                                 |         |  
|Costs and expenses:                                                              |  |                                 |         |   |                                |   |         |      |  |   |           |   |  |   |           |  
|Cost of products sold                                                            |  |                                 | 421,510 |   |                                |   | 407,572 |      |  |   | 1,248,664 |   |  |   | 1,245,105 |  
|Selling, general and administrative                                              |  |                                 | 91,800  |   |                                |   | 90,660  |      |  |   | 275,421   |   |  |   | 263,547   |  
|Amortization expense                                                             |  |                                 | 3,156   |   |                                |   | 3,156   |      |  |   | 9,467     |   |  |   | 9,468     |  
|                                                                                 |  |                                 |         |   |                                |   |         |      |  |   |           |   |  |   |           |  
|                                                                                 |  |                                 |         |  
|Total costs and expenses                                                         |  |                                 | 516,466 |   |                                |   | 501,388 |      |  |   | 1,533,552 |   |  |   | 1,518,120 |  
|Gain from litigation settlement (Note 6)                                         |  |                                 |        |   |                                |   |        |      |  |   | 490,085   |   |  |   |          |  
|                                                                                 |  |                                 |         |   |                                |   |         |      |  |   |           |   |  |   |           |  
|                                                                                 |  |                                 |         |  
|Earnings from operations                                                         |  |                                 | 55,940  |   |                                |   | 42,676  |      |  |   | 658,891   |   |  |   | 121,136   |  
|                                                                                 |  |                                 |         |  
|Other expenses (income):                                                         |  |                                 |         |   |                                |   |         |      |  |   |           |   |  |   |           |  
|Interest expense                                                                 |  |                                 | 14,091  |   |                                |   | 23,172  |      |  |   | 52,084    |   |  |   | 66,201    |  
|Interest income                                                                  |  |                                 | (116    | ) |                                |   | (87     | )    |  |   | (510      | ) |  |   | (491      | )
|Loss (gain) on extinguishment of debt (Note 4)                                   |  |                                 |        |   |                                |   | (609    | )    |  |   | 23,873    |   |  |   | (9,388    | )
|Other income, net                                                                |  |                                 | (2,120  | ) |                                |   | (1,182  | )    |  |   | (4,471    | ) |  |   | (3,864    | )
|                                                                                 |  |                                 |         |   |                                |   |         |      |  |   |           |   |  |   |           |  
|                                                                                 |  |                                 |         |  
|Total other expenses, net                                                        |  |                                 | 11,855  |   |                                |   | 21,294  |      |  |   | 70,976    |   |  |   | 52,458    |  
|                                                                                 |  |                                 |         |   |                                |   |         |      |  |   |           |   |  |   |           |  
|                                                                                 |  |                                 |         |  
|Earnings before income taxes                                                     |  |                                 | 44,085  |   |                                |   | 21,382  |      |  |   | 587,915   |   |  |   | 68,678    |  
|                                                                                 |  |                                 |         |  
|Income tax expense                                                               |  |                                 | 17,106  |   |                                |   | 7,582   |      |  |   | 227,303   |   |  |   | 25,902    |  
|                                                                                 |  |                                 |         |   |                                |   |         |      |  |   |           |   |  |   |           |  
|                                                                                 |  |                                 |         |  
|Net earnings                                                                     |  | $                               | 26,979  |   |                                | $ | 13,800  |      |  | $ | 360,612   |   |  | $ | 42,776    |  
|                                                                                 |  |                                 |         |   |                                |   |         |      |  |   |           |   |  |   |           |  
|                                                                                 |  |                                 |         |  
|Net earnings per common share, basic (Note 8)                                    |  | $                               | 0.55    |   |                                | $ | 0.29    |      |  | $ | 7.33      |   |  | $ | 0.89      |  
|                                                                                 |  |                                 |         |   |                                |   |         |      |  |   |           |   |  |   |           |  
|                                                                                 |  |                                 |         |  
|Net earnings per common share, diluted (Note 8)                                  |  | $                               | 0.52    |   |                                | $ | 0.28    |      |  | $ | 6.93      |   |  | $ | 0.87      |  
|                                                                                 |  |                                 |         |   |                                |   |         |      |  |   |           |   |  |   |           |  
|                                                                                 |  |                                 |         |  
|Shares (in thousands) used in computing net earnings per share, basic (Note 8)   |  |                                 | 49,138  |   |                                |   | 48,008  |      |  |   | 49,216    |   |  |   | 47,992    |  
|                                                                                 |  |                                 |         |   |                                |   |         |      |  |   |           |   |  |   |           |  
|                                                                                 |  |                                 |         |  
|Shares (in thousands) used in computing net earnings per share, diluted (Note 8) |  |                                 | 51,995  |   |                                |   | 49,586  |      |  |   | 52,033    |   |  |   | 49,343    |  
|                                                                                 |  |                                 |         |   |                                |   |         |      |  |   |           |   |  |   |           |  

See accompanying notes to condensed consolidated financial statements.



3



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VALASSIS COMMUNICATIONS, INC.

Condensed Consolidated Statements of Cash Flows

(U.S. dollars in
thousands)

(unaudited)



|                                                                                    |  |                                |          |   |      |   |          |  
|----------------------------------------------------------------------------------- |  | ------------------------------ | -------- | - | ---- | - | -------- | -
|                                                                                    |  | Nine Months EndedSeptember 30, |         
|                                                                                    |  | 2010                           |          |   | 2009 |  
|Cash flows from operating activities:                                               |  |                                |          |   |      |   |          |  
|Net earnings                                                                        |  | $                              | 360,612  |   |      | $ | 42,776   |  
|Adjustments to reconcile net earnings to net cash provided by operating activities: |  |                                |          |   |      |   |          |  
|Depreciation and amortization of intangibles                                        |  |                                | 45,919   |   |      |   | 52,025   |  
|Amortization of debt issuance costs                                                 |  |                                | 1,855    |   |      |   | 2,467    |  
|Provision for losses on accounts receivable                                         |  |                                | 3,577    |   |      |   | 4,644    |  
|Loss (gain) on debt extinguishment, net of premiums and fees                        |  |                                | 3,429    |   |      |   | (9,388   | )
|Loss on derivatives, net                                                            |  |                                | 14,586   |   |      |   | 4,570    |  
|Loss (gain) on sale of property, plant and equipment                                |  |                                | 62       |   |      |   | (184     | )
|Gain on equity investments                                                          |  |                                | (3,963   | ) |      |   | (3,263   | )
|Stock-based compensation charge                                                     |  |                                | 22,371   |   |      |   | 5,572    |  
|Deferred income taxes                                                               |  |                                | 10,749   |   |      |   | 998      |  
|Changes in assets and liabilities which increase (decrease) cash flow:              |  |                                |          |   |      |   |          |  
|Accounts receivable                                                                 |  |                                | 6,000    |   |      |   | 59,059   |  
|Inventories                                                                         |  |                                | (3,289   | ) |      |   | 13,849   |  
|Prepaid expenses and other                                                          |  |                                | 697      |   |      |   | 5,427    |  
|Other assets                                                                        |  |                                | 1,484    |   |      |   | 2,579    |  
|Other liabilities                                                                   |  |                                | 14,177   |   |      |   | 2,506    |  
|Accounts payable                                                                    |  |                                | (44,606  | ) |      |   | (37,578  | )
|Accrued expenses, compensation and interest                                         |  |                                | (47,112  | ) |      |   | 3,455    |  
|Income taxes                                                                        |  |                                | 24,738   |   |      |   | (7,925   | )
|Progress billings                                                                   |  |                                | 10,921   |   |      |   | (4,233   | )
|                                                                                    |  |                                |          |   |      |   |          |  
|Total adjustments                                                                   |  |                                | 61,595   |   |      |   | 94,580   |  
|                                                                                    |  |                                |          |   |      |   |          |  
|                                                                                    |  |                               
|Net cash provided by operating activities                                           |  |                                | 422,207  |   |      |   | 137,356  |  
|                                                                                    |  |                                |          |   |      |   |          |  
|Cash flows from investing activities:                                               |  |                                |          |   |      |   |          |  
|Additions to property, plant and equipment                                          |  |                                | (16,447  | ) |      |   | (13,505  | )
|Additions to intangible assets                                                      |  |                                | (7,581   | ) |      |   |         |  
|Proceeds from sale of property, plant and equipment                                 |  |                                | 59       |   |      |   | 96       |  
|                                                                                    |  |                                |          |   |      |   |          |  
|Net cash used in investing activities                                               |  |                                | (23,969  | ) |      |   | (13,409  | )
|                                                                                    |  |                                |          |   |      |   |          |  
|                                                                                    |  |                               
|Cash flows from financing activities:                                               |  |                                |          |   |      |   |          |  
|Borrowings of long-term debt                                                        |  |                                |         |   |      |   | 20,000   |  
|Payments of long-term debt                                                          |  |                                | (303,079 | ) |      |   | (159,817 | )
|Financing costs                                                                     |  |                                |         |   |      |   | (937     | )
|Repurchase of common stock                                                          |  |                                | (58,225  | ) |      |   |         |  
|Proceeds from issuance of common stock                                              |  |                                | 41,603   |   |      |   | 537      |  
|                                                                                    |  |                                |          |   |      |   |          |  
|Net cash used in financing activities                                               |  |                                | (319,701 | ) |      |   | (140,217 | )
|                                                                                    |  |                                |          |   |      |   |          |  
|Effect of exchange rate changes on cash                                             |  |                                | 137      |   |      |   | 579      |  
|Net increase (decrease) in cash                                                     |  |                                | 78,674   |   |      |   | (15,691  | )
|Cash at beginning of period                                                         |  |                                | 129,846  |   |      |   | 126,556  |  
|                                                                                    |  |                                |          |   |      |   |          |  
|Cash at end of period                                                               |  | $                              | 208,520  |   |      | $ | 110,865  |  
|                                                                                    |  |                                |          |   |      |   |          |  
|Supplemental disclosure of cash flow information:                                   |  |                                |          |   |      |   |          |  
|Cash paid during the period for interest                                            |  | $                              | 63,894   |   |      | $ | 66,397   |  
|Cash paid during the period for income taxes                                        |  | $                              | 188,804  |   |      | $ | 31,390   |  
|Non-cash financing activities:                                                      |  |                                |          |   |      |   |          |  
|Stock issued under stock-based compensation plan                                    |  | $                              | 1,592    |   |      | $ | 20       |  

See accompanying notes
to condensed consolidated financial statements.



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##### Table of Contents



VALASSIS COMMUNICATIONS, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

1. 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 (generally accepted accounting principles) 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 generally accepted accounting 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, the Company, we or our) Annual Report on Form 10-K for the year ended December 31, 2009 (the
2009 Form 10-K).

Gains on extinguishment of debt of $0.6 million and $9.4 million for the three and nine months ended
September 30, 2009, respectively, which were previously included in Other income, net in the condensed consolidated statements of income, have been reclassified as a separate line item to conform to the current presentation.

2. NEW ACCOUNTING PRONOUNCEMENTS

RECENTLY ADOPTED

In January 2010, the Financial Accounting Standards Board
(FASB) issued Accounting Standards Update (ASU) No. 2010-06, Improving Disclosures about Fair Value Measurements. ASU No. 2010-06 require companies to: (1) disclose separately the amounts of significant
transfers between Level 1 and Level 2 of the fair value hierarchy, (2) disclose activity in Level 3 fair value measurements including transfers into and out of Level 3 and the reasons for such transfers, and (3) present separately in its
reconciliation of recurring Level 3 measurements information about purchases, sales, issuances and settlements on a gross basis. The adoption of this new guidance did not impact our financial condition, results of operations or liquidity.

In February 2010, the FASB issued ASU No. 2010-09, Amendments to Certain Recognition and Disclosure Requirements to
eliminate the requirement for public companies to disclose the date through which subsequent events have been evaluated. We will continue to evaluate subsequent events through the date of the issuance of the financial statements; however, consistent
with this guidance, the date will no longer be disclosed.

YET-TO-BE ADOPTED

In October 2009, the FASB issued ASU No. 2009-13, Multiple-Deliverable Revenue Arrangements which addresses the accounting for
multiple-deliverable arrangements to enable vendors to account for products or services (deliverables) separately rather than as a combined unit. ASU No. 2009-13 is effective prospectively for revenue arrangements entered into or materially
modified in fiscal years beginning on or after June 15, 2010. We are currently evaluating the impact, if any, of the adoption of ASU No. 2009-13 on our financial statements and will adopt ASU No. 2009-13 in the first quarter of 2011.



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##### Table of Contents

VALASSIS COMMUNICATIONS, INC.

Notes to Condensed Consolidated Financial Statements(Continued)

(unaudited)





3. GOODWILL AND OTHER
INTANGIBLES

Goodwill as of September 30, 2010 and December 31, 2009 was comprised of:



|                                        |  |                   |         |  |                  |   |         | 
|--------------------------------------- |  | ----------------- | ------- |  | ---------------- | - | ------- | 
|(in thousands of U.S. dollars)          |  | September 30,2010 |         |  | December 31,2009 |  
|                                        |  |                  
|Goodwill:                               |  |                   |         |  |                  |   |         | 
|Shared Mail                             |  | $                 | 534,184 |  |                  | $ | 534,184 | 
|Neighborhood Targeted                   |  |                   | 5,325   |  |                  |   | 5,325   | 
|Free-standing Inserts                   |  |                   | 22,357  |  |                  |   | 22,357  | 
|International, Digital Media & Services |  |                   | 74,605  |  |                  |   | 78,207  | 
|                                        |  |                   |         |  |                  |   |         | 
|Total goodwill                          |  | $                 | 636,471 |  |                  | $ | 640,073 | 
|                                        |  |                   |         |  |                  |   |         | 

During the nine months ended September 30, 2010, we disposed of a reporting unit within the International, Digital
Media & Services segment, which resulted in a $3.6 million reduction in goodwill and the cancellation of a related note payable. No material gain or loss was recognized related to this transaction.

The components of other intangible assets are as follows:



|                                                         |  |                    |         |  |                         |   |         |           |  |   |                                               |  |  |             |      |  |                         |   |         |           |  |   |                                               |   |  |   |         |  |  |  |      | 
|-------------------------------------------------------- |  | ------------------ | ------- |  | ----------------------- | - | ------- | --------- |  | - | --------------------------------------------- |  |  | ----------- | ---- |  | ----------------------- | - | ------- | --------- |  | - | --------------------------------------------- | - |  | - | ------- |  |  |  | ---- | 
|                                                         |  | September 30, 2010 |         |  | December 31, 2009       |  
|(in thousands of U.S. dollars)                           |  | GrossAmount        |         |  | AccumulatedAmortization |   |         | NetAmount |  |   | WeightedAverageRemainingUseful Life(in years) |  |  | GrossAmount |      |  | AccumulatedAmortization |   |         | NetAmount |  |   | WeightedAverageRemainingUseful Life(in years) |  
|Amortizing intangible assets                             |  |                    |         |  |                         |   |         |           |  |   |                                               |  |  |             |      |  |                         |   |         |           |  |   |                                               |   |  |   |         |  |  |  |      | 
|Mailing lists, non compete agreements, patents and other |  | $                  | 48,036  |  |                         | $ | (7,364  | )         |  | $ | 40,672                                        |  |  |             | 15.2 |  |                         | $ | 40,455  |           |  | $ | (5,847                                        | ) |  | $ | 34,608  |  |  |  | 17.1 | 
|Customer relationships                                   |  |                    | 140,000 |  |                         |   | (31,340 | )         |  | $ | 108,660                                       |  |  |             | 10.2 |  |                         |   | 140,000 |           |  |   | (23,390                                       | ) |  |   | 116,610 |  |  |  | 11.0 | 
|Non-amortizing intangible assets                         |  |                    |         |  |                         |   |         |           |  |   |                                               |  |  |             |      |  |                         |   |         |           |  |   |                                               |   |  |   |         |  |  |  |      | 
|Valassis name, tradenames, trademarks, and other         |  |                    | 87,641  |  |                         |   |        |           |  |   | 87,641                                        |  |  |             |      |  |                         |   | 87,641  |           |  |   |                                              |   |  |   | 87,641  |  |  |  |      | 
|                                                         |  |                    |         |  |                         |   |         |           |  |   |                                               |  |  |             |      |  |                         |   |         |           |  |   |                                               |   |  |   |         |  |  |  |      | 
|                                                         |  | $                  | 275,677 |  |                         | $ | (38,704 | )         |  | $ | 236,973                                       |  |  |             |      |  |                         | $ | 268,096 |           |  | $ | (29,237                                       | ) |  | $ | 238,859 |  |  |  |      | 
|                                                         |  |                    |         |  |                         |   |         |           |  |   |                                               |  |  |             |      |  |                         |   |         |           |  |   |                                               |   |  |   |         |  |  |  |      | 



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VALASSIS COMMUNICATIONS, INC.

Notes to Condensed Consolidated Financial Statements(Continued)

(unaudited)





4. LONG-TERM DEBT

Long-term debt is summarized as follows:



|                                                           |  |                   |         |  |                  |   |           | 
|---------------------------------------------------------- |  | ----------------- | ------- |  | ---------------- | - | --------- | 
|(in thousands of U.S. dollars)                             |  | September 30,2010 |         |  | December 31,2009 |  
|                                                           |  |                  
|Senior Secured Revolving Credit Facility                   |  | $                 |        |  |                  | $ |          | 
|Senior Secured Convertible Notes due 2033, net of discount |  |                   | 58      |  |                  |   | 58        | 
|81/4% Senior Notes due 2015                                |  |                   | 242,224 |  |                  |   | 540,000   | 
|Senior Secured Term Loan B                                 |  |                   | 349,198 |  |                  |   | 353,624   | 
|Senior Secured Delayed Draw Term Loan                      |  |                   | 116,513 |  |                  |   | 117,390   | 
|                                                           |  |                   |         |  |                  |   |           | 
|                                                           |  |                   | 707,993 |  |                  |   | 1,011,072 | 
|Less current portion                                       |  |                   | 7,074   |  |                  |   | 6,197     | 
|                                                           |  |                   |         |  |                  |   |           | 
|Total long-term debt                                       |  | $                 | 700,919 |  |                  | $ | 1,004,875 | 
|                                                           |  |                   |         |  |                  |   |           | 

On April 15, 2010, we entered into the second amendment to our senior secured credit facility (the Second
Amendment). The Second Amendment, among other things:



| |  |  | permits us to use up to $325 million to repurchase our outstanding 81/4% Senior Notes due 2015 (the 2015 Notes) through
April 15, 2011;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------



| |  |  | provides us flexibility to extend the maturity of the revolving line of credit portion of the senior secured credit facility beyond the current
expiration date of March 2, 2012;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | allows us additional features with respect to any future convertible or exchangeable debt securities;
| | - |  | -----------------------------------------------------------------------------------------------------



| |  |  | reduced the aggregate revolving credit commitments under the senior secured credit facility from $100 million to $50 million; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------



| |  |  | increased by 50 basis points the interest rate margins applicable to borrowings under the senior secured credit facility.
| | - |  | -------------------------------------------------------------------------------------------------------------------------

On May 12, 2010, we commenced a cash tender offer (the Tender Offer) to purchase up to $270 million
aggregate principal amount of the 2015 Notes at a purchase price equal to $1,070 per $1,000 principal amount of the 2015 Notes purchased, plus accrued and unpaid interest. On June 11, 2010, we purchased $269.9 million aggregate principal amount
of the 2015 Notes validly tendered pursuant to the terms of the Tender Offer. In addition, during the nine months ended September 30, 2010, we purchased in the open market an additional $27.9 million aggregate principal amount of the 2015 Notes
at weighted-average purchase prices of $1,056 per $1,000 principal amount of the 2015 Notes purchased, plus accrued and unpaid interest. We recognized a pre-tax loss on extinguishment of debt of $23.9 million during the nine months ended
September 30, 2010, which represents the amount of the purchase price of the 2015 Notes in excess of the principal amount of the 2015 Notes purchased and the proportionate write-off of related capitalized debt issuance costs.

During the three and nine months ended September 30, 2009, we repurchased, at a discount to par, aggregate principal amounts of $39.3 million and
$93.7 million, respectively, of outstanding term loans under our senior secured credit facility, pursuant to modified Dutch auctions for aggregate purchase prices of $38.7 million and $84.3 million, respectively, including fees. As a result of these
repurchases, during the three and nine months ended September 30, 2009, we recognized pre-tax gains of $0.6 million and $9.4 million, respectively, which represent the difference between the face amounts (par value) of the term loans
repurchased and the actual repurchase prices of the term loans, including fees.

The estimated fair market value of our debt was
$6.0 million above carrying value and $18.4 million below carrying value as of September 30, 2010 and December 31, 2009, respectively. The fair market value was estimated based on borrowing rates currently available for bank
loans with similar terms and average maturities.



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VALASSIS COMMUNICATIONS, INC.

Notes to Condensed Consolidated Financial Statements(Continued)

(unaudited)





As of September 30, 2010, we
had total outstanding letters of credit of approximately $9.9 million.

5. COMMITMENTS AND CONTINGENCIES

Upon its completion of the acquisition of ADVO, Inc. (ADVO), the Company assumed responsibility for ADVOs pending securities class
action lawsuits. In September 2006, three securities class action lawsuits (Robert Kelleher v. ADVO, Inc., et al., Jorge Cornet v. ADVO, Inc., et al., Richard L. Field v. ADVO, Inc., et al.) were filed against ADVO and certain of its officers in the
United States District Court for the District of Connecticut by certain ADVO shareholders seeking to certify a class of all persons who purchased ADVO stock between July 6, 2006 and August 30, 2006. The cases were consolidated under a
single action titled Robert Kelleher et al. v. ADVO, Inc., et al., Civil Case No. 3:06CV01422(AVC) and a consolidated amended complaint was filed on June 8, 2007. The complaint generally alleges ADVO violated federal securities law by
making a series of materially false and misleading statements concerning ADVOs business and financial results in connection with the proposed merger and, as a result, the price of ADVOs stock was allegedly inflated.

On August 24, 2007, the defendants filed a Motion to Dismiss the complaint, which was denied. On August 29, 2008, plaintiff moved for
certification of the case as a class action. This motion was granted on March 27, 2009. On October 28, 2009, the parties entered into an agreement providing for the settlement of the action and filed papers seeking preliminary approval of
a settlement agreement in the United States District Court for the District of Connecticut. Following preliminary approval of the settlement and notice, on March 3, 2010 the Court issued its order of final approval of the settlement. No
appeal was filed from the final order and the settlement amount of $12.5 million was paid from the proceeds of ADVOs directors and officers insurance policy, with no adverse impact to Valassis financial statements.

The application and interpretation of applicable state sales tax laws to certain of our products is uncertain. Accordingly, we may be exposed to
additional sales tax liability to the extent various state jurisdictions determine that certain of our products are subject to such jurisdictions sales tax. We have recorded a liability of $9.6 million, reflecting our best estimate of our
potential sales tax liability.

In addition to the above matters, we are involved in various claims and legal actions arising in the ordinary
course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on our financial position, results of operations or liquidity.

6. GAIN FROM LITIGATION SETTLEMENT

On
January 30, 2010, we announced that we had reached an agreement to settle our outstanding lawsuits against News America Incorporated, a/k/a News America Marketing Group, News America Marketing, FSI, Inc. a/k/a News America Marketing FSI, LLC
and News America Marketing In-Store Services, Inc. a/k/a News America Marketing In-Store Services, LLC (collectively News). The operative complaint alleged violations of the Sherman Act and various state competitive statutes and the
commission of torts by News in connection with the marketing and sale of FSI space and in-store promotion and advertising services.

On
February 4, 2010, we executed a settlement agreement and release (the Settlement Agreement) with News, and pursuant to the terms of the Settlement Agreement, News paid us $500.0 million. News America, Inc. also entered into a
10-year shared mail distribution agreement with our subsidiary, Valassis Direct Mail, Inc., which provides for our sale of certain shared mail services to News on specified terms.

In connection with the settlement, the parties are working with the Court, under the Honorable Arthur J. Tarnow, on a set of procedures to handle future disputes among the parties with respect to conduct
at issue in the litigation. The precise timing and form of the relief rests with the Court.

The settlement resolves all outstanding claims
between us and News as of February 4, 2010. As a result, the parties agreed to dismiss all outstanding litigation between them and release all existing and potential claims against each other that were or could have been asserted in the
litigation as of the date of the Settlement Agreement.

During the first quarter of 2010, in connection with the successful settlement of
these lawsuits, we made $9.9 million in related payments, including special bonuses to certain of our employees (including our executive officers identified as the named executive



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##### Table of Contents

VALASSIS COMMUNICATIONS, INC.

Notes to Condensed Consolidated Financial Statements(Continued)

(unaudited)



officers in our proxy statement filed with the SEC on March 30, 2010) in an aggregate amount of $8.1 million. These expenses were netted against the $500.0 million of proceeds
received, and the net proceeds of $490.1 million have been recorded as a separate line item Gain from litigation settlement in our condensed consolidated statement of income for the nine months ended September 30, 2010.

7. STOCK-BASED COMPENSATION

The
following table summarizes stock-based compensation expense included in selling, general and administrative expenses for the periods indicated:



|                                 |  |                                 |     |  |                                |   |     |      |  |   |      |  |  |   |     | 
|-------------------------------- |  | ------------------------------- | --- |  | ------------------------------ | - | --- | ---- |  | - | ---- |  |  | - | --- | 
|                                 |  | Three Months EndedSeptember 30, |     |  | Nine Months EndedSeptember 30, |  
|(in millions of U.S. dollars)    |  | 2010                            |     |  | 2009                           |   |     | 2010 |  |   | 2009 | 
|                                 |  |                                 |     | 
|Stock-based compensation expense |  | $                               | 8.6 |  |                                | $ | 2.8 |      |  | $ | 22.4 |  |  | $ | 5.6 | 
|                                 |  |                                 |     |  |                                |   |     |      |  |   |      |  |  |   |     | 

Generally, stock-based compensation expense is recognized by applying the straight-line attribution method over the
requisite service period to the grant-date fair value. The grant-date fair value of stock option awards is calculated using a Black-Scholes valuation model, while the grant-date fair value of restricted stock awards is equal to the closing price of
the stock on the date of grant. The increases in stock-based compensation expense for the three and nine months ended September 30, 2010 as compared to the respective prior year periods resulted from the accelerated recognition of previously
unrecognized stock-based compensation expense related to the following:



| |  |  | The appreciation of our stock price, which triggered the accelerated vesting of certain executives stock options and the immediate recognition of
related stock-based compensation expense; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Our adoption of a new policy applicable to both outstanding and future stock option and restricted stock awards to employees and directors that
provides for the continued vesting and exercisability in accordance with the terms as originally granted of any outstanding stock options or restricted stock awards held by a grantee, if the grantee has satisfied specified service and age
requirements at the time the grantees employment or directorship with the Company terminates. As a result of this new policy, we recognized previously unrecognized compensation expense that we would have been required to expense in future
periods related to grantees who have met or will meet the specified service and age requirements prior to the original vesting date.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Total compensation expense related to non-vested stock options and restricted stock not yet recognized at September 30, 2010 was approximately $12.6 million, which we expect to recognize as
compensation expense over the next five years.



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VALASSIS COMMUNICATIONS, INC.

Notes to Condensed Consolidated Financial Statements(Continued)

(unaudited)





8. EARNINGS PER SHARE

Earnings per common share (EPS) data were computed as follows:



|                                                                                     |  |                                 |        |   |                                |   |        |      |  |   |         |   |  |   |        |  
|------------------------------------------------------------------------------------ |  | ------------------------------- | ------ | - | ------------------------------ | - | ------ | ---- |  | - | ------- | - |  | - | ------ | -
|                                                                                     |  | Three Months EndedSeptember 30, |        |   | Nine Months EndedSeptember 30, |  
|(in thousands of U.S. dollars, except per share data)                                |  | 2010                            |        |   | 2009                           |   |        | 2010 |  |   | 2009    |  
|                                                                                     |  |                                 |        |  
|Net earnings                                                                         |  | $                               | 26,979 |   |                                | $ | 13,800 |      |  | $ | 360,612 |   |  | $ | 42,776 |  
|                                                                                     |  |                                 |        |   |                                |   |        |      |  |   |         |   |  |   |        |  
|                                                                                     |  |                                 |        |  
|Basic EPS:                                                                           |  |                                 |        |   |                                |   |        |      |  |   |         |   |  |   |        |  
|Weighted average common shares outstanding                                           |  |                                 | 49,138 |   |                                |   | 48,008 |      |  |   | 49,216  |   |  |   | 47,992 |  
|                                                                                     |  |                                 |        |   |                                |   |        |      |  |   |         |   |  |   |        |  
|                                                                                     |  |                                 |        |  
|Earnings per common share - basic                                                    |  | $                               | 0.55   |   |                                | $ | 0.29   |      |  | $ | 7.33    |   |  | $ | 0.89   |  
|                                                                                     |  |                                 |        |   |                                |   |        |      |  |   |         |   |  |   |        |  
|                                                                                     |  |                                 |        |  
|Diluted EPS:                                                                         |  |                                 |        |   |                                |   |        |      |  |   |         |   |  |   |        |  
|Weighted average common shares outstanding                                           |  |                                 | 49,138 |   |                                |   | 48,008 |      |  |   | 49,216  |   |  |   | 47,992 |  
|Weighted average shares issued on exercise of dilutive options and restricted shares |  |                                 | 8,368  |   |                                |   | 3,381  |      |  |   | 8,303   |   |  |   | 2,584  |  
|Shares purchased with assumed proceeds of options and unearned restricted shares     |  |                                 | (5,520 | ) |                                |   | (1,814 | )    |  |   | (5,495  | ) |  |   | (1,244 | )
|Shares contingently issuable                                                         |  |                                 | 9      |   |                                |   | 11     |      |  |   | 9       |   |  |   | 11     |  
|                                                                                     |  |                                 |        |   |                                |   |        |      |  |   |         |   |  |   |        |  
|Shares applicable to diluted earnings                                                |  |                                 | 51,995 |   |                                |   | 49,586 |      |  |   | 52,033  |   |  |   | 49,343 |  
|                                                                                     |  |                                 |        |   |                                |   |        |      |  |   |         |   |  |   |        |  
|                                                                                     |  |                                 |        |  
|Earnings per common share - diluted                                                  |  | $                               | 0.52   |   |                                | $ | 0.28   |      |  | $ | 6.93    |   |  | $ | 0.87   |  
|                                                                                     |  |                                 |        |   |                                |   |        |      |  |   |         |   |  |   |        |  

Unexercised employee stock options to purchase 1.4 million and 2.1 million shares of our common stock were not
included in the computations of diluted EPS for the three and nine months ended September 30, 2010, respectively. Unexercised employee stock options to purchase 7.4 million shares and 8.3 million shares of our common stock were not
included in the computations of diluted EPS for the three and nine months ended September 30, 2009, respectively. These unexercised employee stock options were not included in the computations of diluted EPS because the options exercise
prices were greater than the average market price of our common stock during the applicable periods.

9. COMPREHENSIVE INCOME

The components of other comprehensive income and total comprehensive income, both net of tax, are shown below:



|                                                                                                      |  |                                 |        |   |                                |   |        |      |  |   |         |   |  |   |        | 
|----------------------------------------------------------------------------------------------------- |  | ------------------------------- | ------ | - | ------------------------------ | - | ------ | ---- |  | - | ------- | - |  | - | ------ | 
|                                                                                                      |  | Three Months EndedSeptember 30, |        |   | Nine Months EndedSeptember 30, |  
|(in thousands of U.S. dollars)                                                                        |  | 2010                            |        |   | 2009                           |   |        | 2010 |  |   | 2009    |  
|Net earnings                                                                                          |  | $                               | 26,979 |   |                                | $ | 13,800 |      |  | $ | 360,612 |   |  | $ | 42,776 | 
|                                                                                                      |  |                                 |        |  
|Other comprehensive income:                                                                           |  |                                 |        |   |                                |   |        |      |  |   |         |   |  |   |        | 
|Unrealized changes in fair value of cash flow hedges and available for sale securities                |  |                                 | (789   | ) |                                |   | (36    | )    |  |   | (3,159  | ) |  |   | 3,570  | 
|Amortization of realized losses and unrealized changes in fair value of discontinued cash flow hedges |  |                                 | 2,659  |   |                                |   | 3,017  |      |  |   | 8,197   |   |  |   | 5,124  | 
|Foreign currency translation adjustment                                                               |  |                                 | 1,221  |   |                                |   | 475    |      |  |   | (195    | ) |  |   | 534    | 
|                                                                                                      |  |                                 |        |   |                                |   |        |      |  |   |         |   |  |   |        | 
|Total comprehensive income                                                                            |  | $                               | 30,070 |   |                                | $ | 17,256 |      |  | $ | 365,455 |   |  | $ | 52,004 | 
|                                                                                                      |  |                                 |        |   |                                |   |        |      |  |   |         |   |  |   |        | 



10



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##### Table of Contents

VALASSIS COMMUNICATIONS, INC.

Notes to Condensed Consolidated Financial Statements(Continued)

(unaudited)





10. DERIVATIVE FINANCIAL
INSTRUMENTS AND FAIR VALUE MEASUREMENTS

We are exposed to market risks arising from adverse changes in foreign exchange rates and interest
rates. We manage these risks through a variety of strategies which include the use of derivatives. Certain derivatives are designated as cash flow hedges and qualify for hedge accounting treatment, while others do not qualify or have not been
designated as hedges and are marked to market through earnings. The notional amounts and fair values of derivative instruments measured on a recurring basis in the condensed consolidated balance sheets were as follows:



|                                                         |  |                   |       |  |                  |   |       |                   |  |    |                  |   |  |                        |       |       |  |                                   |  |  |         | 
|-------------------------------------------------------- |  | ----------------- | ----- |  | ---------------- | - | ----- | ----------------- |  | -- | ---------------- | - |  | ---------------------- | ----- | ----- |  | --------------------------------- |  |  | ------- | 
|                                                         |  | Notional Amounts  |       |  | Fair Value       |   |       |                   | 
|(in millions of U.S. Dollars)                            |  | September 30,2010 |       |  | December 31,2009 |   |       | September 30,2010 |  |    | December 31,2009 |   |  | Balance Sheet Location |       | Input | 
|Derivatives designated as cash flow hedging instruments: |  |                   |       |  |                  |   |       |                   |  |    |                  |   |  |                        |       |       |  |                                   |  |  |         | 
|Interest Rate Swap Contracts                             |  | $                 | 300.0 |  |                  | $ | 300.0 |                   |  | ($ | 4.5              | ) |  | $                      | 0.8   |       |  | Other non-current liabilities     |  |  | Level 2 | 
|Foreign Exchange Contracts                               |  |                   | 0.3   |  |                  |   | 2.7   |                   |  |    |                 |   |  |                        |      |       |  | Prepaid expenses and other assets |  |  | Level 2 | 
|                                                         |  |                   |       |  |                  |   |       |                   |  |    |                  |   |  |                        |       |       |  |                                   |  |  |         | 
|                                                         |  |                   | 300.3 |  |                  |   | 302.7 |                   |  |    | (4.5             | ) |  |                        | 0.8   |       |  |                                   |  |  |         | 
|                                                         |  |                   |       |  |                  |  
|Derivatives not receiving hedge accounting treatment:    |  |                   |       |  |                  |   |       |                   |  |    |                  |   |  |                        |       |       |  |                                   |  |  |         | 
|Interest Rate Swap Contracts                             |  |                   | 447.2 |  |                  |   | 447.2 |                   |  |    | (5.4             | ) |  |                        | (19.8 | )     |  | Accrued other expenses            |  |  | Level 2 | 
|Foreign Exchange Contracts                               |  |                   | 14.4  |  |                  |   | 6.9   |                   |  |    | 0.4              |   |  |                        | 0.4   |       |  | Prepaid expenses and other assets |  |  | Level 2 | 
|                                                         |  |                   |       |  |                  |   |       |                   |  |    |                  |   |  |                        |       |       |  |                                   |  |  |         | 
|                                                         |  |                   | 461.6 |  |                  |   | 454.1 |                   |  |    | (5.0             | ) |  |                        | (19.4 | )     |  |                                   |  |  |         | 
|                                                         |  |                   |       |  |                  |   |       |                   |  |    |                  |   |  |                        |       |       |  |                                   |  |  |         | 
|Total derivatives                                        |  | $                 | 761.9 |  |                  | $ | 756.8 |                   |  | $  | (9.5             | ) |  | $                      | (18.6 | )     |  |                                   |  |  |         | 
|                                                         |  |                   |       |  |                  |   |       |                   |  |    |                  |   |  |                        |       |       |  |                                   |  |  |         | 

The fair value of our interest rate swaps is determined based on third party valuation models. The fair value of
our foreign exchange contracts is based on observable foreign exchange forward contract rates.



11



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##### Table of Contents

VALASSIS COMMUNICATIONS, INC.

Notes to Condensed Consolidated Financial Statements(Continued)

(unaudited)





The following tables summarize the
impact of derivative instruments for the periods indicated as recorded in the condensed consolidated financial statements:



|                                                         |  |                                                                 |      |   |                                                             |   |     |                                                                |  |   |      |   |  |      |   |  |      |   |      |   |  |   |      |  
|-------------------------------------------------------- |  | --------------------------------------------------------------- | ---- | - | ----------------------------------------------------------- | - | --- | -------------------------------------------------------------- |  | - | ---- | - |  | ---- | - |  | ---- | - | ---- | - |  | - | ---- | -
|                                                         |  | Three Months Ended September 30,                                |     
|                                                         |  | 2010                                                            |      |   | 2009                                                        |   |     | 2010                                                           |  |   | 2009 |   |  | 2010 |   |  | 2009 |  
|(in millions of U.S. Dollars)                            |  | Amount of Pre-taxGain (Loss)Recognized inEarnings
onDerivatives |      |   | Amount of Pre-taxGain (Loss)Recognized in OCIon
Derivatives |   |     | Amount of Pre-taxGain (Loss)Reclassified fromAOCI
intoEarnings | 
|Derivatives designated as cash flow hedging instruments: |  |                                                                 |      |   |                                                             |   |     |                                                                |  |   |      |   |  |      |   |  |      |   |      |   |  |   |      |  
|Interest Rate Swap Contracts                             |  | $                                                               |     |   |                                                             | $ |    |                                                                |  | $ | (1.5 | ) |  | $    |  |  |      | $ |     |   |  | $ |     |  
|Foreign Exchange Contracts                               |  |                                                                 |     |   |                                                             |   |    |                                                                |  |   |     |   |  |      |  |  |      |   |     |   |  |   |     |  
|                                                         |  |                                                                 |      |   |                                                             |   |     |                                                                |  |   |      |   |  |      |   |  |      |   |      |   |  |   |      |  
|                                                         |  | $                                                               |     |   |                                                             | $ |    |                                                                |  | $ | (1.5 | ) |  | $    |  |  |      | $ |     |   |  | $ |     |  
|                                                         |  |                                                                 |      |   |                                                             |   |     |                                                                |  |   |      |   |  |      |   |  |      |   |      |   |  |   |      |  
|                                                         |  |                                                                 |      |   |                                                             |  
|Derivatives not receiving hedge accounting treatment:    |  |                                                                 |      |   |                                                             |   |     |                                                                |  |   |      |   |  |      |   |  |      |   |      |   |  |   |      |  
|Interest Rate Swap Contracts (1)                         |  | $                                                               | (0.4 | ) |                                                             | $ | 2.0 |                                                                |  | $ |     |   |  | $    |  |  |      | $ | (4.3 | ) |  | $ | (4.9 | )
|Foreign Exchange Contracts (2)                           |  |                                                                 | 0.2  |   |                                                             |   |    |                                                                |  |   |     |   |  |      |  |  |      |   |     |   |  |   |     |  
|                                                         |  |                                                                 |      |   |                                                             |   |     |                                                                |  |   |      |   |  |      |   |  |      |   |      |   |  |   |      |  
|                                                         |  | $                                                               | (0.2 | ) |                                                             | $ | 2.0 |                                                                |  | $ |     |   |  | $    |  |  |      | $ | (4.3 | ) |  | $ | (4.9 | )
|                                                         |  |                                                                 |      |   |                                                             |   |     |                                                                |  |   |      |   |  |      |   |  |      |   |      |   |  |   |      |  



|(1) | Recognized in Interest expense.
|--- | -------------------------------

|(2) | Recognized in Cost of products sold.
|--- | ------------------------------------



|                                                         |  |                                                                 |      |   |                                                             |   |      |                                                                |  |   |      |   |  |      |     |     |      |   |       |   |  |   |      |  
|-------------------------------------------------------- |  | --------------------------------------------------------------- | ---- | - | ----------------------------------------------------------- | - | ---- | -------------------------------------------------------------- |  | - | ---- | - |  | ---- | --- | --- | ---- | - | ----- | - |  | - | ---- | -
|                                                         |  | Nine Months Ended September 30,                                 |     
|                                                         |  | 2010                                                            |      |   | 2009                                                        |   |      | 2010                                                           |  |   | 2009 |   |  | 2010 |     |     | 2009 |  
|(in millions of U.S. Dollars)                            |  | Amount of Pre-taxGain (Loss)Recognized inEarnings
onDerivatives |      |   | Amount of Pre-taxGain (Loss)Recognized in OCIon Derivatives |   |      | Amount of Pre-taxGain (Loss)Reclassified fromAOCI
intoEarnings | 
|Derivatives designated as cash flow hedging instruments: |  |                                                                 |      |   |                                                             |   |      |                                                                |  |   |      |   |  |      |     |     |      |   |       |   |  |   |      |  
|Interest Rate Swap Contracts                             |  | $                                                               |     |   |                                                             | $ |     |                                                                |  | $ | (5.3 | ) |  | $    |    |     |      | $ |      |   |  | $ |     |  
|Foreign Exchange Contracts                               |  |                                                                 |     |   |                                                             |   |     |                                                                |  |   |     |   |  |      | 1.5 |     |      |   |      |   |  |   |     |  
|                                                         |  |                                                                 |      |   |                                                             |   |      |                                                                |  |   |      |   |  |      |     |     |      |   |       |   |  |   |      |  
|                                                         |  | $                                                               |     |   |                                                             | $ |     |                                                                |  | $ | (5.3 | ) |  | $    | 1.5 |     |      | $ |      |   |  | $ |     |  
|                                                         |  |                                                                 |      |   |                                                             |   |      |                                                                |  |   |      |   |  |      |     |     |      |   |       |   |  |   |      |  
|                                                         |  |                                                                 |      |   |                                                             |  
|Derivatives not receiving hedge accounting treatment:    |  |                                                                 |      |   |                                                             |   |      |                                                                |  |   |      |   |  |      |     |     |      |   |       |   |  |   |      |  
|Interest Rate Swap Contracts (1)                         |  | $                                                               | (1.4 | ) |                                                             | $ | 5.2  |                                                                |  | $ |     |   |  | $    | 2.6 | (3) |      | $ | (13.2 | ) |  | $ | (9.8 | )
|Foreign Exchange Contracts (2)                           |  |                                                                 |     |   |                                                             |   | (0.1 | )                                                              |  |   |     |   |  |      |    |     |      |   |      |   |  |   |     |  
|                                                         |  |                                                                 |      |   |                                                             |   |      |                                                                |  |   |      |   |  |      |     |     |      |   |       |   |  |   |      |  
|                                                         |  | $                                                               | (1.4 | ) |                                                             | $ | 5.1  |                                                                |  | $ |     |   |  | $    | 2.6 |     |      | $ | (13.2 | ) |  | $ | (9.8 | )
|                                                         |  |                                                                 |      |   |                                                             |   |      |                                                                |  |   |      |   |  |      |     |     |      |   |       |   |  |   |      |  



|(1) | Recognized in Interest expense.
|--- | -------------------------------

|(2) | Recognized in Cost of products sold.
|--- | ------------------------------------

|(3) | Represents amount recognized in OCI during the first quarter of 2009 related to interest swaps for which hedge accounting was discontinued on April 1, 2009;
however, these financial instruments were effective as cash flow hedges until that date.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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VALASSIS COMMUNICATIONS, INC.

Notes to Condensed Consolidated Financial Statements(Continued)

(unaudited)





Foreign
Currency

Currencies to which we have exposure are the Mexican peso, Canadian dollar, British pound, Polish zloty and Euro. Currency
restrictions are not expected to have a significant effect on our cash flows, liquidity, or capital resources. We purchase the Mexican peso and Polish zloty under two to fifteen-month forward foreign exchange contracts to stabilize the cost of
production. Actual exchange losses or gains are recorded against production expense when the contracts are executed. As of September 30, 2010, we had a commitment to purchase $14.0 million in Mexican pesos and $0.7 million in Polish zlotys over
the next fifteen months.

Interest Rates

During the second quarter of 2007, we entered into two interest rate swap agreements with an aggregate notional principal amount of $480.0 million. These interest rate swaps effectively fixed three-month
LIBOR at 5.045%, for a then-effective interest rate of 6.795%, including the applicable margin, for $480.0 million of our variable rate debt under our senior secured credit facility. We initially designated the swaps as hedging instruments through
March 31, 2009 and recorded changes in the fair value of these interest rate swaps as a component of accumulated other comprehensive income.

In February 2009, we reduced the notional principal amount of the interest rate swaps by $32.8 million and paid termination fees of approximately $2.6 million. The termination fees, or deferred losses,
related to the terminated portion of the swaps are being amortized to interest expense over the original life of the interest rate swaps, through December 31, 2010. As a result of the reduced notional amount of the swaps, three-month LIBOR was
effectively fixed at 5.026%, for a then-effective interest rate of 6.776%, including the applicable margin.

On April 1, 2009, we elected
to change the interest rate on our variable rate debt under our senior secured credit facility from three-month LIBOR to one-month LIBOR. This election was in place for the quarters ended June 30, 2009 and September 30, 2009, after which
we elected to revert to the three-month LIBOR interest rate. In conjunction with the initial interest rate change from three-month LIBOR to one-month LIBOR, we discontinued cash flow hedge accounting treatment for the interest rate swap agreements
effective April 1, 2009. The deferred losses on the interest rate swaps previously charged to accumulated other comprehensive loss are being amortized to interest expense, and any subsequent changes in the fair value of the swaps are being
recognized in earnings as a component of interest expense until the swaps expire on December 31, 2010. The discontinuation of hedge accounting may increase the volatility in our reported earnings during the remaining terms of the interest rate
swaps.

On December 17, 2009, we entered into an interest rate swap agreement with an initial notional amount of $300.0 million to fix
three-month LIBOR at 2.005%, plus the applicable margin, for $300.0 million of our variable rate debt under our senior secured credit facility. The effective date of this agreement is December 31, 2010 which corresponds to the expiration date
of the existing interest rate swap agreements described above. The notional amount of $300.0 million amortizes by $40.0 million at the end of every quarter until it reaches $100.0 million for the quarter ended June 30, 2012, the expiration
date. The swap is designated as and qualifies as a cash flow hedge.

11. INCOME TAXES

Valassis is required to adjust its effective tax rate each quarter to be consistent with its 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.

12. REPURCHASES OF COMMON STOCK

During the three and nine months ended September 30, 2010, we repurchased 114,072 and 1,733,672 shares of our common stock, respectively, at
aggregate costs of $3.6 million and $58.2 million, respectively, under the stock repurchase program reinstated in May 2010. In 2010, stock repurchases are limited by our senior secured credit facility to an aggregate amount of $58.4 million.



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VALASSIS COMMUNICATIONS, INC.

Notes to Condensed Consolidated Financial Statements(Continued)

(unaudited)





13. SEGMENT REPORTING

Valassis segments meeting the quantitative thresholds to be considered reportable are Shared Mail, Neighborhood Targeted and
Free-standing Inserts (FSI). All other lines of business fall below a materiality threshold and are, therefore, combined together in an other segment named International, Digital Media & Services. These business lines include
NCH Marketing Services, Inc., direct mail, software analytics, security services, interactive and in-store. Our reportable segments are strategic business units that offer different products and services and are subject to regular review by our
chief operating decision-maker. They are managed separately because each business requires different executional strategies and caters to different client marketing needs.

The accounting policies of the segments are the same as those described in the summary of significant accounting policies in the 2009 Form 10-K. We evaluate performance based on earnings from operations
(segment profit). Assets are not allocated in all cases to reportable segments and are not used to assess the performance of a segment.



|                                 |  |                                  |       |  |                      |   |       |     |  |   |                                       |  |  |       |       |  |  |   |         | 
|-------------------------------- |  | -------------------------------- | ----- |  | -------------------- | - | ----- | --- |  | - | ------------------------------------- |  |  | ----- | ----- |  |  | - | ------- | 
|                                 |  | Three Months Ended September 30, |      
|                                 |  |                                  |       |  |                     
|(in millions of U.S. dollars)    |  | Shared Mail                      |       |  | NeighborhoodTargeted |   |       | FSI |  |   | International,Digital Media &Services |  |  | Total |      
|                                 |  |                                  |       |  |                     
|2010                             |  |                                  |       |  |                      |   |       |     |  |   |                                       |  |  |       |       |  |  |   |         | 
|Revenues from external customers |  | $                                | 326.1 |  |                      | $ | 114.0 |     |  | $ | 89.2                                  |  |  | $     | 43.1  |  |  | $ | 572.4   | 
|Intersegment revenues            |  | $                                | 4.4   |  |                      | $ | 6.8   |     |  | $ | 10.9                                  |  |  | $     | 0.3   |  |  | $ | 22.4    | 
|Depreciation/amortization        |  | $                                | 10.1  |  |                      | $ | 1.1   |     |  | $ | 3.3                                   |  |  | $     | 0.7   |  |  | $ | 15.2    | 
|Segment profit                   |  | $                                | 39.3  |  |                      | $ | 7.2   |     |  | $ | 4.9                                   |  |  | $     | 4.5   |  |  | $ | 55.9    | 
|                                 |  |                                  |       |  |                     
|2009                             |  |                                  |       |  |                      |   |       |     |  |   |                                       |  |  |       |       |  |  |   |         | 
|Revenues from external customers |  | $                                | 319.5 |  |                      | $ | 92.0  |     |  | $ | 92.6                                  |  |  | $     | 40.0  |  |  | $ | 544.1   | 
|Intersegment revenues            |  | $                                | 5.3   |  |                      | $ | 9.4   |     |  | $ | 5.4                                   |  |  | $     | 0.6   |  |  | $ | 20.7    | 
|Depreciation/amortization        |  | $                                | 12.2  |  |                      | $ | 1.1   |     |  | $ | 2.9                                   |  |  | $     | 0.7   |  |  | $ | 16.9    | 
|Segment profit                   |  | $                                | 29.6  |  |                      | $ | 3.9   |     |  | $ | 2.3                                   |  |  | $     | 6.9   |  |  | $ | 42.7    | 
|                                 | 
|                                 |  | Nine Months Ended September 30,  |      
|                                 |  |                                  |       |  |                     
|(in millions of U.S. dollars)    |  | Shared Mail                      |       |  | NeighborhoodTargeted |   |       | FSI |  |   | International,Digital Media &Services |  |  | Total |      
|                                 |  |                                  |       |  |                     
|2010                             |  |                                  |       |  |                      |   |       |     |  |   |                                       |  |  |       |       |  |  |   |         | 
|Revenues from external customers |  | $                                | 965.3 |  |                      | $ | 330.1 |     |  | $ | 281.3                                 |  |  | $     | 125.7 |  |  | $ | 1,702.4 | 
|Intersegment revenues            |  | $                                | 11.8  |  |                      | $ | 19.2  |     |  | $ | 29.8                                  |  |  | $     | 0.5   |  |  | $ | 61.3    | 
|Depreciation/amortization        |  | $                                | 31.0  |  |                      | $ | 3.1   |     |  | $ | 9.5                                   |  |  | $     | 2.3   |  |  | $ | 45.9    | 
|Segment profit                   |  | $                                | 111.5 |  |                      | $ | 19.6  |     |  | $ | 24.6                                  |  |  | $     | 13.1  |  |  | $ | 168.8   | 
|                                 |  |                                  |       |  |                     
|2009                             |  |                                  |       |  |                      |   |       |     |  |   |                                       |  |  |       |       |  |  |   |         | 
|Revenues from external customers |  | $                                | 944.0 |  |                      | $ | 303.6 |     |  | $ | 278.3                                 |  |  | $     | 113.4 |  |  | $ | 1,639.3 | 
|Intersegment revenues            |  | $                                | 13.6  |  |                      | $ | 21.9  |     |  | $ | 24.4                                  |  |  | $     | 1.5   |  |  | $ | 61.4    | 
|Depreciation/amortization        |  | $                                | 38.1  |  |                      | $ | 3.1   |     |  | $ | 9.0                                   |  |  | $     | 1.8   |  |  | $ | 52.0    | 
|Segment profit                   |  | $                                | 71.8  |  |                      | $ | 25.0  |     |  | $ | 7.1                                   |  |  | $     | 17.2  |  |  | $ | 121.1   | 



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##### Table of Contents

VALASSIS COMMUNICATIONS, INC.

Notes to Condensed Consolidated Financial Statements(Continued)

(unaudited)





Reconciliations to the
consolidated financial statement totals are as follows:



|                                      |  |                                 |       |   |                                |   |       |      |  |   |       |   |  |   |       |  
|------------------------------------- |  | ------------------------------- | ----- | - | ------------------------------ | - | ----- | ---- |  | - | ----- | - |  | - | ----- | -
|                                      |  | Three Months EndedSeptember 30, |       |   | Nine Months EndedSeptember 30, |  
|(in millions of U.S. dollars)         |  | 2010                            |       |   | 2009                           |   |       | 2010 |  |   | 2009  |  
|Segment profit                        |  | $                               | 55.9  |   |                                | $ | 42.7  |      |  | $ | 168.8 |   |  | $ | 121.1 |  
|Unallocated amounts:                  |  |                                 |       |   |                                |   |       |      |  |   |       |   |  |   |       |  
|Interest expense                      |  |                                 | (14.1 | ) |                                |   | (23.2 | )    |  |   | (52.1 | ) |  |   | (66.2 | )
|Interest income                       |  |                                 | 0.1   |   |                                |   | 0.1   |      |  |   | 0.5   |   |  |   | 0.5   |  
|Other income, net                     |  |                                 | 2.2   |   |                                |   | 1.2   |      |  |   | 4.5   |   |  |   | 3.9   |  
|(Loss) gain on extinguishment of debt |  |                                 |      |   |                                |   | 0.6   |      |  |   | (23.9 | ) |  |   | 9.4   |  
|Gain from litigation settlement       |  |                                 |      |   |                                |   |      |      |  |   | 490.1 |   |  |   |      |  
|                                      |  |                                 |       |   |                                |   |       |      |  |   |       |   |  |   |       |  
|Earnings before income taxes          |  | $                               | 44.1  |   |                                | $ | 21.4  |      |  | $ | 587.9 |   |  | $ | 68.7  |  
|                                      |  |                                 |       |   |                                |   |       |      |  |   |       |   |  |   |       |  

Domestic and foreign revenues were as follows:



|                              |  |                                 |       |  |                                |   |       |      |  |   |         |  |  |   |         | 
|----------------------------- |  | ------------------------------- | ----- |  | ------------------------------ | - | ----- | ---- |  | - | ------- |  |  | - | ------- | 
|                              |  | Three Months EndedSeptember 30, |       |  | Nine Months EndedSeptember 30, |  
|(in millions of U.S. dollars) |  | 2010                            |       |  | 2009                           |   |       | 2010 |  |   | 2009    | 
|United States                 |  | $                               | 562.3 |  |                                | $ | 530.8 |      |  | $ | 1,665.2 |  |  | $ | 1,603.5 | 
|Foreign                       |  |                                 | 10.1  |  |                                |   | 13.3  |      |  |   | 37.2    |  |  |   | 35.8    | 
|                              |  |                                 |       |  |                                |   |       |      |  |   |         |  |  |   |         | 
|Total                         |  | $                               | 572.4 |  |                                | $ | 544.1 |      |  | $ | 1,702.4 |  |  | $ | 1,639.3 | 
|                              |  |                                 |       |  |                                |   |       |      |  |   |         |  |  |   |         | 

Domestic and foreign long-lived assets (property, plant and equipment, net) were as follows:



|                              |  |                   |       |  |                  |   |       | 
|----------------------------- |  | ----------------- | ----- |  | ---------------- | - | ----- | 
|(in millions of U.S. dollars) |  | September 30,2010 |       |  | December 31,2009 |  
|United States                 |  | $                 | 168.8 |  |                  | $ | 188.2 | 
|Foreign                       |  |                   | 8.9   |  |                  |   | 9.7   | 
|                              |  |                   |       |  |                  |   |       | 
|Total                         |  | $                 | 177.7 |  |                  | $ | 197.9 | 
|                              |  |                   |       |  |                  |   |       | 



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##### Table of Contents

VALASSIS COMMUNICATIONS, INC.

Notes to Condensed Consolidated Financial Statements(Continued)

(unaudited)





14. 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 2015 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 2015 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. The Guarantor
Subsidiaries also guarantee the Parent Companys senior secured credit facility.

The following tables present the condensed
consolidating balance sheets as of September 30, 2010 and December 31, 2009, and the related condensed consolidating statements of income for the three and nine months ended September 30, 2010 and 2009, and the condensed consolidating
statements of cash flows for the nine months ended September 30, 2010 and 2009. As a result of combining our general ledgers of record into an existing, single general ledger module within our enterprise resource planning system during the
three months ended September 30, 2010, as more fully described in Part IItem 4 below, the condensed consolidating financial statements as of and for the three and nine months ended September 30, 2010 below reflect certain
intercompany receivables, payables, revenues, and costs and expenses between the Parent Company and the Guarantor Subsidiaries differently than the comparative, historical periods presented herein. Although it is not practicable to reclassify the
amounts presented for the comparative, historical periods 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 assets or net income of the Parent Company or the Non-Guarantor Subsidiaries.



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##### Table of Contents

VALASSIS COMMUNICATIONS, INC.

Notes to Condensed Consolidated Financial Statements(Continued)

(unaudited)





Condensed
Consolidating Balance Sheet

September 30, 2010

(in thousands of U.S. dollars)



|                                      |  |               |           |  |                       |   |          |                           |  |   |                          |   |  |                   |          |   |  |   |           | 
|------------------------------------- |  | ------------- | --------- |  | --------------------- | - | -------- | ------------------------- |  | - | ------------------------ | - |  | ----------------- | -------- | - |  | - | --------- | 
|Assets                                |  | ParentCompany |           |  | GuarantorSubsidiaries |   |          | Non-GuarantorSubsidiaries |  |   | ConsolidatingAdjustments |   |  | ConsolidatedTotal |         
|Current assets:                       |  |               |           |  |                       |   |          |                           |  |   |                          |   |  |                   |          |   |  |   |           | 
|Cash and cash equivalents             |  | $             | 184,470   |  |                       | $ | 1,921    |                           |  | $ | 22,129                   |   |  | $                 |         |   |  | $ | 208,520   | 
|Accounts receivable, net              |  |               | 151,997   |  |                       |   | 239,087  |                           |  |   | 28,175                   |   |  |                   |         |   |  |   | 419,259   | 
|Inventories                           |  |               | 34,529    |  |                       |   | 9,229    |                           |  |   | 3                        |   |  |                   |         |   |  |   | 43,761    | 
|Prepaid expenses and other            |  |               | 46,479    |  |                       |   | (12,222  | )                         |  |   | 3,140                    |   |  |                   |         |   |  |   | 37,397    | 
|                                      |  |               |           |  |                       |   |          |                           |  |   |                          |   |  |                   |          |   |  |   |           | 
|Total current assets                  |  |               | 417,475   |  |                       |   | 238,015  |                           |  |   | 53,447                   |   |  |                   |         |   |  |   | 708,937   | 
|                                      |  |               |           |  |                       |   |          |                           |  |   |                          |   |  |                   |          |   |  |   |           | 
|                                      |  |               |           |  |                      
|Property, plant and equipment, net    |  |               | 34,331    |  |                       |   | 141,092  |                           |  |   | 2,259                    |   |  |                   |         |   |  |   | 177,682   | 
|Intangible assets, net                |  |               | 42,751    |  |                       |   | 823,704  |                           |  |   | 6,989                    |   |  |                   |         |   |  |   | 873,444   | 
|Investments                           |  |               | 370,989   |  |                       |   | 21,147   |                           |  |   |                         |   |  |                   | (389,354 | ) |  |   | 2,782     | 
|Intercompany note and loan receivable |  |               | 471,457   |  |                       |   | (463,012 | )                         |  |   | (8,445                   | ) |  |                   |         |   |  |   |          | 
|Other assets                          |  |               | 9,462     |  |                       |   | 3,527    |                           |  |   | 13                       |   |  |                   |         |   |  |   | 13,002    | 
|                                      |  |               |           |  |                       |   |          |                           |  |   |                          |   |  |                   |          |   |  |   |           | 
|Total assets                          |  | $             | 1,346,465 |  |                       | $ | 764,473  |                           |  | $ | 54,263                   |   |  | $                 | (389,354 | ) |  | $ | 1,775,847 | 
|                                      |  |               |           |  |                       |   |          |                           |  |   |                          |   |  |                   |          |   |  |   |           | 



|                                           |  |               |           |   |                       |   |         |                           |  |   |                          |   |  |                   |          |   |  |   |           | 
|------------------------------------------ |  | ------------- | --------- | - | --------------------- | - | ------- | ------------------------- |  | - | ------------------------ | - |  | ----------------- | -------- | - |  | - | --------- | 
|Liabilities and Stockholders Equity       |  | ParentCompany |           |   | GuarantorSubsidiaries |   |         | Non-GuarantorSubsidiaries |  |   | ConsolidatingAdjustments |   |  | ConsolidatedTotal |         
|Current liabilities:                       |  |               |           |   |                       |   |         |                           |  |   |                          |   |  |                   |          |   |  |   |           | 
|Current portion long term debt             |  | $             | 7,074     |   |                       | $ |        |                           |  | $ |                         |   |  | $                 |         |   |  | $ | 7,074     | 
|Accounts payable and intercompany payable  |  |               | 128,774   |   |                       |   | 146,576 |                           |  |   | 18,460                   |   |  |                   |         |   |  |   | 293,810   | 
|Accrued expenses                           |  |               | 41,348    |   |                       |   | 38,704  |                           |  |   | 8,148                    |   |  |                   |         |   |  |   | 88,200    | 
|Progress billings                          |  |               | 25,900    |   |                       |   | 16,684  |                           |  |   | 8,869                    |   |  |                   |         |   |  |   | 51,453    | 
|Income taxes payable                       |  |               | (61,045   | ) |                       |   | 72,759  |                           |  |   | 446                      |   |  |                   |         |   |  |   | 12,160    | 
|Deferred income taxes                      |  |               | (1,094    | ) |                       |   | 1,051   |                           |  |   | 109                      |   |  |                   |         |   |  |   | 66        | 
|                                           |  |               |           |   |                       |   |         |                           |  |   |                          |   |  |                   |          |   |  |   |           | 
|Total current liabilities                  |  |               | 140,957   |   |                       |   | 275,774 |                           |  |   | 36,032                   |   |  |                   |         |   |  |   | 452,763   | 
|                                           |  |               |           |   |                       |   |         |                           |  |   |                          |   |  |                   |          |   |  |   |           | 
|                                           |  |               |           |   |                      
|Long-term debt                             |  |               | 700,919   |   |                       |   |        |                           |  |   |                         |   |  |                   |         |   |  |   | 700,919   | 
|Other non-current liabilities              |  |               | 29,416    |   |                       |   | 19,663  |                           |  |   | 2,062                    |   |  |                   |         |   |  |   | 51,141    | 
|Deferred income taxes                      |  |               | (4,899    | ) |                       |   | 99,846  |                           |  |   | (3,995                   | ) |  |                   |         |   |  |   | 90,952    | 
|Stockholders equity                       |  |               | 480,072   |   |                       |   | 369,190 |                           |  |   | 20,164                   |   |  |                   | (389,354 | ) |  |   | 480,072   | 
|                                           |  |               |           |   |                       |   |         |                           |  |   |                          |   |  |                   |          |   |  |   |           | 
|Total liabilities and stockholders equity |  | $             | 1,346,465 |   |                       | $ | 764,473 |                           |  | $ | 54,263                   |   |  | $                 | (389,354 | ) |  | $ | 1,775,847 | 
|                                           |  |               |           |   |                       |   |         |                           |  |   |                          |   |  |                   |          |   |  |   |           | 



17



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##### Table of Contents

VALASSIS COMMUNICATIONS, INC.

Notes to Condensed Consolidated Financial Statements(Continued)

(unaudited)





Condensed
Consolidating Balance Sheet

December 31, 2009

(in thousands of U.S. dollars)



|                                      |  |               |           |  |                       |   |          |                           |  |   |                          |   |  |                   |          |   |  |   |           | 
|------------------------------------- |  | ------------- | --------- |  | --------------------- | - | -------- | ------------------------- |  | - | ------------------------ | - |  | ----------------- | -------- | - |  | - | --------- | 
|Assets                                |  | ParentCompany |           |  | GuarantorSubsidiaries |   |          | Non-GuarantorSubsidiaries |  |   | ConsolidatingAdjustments |   |  | ConsolidatedTotal |         
|Current assets:                       |  |               |           |  |                       |   |          |                           |  |   |                          |   |  |                   |          |   |  |   |           | 
|Cash and cash equivalents             |  | $             | 104,477   |  |                       | $ | 7,614    |                           |  | $ | 17,755                   |   |  | $                 |         |   |  | $ | 129,846   | 
|Accounts receivable, net              |  |               | 158,093   |  |                       |   | 239,217  |                           |  |   | 31,526                   |   |  |                   |         |   |  |   | 428,836   | 
|Inventories                           |  |               | 33,082    |  |                       |   | 7,390    |                           |  |   |                         |   |  |                   |         |   |  |   | 40,472    | 
|Prepaid expenses and other            |  |               | 98,773    |  |                       |   | (18,583  | )                         |  |   | 2,250                    |   |  |                   | (45,394  | ) |  |   | 37,046    | 
|Refundable income taxes               |  |               | 63,989    |  |                       |   | (50,998  | )                         |  |   | (413                     | ) |  |                   |         |   |  |   | 12,578    | 
|                                      |  |               |           |  |                       |   |          |                           |  |   |                          |   |  |                   |          |   |  |   |           | 
|Total current assets                  |  |               | 458,414   |  |                       |   | 184,640  |                           |  |   | 51,118                   |   |  |                   | (45,394  | ) |  |   | 648,778   | 
|                                      |  |               |           |  |                       |   |          |                           |  |   |                          |   |  |                   |          |   |  |   |           | 
|                                      |  |               |           |  |                      
|Property, plant and equipment, net    |  |               | 30,500    |  |                       |   | 164,468  |                           |  |   | 2,933                    |   |  |                   |         |   |  |   | 197,901   | 
|Intangible assets, net                |  |               | 35,169    |  |                       |   | 836,775  |                           |  |   | 6,988                    |   |  |                   |         |   |  |   | 878,932   | 
|Investments                           |  |               | 310,182   |  |                       |   | 17,642   |                           |  |   |                         |   |  |                   | (325,526 | ) |  |   | 2,298     | 
|Intercompany loan and note receivable |  |               | 534,259   |  |                       |   | (524,540 | )                         |  |   | (9,719                   | ) |  |                   |         |   |  |   |          | 
|Other assets                          |  |               | 10,795    |  |                       |   | 5,314    |                           |  |   | 4                        |   |  |                   |         |   |  |   | 16,113    | 
|                                      |  |               |           |  |                       |   |          |                           |  |   |                          |   |  |                   |          |   |  |   |           | 
|Total assets                          |  | $             | 1,379,319 |  |                       | $ | 684,299  |                           |  | $ | 51,324                   |   |  | $                 | (370,920 | ) |  | $ | 1,744,022 | 
|                                      |  |               |           |  |                       |   |          |                           |  |   |                          |   |  |                   |          |   |  |   |           | 



|                                           |  |               |           |   |                       |   |         |                           |  |   |                          |   |  |                   |          |   |  |   |           | 
|------------------------------------------ |  | ------------- | --------- | - | --------------------- | - | ------- | ------------------------- |  | - | ------------------------ | - |  | ----------------- | -------- | - |  | - | --------- | 
|Liabilities and Stockholders Equity       |  | ParentCompany |           |   | GuarantorSubsidiaries |   |         | Non-GuarantorSubsidiaries |  |   | ConsolidatingAdjustments |   |  | ConsolidatedTotal |         
|Current liabilities:                       |  |               |           |   |                       |   |         |                           |  |   |                          |   |  |                   |          |   |  |   |           | 
|Current portion, long-term debt            |  | $             | 6,197     |   |                       | $ |        |                           |  | $ |                         |   |  | $                 |         |   |  | $ | 6,197     | 
|Accounts payable and intercompany payable  |  |               | 174,701   |   |                       |   | 190,317 |                           |  |   | 18,796                   |   |  |                   | (45,396  | ) |  |   | 338,418   | 
|Accrued expenses                           |  |               | 59,729    |   |                       |   | 58,761  |                           |  |   | 9,146                    |   |  |                   |         |   |  |   | 127,636   | 
|Progress billings                          |  |               | 25,242    |   |                       |   | 6,796   |                           |  |   | 8,494                    |   |  |                   |         |   |  |   | 40,532    | 
|Deferred income taxes                      |  |               | (1,095    | ) |                       |   | 1,051   |                           |  |   | 66                       |   |  |                   |         |   |  |   | 22        | 
|                                           |  |               |           |   |                       |   |         |                           |  |   |                          |   |  |                   |          |   |  |   |           | 
|Total current liabilities                  |  |               | 264,774   |   |                       |   | 256,925 |                           |  |   | 36,502                   |   |  |                   | (45,396  | ) |  |   | 512,805   | 
|                                           |  |               |           |   |                       |   |         |                           |  |   |                          |   |  |                   |          |   |  |   |           | 
|                                           |  |               |           |   |                      
|Long-term debt                             |  |               | 1,004,875 |   |                       |   |        |                           |  |   |                         |   |  |                   |         |   |  |   | 1,004,875 | 
|Other non-current liabilities              |  |               | 19,671    |   |                       |   | 18,542  |                           |  |   | 2,354                    |   |  |                   |         |   |  |   | 40,567    | 
|Deferred income taxes                      |  |               | (7,862    | ) |                       |   | 99,770  |                           |  |   | (3,994                   | ) |  |                   |         |   |  |   | 87,914    | 
|Stockholders equity                       |  |               | 97,861    |   |                       |   | 309,062 |                           |  |   | 16,462                   |   |  |                   | (325,524 | ) |  |   | 97,861    | 
|                                           |  |               |           |   |                       |   |         |                           |  |   |                          |   |  |                   |          |   |  |   |           | 
|Total liabilities and stockholders equity |  | $             | 1,379,319 |   |                       | $ | 684,299 |                           |  | $ | 51,324                   |   |  | $                 | (370,920 | ) |  | $ | 1,744,022 | 
|                                           |  |               |           |   |                       |   |         |                           |  |   |                          |   |  |                   |          |   |  |   |           | 



18



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##### Table of Contents

VALASSIS COMMUNICATIONS, INC.

Notes to Condensed Consolidated Financial Statements(Continued)

(unaudited)





Condensed
Consolidating Statement of Income

Three Months Ended September 30, 2010

(in thousands of U.S. dollars)



|                                              |  |               |         |   |                       |   |         |                           |  |   |                          |   |  |                   |          |   |  |   |         |  
|--------------------------------------------- |  | ------------- | ------- | - | --------------------- | - | ------- | ------------------------- |  | - | ------------------------ | - |  | ----------------- | -------- | - |  | - | ------- | -
|                                              |  | ParentCompany |         |   | GuarantorSubsidiaries |   |         | Non-GuarantorSubsidiaries |  |   | ConsolidatingAdjustments |   |  | ConsolidatedTotal |         
|Revenues                                      |  | $             | 273,629 |   |                       | $ | 421,906 |                           |  | $ | 15,003                   |   |  | $                 | (138,132 | ) |  | $ | 572,406 |  
|                                              |  |               |         |   |                      
|Cost and expenses:                            |  |               |         |   |                       |   |         |                           |  |   |                          |   |  |                   |          |   |  |   |         |  
|Cost of products sold                         |  |               | 225,822 |   |                       |   | 275,137 |                           |  |   | 11,231                   |   |  |                   | (90,680  | ) |  |   | 421,510 |  
|Selling, general and administrative           |  |               | 38,596  |   |                       |   | 96,825  |                           |  |   | 3,830                    |   |  |                   | (47,451  | ) |  |   | 91,800  |  
|Amortization expense                          |  |               | 6       |   |                       |   | 3,151   |                           |  |   |                         |   |  |                   | (1       | ) |  |   | 3,156   |  
|                                              |  |               |         |   |                       |   |         |                           |  |   |                          |   |  |                   |          |   |  |   |         |  
|Total costs and expenses                      |  |               | 264,424 |   |                       |   | 375,113 |                           |  |   | 15,061                   |   |  |                   | (138,132 | ) |  |   | 516,466 |  
|                                              |  |               |         |   |                       |   |         |                           |  |   |                          |   |  |                   |          |   |  |   |         |  
|                                              |  |               |         |   |                      
|Earnings from operations                      |  |               | 9,205   |   |                       |   | 46,793  |                           |  |   | (58                      | ) |  |                   |         |   |  |   | 55,940  |  
|                                              |  |               |         |   |                      
|Other expenses (income):                      |  |               |         |   |                       |   |         |                           |  |   |                          |   |  |                   |          |   |  |   |         |  
|Interest expense                              |  |               | 14,091  |   |                       |   |        |                           |  |   |                         |   |  |                   |         |   |  |   | 14,091  |  
|Interest income                               |  |               | (98     | ) |                       |   |        |                           |  |   | (18                      | ) |  |                   |         |   |  |   | (116    | )
|Intercompany interest                         |  |               | (16,355 | ) |                       |   | 16,356  |                           |  |   | (1                       | ) |  |                   |         |   |  |   |        |  
|Other income, net                             |  |               | (1,240  | ) |                       |   | (799    | )                         |  |   | (81                      | ) |  |                   |         |   |  |   | (2,120  | )
|                                              |  |               |         |   |                       |   |         |                           |  |   |                          |   |  |                   |          |   |  |   |         |  
|Total other expenses (income), net            |  |               | (3,602  | ) |                       |   | 15,557  |                           |  |   | (100                     | ) |  |                   |         |   |  |   | 11,855  |  
|                                              |  |               |         |   |                       |   |         |                           |  |   |                          |   |  |                   |          |   |  |   |         |  
|                                              |  |               |         |   |                      
|Earnings before income taxes                  |  |               | 12,807  |   |                       |   | 31,236  |                           |  |   | 42                       |   |  |                   |         |   |  |   | 44,085  |  
|                                              |  |               |         |   |                      
|Income tax expense                            |  |               | 6,133   |   |                       |   | 10,788  |                           |  |   | 185                      |   |  |                   |         |   |  |   | 17,106  |  
|Equity in net earnings (loss) of subsidiaries |  |               | 20,305  |   |                       |   | (143    | )                         |  |   |                         |   |  |                   | (20,162  | ) |  |   |        |  
|                                              |  |               |         |   |                       |   |         |                           |  |   |                          |   |  |                   |          |   |  |   |         |  
|                                              |  |               |         |   |                      
|Net earnings (loss)                           |  | $             | 26,979  |   |                       | $ | 20,305  |                           |  | $ | (143                     | ) |  | $                 | (20,162  | ) |  | $ | 26,979  |  
|                                              |  |               |         |   |                       |   |         |                           |  |   |                          |   |  |                   |          |   |  |   |         |  

Condensed Consolidating Statement of Income

Three Months Ended September 30, 2009

(in thousands of U.S. dollars)



|                                       |  |               |         |   |                       |   |         |                           |  |   |                          |  |  |                   |         |   |  |   |         |  
|-------------------------------------- |  | ------------- | ------- | - | --------------------- | - | ------- | ------------------------- |  | - | ------------------------ |  |  | ----------------- | ------- | - |  | - | ------- | -
|                                       |  | ParentCompany |         |   | GuarantorSubsidiaries |   |         | Non-GuarantorSubsidiaries |  |   | ConsolidatingAdjustments |  |  | ConsolidatedTotal |        
|Revenues                               |  | $             | 180,278 |   |                       | $ | 370,520 |                           |  | $ | 15,259                   |  |  | $                 | (21,993 | ) |  | $ | 544,064 |  
|                                       |  |               |         |   |                      
|Cost and expenses:                     |  |               |         |   |                       |   |         |                           |  |   |                          |  |  |                   |         |   |  |   |         |  
|Cost of products sold                  |  |               | 141,504 |   |                       |   | 278,365 |                           |  |   | 9,696                    |  |  |                   | (21,993 | ) |  |   | 407,572 |  
|Selling, general and administrative    |  |               | 35,559  |   |                       |   | 51,583  |                           |  |   | 3,518                    |  |  |                   |        |   |  |   | 90,660  |  
|Amortization expense                   |  |               | 6       |   |                       |   | 3,150   |                           |  |   |                         |  |  |                   |        |   |  |   | 3,156   |  
|                                       |  |               |         |   |                       |   |         |                           |  |   |                          |  |  |                   |         |   |  |   |         |  
|Total costs and expenses               |  |               | 177,069 |   |                       |   | 333,098 |                           |  |   | 13,214                   |  |  |                   | (21,993 | ) |  |   | 501,388 |  
|                                       |  |               |         |   |                       |   |         |                           |  |   |                          |  |  |                   |         |   |  |   |         |  
|                                       |  |               |         |   |                      
|Earnings from operations               |  |               | 3,209   |   |                       |   | 37,422  |                           |  |   | 2,045                    |  |  |                   |        |   |  |   | 42,676  |  
|                                       |  |               |         |   |                      
|Other expenses (income):               |  |               |         |   |                       |   |         |                           |  |   |                          |  |  |                   |         |   |  |   |         |  
|Interest expense                       |  |               | 23,172  |   |                       |   |        |                           |  |   |                         |  |  |                   |        |   |  |   | 23,172  |  
|Interest income                        |  |               | (94     | ) |                       |   | (4      | )                         |  |   | 11                       |  |  |                   |        |   |  |   | (87     | )
|Intercompany interest                  |  |               | (17,092 | ) |                       |   | 17,092  |                           |  |   |                         |  |  |                   |        |   |  |   |        |  
|Gain on extinguishment of debt         |  |               | (609    | ) |                       |   |        |                           |  |   |                         |  |  |                   |        |   |  |   | (609    | )
|Other (income) expenses, net           |  |               | (514    | ) |                       |   | (935    | )                         |  |   | 267                      |  |  |                   |        |   |  |   | (1,182  | )
|                                       |  |               |         |   |                       |   |         |                           |  |   |                          |  |  |                   |         |   |  |   |         |  
|Total other expenses, net              |  |               | 4,863   |   |                       |   | 16,153  |                           |  |   | 278                      |  |  |                   |        |   |  |   | 21,294  |  
|                                       |  |               |         |   |                       |   |         |                           |  |   |                          |  |  |                   |         |   |  |   |         |  
|                                       |  |               |         |   |                      
|(Loss) Earnings before income taxes    |  |               | (1,654  | ) |                       |   | 21,269  |                           |  |   | 1,767                    |  |  |                   |        |   |  |   | 21,382  |  
|                                       |  |               |         |   |                      
|Income tax expense (benefit)           |  |               | (61     | ) |                       |   | 7,295   |                           |  |   | 348                      |  |  |                   |        |   |  |   | 7,582   |  
|Equity in net earnings of subsidiaries |  |               | 15,393  |   |                       |   | 1,419   |                           |  |   |                         |  |  |                   | (16,812 | ) |  |   |        |  
|                                       |  |               |         |   |                       |   |         |                           |  |   |                          |  |  |                   |         |   |  |   |         |  
|                                       |  |               |         |   |                      
|Net earnings                           |  | $             | 13,800  |   |                       | $ | 15,393  |                           |  | $ | 1,419                    |  |  | $                 | (16,812 | ) |  | $ | 13,800  |  
|                                       |  |               |         |   |                       |   |         |                           |  |   |                          |  |  |                   |         |   |  |   |         |  



19



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##### Table of Contents

VALASSIS COMMUNICATIONS, INC.

Notes to Condensed Consolidated Financial Statements(Continued)

(unaudited)



Condensed Consolidating Statement of Income

Nine Months Ended September 30, 2010

(in thousands of U.S. dollars)



|                                       |  |               |         |   |                       |   |           |                           |  |   |                          |   |  |                   |          |   |  |   |           |  
|-------------------------------------- |  | ------------- | ------- | - | --------------------- | - | --------- | ------------------------- |  | - | ------------------------ | - |  | ----------------- | -------- | - |  | - | --------- | -
|                                       |  | ParentCompany |         |   | GuarantorSubsidiaries |   |           | Non-GuarantorSubsidiaries |  |   | ConsolidatingAdjustments |   |  | ConsolidatedTotal |         
|Revenues                               |  | $             | 678,002 |   |                       | $ | 1,158,915 |                           |  | $ | 51,959                   |   |  | $                 | (186,518 | ) |  | $ | 1,702,358 |  
|                                       |  |               |         |   |                      
|Cost and expenses:                     |  |               |         |   |                       |   |           |                           |  |   |                          |   |  |                   |          |   |  |   |           |  
|Cost of products sold                  |  |               | 538,485 |   |                       |   | 813,050   |                           |  |   | 36,195                   |   |  |                   | (139,066 | ) |  |   | 1,248,664 |  
|Selling, general and administrative    |  |               | 110,790 |   |                       |   | 201,115   |                           |  |   | 10,967                   |   |  |                   | (47,451  | ) |  |   | 275,421   |  
|Amortization expense                   |  |               | 17      |   |                       |   | 9,451     |                           |  |   |                         |   |  |                   | (1       | ) |  |   | 9,467     |  
|                                       |  |               |         |   |                       |   |           |                           |  |   |                          |   |  |                   |          |   |  |   |           |  
|Total costs and expenses               |  |               | 649,292 |   |                       |   | 1,023,616 |                           |  |   | 47,162                   |   |  |                   | (186,518 | ) |  |   | 1,533,552 |  
|                                       |  |               |         |   |                       |   |           |                           |  |   |                          |   |  |                   |          |   |  |   |           |  
|                                       |  |               |         |   |                      
|Gain from litigation settlement        |  |               | 490,085 |   |                       |   |          |                           |  |   |                         |   |  |                   |         |   |  |   | 490,085   |  
|Earnings from operations               |  |               | 518,795 |   |                       |   | 135,299   |                           |  |   | 4,797                    |   |  |                   |         |   |  |   | 658,891   |  
|                                       |  |               |         |   |                      
|Other expenses (income):               |  |               |         |   |                       |   |           |                           |  |   |                          |   |  |                   |          |   |  |   |           |  
|Interest expense                       |  |               | 52,084  |   |                       |   |          |                           |  |   |                         |   |  |                   |         |   |  |   | 52,084    |  
|Interest income                        |  |               | (471    | ) |                       |   | 3         |                           |  |   | (42                      | ) |  |                   |         |   |  |   | (510      | )
|Intercompany interest                  |  |               | (49,899 | ) |                       |   | 49,788    |                           |  |   | 111                      |   |  |                   |         |   |  |   |          |  
|Loss on extinguishment of debt         |  |               | 23,873  |   |                       |   |          |                           |  |   |                         |   |  |                   |         |   |  |   | 23,873    |  
|Other income, net                      |  |               | (2,053  | ) |                       |   | (2,215    | )                         |  |   | (203                     | ) |  |                   |         |   |  |   | (4,471    | )
|                                       |  |               |         |   |                       |   |           |                           |  |   |                          |   |  |                   |          |   |  |   |           |  
|Total other expenses (income), net     |  |               | 23,534  |   |                       |   | 47,576    |                           |  |   | (134                     | ) |  |                   |         |   |  |   | 70,976    |  
|                                       |  |               |         |   |                       |   |           |                           |  |   |                          |   |  |                   |          |   |  |   |           |  
|                                       |  |               |         |   |                      
|Earnings before income taxes           |  |               | 495,261 |   |                       |   | 87,723    |                           |  |   | 4,931                    |   |  |                   |         |   |  |   | 587,915   |  
|                                       |  |               |         |   |                      
|Income tax expense                     |  |               | 194,876 |   |                       |   | 30,966    |                           |  |   | 1,461                    |   |  |                   |         |   |  |   | 227,303   |  
|Equity in net earnings of subsidiaries |  |               | 60,227  |   |                       |   | 3,470     |                           |  |   |                         |   |  |                   | (63,697  | ) |  |   |          |  
|                                       |  |               |         |   |                       |   |           |                           |  |   |                          |   |  |                   |          |   |  |   |           |  
|Net earnings                           |  | $             | 360,612 |   |                       | $ | 60,227    |                           |  | $ | 3,470                    |   |  | $                 | (63,697  | ) |  | $ | 360,612   |  
|                                       |  |               |         |   |                       |   |           |                           |  |   |                          |   |  |                   |          |   |  |   |           |  

Condensed Consolidating Statement of Income

Nine Months Ended September 30, 2009

(in thousands of U.S. dollars)



|                                       |  |               |         |   |                       |   |           |                           |  |   |                          |   |  |                   |         |   |  |   |           |  
|-------------------------------------- |  | ------------- | ------- | - | --------------------- | - | --------- | ------------------------- |  | - | ------------------------ | - |  | ----------------- | ------- | - |  | - | --------- | -
|                                       |  | ParentCompany |         |   | GuarantorSubsidiaries |   |           | Non-GuarantorSubsidiaries |  |   | ConsolidatingAdjustments |   |  | ConsolidatedTotal |        
|Revenues                               |  | $             | 571,270 |   |                       | $ | 1,092,088 |                           |  | $ | 49,418                   |   |  | $                 | (73,520 | ) |  | $ | 1,639,256 |  
|                                       |  |               |         |   |                      
|Cost and expenses:                     |  |               |         |   |                       |   |           |                           |  |   |                          |   |  |                   |         |   |  |   |           |  
|Cost of products sold                  |  |               | 452,645 |   |                       |   | 831,495   |                           |  |   | 34,485                   |   |  |                   | (73,520 | ) |  |   | 1,245,105 |  
|Selling, general and administrative    |  |               | 96,830  |   |                       |   | 156,874   |                           |  |   | 9,843                    |   |  |                   |        |   |  |   | 263,547   |  
|Amortization expense                   |  |               | 17      |   |                       |   | 9,451     |                           |  |   |                         |   |  |                   |        |   |  |   | 9,468     |  
|                                       |  |               |         |   |                       |   |           |                           |  |   |                          |   |  |                   |         |   |  |   |           |  
|Total costs and expenses               |  |               | 549,492 |   |                       |   | 997,820   |                           |  |   | 44,328                   |   |  |                   | (73,520 | ) |  |   | 1,518,120 |  
|                                       |  |               |         |   |                       |   |           |                           |  |   |                          |   |  |                   |         |   |  |   |           |  
|                                       |  |               |         |   |                      
|Earnings from operations               |  |               | 21,778  |   |                       |   | 94,268    |                           |  |   | 5,090                    |   |  |                   |        |   |  |   | 121,136   |  
|                                       |  |               |         |   |                      
|Other expenses (income):               |  |               |         |   |                       |   |           |                           |  |   |                          |   |  |                   |         |   |  |   |           |  
|Interest expense                       |  |               | 66,201  |   |                       |   |          |                           |  |   |                         |   |  |                   |        |   |  |   | 66,201    |  
|Interest income                        |  |               | (430    | ) |                       |   | (11       | )                         |  |   | (50                      | ) |  |                   |        |   |  |   | (491      | )
|Intercompany interest                  |  |               | (52,516 | ) |                       |   | 52,516    |                           |  |   |                         |   |  |                   |        |   |  |   |          |  
|Gain on extinguishment of debt         |  |               | (9,388  | ) |                       |   |          |                           |  |   |                         |   |  |                   |        |   |  |   | (9,388    | )
|Other (income) expenses, net           |  |               | (1,593  | ) |                       |   | (2,417    | )                         |  |   | 146                      |   |  |                   |        |   |  |   | (3,864    | )
|                                       |  |               |         |   |                       |   |           |                           |  |   |                          |   |  |                   |         |   |  |   |           |  
|Total other expenses, net              |  |               | 2,274   |   |                       |   | 50,088    |                           |  |   | 96                       |   |  |                   |        |   |  |   | 52,458    |  
|                                       |  |               |         |   |                       |   |           |                           |  |   |                          |   |  |                   |         |   |  |   |           |  
|Earnings before income taxes           |  |               | 19,504  |   |                       |   | 44,180    |                           |  |   | 4,994                    |   |  |                   |        |   |  |   | 68,678    |  
|                                       |  |               |         |   |                      
|Income tax expense                     |  |               | 10,479  |   |                       |   | 14,474    |                           |  |   | 949                      |   |  |                   |        |   |  |   | 25,902    |  
|Equity in net earnings of subsidiaries |  |               | 33,751  |   |                       |   | 4,045     |                           |  |   |                         |   |  |                   | (37,796 | ) |  |   |          |  
|                                       |  |               |         |   |                       |   |           |                           |  |   |                          |   |  |                   |         |   |  |   |           |  
|Net earnings                           |  | $             | 42,776  |   |                       | $ | 33,751    |                           |  | $ | 4,045                    |   |  | $                 | (37,796 | ) |  | $ | 42,776    |  
|                                       |  |               |         |   |                       |   |           |                           |  |   |                          |   |  |                   |         |   |  |   |           |  



20



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##### Table of Contents

VALASSIS COMMUNICATIONS, INC.

Notes to Condensed Consolidated Financial Statements(Continued)

(unaudited)





Condensed
Consolidating Statement of Cash Flows

Nine Months Ended September 30, 2010

(in thousands of U.S. dollars)



|                                                 |  |               |          |   |                       |   |         |                           |  |   |                          |   |  |                   |   |  |  |   |          |  
|------------------------------------------------ |  | ------------- | -------- | - | --------------------- | - | ------- | ------------------------- |  | - | ------------------------ | - |  | ----------------- | - |  |  | - | -------- | -
|                                                 |  | ParentCompany |          |   | GuarantorSubsidiaries |   |         | Non-GuarantorSubsidiaries |  |   | ConsolidatingAdjustments |   |  | ConsolidatedTotal |  
|                                                 |  |               |          |   |                      
|Operating Activities                             |  |               |          |   |                       |   |         |                           |  |   |                          |   |  |                   |   |  |  |   |          |  
|Net cash provided by operating activities        |  | $             | 317,477  |   |                       | $ | 100,198 |                           |  | $ | 4,532                    |   |  | $                 |  |  |  | $ | 422,207  |  
|                                                 |  |               |          |   |                      
|Investing Activities                             |  |               |          |   |                       |   |         |                           |  |   |                          |   |  |                   |   |  |  |   |          |  
|Additions to property, plant and equipment       |  |               | (9,352   | ) |                       |   | (6,800  | )                         |  |   | (295                     | ) |  |                   |  |  |  |   | (16,447  | )
|Additions to intangible assets                   |  |               | (7,581   | ) |                       |   |        |                           |  |   |                         |   |  |                   |  |  |  |   | (7,581   | )
|Other                                            |  |               | 59       |   |                       |   |        |                           |  |   |                         |   |  |                   |  |  |  |   | 59       |  
|                                                 |  |               |          |   |                       |   |         |                           |  |   |                          |   |  |                   |   |  |  |   |          |  
|Net cash used in investing activities            |  |               | (16,874  | ) |                       |   | (6,800  | )                         |  |   | (295                     | ) |  |                   |  |  |  |   | (23,969  | )
|                                                 |  |               |          |   |                      
|Financing Activities                             |  |               |          |   |                       |   |         |                           |  |   |                          |   |  |                   |   |  |  |   |          |  
|Cash provided by (used in) intercompany activity |  |               | 99,091   |   |                       |   | (99,091 | )                         |  |   |                         |   |  |                   |  |  |  |   |         |  
|Payment of long-term debt                        |  |               | (303,079 | ) |                       |   |        |                           |  |   |                         |   |  |                   |  |  |  |   | (303,079 | )
|Repurchase of common stock                       |  |               | (58,225  | ) |                       |   |        |                           |  |   |                         |   |  |                   |  |  |  |   | (58,225  | )
|Proceeds from issuance of common stock           |  |               | 41,603   |   |                       |   |        |                           |  |   |                         |   |  |                   |  |  |  |   | 41,603   |  
|                                                 |  |               |          |   |                       |   |         |                           |  |   |                          |   |  |                   |   |  |  |   |          |  
|Net cash used in financing activities            |  |               | (220,610 | ) |                       |   | (99,091 | )                         |  |   |                         |   |  |                   |  |  |  |   | (319,701 | )
|                                                 |  |               |          |   |                      
|Effect of exchange rate changes on cash          |  |               |         |   |                       |   |        |                           |  |   | 137                      |   |  |                   |  |  |  |   | 137      |  
|                                                 |  |               |          |   |                      
|Net increase (decrease) in cash                  |  |               | 79,993   |   |                       |   | (5,693  | )                         |  |   | 4,374                    |   |  |                   |  |  |  |   | 78,674   |  
|Cash at beginning of period                      |  |               | 104,477  |   |                       |   | 7,614   |                           |  |   | 17,755                   |   |  |                   |  |  |  |   | 129,846  |  
|                                                 |  |               |          |   |                       |   |         |                           |  |   |                          |   |  |                   |   |  |  |   |          |  
|Cash at end of period                            |  | $             | 184,470  |   |                       | $ | 1,921   |                           |  | $ | 22,129                   |   |  | $                 |  |  |  | $ | 208,520  |  
|                                                 |  |               |          |   |                       |   |         |                           |  |   |                          |   |  |                   |   |  |  |   |          |  

Condensed Consolidating Statement of Cash Flows

Nine Months Ended September 30, 2009

(in thousands of U.S. dollars)



|                                                    |  |               |          |   |                       |   |         |                           |  |   |                          |   |  |                   |   |  |  |   |          |  
|--------------------------------------------------- |  | ------------- | -------- | - | --------------------- | - | ------- | ------------------------- |  | - | ------------------------ | - |  | ----------------- | - |  |  | - | -------- | -
|                                                    |  | ParentCompany |          |   | GuarantorSubsidiaries |   |         | Non-GuarantorSubsidiaries |  |   | ConsolidatingAdjustments |   |  | ConsolidatedTotal |  
|                                                    |  |               |          |   |                      
|Operating Activities                                |  |               |          |   |                       |   |         |                           |  |   |                          |   |  |                   |   |  |  |   |          |  
|Net cash provided by (used in) operating activities |  | $             | 38,901   |   |                       | $ | 100,570 |                           |  | $ | (2,115                   | ) |  | $                 |  |  |  | $ | 137,356  |  
|                                                    |  |               |          |   |                      
|Investing Activities                                |  |               |          |   |                       |   |         |                           |  |   |                          |   |  |                   |   |  |  |   |          |  
|Additions to property, plant and equipment          |  |               | (4,329   | ) |                       |   | (8,763  | )                         |  |   | (413                     | ) |  |                   |  |  |  |   | (13,505  | )
|Other                                               |  |               |         |   |                       |   | 96      |                           |  |   |                         |   |  |                   |  |  |  |   | 96       |  
|                                                    |  |               |          |   |                       |   |         |                           |  |   |                          |   |  |                   |   |  |  |   |          |  
|Net cash used in investing activities               |  |               | (4,329   | ) |                       |   | (8,667  | )                         |  |   | (413                     | ) |  |                   |  |  |  |   | (13,409  | )
|                                                    |  |               |          |   |                      
|Financing Activities                                |  |               |          |   |                       |   |         |                           |  |   |                          |   |  |                   |   |  |  |   |          |  
|Cash provided by (used in) intercompany activity    |  |               | 94,850   |   |                       |   | (94,850 | )                         |  |   |                         |   |  |                   |  |  |  |   |         |  
|Borrowings of long-term debt                        |  |               | 20,000   |   |                       |   |        |                           |  |   |                         |   |  |                   |  |  |  |   | 20,000   |  
|Financing costs                                     |  |               | (937     | ) |                       |   |        |                           |  |   |                         |   |  |                   |  |  |  |   | (937     | )
|Payment of long-term debt                           |  |               | (159,817 | ) |                       |   |        |                           |  |   |                         |   |  |                   |  |  |  |   | (159,817 | )
|Proceeds from issuance of common stock              |  |               | 537      |   |                       |   |        |                           |  |   |                         |   |  |                   |  |  |  |   | 537      |  
|                                                    |  |               |          |   |                       |   |         |                           |  |   |                          |   |  |                   |   |  |  |   |          |  
|Net cash used in financing activities               |  |               | (45,367  | ) |                       |   | (94,850 | )                         |  |   |                         |   |  |                   |  |  |  |   | (140,217 | )
|                                                    |  |               |          |   |                      
|Effect of exchange rate changes on cash             |  |               |         |   |                       |   |        |                           |  |   | 579                      |   |  |                   |  |  |  |   | 579      |  
|                                                    |  |               |          |   |                      
|Net decrease in cash                                |  |               | (10,795  | ) |                       |   | (2,947  | )                         |  |   | (1,949                   | ) |  |                   |  |  |  |   | (15,691  | )
|Cash at beginning of period                         |  |               | 102,441  |   |                       |   | 5,937   |                           |  |   | 18,178                   |   |  |                   |  |  |  |   | 126,556  |  
|                                                    |  |               |          |   |                       |   |         |                           |  |   |                          |   |  |                   |   |  |  |   |          |  
|Cash at end of period                               |  | $             | 91,646   |   |                       | $ | 2,990   |                           |  | $ | 16,229                   |   |  | $                 |  |  |  | $ | 110,865  |  
|                                                    |  |               |          |   |                       |   |         |                           |  |   |                          |   |  |                   |   |  |  |   |          |  



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|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------

Certain statements found in this document constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements
involve known and unknown risks and uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among others, the following: price competition from our existing competitors; new competitors in any of our businesses; a shift in client preference for different promotional materials, strategies or
coupon delivery methods, including, without limitation, as a result of declines in newspaper circulation; an unforeseen increase in paper or postal costs; changes which affect the businesses of our clients and lead to reduced sales promotion
spending, including, without limitation, a decrease of marketing budgets which are generally discretionary in nature and easier to reduce in the short-term than other expenses; our substantial indebtedness, and ability to refinance such
indebtedness, if necessary, and our ability to incur additional indebtedness, may affect our financial health; the financial condition, including bankruptcies, of our clients, suppliers, senior secured credit facility lenders or other
counterparties; certain covenants in our debt documents could adversely restrict our financial and operating flexibility; ongoing disruptions in the credit markets that make it difficult for companies to secure financing; fluctuations in the amount,
timing, pages, weight and kinds of advertising pieces from period to period, due to a change in our clients promotional needs, inventories and other factors; our failure to attract and retain qualified personnel may affect our business and
results of operations; a rise in interest rates could increase our borrowing costs; we may be required to recognize additional impairment charges against goodwill and intangible assets in the future; possible governmental regulation or litigation
affecting aspects of our business; the credit and liquidity crisis in the financial markets could continue to affect our results of operations and financial condition; uncertainty in the application and interpretation of applicable state sales tax
laws may expose us to additional sales tax liability; and general economic conditions, whether nationally, internationally, or in the market areas in which we conduct our business, including the adverse impact of the ongoing economic downturn on the
marketing expenditures and activities of our clients and prospective clients as well as our vendors, with whom we rely on to provide us with quality materials at the right prices and in a timely manner. We disclaim any intention or obligation to
update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Additional risks include, but are not limited to, those risk factors described in our Annual Report on Form 10-K for the year ended
2009, or the 2009 Form 10-K, and other filings by us with the United States Securities and Exchange Commission, or the SEC.

Overview

We are
one of the nations leading media and marketing services companies, offering unparalleled reach and scale to more than 15,000 advertisers. Our RedPlum portfolio of products and services delivers value on a weekly basis to more than
100 million shoppers across a multi-media platform, in the mailbox, in the newspaper, on the doorstep, in store and online. Our products and services are positioned to help our clients reach their customers through mass-delivered or targeted
programs. We provide our clients with blended media solutions, including shared mail, newspaper and digital delivery. We offer the only national shared mail distribution network in the industry. We utilize a proprietary targeting tool that provides
our clients with multi-media recommendations. We are committed to providing innovative marketing solutions to maximize the efficiency and effectiveness of promotions for our clients and to deliver value to consumers how, when and where they want.

Coupon distribution continues to grow above the record-breaking volumes experienced in 2009. According to NCH Marketing Services, Inc., our
coupon-processing and analytics subsidiary, 260 billion coupons have been distributed during the first nine months of 2010 as compared to 233 billion coupons during the first nine months of 2009. In total, 2.5 billion coupons have been redeemed
during the first nine months of 2010, an increase of 5.3% compared to the first nine months of 2009. We believe this new frugality reflects shopping behaviors that will remain long after the economy improves, positioning our RedPlum blended
media solutions to continue to be a mainstay for both value-conscious consumers and the marketers who seek to reach them.



22



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##### Table of Contents



Results of
Operations

The following table sets forth our results of operations for the periods indicated:



|                                        |  |                                                   |       |   |                                |   |       |      |  |   |         |   |  |   |         |  
|--------------------------------------- |  | ------------------------------------------------- | ----- | - | ------------------------------ | - | ----- | ---- |  | - | ------- | - |  | - | ------- | -
|                                        |  | Three Months EndedSeptember 30,                   |       |   | Nine Months EndedSeptember 30, |  
|                                        |  | 2010                                              |       |   | 2009                           |   |       | 2010 |  |   | 2009    |  
|                                        |  | (U.S. dollars in millions, except per share data) |      
|Revenues:                               |  |                                                   |       |   |                                |   |       |      |  |   |         |   |  |   |         |  
|Shared Mail                             |  | $                                                 | 326.1 |   |                                | $ | 319.5 |      |  | $ | 965.3   |   |  | $ | 944.0   |  
|Neighborhood Targeted products          |  |                                                   | 114.0 |   |                                |   | 92.0  |      |  |   | 330.1   |   |  |   | 303.6   |  
|Free-standing Inserts                   |  |                                                   | 89.2  |   |                                |   | 92.6  |      |  |   | 281.3   |   |  |   | 278.3   |  
|International, Digital Media & Services |  |                                                   | 43.1  |   |                                |   | 40.0  |      |  |   | 125.7   |   |  |   | 113.4   |  
|                                        |  |                                                   |       |   |                                |   |       |      |  |   |         |   |  |   |         |  
|                                        |  |                                                   |       |  
|Total revenues                          |  |                                                   | 572.4 |   |                                |   | 544.1 |      |  |   | 1,702.4 |   |  |   | 1,639.3 |  
|                                        |  |                                                   |       |  
|Cost of products sold                   |  |                                                   | 421.5 |   |                                |   | 407.6 |      |  |   | 1,248.7 |   |  |   | 1,245.1 |  
|                                        |  |                                                   |       |   |                                |   |       |      |  |   |         |   |  |   |         |  
|                                        |  |                                                   |       |  
|Gross profit                            |  |                                                   | 150.9 |   |                                |   | 136.5 |      |  |   | 453.7   |   |  |   | 394.2   |  
|Selling, general and administrative     |  |                                                   | 91.8  |   |                                |   | 90.6  |      |  |   | 275.4   |   |  |   | 263.6   |  
|Amortization expense                    |  |                                                   | 3.2   |   |                                |   | 3.2   |      |  |   | 9.5     |   |  |   | 9.5     |  
|Gain from litigation settlement         |  |                                                   |      |   |                                |   |      |      |  |   | 490.1   |   |  |   |        |  
|                                        |  |                                                   |       |   |                                |   |       |      |  |   |         |   |  |   |         |  
|                                        |  |                                                   |       |  
|Earnings from operations                |  |                                                   | 55.9  |   |                                |   | 42.7  |      |  |   | 658.9   |   |  |   | 121.1   |  
|                                        |  |                                                   |       |  
|Other expenses (income):                |  |                                                   |       |   |                                |   |       |      |  |   |         |   |  |   |         |  
|Interest expense, net                   |  |                                                   | 14.0  |   |                                |   | 23.1  |      |  |   | 51.6    |   |  |   | 65.7    |  
|Loss (gain) on extinguishment of debt   |  |                                                   |      |   |                                |   | (0.6  | )    |  |   | 23.9    |   |  |   | (9.4    | )
|Other income, net                       |  |                                                   | (2.2  | ) |                                |   | (1.2  | )    |  |   | (4.5    | ) |  |   | (3.9    | )
|                                        |  |                                                   |       |   |                                |   |       |      |  |   |         |   |  |   |         |  
|                                        |  |                                                   |       |  
|Total other expenses, net               |  |                                                   | 11.8  |   |                                |   | 21.3  |      |  |   | 71.0    |   |  |   | 52.4    |  
|                                        |  |                                                   |       |   |                                |   |       |      |  |   |         |   |  |   |         |  
|                                        |  |                                                   |       |  
|Earnings before income taxes            |  |                                                   | 44.1  |   |                                |   | 21.4  |      |  |   | 587.9   |   |  |   | 68.7    |  
|                                        |  |                                                   |       |  
|Income tax expense                      |  |                                                   | 17.1  |   |                                |   | 7.6   |      |  |   | 227.3   |   |  |   | 25.9    |  
|                                        |  |                                                   |       |   |                                |   |       |      |  |   |         |   |  |   |         |  
|                                        |  |                                                   |       |  
|Net earnings                            |  | $                                                 | 27.0  |   |                                | $ | 13.8  |      |  | $ | 360.6   |   |  | $ | 42.8    |  
|                                        |  |                                                   |       |   |                                |   |       |      |  |   |         |   |  |   |         |  
|                                        |  |                                                   |       |  
|Net earnings per common share, basic    |  | $                                                 | 0.55  |   |                                | $ | 0.29  |      |  | $ | 7.33    |   |  | $ | 0.89    |  
|                                        |  |                                                   |       |   |                                |   |       |      |  |   |         |   |  |   |         |  
|                                        |  |                                                   |       |  
|Net earnings per common share, diluted  |  | $                                                 | 0.52  |   |                                | $ | 0.28  |      |  | $ | 6.93    |   |  | $ | 0.87    |  
|                                        |  |                                                   |       |   |                                |   |       |      |  |   |         |   |  |   |         |  

Revenues

We reported revenues of $572.4 million for the three months ended September 30, 2010, an increase of 5.2% compared to revenues of $544.1 million for the three months ended September 30, 2009.
Revenues for the nine months ended September 30, 2010 were $1,702.4 million, an increase of 3.8% compared to revenues of $1,639.3 million for the nine months ended September 30, 2009. This growth in revenues was driven by our clients
response to strong consumer demand for value.

Cost of Products Sold

Costs of products sold were $421.5 million and $407.6 million for the three months ended September 30, 2010 and 2009, respectively. Gross profit as a
percentage of revenues increased to 26.4% for the three months ended September 30, 2010 from 25.1% for the three months ended September 30, 2009. Costs of products sold were $1,248.7 million and $1,245.1 million for the nine months ended
September 30, 2010 and 2009, respectively. Gross profit as a percentage of revenues increased to 26.7% for the nine months ended September 30, 2010 from 24.0% for the nine months ended September 30, 2009. The operating leverage within
our business, particularly the Shared Mail and FSI segments, leads to improved margins as volumes increase.



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Selling, General
and Administrative Costs

Selling, general and administrative (SG&A) costs were $91.8 million and $90.6 million for the three
months ended September 30, 2010 and 2009, respectively. SG&A costs were $275.4 million and $263.6 million for the nine months ended September 30, 2010 and 2009, respectively. These increases were due primarily to increases in
stock-based compensation expense of $5.8 million and $16.8 million in the three and nine months ended September 30, 2010, respectively, compared to the corresponding prior year periods, which resulted from the accelerated recognition of
previously unrecognized stock-based compensation expense related to the following:



| |  |  | The appreciation of our stock price, which triggered the accelerated vesting of certain executives stock options and the immediate recognition of
related stock-based compensation expense; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Our adoption of a new policy applicable to both outstanding and future stock option and restricted stock awards to employees and directors that
provides for the continued vesting and exercisability in accordance with the terms as originally granted of any outstanding stock options or restricted stock awards held by a grantee, if the grantee has satisfied specified service and age
requirements at the time the grantees employment or directorship with the Company terminates. As a result of this new policy, we recognized previously unrecognized compensation expense that we would have been required to expense in future
periods related to grantees who have met or will meet the specified service and age requirements prior to the original vesting date. Similarly, the stock-based compensation expense related to future stock option and restricted stock awards will be
recognized over the lesser of the vesting period and the requisite service period. For those grantees who satisfy the specified service and age requirements on the grant date, the related stock-based compensation expense will be recognized on the
grant date, and, for those grantees who will satisfy the specified service and age requirements prior to the vesting date, the related stock-based compensation expense will be recognized on a straight-line basis over the period between the grant
date and the date the grantee will satisfy the specified service and age requirements.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

These increases were offset, in
part, by reduced legal costs of $2.5 million and $6.9 million in the three and nine months ended September 30, 2010, respectively, compared to the corresponding prior year periods related to litigation settled in February 2010.

Gain from Litigation Settlement

On February 4, 2010, we executed a settlement agreement and release (the Settlement Agreement) settling our outstanding lawsuits against News America Incorporated, a/k/a News America
Marketing Group, News America Marketing, FSI, Inc. a/k/a News America Marketing FSI, LLC and News America Marketing In-Store Services, Inc. a/k/a News America Marketing In-Store Services, LLC (collectively News). Pursuant to the terms of
the Settlement Agreement, News paid us $500.0 million. During the first quarter of 2010, in connection with the successful settlement of these lawsuits, we made $9.9 million in related payments, including special bonuses to certain of our employees
(including our executive officers identified as the named executive officers in our proxy statement filed with the SEC on March 30, 2010) in an aggregate amount of $8.1 million. These expenses were netted against the $500.0 million
of proceeds received, and the net proceeds of $490.1 million have been recorded as a separate line item Gain from litigation settlement in our condensed consolidated statement of income for the nine months ended September 30, 2010.

Other Expenses (Income)

Interest Expense, Net

Interest expense, net decreased to $14.0 million
for the three months ended September 30, 2010 from $23.1 million for the three months ended September 30, 2009 and to $51.6 million for the nine months ended September 30, 2010 from $65.7 million for the nine months ended
September 30, 2009. These decreases were due to lower debt balances as a result of our purchases of the
81/4% Senior Notes due 2015 (the 2015
Notes) during the nine months ended September 30, 2010 pursuant to the terms of the Tender Offer (as defined below) and open market repurchases and our voluntary repurchases of term loans under our senior secured credit facility during
the three and nine months ended September 30, 2009 pursuant to the First Amendment (as defined below).



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Loss (Gain) on
Extinguishment of Debt

During the nine months ended September 30, 2010, we purchased, at a premium to par of 7.0%, an aggregate
principal amount of $269.9 million of the 2015 Notes validly tendered pursuant to the terms of the Tender Offer (as defined below). In addition, during the nine months ended September 30, 2010, we purchased in the open market, at a
weighted-average premium to par of 5.6%, an aggregate principal amount of $27.9 million of the 2015 Notes. As a result of these transactions, we recognized a pre-tax loss on extinguishment of debt of $23.9 million during the nine months ended
September 30, 2010, which represents the amount of the purchase price of the 2015 Notes in excess of the face amounts (par value) of the 2015 Notes purchased and the proportionate write-off of related capitalized debt issuance costs.

During the three and nine months ended September 30, 2009, we repurchased, at a discount to par, aggregate principal amounts of $39.3
million and $93.7 million, respectively, of outstanding term loans under our senior secured credit facility pursuant to modified Dutch auctions for aggregate purchase prices of $38.7 million and $84.3 million, respectively, including fees. As a
result of these repurchases, during the three and nine months ended September 30, 2009, we recognized pre-tax gains of $0.6 million and $9.4 million, respectively, which represent the difference between the face amounts (par value) of the term
loans repurchased and the actual repurchase prices of the term loans, including fees. The period during which such repurchases were permitted pursuant to the First Amendment (as defined below) expired on December 31, 2009.

Income Tax Expense

Income tax expense for the three and nine months ended September 30, 2010 was $17.1 million and $227.3 million, respectively, which resulted in
effective tax rates, including discrete items, of 38.8% and 38.7%, respectively. In comparison, income tax expense for the three and nine months ended September 30, 2009 was $7.6 million and $25.9 million, respectively, which resulted in
effective tax rates, including discrete items, of 35.5% and 37.7%, respectively. 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.

Net Earnings

Net earnings were $27.0 million and $13.8 million for the three months ended September 30, 2010 and 2009, respectively, or $0.52 and $0.28,
respectively, per diluted share. This increase was due to increased volume and our improved cost structure as the result of our business optimization and cost containment efforts.

Net earnings were $360.6 million and $42.8 million for the nine months ended September 30, 2010 and 2009, respectively, or $6.93 and $0.87, respectively, per diluted share. Net earnings and diluted
earnings per share were impacted by the gain on litigation settlement and extinguishment of debt described above as reflected in the following table:



|                                                                                                 |  |                                |        |   |                        |   |       |                         |  |   |                        |   |  |   |       |  
|------------------------------------------------------------------------------------------------ |  | ------------------------------ | ------ | - | ---------------------- | - | ----- | ----------------------- |  | - | ---------------------- | - |  | - | ----- | -
|                                                                                                 |  | Nine Months
EndedSeptember 30, |       
|                                                                                                 |  | 2010                           |        |   | 2009                   |  
|                                                                                                 |  | U.S.Dollars inMillions         |        |   | Per DilutedCommonShare |   |       | U.S. Dollarsin Millions |  |   | Per DilutedCommonShare |  
|Net Earnings                                                                                     |  | $                              | 360.6  |   |                        | $ | 6.93  |                         |  | $ | 42.8                   |   |  | $ | 0.87  |  
|                                                                                                 |  |                                |        |  
|Excluding:                                                                                       |  |                                |        |   |                        |   |       |                         |  |   |                        |   |  |   |       |  
|Gain from litigation settlement, net of tax                                                      |  |                                | (301.4 | ) |                        |   | (5.79 | )                       |  |   |                       |   |  |   |      |  
|Loss (gain) on extinguishment of debt, net of tax                                                |  |                                | 14.7   |   |                        |   | 0.30  |                         |  |   | (5.7                   | ) |  |   | (0.11 | )
|                                                                                                 |  |                                |        |   |                        |   |       |                         |  |   |                        |   |  |   |       |  
|                                                                                                 |  |                                |        |  
|Net earnings excluding gain from litigation settlement and loss (gain) on extinguishment of debt |  | $                              | 73.9   |   |                        | $ | 1.44  |                         |  | $ | 37.1                   |   |  | $ | 0.76  |  
|                                                                                                 |  |                                |        |   |                        |   |       |                         |  |   |                        |   |  |   |       |  



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Net earnings, excluding the impact of
the gain on litigation settlement and the extinguishment of debt, were $73.9 million and $37.1 million for the nine months ended September 30, 2010 and 2009, respectively, or $1.44 and $0.76, respectively, per diluted share. This increase was
due to increased volume and our improved cost structure as the result of our business optimization and cost containment efforts.

Segment Results

Shared Mail

Shared Mail segment revenues for the three months ended September 30, 2010 were $326.1 million increasing $6.6 million, or 2.1%, from revenues for
the three months ended September 30, 2009. The Shared Mail segment reported revenues of $965.3 million for the nine months ended September 30, 2010, an increase of 2.3% as compared to $944.0 million reported in the prior year period. The
increases for both the three and nine month periods were attributable to volume gains in inserts and were offset, in part, by fewer packages as a result of our business optimization efforts and lower priced and lighter weight inserts. The volume
gains in inserts were demonstrated in the Shared Mail pieces growth. Shared Mail pieces increased 9.7% to 9.1 billion pieces for the three months ended September 30, 2010 and increased 9.6% to 26.8 billion pieces for the nine months ended
September 30, 2010 from the comparable prior year periods.

For the three and nine months ended September 30, 2010, Shared Mail
packages decreased 4.0% and 6.5%, respectively, to 0.9 billion packages and 2.7 billion packages, respectively, from the comparable prior year periods. These decreases resulted from our business optimization efforts and from the reduction of
underperforming packages in certain markets. The reduction in Shared Mail packages coupled with the increase in Shared Mail pieces drove the increase in average pieces per package. Average pieces per package increased 15.3% to 9.8 pieces for the
three months ended September 30, 2010 and increased 18.1% to 9.6 pieces for the nine months ended September 30, 2010, from the comparable prior year periods.

Shared Mails gross profit as a percentage of revenues continued to increase over the comparable prior year quarters gross profit as a percentage of revenues for the sixth consecutive quarter.
For the three months ended September 30, 2010, Shared Mails gross profit as a percentage of revenues was 28.2% increasing 1.8 percentage points from the comparable prior year period. The gross profit as a percentage of revenues also
increased 3.3 percentage points for the nine months ended September 30, 2010 to 28.4% from the comparable prior year nine month period. Contributing to the improvements in gross profit as a percentage of revenues for both the three and nine
month periods were our business optimization efforts, including the distribution savings from newspaper alliances and fewer packages. In addition, the increase in average pieces per package and resultant efficiencies in unused postage contributed to
the gross profit improvements. Unused postage as a percentage of base postage improved 3.1 percentage points to 16.6% and 3.6 percentage points to 16.7% for the three and nine months ended September 30, 2010, respectively, from the comparable
prior year periods.

Shared Mail segment profit was $39.3 million for the three months ended September 30, 2010, increasing $9.7 million,
or 32.8%, from $29.6 million for the three months ended September 30, 2009. Shared Mail segment profit was $111.5 million for the nine months ended September 30, 2010, increasing $39.7 million, or 55.3%, from the comparable prior year
period. Shared Mails segment profit as a percentage of revenues was 12.1% and 11.6% for the three and nine months ended September 30, 2010, respectively, increasing 2.8 and 4.0 percentage points, respectively, from the comparable prior
year periods. The increases for these periods resulted from the increases in revenues, newspaper alliances and package optimization efforts.



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Neighborhood
Targeted

Neighborhood Targeted segment revenues were $114.0 million in the three months ended September 30, 2010, representing an
increase of 23.9% from $92.0 million in the three months ended September 30, 2009. This increase was due primarily to increases in advertising spending by clients in the energy, telecommunications and specialty retail verticals, particularly in
Run-of-Press (ROP) advertising. Segment profit was $7.2 million for the three months ended September 30, 2010, compared to $3.9 million for the three months ended September 30, 2009, due to the increased volume.

During the nine months ended September 30, 2010, Neighborhood Targeted segment revenues increased 8.7% to $330.1 million from $303.6 million during
the nine months ended September 30, 2009, due primarily to increases in advertising spending by clients in the energy, telecommunications and specialty retail verticals, particularly in ROP advertising. Segment profit for the nine months ended
September 30, 2010 was $19.6 million compared to $25.0 million in the prior year period, due primarily to a change in both client and product mix and an increase in SG&A allocation.

FSI

FSI segment
revenues were $89.2 million for the three months ended September 30, 2010, compared to $92.6 million for the three months ended September 30, 2009. This decrease of 3.7% was due to two less FSI publications compared to the prior year
quarter. Revenues for the nine months ended September 30, 2010 were $281.3 million, an increase of 1.1% from $278.3 million in the comparable prior year period. Industry units grew approximately 2.9% and 5.5% during the three and nine months
ended September 30, 2010, respectively, as compared to the corresponding prior year periods. FSI cost of goods sold decreased for the three and nine months ended September 30, 2010 from the prior year periods on a cost-per-thousand (CPM)
basis due primarily to lower paper costs and efficiencies gained in media and print costs resulting from increased average pages per book. As a result of increased volumes and reductions in cost of goods sold, FSI segment profit for the three and
nine months ended September 30, 2010 increased to $4.9 million and $24.6 million, respectively, from $2.3 million and $7.1 million during the corresponding prior year periods.

International, Digital Media & Services

Revenues for this segment were $43.1 million for the three months ended September 30, 2010, an increase of 7.8% from $40.0 million for the three months ended September 30, 2009. Revenues for
this segment were $125.7 million for the nine months ended September 30, 2010, an increase of 10.8% from $113.4 million for the nine months ended September 30, 2009. This growth was primarily driven by increased revenues in our In-Store
and Digital businesses and continued strength in U.S. coupon clearing volumes. Segment profit for three and nine months ended September 30, 2010 decreased to $4.5 million and $13.1 million, respectively, from $6.9 million and $17.2 million for
the three and nine months ended September 30, 2009, respectively. These decreases in segment profit primarily resulted from reduced volume in our European business and continued investment in our In-Store and Digital businesses.



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Financial
Condition, Liquidity and Sources of Capital

The following table presents our available sources of liquidity as of September 30,
2010:



|                                         |  |                |      |     |                   |  |   |           |  |   |       | 
|---------------------------------------- |  | -------------- | ---- | --- | ----------------- |  | - | --------- |  | - | ----- | 
|Sources of Liquidity (in millions)       |  | FacilityAmount |      |     | AmountOutstanding |  |   | Available | 
|                                         |  |                |     
|Cash and cash equivalents                |  |                |      |     |                   |  |   |           |  | $ | 208.5 | 
|Debt facilities:                         |  |                |      |     |                   |  |   |           |  |   |       | 
|Senior Secured Revolving Credit Facility |  | $              | 40.1 | (1) |                   |  |  |           |  |   | 40.1  | 
|                                         |  |                |      |     |                   |  |   |           |  |   |       | 
|                                         |  |                |     
|Total Available                          |  |                |      |     |                   |  |   |           |  | $ | 248.6 | 
|                                         |  |                |      |     |                   |  |   |           |  |   |       | 



|(1) | On April 15, 2010, we amended our senior secured credit facility, which, among other things, reduced the aggregate revolving credit commitments thereunder from
$100.0 million to $50.0 million. For additional information, refer to the section below entitled Our Senior Secured Credit Facility. The amount above is net of $9.9 million in outstanding letters of credit.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Sources and Uses of Cash and Cash Equivalents

Cash and cash equivalents totaled $208.5 million at September 30, 2010, compared to $129.8 million at December 31, 2009. This was the result of net cash provided by operating activities of
$422.2 million, offset by net cash used in investing activities of $24.0 million and net cash used in financing activities of $319.7 million during the nine months ended September 30, 2010.

Net cash provided by operating activities was $422.2 million during the nine months ended September 30, 2010, compared to $137.4 million during the
prior year period. Net cash provided by operating activities for the nine months ended September 30, 2010 was primarily attributable to the $500.0 million cash received (approximately $301.4 million, net of taxes and related payments) as a result of
the litigation settlement with News America. In addition to the litigation settlement and other cash received related to net income, the following changes in assets and liabilities affected cash from operations for the nine months ended September
30, 2010:



| |  |  | a decrease in accounts payable of $44.6 million due to the timing of vendor payments;
| | - |  | -------------------------------------------------------------------------------------



| |  |  | a reduction of $47.1 million in accrued expenses, compensation and interest primarily due to decreased interest payable resulting from the reduction in
our outstanding debt and decreases in interest rate swap contract liabilities; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | an increase in taxes payable of $24.7 million, primarily due to timing of taxes due on the gain from the litigation settlement.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------

Net cash used in investing activities was $24.0 million and $13.4 million for the nine months ended September 30, 2010
and 2009, respectively, primarily due to capital acquisitions of property, plant and equipment and intangible assets.

Net cash used in
financing activities was $319.7 million and $140.2 million for the nine months ended September 30, 2010 and 2009, respectively. The following items impacted net cash used in financing activities for the nine months ended September 30, 2010:



| |  |  | principal payments on long-term debt of $303.1 million, which includes $297.8 million related to the repurchases of the 2015 Notes discussed above;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | repurchases of 1,733,672 shares of our common stock at an aggregate cost of $58.2 million under the stock repurchase program reinstated in May 2010;
and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | $41.6 million of net proceeds received from stock option exercises.
| | - |  | -------------------------------------------------------------------

Operating cash flows are our primary source of liquidity. We intend to use cash generated by operations to meet interest and principal repayment obligations related to our indebtedness and for general
corporate purposes, and we believe we will generate sufficient funds from operations and will have sufficient existing cash balances and lines of credit available to meet currently anticipated liquidity needs, including interest and required
payments of indebtedness.



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Current and
Long-term Debt

As of September 30, 2010, we had outstanding $708.0 million in aggregate indebtedness, which
consisted of $242.2 million of our unsecured 81/4%
Senior Notes due 2015, $349.2 million and $116.5 million under the term loan B and delayed draw term loan portions of our senior secured credit facility, respectively, and $0.1 million of our Senior Secured Convertible Notes due 2033. As of
September 30, 2010, we had total outstanding letters of credit of approximately $9.9 million.

Our Senior
Secured Credit Facility

General

On March 2, 2007, in connection with our acquisition of ADVO, Inc., we entered into a senior secured credit facility with Bear Stearns Corporate Lending Inc., as Administrative Agent, and a syndicate
of lenders jointly arranged by Bear, Stearns & Co. Inc. and Banc of America Securities LLC.

Our senior secured credit facility
originally consisted of the following:



| |  |  | a five-year revolving line of credit in an aggregate principal amount of $120.0 million, including $35.0 million available in euros, British Pounds
Sterling, Mexican Pesos or Canadian Dollars, $40.0 million available for letters of credit and a $20.0 million swingline loan subfacility (the revolving line of credit);
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | a seven-year term loan B in an aggregate principal amount equal to $590.0 million, with principal repayable in quarterly installments at a rate of
1.0% per year during the first six years of the term loan B, with the remaining balance thereafter to be paid on the seventh anniversary of the closing date of the term loan B (the term loan B);
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | a seven-year amortizing delayed draw term loan in an aggregate principal amount equal to $160.0 million, with quarterly principal repayment amounts
equal to 0.25% of the remaining principal balance outstanding at the end of each quarter during the first six years of the delayed draw term loan, with the remaining balance thereafter to be repaid in full on the maturity date of the term loan B
(the delayed draw term loan); and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | an incremental facility pursuant to which, prior to the maturity of the senior secured credit facility, we may incur additional indebtedness under our
senior secured credit facility in an additional amount up to $150.0 million under either the revolving line of credit or the term loan B or a combination thereof (the incremental facility). The obligations under the incremental facility
will constitute secured obligations under our senior secured credit facility.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

On January 22, 2009, we entered into the
first amendment to our senior secured credit facility (the First Amendment). As a result of the First Amendment, we were permitted to use up to $125.0 million to repurchase from tendering lenders term loans outstanding under the senior
secured credit facility at prices below par acceptable to such lenders through one or more modified Dutch auctions at any time or times during 2009. In connection with the First Amendment, we agreed to voluntarily permanently reduce the aggregate
revolving credit commitments under the senior secured credit facility from $120.0 million to $100.0 million in exchange for the ability to keep $20.0 million of revolving credit loans outstanding during any modified Dutch auction. The First
Amendment also made certain technical and conforming changes to the terms of our senior secured credit facility. During the three and nine months ended September 30, 2009, we repurchased, at a discount to par, aggregate principal amounts of
$39.3 million and $93.7 million, respectively, of outstanding term loans under our senior secured credit facility for aggregate purchase prices of $38.7 million and $84.3 million, respectively, including fees. The period during which such
repurchases were permitted pursuant to the First Amendment expired on December 31, 2009.



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On April 15, 2010, we entered
into the second amendment to our senior secured credit facility (the Second Amendment). The Second Amendment, among other things:



| |  |  | permits us to use up to $325 million to repurchase our outstanding 2015 Notes through April 15, 2011 (for information regarding the repurchase of
certain of our 2015 Notes, refer to the section below entitled 81/4% Senior Notes due 2015);
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | provides us flexibility to extend the maturity of the revolving line of credit portion of the senior secured credit facility beyond the current
expiration date of March 2, 2012;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | allows us additional features with respect to any future convertible or exchangeable debt securities;
| | - |  | -----------------------------------------------------------------------------------------------------



| |  |  | reduced the aggregate revolving credit commitments under the senior secured credit facility from $100 million to $50 million; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------



| |  |  | increased by 50 basis points the interest rate margins applicable to borrowings under the senior secured credit facility.
| | - |  | -------------------------------------------------------------------------------------------------------------------------

All borrowings under our senior secured credit facility, including, without limitation, amounts drawn under the revolving line of credit, are subject to
the satisfaction of customary conditions, including absence of a default and accuracy of representations and warranties. As of September 30, 2010, we had $349.2 million and $116.5 million outstanding under the term loan B and delayed draw term
loan portions, respectively, and $40.1 million available under the revolving line of credit portion (after giving effect to the reductions in availability pursuant to the First and Second Amendments and outstanding letters of credit), of our senior
secured credit facility.

Interest and Fees

Borrowings under our senior secured credit facility bear interest, at our option, at either the base rate (defined as the higher of the prime rate announced by the commercial bank selected by the
administrative agent to the facility or the federal funds effective rate, plus 0.5%), or at a Eurodollar rate (as defined in the credit agreement), in each case, plus an applicable interest rate margin. For each of the three quarters in the nine
months ended September 30, 2010, we elected three-month LIBOR as the applicable rate on borrowings under our senior secured credit facility. Pursuant to the Second Amendment, the interest rate margins applicable to the borrowings under our
senior secured credit facility increased by 50 basis points.

Guarantees and Security

Our senior secured credit facility is guaranteed by substantially all of our existing and future domestic restricted subsidiaries pursuant to a Guarantee,
Security and Collateral Agency Agreement, as amended. In addition, our obligations under our senior secured credit facility and the guarantee obligations of the subsidiary guarantors are secured by first priority liens on substantially all of our
and our subsidiary guarantors present and future assets and by a pledge of all of the equity interests in our subsidiary guarantors and 65% of the capital stock of our existing and future restricted foreign subsidiaries.

Prepayments

Subject to
customary notice and minimum amount conditions, we are permitted to make voluntary prepayments without payment of premium or penalty. With certain exceptions, we are required to make mandatory prepayments on the term loans in certain circumstances,
including, without limitation, with 100% of the aggregate net cash proceeds from any debt offering, asset sale or insurance and/or condemnation recovery (to the extent not otherwise used for reinvestment in our business or a related business) and up
to 50% (with the exact percentage to be determined based upon our consolidated secured leverage ratio as defined in our credit agreement) of our excess cash flow (as defined in the credit agreement). Such mandatory prepayments will first be applied
ratably to the principal installments of the term loans and second, to the prepayment of any outstanding revolving or swing-line loans, without an automatic reduction of the amount of the revolving line of credit.



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Covenants

Our senior secured credit facility also requires us to comply with a maximum senior secured leverage ratio, as defined in our senior
secured credit facility (generally, the ratio of our consolidated senior secured indebtedness to consolidated EBITDA for the most recent four quarters), ranging from 4.25:1.00 to 3.50:1.00 (depending on the applicable period), and a minimum
consolidated interest coverage ratio, as defined in our senior secured credit facility (generally, the ratio of our consolidated EBITDA for such period to consolidated interest expense for such period), ranging from 1.60:1.00 to 2.00:1.00 (depending
on the applicable period). For purposes of calculating the minimum consolidated interest coverage ratio, the First Amendment permits us to exclude from the definition of consolidated interest expense in our senior secured credit facility
swap termination and cancellation costs incurred in connection with any purchase, repurchase, payments or repayment of any loans under our senior secured credit facility, including pursuant to a modified Dutch auction. The table below shows the
required and actual financial ratios under our senior secured credit facility as of September 30, 2010.



|                                             |  |                           |  |              |            | 
|-------------------------------------------- |  | ------------------------- |  | ------------ | ---------- | 
|                                             |  | Required Ratio            |  | Actual Ratio |           
|Maximum senior secured leverage ratio        |  | No greater than 3.50:1.00 |  |              | 0.59:1.00  | 
|Minimum consolidated interest coverage ratio |  | No less than 2.00:1.00    |  |              | 11.35:1.00 | 

In addition, we are required to give
notice to the administrative agent and the lenders under our senior secured credit facility of defaults under the facility documentation and other material events, make any new wholly-owned restricted domestic subsidiary (other than an immaterial
subsidiary) a subsidiary guarantor and pledge substantially all after-acquired property as collateral to secure our and our subsidiary guarantors obligations in respect of the facility.

Events of Default

Our
senior secured credit facility contains customary events of default, including upon a change of control. If such an event of default occurs, the lenders under our senior secured credit facility would be entitled to take various actions, including in
certain circumstances increasing the effective interest rate and accelerating the amounts due under our senior secured credit facility.

Other Provisions

See our 2009 Form 10-K for further information regarding interest and
fees, guarantees and security, prepayment and covenants related to our senior secured credit facility.

65/8% Senior Secured Notes due 2009

On January 15, 2009, we satisfied and discharged the indenture covering the
65/8% senior secured notes due 2009 in accordance
with the terms of the indenture. Upon satisfaction and discharge, the indenture ceased to be of further effect (except for certain rights of the Trustee).

Senior Secured Convertible Notes due 2033

In May 2003, we issued $239,794,000
aggregate principal amount of the 2033 Secured Notes in a private placement transaction at an issue price of $667.24 per note, resulting in gross proceeds to us of $160.0 million. During the second quarter of 2008, we conducted a cash tender offer
for the 2033 Secured Notes that was intended to satisfy the put rights of the holders of such notes that were exercisable on May 22, 2008 under the indenture governing such notes. Pursuant to the tender offer, we repurchased an aggregate
principal amount of $239.7 million (or $159.9 million, net of discount) of the 2033 Secured Notes for an aggregate purchase price of $159.9 million. We used the delayed draw term loan portion of our senior secured credit facility to finance the
tender offer. As of September 30, 2010, an aggregate principal amount of $85,000 (or approximately $58,000, net of discount) of the 2033 Secured Notes remained outstanding pursuant to the 2033 Secured Notes indenture.



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81/4% Senior Notes due 2015

On
March 2, 2007, we issued in a private placement $540.0 million aggregate principal amount of the 2015 Notes. Interest on the 2015 Notes is payable every six months on March 1 and September 1, commencing September 1, 2007. The
2015 Notes are fully and unconditionally guaranteed, jointly and severally, by substantially all of our existing and future domestic restricted subsidiaries on a senior unsecured basis. In August 2007, in accordance with the terms of the
registration rights agreement between us and the initial purchasers of the 2015 Notes, we completed an exchange offer to exchange the original notes issued in the private placement for a like principal amount of exchange notes registered under the
Securities Act of 1933, as amended. An aggregate principal amount of $539,925,000 original notes were exchanged for exchange notes in the exchange offer. The remaining $75,000 principal amount of the original notes was not exchanged. The exchange
notes are substantially identical to the original notes, except that the exchange notes are not subject to certain transfer restrictions.

Subject to a number of exceptions, the 2015 Notes indenture restricts our ability and the ability of our subsidiaries to incur or guarantee additional
indebtedness, transfer or sell assets, make certain investments, pay dividends or make distributions or other restricted payments, create certain liens, merge or consolidate, repurchase stock and enter into transactions with affiliates.

We may redeem all or a portion of the 2015 Notes at our option at any time prior to March 1, 2011, at a redemption price equal to 100% of the
principal amount of 2015 Notes to be redeemed, plus a make-whole premium as described in the 2015 indenture, plus accrued and unpaid interest to the redemption date. At any time on or after March 1, 2011, we may redeem all or a portion of the
2015 Notes at our option at the following redemption prices (expressed as percentages of the principal amount thereof) if redeemed during the twelve-month period commencing on March 1 of the years set forth below:



|                    |  |            |         |  
|------------------- |  | ---------- | ------- | -
|Year                |  | Percentage |        
|                    | 
|2011                |  |            | 104.125 | %
|                    | 
|2012                |  |            | 102.063 | %
|                    | 
|2013 and thereafter |  |            | 100.000 | %

In addition, we must pay accrued and
unpaid interest to the redemption date. Upon the occurrence of a change of control, as defined in the 2015 indenture, holders have the right to require us to purchase all or a portion of their 2015 Notes at a purchase price equal to 101% of the
principal amount of the 2015 Notes plus accrued and unpaid interest and liquidated damages, if any, to the date of repurchase.

On
May 12, 2010, we commenced a cash tender offer (the Tender Offer) to purchase up to $270 million aggregate principal amount of the 2015 Notes at a purchase price equal to 107% of the principal amount of the 2015 Notes purchased,
plus accrued and unpaid interest. On June 11, 2010, we purchased $269.9 million aggregate principal amount of the 2015 Notes validly tendered pursuant to the terms of the Tender Offer. In addition, during the nine months ended
September 30, 2010, we purchased in the open market an additional $27.9 million aggregate principal amount of the 2015 Notes at weighted-average purchase prices of 105.6% of the principal amount of the 2015 Notes purchased, plus accrued and
unpaid interest.

Additional Provisions

The indenture governing the 2033 Secured Notes contains a cross-default provision which becomes applicable if we default under any mortgage, indenture or instrument evidencing indebtedness for money
borrowed by us and the default results in the acceleration of such indebtedness prior to its express maturity, and the principal amount of any such accelerated indebtedness aggregates in excess of $25.0 million. The indenture governing the 2015
Notes contains a cross-default provision which becomes applicable if we (a) fail to pay the stated principal amount of any of our indebtedness at its final maturity date, or (b) default under any of our indebtedness and the default results
in the acceleration of indebtedness, and, in each case, the principal amount of any such indebtedness, together with the principal amount of any other such indebtedness under which there has been a payment default or the maturity of which has been
so accelerated, aggregates $25.0 million or more. Our credit agreement contains a cross-default provision which becomes applicable if we (a) fail to make any payment under any indebtedness for money borrowed by us (other than the obligations
under such credit agreement) and such default continues beyond the grace period provided in the instrument or other agreement under which such



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indebtedness was created or, (b) otherwise default under any such indebtedness, the effect of which default is to cause such indebtedness to be accelerated or to become subject to a
mandatory offer to purchase and, in either instance, such default(s) are continuing with respect to indebtedness in an aggregate outstanding principal amount in excess of $25.0 million.

As of September 30, 2010, we were in compliance with all of our indenture covenants.

Subject to applicable limitations in our senior secured credit facility and indentures, we may from time to time repurchase our debt in the open market,
through tender offers, exchanges of debt securities, by exercising rights to call, satisfying put obligations or in privately negotiated transactions.

Other Indebtedness

During the second quarter of 2007, we entered into two interest
rate swap agreements with an aggregate notional principal amount of $480.0 million. These interest rate swaps effectively fixed three-month LIBOR at 5.045%, for a then-effective rate of 6.795%, including the applicable margin, for $480.0 million of
our variable rate debt under our senior secured credit facility. We initially designated the swaps as hedging instruments through March 31, 2009 and recorded the changes in the fair value of these interest rate swaps as a component of
accumulated other comprehensive income.

In February 2009, we reduced the notional principal amount of the interest rate swaps by $32.8
million and paid termination fees of approximately $2.6 million. The termination fees, or deferred losses, related to the terminated portion of the swaps are being amortized to interest expense over the original life of the interest rate swaps,
through December 31, 2010. As a result of the reduced notional amount of the swaps, three-month LIBOR was effectively fixed at 5.026%, for a then-effective rate of 6.776%, including the applicable margin.

On April 1, 2009, we elected to change the interest rate on our variable rate debt under our senior secured credit facility from three-month LIBOR
to one-month LIBOR. This election was in place for the quarters ended June 30, 2009 and September 30, 2009, after which we elected to revert to three-month LIBOR interest rate. In conjunction with the initial interest rate change from
three-month LIBOR to one-month LIBOR, we discontinued cash flow hedge accounting treatment for the interest rate swap agreements effective April 1, 2009. The deferred losses on the interest rate swaps previously charged to accumulated other
comprehensive loss are being amortized to interest expense, and any subsequent changes in the fair value of the swaps are being recognized in earnings as a component of interest expense until the swaps expire on December 31, 2010. The
discontinuation of hedge accounting may increase the volatility in our reported earnings during the remaining terms of the interest rate swaps.

On December 17, 2009, we entered into an interest rate swap agreement with an initial notional amount of $300.0 million to fix three-month LIBOR at
2.005%, plus the applicable margin, for $300.0 million of our variable rate debt under our senior secured credit facility. The effective date of this agreement is December 31, 2010 which corresponds to the expiration date of the existing
interest rate swap agreements described above. The notional amount of $300.0 million amortizes by $40.0 million at the end of every quarter until it reaches $100.0 million for the quarter ended June 30, 2012, the expiration date. The swap is
designated as and qualifies as a cash flow hedge. In the event that our senior secured credit facility variable interest rate debt is less than the amounts we have hedged in connection with the interest rate swaps, we may elect to pay termination
fees in connection with such swaps.

Off-balance Sheet Arrangements

As of September 30, 2010, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.

Capital Expenditures

Capital expenditures were $16.4 million for the nine months ended September 30, 2010, and are anticipated to be an aggregate amount of approximately $25.0 million for the 2010 fiscal year. It is
expected that these expenditures will be made using funds provided by operations.



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RECENT ACCOUNTING PRONOUNCEMENTS

See Note 2 to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for further details of new
accounting pronouncements.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that in certain circumstances
affect amounts reported in the accompanying consolidated financial statements. The SEC has defined a companys most critical accounting policies as the ones that are most important to the portrayal of the companys financial condition and
results of operations, and which require the company to make its most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Our critical accounting policies have not changed
materially from those disclosed in Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations in our 2009 Form 10-K.



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|Item 3. | Quantitative and Qualitative Disclosures About Market Risk
|------- | ----------------------------------------------------------

Our principal market risks are interest rates on various debt instruments and foreign exchange rates at our international subsidiaries.

Interest Rates

Our borrowings under our senior secured credit facility are subject to a variable rate of interest calculated on either a prime rate or a Eurodollar rate.
To reduce our exposure to fluctuating interest rates, we entered into two interest rate swap agreements that expire December 31, 2010, which convert an aggregate of $447.2 million, or 96.0%, of our total variable rate debt under our senior
secured credit facility to fixed rate debt. As of September 30, 2010, the fair value of these derivatives was a liability of $5.4 million and an aggregate principal amount of $18.5 million outstanding under the term loan B and delayed draw
portions of our senior secured credit facility was subject to interest rate variability.

On December 17, 2009, we entered into an
interest swap agreement which will initially convert $300.0 million of our total variable rate debt under our senior secured credit facility to fixed rate debt. The effective date of this agreement is December 31, 2010, which corresponds to the
expiration date of the existing interest rate swap agreements. As of September 30, 2010, the fair value of this derivative was a liability of $4.5 million.

Foreign Currency

Currencies to which we have exposure are the Mexican peso,
Canadian dollar, Polish zloty, British pound and Euro. Currency restrictions are not expected to have a significant effect on our cash flows, liquidity, or capital resources. We purchase the Mexican peso and the Polish zloty under two to
fifteen-month forward foreign exchange contracts to stabilize the cost of production. Actual exchange losses or gains are recorded against production expense when the contracts are executed. As of September 30, 2010, we had commitments to
purchase $14.0 million in Mexican pesos and $0.7 million in Polish zlotys over the next fifteen months.



|Item 4. | Controls and Procedures
|------- | -----------------------

As of the end of
the period covered by this Quarterly Report, we carried out an evaluation, under the supervision and with the participation of our Disclosure Committee, including our Chief Executive Officer and Chief Financial Officer, of our disclosure controls
and procedures pursuant to Rule 13a-15 of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of such period, the
disclosure controls and procedures are effective in ensuring that the information required to be disclosed in the reports that we file or submit under the Exchange Act (i) is recorded, processed, summarized and reported within the time periods
specified in the SECs rules and forms and (ii) is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

During the three months ended September 30, 2010, we combined our general ledgers of record into an existing, single general ledger
module within our enterprise resource planning system. The use of a single general ledger system impacted our internal control over financial reporting by providing more timely financial and accounting information, reducing manual processes and
providing a flexible architecture to easily interface with other systems to reduce data entry.

Other than the change described above, there
has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) of the Securities Exchange Act of 1934) during the three months ended September 30, 2010 that has materially affected, or is likely to materially
affect, internal control over financial reporting.



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Part II  Other Information



|Item 1. | Legal Proceedings
|------- | -----------------

News

On
January 18, 2006, (and thereafter on October 16, 2006, via an Amended complaint, the operative complaint) Valassis filed a lawsuit in the United States District Court for the Eastern District of Michigan against News America
Incorporated, a/k/a News America Marketing Group, News America Marketing, FSI, Inc. a/k/a News America Marketing FSI, LLC and News America Marketing In-Store Services, Inc. a/k/a News America Marketing In-Store Services, LLC (collectively
News). The operative complaint alleged violation of the Sherman Act, various state competitive statutes and the commission of torts by News in connection with the marketing and sale of FSI space and in-store promotion and advertising
services.

On November 17, 2006, News filed an answer to the Federal claims raised in the operative complaint, but moved to dismiss the
state law claims on the basis that the court should not exercise its supplemental jurisdiction over these claims. On March 23, 2007, the Federal Court dismissed the state law claims without prejudice, declining to exercise supplemental
jurisdiction. The parties filed summary judgment motions, which were denied by the Federal Court on September 4, 2009.

The substantive
state law claims which were dismissed by the Federal Court were refiled on March 9, 2007 in the State of Michigan Wayne County Circuit Court raising common law and statutory causes of action. The Michigan state case was tried to a jury in Wayne
County during May, June and July 2009. The jury returned a verdict of $300.0 million in Valassis favor on July 23, 2009. Judgment was entered and pre- and post-judgment interest began to accrue on a compounding basis beginning
March 9, 2007. After denial of its post trial motions, News filed an appeal of the entire judgment.

On March 9, 2007, Valassis also
filed a state law action in the Supreme Court of the State of California for the County of Los Angeles raising claims under Californias Cartwright, Unfair Competition and Unfair Practices Acts. News America moved to dismiss the California
state law claims and the motion was denied.

On February 4, 2010, Valassis and News executed a settlement agreement and release (the
Settlement Agreement), and pursuant to the terms of the Settlement Agreement, News paid Valassis $500.0 million. News America, Inc. also entered into a 10-year shared mail distribution agreement with Valassis Direct Mail, Inc., a
Valassis subsidiary, which provides for the sale by Valassis of certain shared mail services to News on specified terms.

In connection with
the settlement, the parties are working with the Court, under the Honorable Arthur J. Tarnow, on a set of procedures to handle future disputes among the parties with respect to conduct at issue in the litigation. The precise timing and form of the
relief rests with the Court.

The settlement resolves all outstanding claims between Valassis and News as of February 4, 2010. As a
result, the parties agreed to dismiss all outstanding litigation between them and release all existing and potential claims against each other that were or could have been asserted in the litigation as of the date of the Settlement Agreement.

We are involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on our financial position, results of operations or liquidity.



|Item 1A. | Risk Factors
|-------- | ------------

In addition to the other
information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors discussed in Part I, Item 1A. Risk Factors in our 2009 Form 10-K, which could materially affect our business, financial condition and
future results. The risks described in our 2009 Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our
business, financial condition and/or operating results.



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|Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds
|------- | -----------------------------------------------------------

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

The
following table reflects our repurchases of our common stock during the three months ended September 30, 2010:



|                                        |  |                               |         |  |                            |   |       |                                                                    |  |  |                                                                   |  |  |  |           | 
|--------------------------------------- |  | ----------------------------- | ------- |  | -------------------------- | - | ----- | ------------------------------------------------------------------ |  |  | ----------------------------------------------------------------- |  |  |  | --------- | 
|Period                                  |  | TotalNumber ofSharesPurchased |         |  | AveragePrice Paidper Share |   |       | Total Numberof SharesPurchased asPart of PubliclyAnnouncedPlan
(1) |  |  | Maximum Numberof Shares thatMay Yet bePurchased underthe Plan (2) | 
|July 1, 2010 to July 31, 2010           |  |                               |        |  |                            | $ |      |                                                                    |  |  |                                                                  |  |  |  | 4,471,225 | 
|August 1, 2010 to August 31, 2010       |  |                               | 114,072 |  |                            | $ | 31.57 |                                                                    |  |  | 114,072                                                           |  |  |  | 4,357,153 | 
|September 1, 2010 to September 30, 2010 |  |                               |        |  |                            | $ |      |                                                                    |  |  |                                                                  |  |  |  | 4,357,153 | 
|                                        |  |                               |         |  |                            |   |       |                                                                    |  |  |                                                                   |  |  |  |           | 
|                                        |  |                               | 114,072 |  |                            | $ | 31.57 |                                                                    |  |  | 114,072                                                           |  |  |  |           | 
|                                        |  |                               |         |  |                            |   |       |                                                                    |  |  |                                                                   |  |  |  |           | 



|(1) | On August 25, 2005, our Board of Directors approved the repurchase of 5 million shares of our common stock. This share repurchase plan was suspended in
February 2006. On May 6, 2010, our Board of Directors reinstated this share repurchase plan.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | As a result of the share repurchases during the three months ended September 30, 2010, 4.4 million shares remain available to be repurchased under the
August 25, 2005 share repurchase plan. We are limited by the covenants under our senior secured credit facility to an aggregate share repurchase amount of $58.4 million during 2010.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Item 3. | Defaults Upon Senior Securities
|------- | -------------------------------

None.



|Item 4. | Reserved
|------- | --------



|Item 5. | Other Information
|------- | -----------------

None.



|Item 6. | Exhibits
|------- | --------

Exhibits



|     |  |                                                                                                                                                                                                        
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.1  |  | Second Supplemental Indenture, dated as of October 19, 2010, by and among Valassis, VC Holdings, LLC and Wells Fargo Bank, National Association, as trustee relating to the 81/4% Senior Notes due 2015
|     | 
|31.1 |  | Section 302 Certification of Alan F. Schultz                                                                                                                                                           
|     | 
|31.2 |  | Section 302 Certification of Robert L. Recchia                                                                                                                                                         
|     | 
|32.1 |  | Section 906 Certification of Alan F. Schultz                                                                                                                                                           
|     | 
|32.2 |  | Section 906 Certification of Robert L. Recchia                                                                                                                                                         



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Signature

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Dated: November 8, 2010



Valassis Communications, Inc.(Registrant)By:

/S/    ROBERT L.
RECCHIARobert L. RecchiaExecutive Vice President and Chief Financial OfficerSigning on behalf of the Registrant and as principal financial and accounting officer.




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EXHIBIT INDEX



|           |  |                                                                                                                                                                                                        
|---------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNo. |  | Description                                                                                                                                                                                            
|           | 
|4.1        |  | Second Supplemental Indenture, dated as of October 19, 2010, by and among Valassis, VC Holdings, LLC and Wells Fargo Bank, National Association, as trustee relating to the 81/4% Senior Notes due 2015
|           | 
|31.1       |  | Section 302 Certification of Alan F. Schultz                                                                                                                                                           
|           | 
|31.2       |  | Section 302 Certification of Robert L. Recchia                                                                                                                                                         
|           | 
|32.1       |  | Section 906 Certification of Alan F. Schultz                                                                                                                                                           
|           | 
|32.2       |  | Section 906 Certification of Robert L. Recchia                                                                                                                                                         



39