---

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, 2007

or



| ̈ | 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)

(734) 591-3000

(Registrants Telephone Number)



---

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 is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of
the Exchange Act (check one):

Large accelerated filer  x    Accelerated
filer ̈Non-accelerated filer ̈

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, 2007, there were 47,930,522 shares of the Registrants Common Stock outstanding.



---



---

Part IFinancial Information



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

VALASSIS COMMUNICATIONS,
INC.

Condensed Consolidated Balance Sheets

(U.S. dollars in thousands)

(unaudited)



|                                                                                                                            |  |               |           |   |              |   |          |  
|--------------------------------------------------------------------------------------------------------------------------- |  | ------------- | --------- | - | ------------ | - | -------- | -
|                                                                                                                            |  | Sept. 30,2007 |           |   | Dec. 31,2006 |  
|Assets                                                                                                                      |  |               |           |   |              |   |          |  
|Current assets:                                                                                                             |  |               |           |   |              |   |          |  
|Cash and cash equivalents                                                                                                   |  | $             | 122,378   |   |              | $ | 52,619   |  
|Auction-rate securities                                                                                                     |  |               |          |   |              |   | 102,533  |  
|Accounts receivable (less allowance for doubtful accounts of $18,417 at September 30, 2007 and $5,001 at December 31,
2006) |  |               | 475,992   |   |              |   | 339,079  |  
|Inventories:                                                                                                                |  |               |           |   |              |   |          |  
|Raw materials                                                                                                               |  |               | 23,572    |   |              |   | 12,729   |  
|Work in progress                                                                                                            |  |               | 14,045    |   |              |   | 13,105   |  
|Prepaid expenses and other                                                                                                  |  |               | 27,203    |   |              |   | 16,681   |  
|Deferred income taxes                                                                                                       |  |               | 18,140    |   |              |   | 1,789    |  
|Refundable income taxes                                                                                                     |  |               |          |   |              |   | 3,957    |  
|                                                                                                                            |  |               |           |   |              |   |          |  
|Total current assets                                                                                                        |  |               | 681,330   |   |              |   | 542,492  |  
|                                                                                                                            |  |               |           |   |              |   |          |  
|Property, plant and equipment, gross:                                                                                       |  |               |           |   |              |   |          |  
|Land and buildings                                                                                                          |  |               | 81,101    |   |              |   | 55,723   |  
|Machinery and equipment                                                                                                     |  |               | 219,120   |   |              |   | 142,085  |  
|Office furniture and equipment                                                                                              |  |               | 175,311   |   |              |   | 61,903   |  
|Automobiles                                                                                                                 |  |               | 221       |   |              |   | 216      |  
|Leasehold improvements                                                                                                      |  |               | 22,850    |   |              |   | 2,949    |  
|                                                                                                                            |  |               |           |   |              |   |          |  
|                                                                                                                            |  |               | 498,603   |   |              |   | 262,876  |  
|Less accumulated depreciation and amortization                                                                              |  |               | (191,348  | ) |              |   | (153,490 | )
|                                                                                                                            |  |               |           |   |              |   |          |  
|Net property, plant and equipment                                                                                           |  |               | 307,255   |   |              |   | 109,386  |  
|                                                                                                                            |  |               |           |   |              |   |          |  
|Intangible assets:                                                                                                          |  |               |           |   |              |   |          |  
|Goodwill                                                                                                                    |  |               | 882,717   |   |              |   | 173,134  |  
|Other intangibles                                                                                                           |  |               | 331,555   |   |              |   | 35,555   |  
|                                                                                                                            |  |               |           |   |              |   |          |  
|                                                                                                                            |  |               | 1,214,272 |   |              |   | 208,689  |  
|Less accumulated amortization                                                                                               |  |               | (80,890   | ) |              |   | (75,280  | )
|                                                                                                                            |  |               |           |   |              |   |          |  
|Net intangible assets                                                                                                       |  |               | 1,133,382 |   |              |   | 133,409  |  
|                                                                                                                            |  |               |           |   |              |   |          |  
|Investments                                                                                                                 |  |               | 6,799     |   |              |   | 4,899    |  
|Other assets                                                                                                                |  |               | 24,339    |   |              |   | 11,240   |  
|                                                                                                                            |  |               |           |   |              |   |          |  
|Total assets                                                                                                                |  | $             | 2,153,105 |   |              | $ | 801,426  |  
|                                                                                                                            |  |               |           |   |              |   |          |  

See accompanying notes to condensed consolidated financial statements.



2



---

VALASSIS COMMUNICATIONS, INC.

Condensed Consolidated Balance Sheets, Continued

(U.S. dollars in thousands)

(unaudited)



|                                                                                                                                                                                                                              |  |               |           |   |              |   |          |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | --------- | - | ------------ | - | -------- | -
|                                                                                                                                                                                                                              |  | Sept. 30,2007 |           |   | Dec. 31,2006 |  
|Liabilities and Stockholders' Equity                                                                                                                                                                                          |  |               |           |   |              |   |          |  
|Current liabilities:                                                                                                                                                                                                          |  |               |           |   |              |   |          |  
|Current portion, long-term debt                                                                                                                                                                                               |  | $             | 30,900    |   |              | $ |         |  
|Accounts payable                                                                                                                                                                                                              |  |               | 310,872   |   |              |   | 268,834  |  
|Accrued interest                                                                                                                                                                                                              |  |               | 6,922     |   |              |   | 3,307    |  
|Accrued compensation and benefits                                                                                                                                                                                             |  |               | 51,275    |   |              |   | 23,671   |  
|Accrued other expenses                                                                                                                                                                                                        |  |               | 37,119    |   |              |   | 17,150   |  
|Progress billings                                                                                                                                                                                                             |  |               | 49,340    |   |              |   | 49,258   |  
|Income taxes payable                                                                                                                                                                                                          |  |               | 4,663     |   |              |   |         |  
|                                                                                                                                                                                                                              |  |               |           |   |              |   |          |  
|Total current liabilities                                                                                                                                                                                                     |  |               | 491,091   |   |              |   | 362,220  |  
|                                                                                                                                                                                                                              |  |               |           |   |              |   |          |  
|Long-term debt                                                                                                                                                                                                                |  |               | 1,306,107 |   |              |   | 259,931  |  
|Other non-current liabilities                                                                                                                                                                                                 |  |               | 17,696    |   |              |   | 8,195    |  
|Deferred income taxes                                                                                                                                                                                                         |  |               | 136,559   |   |              |   | 3,506    |  
|                                                                                                                                                                                                                              |  |              
|Stockholders' equity:                                                                                                                                                                                                         |  |               |           |   |              |   |          |  
|Preferred stock of $0.01 par value. Authorized 25,000,000 shares; no shares issued or outstanding at September 30, 2007 and
December 31, 2006                                                                                 |  |               |           |   |              |   |          |  
|Common stock of $0.01 par value. Authorized 100,000,000 shares; issued 63,409,427 at September 30, 2007 and 63,264,925 at
December 31, 2006; outstanding 47,928,410 at September 30, 2007 and 47,783,908 at December 31, 2006 |  |               | 634       |   |              |   | 633      |  
|Additional paid-in capital                                                                                                                                                                                                    |  |               | 49,551    |   |              |   | 44,225   |  
|Retained earnings                                                                                                                                                                                                             |  |               | 671,713   |   |              |   | 638,209  |  
|Accumulated other comprehensive income                                                                                                                                                                                        |  |               | (19       | ) |              |   | 4,734    |  
|Treasury stock, at cost (15,481,017 shares at September 30, 2007 and 15,481,017 shares at December 31, 2006)                                                                                                                  |  |               | (520,227  | ) |              |   | (520,227 | )
|                                                                                                                                                                                                                              |  |               |           |   |              |   |          |  
|Total stockholders' equity                                                                                                                                                                                                    |  |               | 201,652   |   |              |   | 167,574  |  
|                                                                                                                                                                                                                              |  |               |           |   |              |   |          |  
|Total liabilities and stockholders' equity                                                                                                                                                                                    |  | $             | 2,153,105 |   |              | $ | 801,426  |  
|                                                                                                                                                                                                                              |  |               |           |   |              |   |          |  

See accompanying notes to condensed consolidated financial statements.



3



---

VALASSIS COMMUNICATIONS, INC.

Condensed Consolidated Statements of Income

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

(unaudited)



|                                                         |  |                              |            |   |                             |   |            |      |  |   |            |   |  |   |            |  
|-------------------------------------------------------- |  | ---------------------------- | ---------- | - | --------------------------- | - | ---------- | ---- |  | - | ---------- | - |  | - | ---------- | -
|                                                         |  | Three Months Ended Sept. 30, |            |   | Nine Months Ended Sept. 30, |  
|                                                         |  | 2007                         |            |   | 2006                        |   |            | 2007 |  |   | 2006       |  
|Revenues                                                 |  | $                            | 607,233    |   |                             | $ | 248,883    |      |  | $ | 1,580,684  |   |  | $ | 757,121    |  
|                                                         |  |                              |            |  
|Costs and expenses:                                      |  |                              |            |   |                             |   |            |      |  |   |            |   |  |   |            |  
|Cost of products sold                                    |  |                              | 459,553    |   |                             |   | 187,233    |      |  |   | 1,211,392  |   |  |   | 570,474    |  
|Selling, general and administrative                      |  |                              | 96,327     |   |                             |   | 38,454     |      |  |   | 247,217    |   |  |   | 101,709    |  
|Amortization expense                                     |  |                              | 2,389      |   |                             |   | 139        |      |  |   | 5,609      |   |  |   | 417        |  
|                                                         |  |                              |            |   |                             |   |            |      |  |   |            |   |  |   |            |  
|Total costs and expense                                  |  |                              | 558,269    |   |                             |   | 225,826    |      |  |   | 1,464,218  |   |  |   | 672,600    |  
|                                                         |  |                              |            |   |                             |   |            |      |  |   |            |   |  |   |            |  
|Earnings from operations                                 |  |                              | 48,964     |   |                             |   | 23,057     |      |  |   | 116,466    |   |  |   | 84,521     |  
|Other expenses (income):                                 |  |                              |            |   |                             |   |            |      |  |   |            |   |  |   |            |  
|Interest expense                                         |  |                              | 24,575     |   |                             |   | 15,861     |      |  |   | 60,422     |   |  |   | 20,932     |  
|Other income, net                                        |  |                              | (2,032     | ) |                             |   | (2,575     | )    |  |   | (5,695     | ) |  |   | (4,657     | )
|                                                         |  |                              |            |   |                             |   |            |      |  |   |            |   |  |   |            |  
|Total other expenses (income)                            |  |                              | 22,543     |   |                             |   | 13,286     |      |  |   | 54,727     |   |  |   | 16,275     |  
|                                                         |  |                              |            |   |                             |   |            |      |  |   |            |   |  |   |            |  
|Earnings before income taxes                             |  |                              | 26,421     |   |                             |   | 9,771      |      |  |   | 61,739     |   |  |   | 68,246     |  
|                                                         |  |                              |            |  
|Income taxes                                             |  |                              | 9,978      |   |                             |   | 3,149      |      |  |   | 24,287     |   |  |   | 23,878     |  
|                                                         |  |                              |            |   |                             |   |            |      |  |   |            |   |  |   |            |  
|Net earnings                                             |  | $                            | 16,443     |   |                             | $ | 6,622      |      |  | $ | 37,452     |   |  | $ | 44,368     |  
|                                                         |  |                              |            |   |                             |   |            |      |  |   |            |   |  |   |            |  
|Net earnings per common share, basic                     |  | $                            | 0.34       |   |                             | $ | 0.14       |      |  | $ | 0.78       |   |  | $ | 0.93       |  
|                                                         |  |                              |            |   |                             |   |            |      |  |   |            |   |  |   |            |  
|Net earnings per common share, diluted                   |  | $                            | 0.34       |   |                             | $ | 0.14       |      |  | $ | 0.78       |   |  | $ | 0.93       |  
|                                                         |  |                              |            |   |                             |   |            |      |  |   |            |   |  |   |            |  
|Shares used in computing net earnings per share, basic   |  |                              | 47,818,200 |   |                             |   | 47,804,279 |      |  |   | 47,784,809 |   |  |   | 47,741,574 |  
|                                                         |  |                              |            |   |                             |   |            |      |  |   |            |   |  |   |            |  
|Shares used in computing net earnings per share, diluted |  |                              | 47,912,843 |   |                             |   | 47,807,447 |      |  |   | 47,902,801 |   |  |   | 47,779,046 |  
|                                                         |  |                              |            |   |                             |   |            |      |  |   |            |   |  |   |            |  

See accompanying notes to condensed consolidated financial statements.



4



---

VALASSIS COMMUNICATIONS, INC.

Condensed Consolidated Statements of Cash Flows

(U.S. dollars in thousands)

(unaudited)



|                                                                                    |  |                             |            |   |      |   |          |  
|----------------------------------------------------------------------------------- |  | --------------------------- | ---------- | - | ---- | - | -------- | -
|                                                                                    |  | Nine Months Ended Sept. 30, |           
|                                                                                    |  | 2007                        |            |   | 2006 |  
|Cash flows from operating activities:                                               |  |                             |            |   |      |   |          |  
|Net earnings                                                                        |  | $                           | 37,452     |   |      | $ | 44,368   |  
|Adjustments to reconcile net earnings to net cash provided by operating activities: |  |                             |            |   |      |   |          |  
|Depreciation and amortization of intangibles                                        |  |                             | 44,088     |   |      |   | 10,984   |  
|Amortization of bond discount and debt issue costs                                  |  |                             | 2,111      |   |      |   | 207      |  
|Provision for losses on accounts receivable                                         |  |                             | 3,653      |   |      |   | 202      |  
|Asset impairment                                                                    |  |                             | 1,963      |   |      |   | 1,176    |  
|Loss on sale of property, plant and equipment                                       |  |                             | 48         |   |      |   | 27       |  
|Gain on equity investments                                                          |  |                             | (1,405     | ) |      |   | (300     | )
|Stock-based compensation charge                                                     |  |                             | 5,298      |   |      |   | 4,996    |  
|Changes in assets and liabilities which (decrease) increase cash flow:              |  |                             |            |   |      |   |          |  
|Accounts receivable                                                                 |  |                             | 44,726     |   |      |   | (8,325   | )
|Inventories                                                                         |  |                             | (5,639     | ) |      |   | (5,234   | )
|Prepaid expenses and other                                                          |  |                             | 1,217      |   |      |   | (7,674   | )
|Other liabilities                                                                   |  |                             | (18,259    | ) |      |   | 16       |  
|Other assets                                                                        |  |                             | 24,569     |   |      |   | (8,227   | )
|Accounts payable                                                                    |  |                             | 11,129     |   |      |   | 34,407   |  
|Accrued expenses and interest                                                       |  |                             | (35,502    | ) |      |   | (7,057   | )
|Income taxes                                                                        |  |                             | 12,220     |   |      |   | (6,060   | )
|Progress billings                                                                   |  |                             | (10,236    | ) |      |   | 922      |  
|                                                                                    |  |                             |            |   |      |   |          |  
|Total adjustments                                                                   |  |                             | 79,981     |   |      |   | 10,060   |  
|                                                                                    |  |                             |            |   |      |   |          |  
|Net cash provided by operating activities                                           |  |                             | 117,433    |   |      |   | 54,428   |  
|                                                                                    |  |                             |            |   |      |   |          |  
|Cash flows from investing activities:                                               |  |                             |            |   |      |   |          |  
|Additions to property, plant and equipment                                          |  |                             | (20,124    | ) |      |   | (8,411   | )
|Acquisition of ADVO, net of cash acquired                                           |  |                             | (1,187,873 | ) |      |   |         |  
|Purchases of auction-rate securities                                                |  |                             | (156,335   | ) |      |   | (467,914 | )
|Proceeds from sales of auction-rate securities                                      |  |                             | 258,869    |   |      |   | 459,333  |  
|Investments and advances to affiliated companies                                    |  |                             | (1,000     | ) |      |   | (3,000   | )
|Other                                                                               |  |                             | (604       | ) |      |   | (330     | )
|                                                                                    |  |                             |            |   |      |   |          |  
|Net cash used in investing activities                                               |  |                             | (1,107,067 | ) |      |   | (20,322  | )
|                                                                                    |  |                             |            |   |      |   |          |  
|Cash flows from financing activities:                                               |  |                             |            |   |      |   |          |  
|Borrowings of long-term debt                                                        |  |                             | 1,130,000  |   |      |   |         |  
|Payment of debt issue costs                                                         |  |                             | (19,212    | ) |      |   |         |  
|Repayment of long term debt                                                         |  |                             | (52,950    | ) |      |   | (14,441  | )
|Repurchase of common stock                                                          |  |                             |           |   |      |   | (3,913   | )
|Proceeds from the issuance of common stock                                          |  |                             |           |   |      |   | 5,731    |  
|                                                                                    |  |                             |            |   |      |   |          |  
|Net cash provided by (used in) financing activities                                 |  |                             | 1,057,838  |   |      |   | (12,623  | )
|                                                                                    |  |                             |            |   |      |   |          |  
|Effect of exchange rate changes on cash                                             |  |                             | 1,555      |   |      |   | 1,062    |  
|Net increase in cash                                                                |  |                             | 69,759     |   |      |   | 22,545   |  
|Cash at beginning of period                                                         |  |                             | 52,619     |   |      |   | 64,320   |  
|                                                                                    |  |                             |            |   |      |   |          |  
|Cash at end of period                                                               |  | $                           | 122,378    |   |      | $ | 86,865   |  
|                                                                                    |  |                             |            |   |      |   |          |  
|Supplemental disclosure of cash flow information:                                   |  |                             |            |   |      |   |          |  
|Cash paid during the period for interest                                            |  | $                           | 53,762     |   |      | $ | 11,279   |  
|Cash paid during the period for income taxes                                        |  | $                           | 14,270     |   |      | $ | 32,513   |  
|Non-cash financing activities:                                                      |  |                             |            |   |      |   |          |  
|Stock issued under stock-based compensation plan                                    |  | $                           | 2,231      |   |      | $ | 1,891    |  

See accompanying notes to condensed consolidated financial statements.



5



---

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, 2006, as amended by Amendments No. 1 and No. 2 thereto on Form 10-K/A (as amended, the Amended 2006 10-K).



|2. | ACQUISITION OF ADVO
|-- | -------------------

Valassis completed the acquisition of ADVO,
Inc. (ADVO) on March 2, 2007 for approximately $1.2 billion, including the refinancing of approximately $125 million in existing ADVO debt, which was financed with debt as more fully described in Note 7. Long-Term Debt.

The acquisition was accounted for as a purchase in accordance with Statement of Financial Accounting Standards (SFAS) 141, Business Combinations and
ADVOs results are included in the consolidated operating results from the acquisition date. The total purchase price reflects transaction costs and is net of cash acquired. Amounts allocated to the assets acquired and liabilities assumed are
based upon estimates of fair value as of the acquisition date.

The purchase price allocation for the acquisition is preliminary with respect to
finalization of intangible asset and fixed asset valuations, integration accrual, and other minor items. As of September 30, 2007, the preliminary allocation of the purchase price for the acquisition was made to the following major opening
balance sheet categories:



|                               |  |               |          
|------------------------------ |  | ------------- | ---------
|(in thousands of U.S. dollars) |  | Sept. 30,2007
|Current assets                 |  | $             | 219,514  
|Property, plant and equipment  |  |               | 214,945  
|Goodwill                       |  |               | 709,582  
|Intangible assets              |  |               | 296,000  
|Other non-current assets       |  |               | 20,036   
|                               |  |               |          
|Total assets                   |  | $             | 1,460,077
|                               |  |               |          
|Current liabilities            |  | $             | 117,853  
|Non-current liabilities        |  |               | 154,351  
|                               |  |               |          
|Total liabilities              |  | $             | 272,204  
|                               |  |               |          



6



---

VALASSIS COMMUNICATIONS, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)



The operating results for ADVO are included in the accompanying unaudited condensed consolidated statements of
operations from March 2, 2007, the date of acquisition. The following unaudited pro forma condensed consolidated financial information has been prepared assuming the ADVO acquisition had occurred on January 1, 2007 and January 1,
2006, respectively.



|                                                         |         |                              |           |  |   |           |  
|-------------------------------------------------------- | ------- | ---------------------------- | --------- |  | - | --------- | -
|(in thousands of U.S. dollars, except per share amounts) |         | Three Months Ended Sept. 30, |          
|                                                         | 2007    |                              | 2006(1)   | 
|Revenue                                                  |         | $                            | 607,233   |  | $ | 590,550   |  
|Earnings from operations                                 |         |                              | 48,964    |  |   | 14,725    |  
|Net earnings (loss)                                      |         |                              | 16,443    |  |   | (8,956    | )
|Basic earnings (loss) per share                          |         | $                            | 0.34      |  | $ | (0.19     | )
|Diluted earnings (loss) per share                        |         | $                            | 0.34      |  | $ | (0.19     | )
|                                                         |        
|(in thousands of U.S. dollars, except for share amounts) |         | Nine Months Ended Sept. 30,  |          
|                                                         | 2007(2) |                              | 2006(1)   | 
|Revenue                                                  |         | $                            | 1,804,187 |  | $ | 1,836,044 |  
|Earnings from operations                                 |         |                              | 86,105    |  |   | 93,996    |  
|Net earnings                                             |         |                              | 9,673     |  |   | 16,841    |  
|Basic earnings per share                                 |         | $                            | 0.20      |  | $ | 0.35      |  
|Diluted earnings per share                               |         | $                            | 0.20      |  | $ | 0.35      |  

---

|(1) | Results include $19.7 million in one-time costs related to the acquisition of ADVO by Valassis.
|--- | -----------------------------------------------------------------------------------------------

|(2) | Results include $23.0 million in one-time costs related to the acquisition of ADVO by Valassis.
|--- | -----------------------------------------------------------------------------------------------

These unaudited pro forma results are presented for comparative purposes only. The pro forma results are not necessarily indicative of what our actual results would have been had the acquisition of ADVO been completed
as of the beginning of the periods presented. In addition, the pro forma results do not purport to project our future results.



|3. | STOCK-BASED COMPENSATION
|-- | ------------------------

Effective January 1, 2006, we
adopted SFAS No. 123R, Share-Based Payment (FAS 123R). We use a Black-Scholes valuation model to determine the fair value of stock option grants and the straight-line attribution method for recognizing stock-based compensation
expense under FAS 123R, which is consistent with the method we used in recognizing stock-based compensation expense for disclosure purposes under FAS 123 prior to the adoption of FAS 123R.

Stock-based compensation for the quarters ended September 30, 2007 and September 30, 2006 was $1.7 million and $1.8 million, respectively. For the nine months
ended September 30, 2007 and September 30, 2006, stock-based compensation expense was $5.3 million and $5.0 million, respectively. Total compensation expense related to non-vested options not yet recognized at September 30, 2007 was
approximately $10.1 million, which we expect to recognize as compensation expense over the next five years.



7



---

VALASSIS COMMUNICATIONS, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)



|4. | FOREIGN CURRENCY AND DERIVATIVE FINANCIAL INSTRUMENTS
|-- | -----------------------------------------------------

The
functional currencies for our foreign operations are the applicable local currencies. Accounts of foreign operations are translated into U.S. dollars using the spot rate of the local currency on the balance sheet date for assets and liabilities and
average monthly exchange rates for revenues and expenses. Translation adjustments are reflected as an adjustment to equity on a cumulative basis.

Currencies to which we have exposure are the Mexican peso, Canadian dollar, British pound and euro. Currency restrictions are not expected to have a significant effect on our cash flows, liquidity, or capital resources. Historically, we
have purchased the Mexican peso under three to twelve-month forward foreign exchange contracts to stabilize the cost of production in Mexico. Actual exchange losses or gains are recorded against production expense when the contracts are executed. As
of September 30, 2007, we had a commitment to purchase $2.9 million in Mexican pesos over the next eight months.

We entered into two interest rate
swap agreements during the second quarter of 2007. These derivative agreements effectively fix interest rates on a portion of floating rate debt and qualify for cash flow hedge accounting treatment under SFAS 133. The fair value of these derivatives
is a liability of $6.2 million as of September 30, 2007. Any changes in the effective portion of these derivatives are recorded as a component of other comprehensive income while any ineffective portion will be recorded in earnings and
reflected in the consolidated statement of income as part of interest expense. See Note 7. Long-Term Debt for further information on the interest rate swap agreements.



|5. | GOODWILL AND OTHER INTANGIBLES
|-- | ------------------------------

Intangible assets as of
September 30, 2007 are comprised of:



|                                        |  |                          |         |                                         |   |                                     |  |   |                                      |     |  |     
|--------------------------------------- |  | ------------------------ | ------- | --------------------------------------- | - | ----------------------------------- |  | - | ------------------------------------ | --- |  | ----
|(in thousands of U.S. dollars)          |  | IntangibleAssets, atCost |         | AccumulatedAmortizationat Sept. 30,2007 |   | UnamortizedBalance atSept. 30, 2007 |  |   | WeightedAverageUseful Life(in years)
|Amortizable intangible assets           |  | $                        | 183,455 |                                         | $ | 8,084                               |  | $ | 175,371                              |     |  | 19.5
|                                        |  |                          |         |                                        
|Non-amortizable intangible assets:      |  |                          |         |                                         |   |                                     |  |   |                                      |     |  |     
|Goodwill:                               |  |                          |         |                                         |   |                                     |  |   |                                      |     |  |     
|Free-standing Inserts                   |  |                          |         |                                         |   |                                     |  |   | 18,257                               |     |  |     
|Neighborhood Targeted                   |  |                          |         |                                         |   |                                     |  |   | 5,325                                |     |  |     
|Household Targeted                      |  |                          |         |                                         |   |                                     |  |   | 32,642                               |     |  |     
|International & Services                |  |                          |         |                                         |   |                                     |  |   | 64,864                               |     |  |     
|ADVO                                    |  |                          |         |                                         |   |                                     |  |   | 709,582                              |     |  |     
|The Valassis name and other             |  |                          |         |                                         |   |                                     |  |   | 11,341                               |     |  |     
|ADVO trade names and trademarks         |  |                          |         |                                         |   |                                     |  |   | 116,000                              |     |  |     
|                                        |  |                          |         |                                         |   |                                     |  |   |                                      |     |  |     
|Total non-amortizable intangible assets |  |                          |         |                                         |   |                                     |  |   | 958,011                              | (1) |  |     
|                                        |  |                          |         |                                         |   |                                     |  |   |                                      |     |  |     
|Consolidated net intangible assets      |  |                          |         |                                         |   |                                     |  | $ | 1,133,382                            |     |  |     
|                                        |  |                          |         |                                         |   |                                     |  |   |                                      |     |  |     

---

|(1) | Net of $21.5 million of amortization recorded prior to the adoption of SFAS No. 142 and a $51.3 million impairment charge.
|--- | --------------------------------------------------------------------------------------------------------------------------



8



---

VALASSIS COMMUNICATIONS, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)



|6. | CONTINGENCIES
|-- | -------------

Upon our completion of the acquisition of ADVO, we
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. These complaints generally allege 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 with us and, as a result, the price of ADVOs stock was allegedly inflated.

On December 12, 2006, the Kelleher plaintiffs
filed a Motion to Partially Lift Discovery Stay, in response to which defendants filed a response on January 16, 2007. The presiding judge denied the plaintiffs motion to lift the stay on discovery. In addition, the court ordered the
matters consolidated under a single action entitled, Robert Kelleher et al. v. ADVO, Inc., et al., Civil Case No. 3:06CV01422(AVC). A revised, consolidated complaint was filed by the plaintiffs on June 8, 2007. On August 24,
2007, the defendants filed a Motion to Dismiss the plaintiffs complaint. The plaintiff filed a Brief in Opposition to the defendants motion on October 10, 2007 and the defendants responsive pleading is due November 9,
2007.

Under the circumstances, it is not possible for us to predict the likelihood of a favorable or unfavorable resolution of the securities class
action.

We are involved in various other 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.



|7. | LONG-TERM DEBT
|-- | --------------

Long-term debt is summarized as follows:



|                                                   |  |               |           |              |   |        
|-------------------------------------------------- |  | ------------- | --------- | ------------ | - | -------
|(in thousands of U.S. dollars)                     |  | Sept. 30,2007 |           | Dec. 31,2006
|Revolving Credit Facility                          |  | $             |          |              | $ |       
|6 5/8% Senior Notes due 2009, net of discount      |  |               | 99,957    |              |   | 99,931 
|Senior Convertible Notes due 2033, net of discount |  |               | 160,000   |              |   | 160,000
|8 1/4% Senior Notes due 2015                       |  |               | 540,000   |              |   |       
|Senior Secured Term Loan B                         |  |               | 537,050   |              |   |       
|Senior Secured Delayed Draw Term Loan              |  |               |          |              |   |       
|                                                   |  |               |           |              |   |        
|                                                   |  | $             | 1,337,007 |              | $ | 259,931
|Less current portion                               |  |               | 30,900    |              |   |       
|                                                   |  |               |           |              |   |        
|                                                   |  | $             | 1,306,107 |              | $ | 259,931
|                                                   |  |               |           |              |   |        

On March 2, 2007, Valassis completed the offering of
$540.0 million aggregate principal amount of its 81/4% Senior Notes due 2015 (the 2015 Notes) in
connection with the financing of its acquisition of ADVO. The 2015 Notes are unsecured and bear interest at a fixed rate of 81/4% per annum payable semi-annually in arrears on March 1 and September 1, commencing on September 1, 2007, and mature on March 1, 2015. In August 2007, in accordance with the terms of the registration rights
agreement between Valassis 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 remains outstanding. The exchange notes are
substantially identical to the original notes, except that the exchange notes are not subject to certain transfer restrictions.



9



---

VALASSIS COMMUNICATIONS, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)



On March 2, 2007, in connection with the acquisition of ADVO, Valassis entered into a Credit Agreement with
various banking institutions. The Credit Agreement provides for: (i) a $120.0 million senior secured revolving line of credit; (ii) a $590.0 million senior secured term loan B; and (iii) a $160.0 million senior secured delayed draw
term loan. As of September 30, 2007, Valassis had no borrowings under the revolving line of credit or delayed draw term loan and $537.1 million under the senior secured term loan B. Subsequent to September 30, 2007, Valassis made a
voluntary prepayment of $25.0 million under the term loan B, which is classified as current debt along with $5.9 million in required payments due within one year. The delayed draw term loan is available until June 2008 to refinance all of the Senior
Secured Convertible Notes due 2033, including in the event the holders exercise their put rights in May 2008.

On April 4, 2007 and June 29,
2007, Valassis entered into forward dated swap agreements with notional principal amounts of $300.0 million and $180.0 million, respectively. The swap agreements expire in December 2010, and effectively fix the interest rates for an aggregate of
$480.0 million of variable rate debt under the term loan B portion of the senior secured credit facility. Under SFAS No. 133, each contract is recorded as a cash flow hedge in which the fair value is recorded as an asset or liability and any
effective changes in the fair value are recorded as a component of other comprehensive income while any ineffective portion will be recorded in earnings and reflected in the consolidated statement of income. The recording of these interest rate swap
agreements resulted in a $6.2 million derivative classified as Other non-current liabilities on the balance sheet.

For further information,
refer to Current and Long-term Debt in Item 2.



|8. | SEGMENT REPORTING
|-- | -----------------

Valassis has five reportable segments:
Free-standing Inserts (FSI), Neighborhood Targeted, Household Targeted, International & Services and ADVO. We previously reported our Run of Press (ROP) business as a separate segment. Due to the similarity in sales and operational
processes and the newly-combined sales and general management, we aggregated ROP into the Neighborhood Targeted segment effective January 1, 2007. Our five reportable segments are strategic business units that offer different products and
services and are subject to regular review by our chief operating decision-makers. They are managed separately because each business requires different executional strategies and caters to different customer marketing needs.

The accounting policies of the segments are the same as those described in the summary of significant accounting policies in our Amended 2006 10-K and herein. We
evaluate performance based on earnings from operations. 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)    |  | FSI                              |       | NeighborhoodTargeted(1) |   | HouseholdTargeted |  |   | International& Services |   |  | ADVO |      | Total
|2007                             |  |                                  |       |                         |   |                   |  |   |                         |   |  |      |      |       |  |   |       |  |   |      
|Revenues from external customers |  | $                                | 102.6 |                         | $ | 117.4             |  | $ | 10.3                    |   |  | $    | 28.0 |       |  | $ | 348.9 |  | $ | 607.2
|Intersegment revenues            |  | $                                |      |                         | $ | 7.9               |  | $ |                        |   |  | $    |     |       |  | $ | 0.4   |  | $ | 8.3  
|Depreciation/amortization        |  | $                                | 2.7   |                         | $ | 0.5               |  | $ |                        |   |  | $    | 0.6  |       |  | $ | 15.0  |  | $ | 18.8 
|Segment profit (loss)            |  | $                                | 3.7   |                         | $ | 19.8              |  | $ | (1.1                    | ) |  | $    | 2.9  |       |  | $ | 23.7  |  | $ | 49.0 
|                                 |  |                                  |       |                         |   |                  
|2006                             |  |                                  |       |                         |   |                   |  |   |                         |   |  |      |      |       |  |   |       |  |   |      
|Revenues from external customers |  | $                                | 105.9 |                         | $ | 103.6             |  | $ | 12.6                    |   |  | $    | 26.8 |       |  |   |       |  | $ | 248.9
|Intersegment revenues            |  | $                                |      |                         | $ |                  |  | $ |                        |   |  | $    |     |       |  |   |       |  | $ |     
|Depreciation/amortization        |  | $                                | 2.2   |                         | $ | 0.5               |  | $ |                        |   |  | $    | 0.9  |       |  |   |       |  | $ | 3.6  
|Segment profit (loss)            |  | $                                | 12.5  |                         | $ | 12.6              |  | $ | 0.2                     |   |  | $    | (2.2 | )     |  |   |       |  | $ | 23.1 



10



---

VALASSIS COMMUNICATIONS, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)



|                                 |  |                             |       |                         |   |                   |  |   |                         |   |         |   |       |  |   |       |  |   |        
|-------------------------------- |  | --------------------------- | ----- | ----------------------- | - | ----------------- |  | - | ----------------------- | - | ------- | - | ----- |  | - | ----- |  | - | -------
|                                 |  | Nine Months Ended Sept. 30,
|(in millions of U.S. dollars)    |  | FSI                         |       | NeighborhoodTargeted(1) |   | HouseholdTargeted |  |   | International& Services |   | ADVO(2) |   | Total
|2007                             |  |                             |       |                         |   |                   |  |   |                         |   |         |   |       |  |   |       |  |   |        
|Revenues from external customers |  | $                           | 311.0 |                         | $ | 338.1             |  | $ | 34.2                    |   |         | $ | 84.9  |  | $ | 812.5 |  | $ | 1,580.7
|Intersegment revenues            |  | $                           |      |                         | $ | 11.5              |  | $ |                        |   |         | $ |      |  | $ | 1.6   |  | $ | 13.1   
|Depreciation/amortization        |  | $                           | 7.3   |                         | $ | 1.5               |  | $ |                        |   |         | $ | 1.8   |  | $ | 33.5  |  | $ | 44.1   
|Segment profit (loss)            |  | $                           | 19.0  |                         | $ | 45.2              |  | $ | (1.6                    | ) |         | $ | 7.5   |  | $ | 48.4  |  | $ | 118.5  
|                                 |  |                             |       |                         |   |                  
|2006                             |  |                             |       |                         |   |                   |  |   |                         |   |         |   |       |  |   |       |  |   |        
|Revenues from external customers |  | $                           | 338.2 |                         | $ | 292.6             |  | $ | 45.0                    |   |         | $ | 81.3  |  |   |       |  | $ | 757.1  
|Intersegment revenues            |  | $                           |      |                         | $ |                  |  | $ |                        |   |         | $ |      |  |   |       |  | $ |       
|Depreciation/amortization        |  | $                           | 6.5   |                         | $ | 1.5               |  | $ | 0.2                     |   |         | $ | 2.8   |  |   |       |  | $ | 11.0   
|Segment profit                   |  | $                           | 50.9  |                         | $ | 28.9              |  | $ | 2.7                     |   |         | $ | 2.0   |  |   |       |  | $ | 84.5   

---

|(1) | Neighborhood Targeted now includes the Run of Press business.
|--- | -------------------------------------------------------------

|(2) | Results since the acquisition date of March 2, 2007.
|--- | ----------------------------------------------------

Reconciliations to consolidated financial statement totals are as follows:



|                                                              |  |                             |       |   |                            |   |       |      |  |   |       |   |  |   |       |  
|------------------------------------------------------------- |  | --------------------------- | ----- | - | -------------------------- | - | ----- | ---- |  | - | ----- | - |  | - | ----- | -
|                                                              |  | Three Months EndedSept. 30, |       |   | Nine Months EndedSept. 30, |  
|(in millions of U.S. dollars)                                 |  | 2007                        |       |   | 2006                       |   |       | 2007 |  |   | 2006  |  
|Profit for reportable segments                                |  | $                           | 49.0  |   |                            | $ | 23.1  |      |  | $ | 118.5 |   |  | $ | 84.5  |  
|Unallocated amounts:                                          |  |                             |       |   |                            |   |       |      |  |   |       |   |  |   |       |  
|Litigation and other costs related to the acquisition of ADVO |  |                             |      |   |                            |   |      |      |  |   | (2.0  | ) |  |   |      |  
|Interest expense                                              |  |                             | (24.6 | ) |                            |   | (15.9 | )    |  |   | (60.4 | ) |  |   | (20.9 | )
|Other income                                                  |  |                             | 2.0   |   |                            |   | 2.6   |      |  |   | 5.6   |   |  |   | 4.6   |  
|                                                              |  |                             |       |   |                            |   |       |      |  |   |       |   |  |   |       |  
|Earnings before income taxes                                  |  | $                           | 26.4  |   |                            | $ | 9.8   |      |  | $ | 61.7  |   |  | $ | 68.2  |  
|                                                              |  |                             |       |   |                            |   |       |      |  |   |       |   |  |   |       |  

Domestic and foreign revenues were as follows:



|                              |  |                             |       |                            |   |       |  |      |         |  |   |      
|----------------------------- |  | --------------------------- | ----- | -------------------------- | - | ----- |  | ---- | ------- |  | - | -----
|                              |  | Three Months EndedSept. 30, |       | Nine Months EndedSept. 30,
|(in millions of U.S. dollars) |  | 2007                        |       | 2006                       |   | 2007  |  | 2006
|United States                 |  |                             | 590.2 |                            |   | 233.9 |  |      | 1,523.7 |  |   | 712.5
|Foreign                       |  |                             | 17.0  |                            |   | 15.0  |  |      | 57.0    |  |   | 44.6 
|                              |  |                             |       |                            |   |       |  |      |         |  |   |      
|Total                         |  | $                           | 607.2 |                            | $ | 248.9 |  | $    | 1,580.7 |  | $ | 757.1
|                              |  |                             |       |                            |   |       |  |      |         |  |   |      

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



|                              |  |               |       |             |   |      
|----------------------------- |  | ------------- | ----- | ----------- | - | -----
|(in millions of U.S. dollars) |  | Sept. 30,2007 |       | Dec 31,2006
|United States                 |  | $             | 286.5 |             | $ | 89.3 
|Foreign                       |  |               | 20.8  |             |   | 20.1 
|                              |  |               |       |             |   |      
|Total                         |  | $             | 307.3 |             | $ | 109.4
|                              |  |               |       |             |   |      



11



---

VALASSIS COMMUNICATIONS, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)



|9. | EARNINGS PER SHARE
|-- | ------------------

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



|                                                                    |      |                             |        |      |                            |   |        |   |  |      |        |   |  |   |        |  
|------------------------------------------------------------------- | ---- | --------------------------- | ------ | ---- | -------------------------- | - | ------ | - |  | ---- | ------ | - |  | - | ------ | -
|(in thousands of U.S. dollars)                                      |      | Three Months EndedSept. 30, |        |      | Nine Months EndedSept. 30, |  
|                                                                    | 2007 |                             |        | 2006 |                            |   | 2007   |   |  | 2006 |       
|Net earnings                                                        |      | $                           | 16,443 |      |                            | $ | 6,622  |   |  | $    | 37,452 |   |  | $ | 44,368 |  
|                                                                    |      |                             |        |      |                            |   |        |   |  |      |        |   |  |   |        |  
|Basic EPS:                                                          |      |                             |        |      |                            |   |        |   |  |      |        |   |  |   |        |  
|Weighted average common shares outstanding                          |      |                             | 47,818 |      |                            |   | 47,804 |   |  |      | 47,785 |   |  |   | 47,742 |  
|                                                                    |      |                             |        |      |                            |   |        |   |  |      |        |   |  |   |        |  
|Earnings per common sharebasic                                     |      | $                           | 0.34   |      |                            | $ | 0.14   |   |  | $    | 0.78   |   |  | $ | 0.93   |  
|                                                                    |      |                             |        |      |                            |   |        |   |  |      |        |   |  |   |        |  
|Diluted EPS:                                                        |      |                             |        |      |                            |   |        |   |  |      |        |   |  |   |        |  
|Weighted average common shares outstanding                          |      |                             | 47,818 |      |                            |   | 47,804 |   |  |      | 47,785 |   |  |   | 47,742 |  
|Weighted average shares purchased on exercise of dilutive options   |      |                             | 46     |      |                            |   | 2      |   |  |      | 139    |   |  |   | 278    |  
|Shares purchased with proceeds of options/unrecognized compensation |      |                             | (109   | )    |                            |   | (33    | ) |  |      | (179   | ) |  |   | (275   | )
|Shares contingently issuable                                        |      |                             | 158    |      |                            |   | 34     |   |  |      | 158    |   |  |   | 34     |  
|                                                                    |      |                             |        |      |                            |   |        |   |  |      |        |   |  |   |        |  
|Shares applicable to diluted earnings                               |      |                             | 47,913 |      |                            |   | 47,807 |   |  |      | 47,903 |   |  |   | 47,779 |  
|                                                                    |      |                             |        |      |                            |   |        |   |  |      |        |   |  |   |        |  
|Earnings per common sharediluted                                   |      | $                           | 0.34   |      |                            | $ | 0.14   |   |  | $    | 0.78   |   |  | $ | 0.93   |  
|                                                                    |      |                             |        |      |                            |   |        |   |  |      |        |   |  |   |        |  

Unexercised employee stock options to purchase 7.1 million shares and 6.7 million shares of Valassis'
common stock were not included in the computations of diluted EPS for the three months ended September 30, 2007 and nine months ended September 30, 2007, respectively, because the options' exercise prices were greater than the average
market price of our common stock during the applicable periods.



|10. | 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 are guaranteed by substantially all of Valassis existing and future
domestic subsidiaries on a senior unsecured basis. Each of the subsidiary guarantors is 100% owned, directly or indirectly, by Valassis 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 are not guarantors of these obligations. The subsidiary guarantors also guarantee the senior secured credit facility described in Note 7.



12



---

VALASSIS COMMUNICATIONS, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)



The following tables present the unaudited condensed consolidating balance sheets as of September 30, 2007 and
December 31, 2006 and the related unaudited condensed consolidating statements of income for the three and nine months ended September 30, 2007 and 2006 and unaudited condensed consolidating statements of cash flows for the nine months
ended September 30, 2007 and 2006.

Condensed Consolidating Balance Sheet

September 30, 2007

(in thousands)



|                                           |  |               |           |   |                       |   |           |                           |  |                          |        |  |                   |            |   |  |   |          
|------------------------------------------ |  | ------------- | --------- | - | --------------------- | - | --------- | ------------------------- |  | ------------------------ | ------ |  | ----------------- | ---------- | - |  | - | ---------
|                                           |  | ParentCompany |           |   | GuarantorSubsidiaries |   |           | Non-GuarantorSubsidiaries |  | ConsolidatingAdjustments |        |  | ConsolidatedTotal
|Assets                                     |  |               |           |   |                       |   |           |                           |  |                          |        |  |                   |            |   |  |   |          
|Current assets:                            |  |               |           |   |                       |   |           |                           |  |                          |        |  |                   |            |   |  |   |          
|Cash and cash equivalents                  |  | $             | 3,624     |   |                       | $ | 93,881    |                           |  | $                        | 24,873 |  | $                 |           |   |  | $ | 122,378  
|Accounts receivable, net                   |  |               | 226,047   |   |                       |   | 216,484   |                           |  |                          | 33,671 |  |                   | (210       | ) |  |   | 475,992  
|Inventories                                |  |               | 28,144    |   |                       |   | 9,436     |                           |  |                          | 37     |  |                   |           |   |  |   | 37,617   
|Prepaid expenses and other                 |  |               | (7,041    | ) |                       |   | 23,346    |                           |  |                          | 1,114  |  |                   | 9,784      |   |  |   | 27,203   
|Deferred income taxes                      |  |               | 1,051     |   |                       |   | 16,715    |                           |  |                          | 374    |  |                   |           |   |  |   | 18,140   
|                                           |  |               |           |   |                       |   |           |                           |  |                          |        |  |                   |            |   |  |   |          
|Total current assets                       |  |               | 251,825   |   |                       |   | 359,862   |                           |  |                          | 60,069 |  |                   | 9,574      |   |  |   | 681,330  
|                                           |  |               |           |   |                       |   |           |                           |  |                          |        |  |                   |            |   |  |   |          
|Property, plant and equipment, net         |  |               | 17,173    |   |                       |   | 276,670   |                           |  |                          | 13,412 |  |                   |           |   |  |   | 307,255  
|Intangible assets, net                     |  |               | 35,489    |   |                       |   | 1,090,905 |                           |  |                          | 6,988  |  |                   |           |   |  |   | 1,133,382
|Investments                                |  |               | 1,453,730 |   |                       |   | 39,715    |                           |  |                          |       |  |                   | (1,486,646 | ) |  |   | 6,799    
|Other assets                               |  |               | 25,041    |   |                       |   | (693      | )                         |  |                          | 80     |  |                   | (89        | ) |  |   | 24,339   
|                                           |  |               |           |   |                       |   |           |                           |  |                          |        |  |                   |            |   |  |   |          
|Total assets                               |  | $             | 1,783,258 |   |                       | $ | 1,766,459 |                           |  | $                        | 80,549 |  | $                 | (1,477,161 | ) |  | $ | 2,153,105
|                                           |  |               |           |   |                       |   |           |                           |  |                          |        |  |                   |            |   |  |   |          
|                                           |  |               |           |   |                      
|                                           |  | ParentCompany |           |   | GuarantorSubsidiaries |   |           | Non-GuarantorSubsidiaries |  | ConsolidatingAdjustments |        |  | ConsolidatedTotal
|Liabilities and Stockholders' Equity       |  |               |           |   |                       |   |           |                           |  |                          |        |  |                   |            |   |  |   |          
|Current liabilities:                       |  |               |           |   |                       |   |           |                           |  |                          |        |  |                   |            |   |  |   |          
|Current portion, long-term debt            |  | $             | 30,900    |   |                       | $ |          |                           |  | $                        |       |  | $                 |           |   |  |   | 30,900   
|Accounts payable                           |  |               | 177,764   |   |                       |   | 102,715   |                           |  |                          | 20,128 |  |                   | 10,265     |   |  |   | 310,872  
|Accrued expenses                           |  |               | 36,485    |   |                       |   | 47,928    |                           |  |                          | 11,683 |  |                   | (780       | ) |  |   | 95,316   
|Progress billings                          |  |               | 32,621    |   |                       |   | 10,188    |                           |  |                          | 6,531  |  |                   |           |   |  |   | 49,340   
|Income taxes payable                       |  |               | (11,997   | ) |                       |   | 16,514    |                           |  |                          | 146    |  |                   |           |   |  |   | 4,663    
|                                           |  |               |           |   |                       |   |           |                           |  |                          |        |  |                   |            |   |  |   |          
|Total current liabilities                  |  |               | 265,773   |   |                       |   | 177,345   |                           |  |                          | 38,488 |  |                   | 9,485      |   |  |   | 491,091  
|                                           |  |               |           |   |                       |   |           |                           |  |                          |        |  |                   |            |   |  |   |          
|Long-term debt                             |  |               | 1,306,107 |   |                       |   |          |                           |  |                          |       |  |                   |           |   |  |   | 1,306,107
|Other non-current liabilities              |  |               | 6,220     |   |                       |   | 9,130     |                           |  |                          | 2,346  |  |                   |           |   |  |   | 17,696   
|Deferred income taxes                      |  |               | 3,506     |   |                       |   | 133,053   |                           |  |                          |       |  |                   |           |   |  |   | 136,559  
|Stockholders' equity                       |  |               | 201,652   |   |                       |   | 1,446,931 |                           |  |                          | 39,715 |  |                   | (1,486,646 | ) |  |   | 201,652  
|                                           |  |               |           |   |                       |   |           |                           |  |                          |        |  |                   |            |   |  |   |          
|Total liabilities and stockholders' equity |  | $             | 1,783,258 |   |                       | $ | 1,766,459 |                           |  | $                        | 80,549 |  | $                 | (1,477,161 | ) |  | $ | 2,153,105
|                                           |  |               |           |   |                       |   |           |                           |  |                          |        |  |                   |            |   |  |   |          



13



---

VALASSIS COMMUNICATIONS, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)



Condensed Consolidating Balance Sheet

December 31, 2006

(in thousands)



|                                           |  |               |         |   |                       |   |         |                            |  |                          |        |  |                   |          |   |  |   |        
|------------------------------------------ |  | ------------- | ------- | - | --------------------- | - | ------- | -------------------------- |  | ------------------------ | ------ |  | ----------------- | -------- | - |  | - | -------
|                                           |  | ParentCompany |         |   | GuarantorSubsidiaries |   |         | Non-Guarantor Subsidiaries |  | ConsolidatingAdjustments |        |  | ConsolidatedTotal
|Assets                                     |  |               |         |   |                       |   |         |                            |  |                          |        |  |                   |          |   |  |   |        
|Current assets:                            |  |               |         |   |                       |   |         |                            |  |                          |        |  |                   |          |   |  |   |        
|Cash and cash equivalents                  |  | $             | 21,463  |   |                       | $ | 13,173  |                            |  | $                        | 17,983 |  | $                 |         |   |  | $ | 52,619 
|Auction-rate securities                    |  |               | 91,519  |   |                       |   | 11,014  |                            |  |                          |       |  |                   |         |   |  |   | 102,533
|Accounts receivable, net                   |  |               | 246,944 |   |                       |   | 61,708  |                            |  |                          | 30,427 |  |                   |         |   |  |   | 339,079
|Inventories                                |  |               | 25,834  |   |                       |   |        |                            |  |                          |       |  |                   |         |   |  |   | 25,834 
|Prepaid expenses and other                 |  |               | (5,043  | ) |                       |   | 22,599  |                            |  |                          | 1,863  |  |                   | (2,738   | ) |  |   | 16,681 
|Deferred income taxes                      |  |               | 1,094   |   |                       |   | 494     |                            |  |                          | 201    |  |                   |         |   |  |   | 1,789  
|Refundable income taxes                    |  |               | 3,552   |   |                       |   | 286     |                            |  |                          | 119    |  |                   |         |   |  |   | 3,957  
|                                           |  |               |         |   |                       |   |         |                            |  |                          |        |  |                   |          |   |  |   |        
|Total current assets                       |  |               | 385,363 |   |                       |   | 109,274 |                            |  |                          | 50,593 |  |                   | (2,738   | ) |  |   | 542,492
|                                           |  |               |         |   |                       |   |         |                            |  |                          |        |  |                   |          |   |  |   |        
|Property, plant and equipment, net         |  |               | 17,955  |   |                       |   | 78,766  |                            |  |                          | 12,665 |  |                   |         |   |  |   | 109,386
|Intangible assets, net                     |  |               | 35,656  |   |                       |   | 90,765  |                            |  |                          | 6,988  |  |                   |         |   |  |   | 133,409
|Investments                                |  |               | 216,595 |   |                       |   | 31,696  |                            |  |                          |       |  |                   | (243,392 | ) |  |   | 4,899  
|Other assets                               |  |               | 12,495  |   |                       |   | (1,244  | )                          |  |                          | 179    |  |                   | (190     | ) |  |   | 11,240 
|                                           |  |               |         |   |                       |   |         |                            |  |                          |        |  |                   |          |   |  |   |        
|Total assets                               |  | $             | 668,064 |   |                       | $ | 309,257 |                            |  | $                        | 70,425 |  | $                 | (246,320 | ) |  | $ | 801,426
|                                           |  |               |         |   |                       |   |         |                            |  |                          |        |  |                   |          |   |  |   |        
|                                           |  |               |         |   |                      
|                                           |  | ParentCompany |         |   | GuarantorSubsidiaries |   |         | Non-Guarantor Subsidiaries |  | ConsolidatingAdjustments |        |  | ConsolidatedTotal
|Liabilities and Stockholders' Equity       |  |               |         |   |                       |   |         |                            |  |                          |        |  |                   |          |   |  |   |        
|Current liabilities:                       |  |               |         |   |                       |   |         |                            |  |                          |        |  |                   |          |   |  |   |        
|Accounts payable                           |  | $             | 169,608 |   |                       | $ | 81,822  |                            |  | $                        | 19,701 |  | $                 | (2,297   | ) |  | $ | 268,834
|Accrued expenses                           |  |               | 28,448  |   |                       |   | 6,057   |                            |  |                          | 10,113 |  |                   | (490     | ) |  |   | 44,128 
|Progress billings                          |  |               | 38,997  |   |                       |   | 2,869   |                            |  |                          | 7,392  |  |                   |         |   |  |   | 49,258 
|                                           |  |               |         |   |                       |   |         |                            |  |                          |        |  |                   |          |   |  |   |        
|Total current liabilities                  |  |               | 237,053 |   |                       |   | 90,748  |                            |  |                          | 37,206 |  |                   | (2,787   | ) |  |   | 362,220
|                                           |  |               |         |   |                       |   |         |                            |  |                          |        |  |                   |          |   |  |   |        
|Long-term debt                             |  |               | 259,931 |   |                       |   |        |                            |  |                          |       |  |                   |         |   |  |   | 259,931
|Other non-current liabilities              |  |               |        |   |                       |   | 6,672   |                            |  |                          | 1,523  |  |                   |         |   |  |   | 8,195  
|Deferred income taxes                      |  |               | 3,506   |   |                       |   |        |                            |  |                          |       |  |                   |         |   |  |   | 3,506  
|Stockholders' equity                       |  |               | 167,574 |   |                       |   | 211,837 |                            |  |                          | 31,696 |  |                   | (243,533 | ) |  |   | 167,574
|                                           |  |               |         |   |                       |   |         |                            |  |                          |        |  |                   |          |   |  |   |        
|Total liabilities and stockholders' equity |  | $             | 668,064 |   |                       | $ | 309,257 |                            |  | $                        | 70,425 |  | $                 | (246,320 | ) |  | $ | 801,426
|                                           |  |               |         |   |                       |   |         |                            |  |                          |        |  |                   |          |   |  |   |        



14



---

VALASSIS COMMUNICATIONS, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)



Condensed Consolidating Statement of Income

Three Months Ended September 30, 2007

(in thousands)



|                                                                                                 |  |               |         |   |                       |   |         |                           |  |   |                          |   |  |                   |         |   |  |   |         |  
|------------------------------------------------------------------------------------------------ |  | ------------- | ------- | - | --------------------- | - | ------- | ------------------------- |  | - | ------------------------ | - |  | ----------------- | ------- | - |  | - | ------- | -
|                                                                                                 |  | ParentCompany |         |   | GuarantorSubsidiaries |   |         | Non-GuarantorSubsidiaries |  |   | ConsolidatingAdjustments |   |  | ConsolidatedTotal |        
|Revenues                                                                                         |  | $             | 182,749 |   |                       | $ | 415,820 |                           |  | $ | 21,811                   |   |  | $                 | (13,147 | ) |  | $ | 607,233 |  
|                                                                                                 |  |               |         |   |                      
|Cost and expenses:                                                                               |  |               |         |   |                       |   |         |                           |  |   |                          |   |  |                   |         |   |  |   |         |  
|Cost of products sold                                                                            |  |               | 151,520 |   |                       |   | 305,689 |                           |  |   | 15,491                   |   |  |                   | (13,147 | ) |  |   | 459,553 |  
|Selling, general and administrative                                                              |  |               | 13,972  |   |                       |   | 76,424  |                           |  |   | 5,931                    |   |  |                   |        |   |  |   | 96,327  |  
|Amortization                                                                                     |  |               | 56      |   |                       |   | 2,333   |                           |  |   |                         |   |  |                   |        |   |  |   | 2,389   |  
|                                                                                                 |  |               |         |   |                       |   |         |                           |  |   |                          |   |  |                   |         |   |  |   |         |  
|Total costs and expenses                                                                         |  |               | 165,548 |   |                       |   | 384,446 |                           |  |   | 21,422                   |   |  |                   | (13,147 | ) |  |   | 558,269 |  
|                                                                                                 |  |               |         |   |                       |   |         |                           |  |   |                          |   |  |                   |         |   |  |   |         |  
|Earnings from operations                                                                         |  |               | 17,201  |   |                       |   | 31,374  |                           |  |   | 389                      |   |  |                   |        |   |  |   | 48,964  |  
|                                                                                                 |  |               |         |   |                      
|Other expenses (income):                                                                         |  |               |         |   |                       |   |         |                           |  |   |                          |   |  |                   |         |   |  |   |         |  
|Interest expense                                                                                 |  |               | 24,572  |   |                       |   |        |                           |  |   | 3                        |   |  |                   |        |   |  |   | 24,575  |  
|Other income, net                                                                                |  |               | (370    | ) |                       |   | (1,472  | )                         |  |   | (190                     | ) |  |                   |        |   |  |   | (2,032  | )
|                                                                                                 |  |               |         |   |                       |   |         |                           |  |   |                          |   |  |                   |         |   |  |   |         |  
|Total other expenses (income)                                                                    |  |               | 24,202  |   |                       |   | (1,472  | )                         |  |   | (187                     | ) |  |                   |        |   |  |   | 22,543  |  
|                                                                                                 |  |               |         |   |                       |   |         |                           |  |   |                          |   |  |                   |         |   |  |   |         |  
|Earnings/(loss) before income taxes                                                              |  |               | (7,001  | ) |                       |   | 32,846  |                           |  |   | 576                      |   |  |                   |        |   |  |   | 26,421  |  
|Income taxes                                                                                     |  |               | (1,144  | ) |                       |   | 10,878  |                           |  |   | 244                      |   |  |                   |        |   |  |   | 9,978   |  
|Equity in net earnings of subsidiary                                                             |  |               | 22,300  |   |                       |   | 332     |                           |  |   |                         |   |  |                   | (22,632 | ) |  |   |        |  
|                                                                                                 |  |               |         |   |                       |   |         |                           |  |   |                          |   |  |                   |         |   |  |   |         |  
|Net earnings                                                                                     |  | $             | 16,443  |   |                       | $ | 22,300  |                           |  | $ | 332                      |   |  | $                 | (22,632 | ) |  | $ | 16,443  |  
|                                                                                                 |  |               |         |   |                       |   |         |                           |  |   |                          |   |  |                   |         |   |  |   |         |  
|                                                                                                
|Condensed Consolidating Statement of Income Three Months Ended September 30, 2006 (in thousands) | 
|                                                                                                 |  |               |         |   |                      
|                                                                                                 |  | ParentCompany |         |   | GuarantorSubsidiaries |   |         | Non-GuarantorSubsidiaries |  |   | ConsolidatingAdjustments |   |  | ConsolidatedTotal |        
|Revenues                                                                                         |  | $             | 168,137 |   |                       | $ | 65,756  |                           |  | $ | 16,915                   |   |  | $                 | (1,925  | ) |  | $ | 248,883 |  
|                                                                                                 |  |               |         |   |                      
|Cost and expenses:                                                                               |  |               |         |   |                       |   |         |                           |  |   |                          |   |  |                   |         |   |  |   |         |  
|Cost of products sold                                                                            |  |               | 134,635 |   |                       |   | 40,576  |                           |  |   | 13,947                   |   |  |                   | (1,925  | ) |  |   | 187,233 |  
|Selling, general and administrative                                                              |  |               | 13,147  |   |                       |   | 19,159  |                           |  |   | 6,148                    |   |  |                   |        |   |  |   | 38,454  |  
|Amortization                                                                                     |  |               | 56      |   |                       |   | 83      |                           |  |   |                         |   |  |                   |        |   |  |   | 139     |  
|                                                                                                 |  |               |         |   |                       |   |         |                           |  |   |                          |   |  |                   |         |   |  |   |         |  
|Total costs and expenses                                                                         |  |               | 147,838 |   |                       |   | 59,818  |                           |  |   | 20,095                   |   |  |                   | (1,925  | ) |  |   | 225,826 |  
|                                                                                                 |  |               |         |   |                       |   |         |                           |  |   |                          |   |  |                   |         |   |  |   |         |  
|Earnings from operations                                                                         |  |               | 20,299  |   |                       |   | 5,938   |                           |  |   | (3,180                   | ) |  |                   |        |   |  |   | 23,057  |  
|                                                                                                 |  |               |         |   |                      
|Other expenses (income):                                                                         |  |               |         |   |                       |   |         |                           |  |   |                          |   |  |                   |         |   |  |   |         |  
|Interest expense                                                                                 |  |               | 15,231  |   |                       |   | 469     |                           |  |   | 161                      |   |  |                   |        |   |  |   | 15,861  |  
|Other income, net                                                                                |  |               | (976    | ) |                       |   | (731    | )                         |  |   | (868                     | ) |  |                   |        |   |  |   | (2,575  | )
|                                                                                                 |  |               |         |   |                       |   |         |                           |  |   |                          |   |  |                   |         |   |  |   |         |  
|Total other expenses (income)                                                                    |  |               | 14,255  |   |                       |   | (262    | )                         |  |   | (707                     | ) |  |                   |        |   |  |   | 13,286  |  
|                                                                                                 |  |               |         |   |                       |   |         |                           |  |   |                          |   |  |                   |         |   |  |   |         |  
|Earnings/(loss) before income taxes                                                              |  |               | 6,044   |   |                       |   | 6,200   |                           |  |   | (2,473                   | ) |  |                   |        |   |  |   | 9,771   |  
|                                                                                                 |  |               |         |   |                      
|Income taxes                                                                                     |  |               | 2,425   |   |                       |   | 654     |                           |  |   | 70                       |   |  |                   |        |   |  |   | 3,149   |  
|Equity in net earnings/(loss) of subsidiary                                                      |  |               | 3,003   |   |                       |   | (2,543  | )                         |  |   |                         |   |  |                   | (460    | ) |  |   |        |  
|                                                                                                 |  |               |         |   |                       |   |         |                           |  |   |                          |   |  |                   |         |   |  |   |         |  
|Net earnings/(loss)                                                                              |  | $             | 6,622   |   |                       | $ | 3,003   |                           |  | $ | (2,543                   | ) |  | $                 | (460    | ) |  | $ | 6,622   |  
|                                                                                                 |  |               |         |   |                       |   |         |                           |  |   |                          |   |  |                   |         |   |  |   |         |  



15



---

VALASSIS COMMUNICATIONS, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)



Condensed Consolidating Statement of Income

Nine Months Ended September 30, 2007

(in thousands)



|                                                                                                |  |               |         |   |                       |   |           |                           |  |   |                          |   |  |                   |         |   |  |   |           |  
|----------------------------------------------------------------------------------------------- |  | ------------- | ------- | - | --------------------- | - | --------- | ------------------------- |  | - | ------------------------ | - |  | ----------------- | ------- | - |  | - | --------- | -
|                                                                                                |  | ParentCompany |         |   | GuarantorSubsidiaries |   |           | Non-GuarantorSubsidiaries |  |   | ConsolidatingAdjustments |   |  | ConsolidatedTotal |        
|Revenues                                                                                        |  | $             | 532,048 |   |                       | $ | 1,011,637 |                           |  | $ | 64,618                   |   |  | $                 | (27,619 | ) |  | $ | 1,580,684 |  
|                                                                                                |  |               |         |   |                      
|Cost and expenses:                                                                              |  |               |         |   |                       |   |           |                           |  |   |                          |   |  |                   |         |   |  |   |           |  
|Cost of products sold                                                                           |  |               | 444,761 |   |                       |   | 745,774   |                           |  |   | 48,476                   |   |  |                   | (27,619 | ) |  |   | 1,211,392 |  
|Selling, general and administrative                                                             |  |               | 40,905  |   |                       |   | 189,545   |                           |  |   | 16,767                   |   |  |                   |         |   |  |   | 247,217   |  
|Amortization                                                                                    |  |               | 167     |   |                       |   | 5,442     |                           |  |   |                         |   |  |                   |         |   |  |   | 5,609     |  
|                                                                                                |  |               |         |   |                       |   |           |                           |  |   |                          |   |  |                   |         |   |  |   |           |  
|Total costs and expenses                                                                        |  |               | 485,833 |   |                       |   | 940,761   |                           |  |   | 65,243                   |   |  |                   | (27,619 | ) |  |   | 1,464,218 |  
|                                                                                                |  |               |         |   |                       |   |           |                           |  |   |                          |   |  |                   |         |   |  |   |           |  
|Earnings from operations                                                                        |  |               | 46,215  |   |                       |   | 70,876    |                           |  |   | (625                     | ) |  |                   |        |   |  |   | 116,466   |  
|                                                                                                |  |               |         |   |                      
|Other expenses (income):                                                                        |  |               |         |   |                       |   |           |                           |  |   |                          |   |  |                   |         |   |  |   |           |  
|Interest expense                                                                                |  |               | 60,414  |   |                       |   |          |                           |  |   | 8                        |   |  |                   |        |   |  |   | 60,422    |  
|Other income, net                                                                               |  |               | (2,231  | ) |                       |   | (3,051    | )                         |  |   | (413                     | ) |  |                   |        |   |  |   | (5,695    | )
|                                                                                                |  |               |         |   |                       |   |           |                           |  |   |                          |   |  |                   |         |   |  |   |           |  
|Total other expenses (income)                                                                   |  |               | 58,183  |   |                       |   | (3,051    | )                         |  |   | (405                     | ) |  |                   |        |   |  |   | 54,727    |  
|                                                                                                |  |               |         |   |                       |   |           |                           |  |   |                          |   |  |                   |         |   |  |   |           |  
|Earnings/(loss) before income taxes                                                             |  |               | (11,968 | ) |                       |   | 73,927    |                           |  |   | (220                     | ) |  |                   |        |   |  |   | 61,739    |  
|                                                                                                |  |               |         |   |                      
|Income taxes                                                                                    |  |               | 687     |   |                       |   | 22,985    |                           |  |   | 615                      |   |  |                   |        |   |  |   | 24,287    |  
|Equity in net earnings/(loss) of subsidiary                                                     |  |               | 50,107  |   |                       |   | (835      | )                         |  |   |                         |   |  |                   | (49,272 | ) |  |   |          |  
|                                                                                                |  |               |         |   |                       |   |           |                           |  |   |                          |   |  |                   |         |   |  |   |           |  
|Net earnings/(loss)                                                                             |  | $             | 37,452  |   |                       | $ | 50,107    |                           |  | $ | (835                     | ) |  | $                 | (49,272 | ) |  | $ | 37,452    |  
|                                                                                                |  |               |         |   |                       |   |           |                           |  |   |                          |   |  |                   |         |   |  |   |           |  
|                                                                                               
|Condensed Consolidating Statement of Income Nine Months Ended September 30, 2006 (in thousands) | 
|                                                                                                |  |               |         |   |                      
|                                                                                                |  | ParentCompany |         |   | GuarantorSubsidiaries |   |           | Non-GuarantorSubsidiaries |  |   | ConsolidatingAdjustments |   |  | ConsolidatedTotal |        
|Revenues                                                                                        |  | $             | 507,399 |   |                       | $ | 205,177   |                           |  | $ | 49,101                   |   |  | $                 | (4,556  | ) |  | $ | 757,121   |  
|                                                                                                |  |               |         |   |                      
|Cost and expenses:                                                                              |  |               |         |   |                       |   |           |                           |  |   |                          |   |  |                   |         |   |  |   |           |  
|Cost of products sold                                                                           |  |               | 410,871 |   |                       |   | 126,480   |                           |  |   | 37,679                   |   |  |                   | (4,556  | ) |  |   | 570,474   |  
|Selling, general and administrative                                                             |  |               | 32,061  |   |                       |   | 55,434    |                           |  |   | 14,214                   |   |  |                   |        |   |  |   | 101,709   |  
|Amortization                                                                                    |  |               | 167     |   |                       |   | 250       |                           |  |   |                         |   |  |                   |        |   |  |   | 417       |  
|                                                                                                |  |               |         |   |                       |   |           |                           |  |   |                          |   |  |                   |         |   |  |   |           |  
|Total costs and expenses                                                                        |  |               | 443,099 |   |                       |   | 182,164   |                           |  |   | 51,893                   |   |  |                   | (4,556  | ) |  |   | 672,600   |  
|                                                                                                |  |               |         |   |                       |   |           |                           |  |   |                          |   |  |                   |         |   |  |   |           |  
|Earnings/(loss) from operations                                                                 |  |               | 64,300  |   |                       |   | 23,013    |                           |  |   | (2,792                   | ) |  |                   |        |   |  |   | 84,521    |  
|                                                                                                |  |               |         |   |                      
|Other expenses (income):                                                                        |  |               |         |   |                       |   |           |                           |  |   |                          |   |  |                   |         |   |  |   |           |  
|Interest expense                                                                                |  |               | 20,923  |   |                       |   |          |                           |  |   | 9                        |   |  |                   |        |   |  |   | 20,932    |  
|Other income, net                                                                               |  |               | (2,967  | ) |                       |   | (731      | )                         |  |   | (959                     | ) |  |                   |        |   |  |   | (4,657    | )
|                                                                                                |  |               |         |   |                       |   |           |                           |  |   |                          |   |  |                   |         |   |  |   |           |  
|Total other expenses (income)                                                                   |  |               | 17,956  |   |                       |   | (731      | )                         |  |   | (950                     | ) |  |                   |        |   |  |   | 16,275    |  
|                                                                                                |  |               |         |   |                       |   |           |                           |  |   |                          |   |  |                   |         |   |  |   |           |  
|Earnings/(loss) before income taxes                                                             |  |               | 46,344  |   |                       |   | 23,744    |                           |  |   | (1,842                   | ) |  |                   |        |   |  |   | 68,246    |  
|                                                                                                |  |               |         |   |                      
|Income taxes                                                                                    |  |               | 20,617  |   |                       |   | 2,215     |                           |  |   | 1,046                    |   |  |                   |        |   |  |   | 23,878    |  
|Equity in net earnings/(loss) of subsidiary                                                     |  |               | 18,641  |   |                       |   | (2,888    | )                         |  |   |                         |   |  |                   | (15,753 | ) |  |   |          |  
|                                                                                                |  |               |         |   |                       |   |           |                           |  |   |                          |   |  |                   |         |   |  |   |           |  
|Net earnings/(loss)                                                                             |  | $             | 44,368  |   |                       | $ | 18,641    |                           |  | $ | (2,888                   | ) |  | $                 | (15,753 | ) |  | $ | 44,368    |  
|                                                                                                |  |               |         |   |                       |   |           |                           |  |   |                          |   |  |                   |         |   |  |   |           |  



16



---

VALASSIS COMMUNICATIONS, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)



Condensed Consolidating Statement of Cash Flows

Nine Months Ended September 30, 2007

(in thousands)



|                                                                                                    |  |               |            |   |                       |   |         |                           |  |   |                          |   |                   |   |   |  |   |            |  
|--------------------------------------------------------------------------------------------------- |  | ------------- | ---------- | - | --------------------- | - | ------- | ------------------------- |  | - | ------------------------ | - | ----------------- | - | - |  | - | ---------- | -
|                                                                                                    |  | ParentCompany |            |   | GuarantorSubsidiaries |   |         | Non-GuarantorSubsidiaries |  |   | ConsolidatingAdjustments |   | ConsolidatedTotal |  
|Operating activities                                                                                |  |               |            |   |                       |   |         |                           |  |   |                          |   |                   |   |   |  |   |            |  
|Net cash provided by operating activities                                                           |  | $             | 26,930     |   |                       | $ | 84,916  |                           |  | $ | 5,587                    |   |                   | $ |  |  | $ | 117,433    |  
|                                                                                                    |  |               |            |   |                      
|Investing Activities                                                                                |  |               |            |   |                       |   |         |                           |  |   |                          |   |                   |   |   |  |   |            |  
|Additions to property, plant and equipment                                                          |  |               | (4,649     | ) |                       |   | (15,223 | )                         |  |   | (252                     | ) |                   |   |  |  |   | (20,124    | )
|Acquisition of ADVO, net of cash acquired                                                           |  |               | (1,187,873 | ) |                       |   |        |                           |  |   |                         |   |                   |   |  |  |   | (1,187,873 | )
|Purchases of auction rate securities                                                                |  |               | (146,262   | ) |                       |   | (10,073 | )                         |  |   |                         |   |                   |   |  |  |   | (156,335   | )
|Proceeds from sales of auction rate securities                                                      |  |               | 237,781    |   |                       |   | 21,088  |                           |  |   |                         |   |                   |   |  |  |   | 258,869    |  
|Investments and advances to affiliated companies                                                    |  |               | (1,000     | ) |                       |   |        |                           |  |   |                         |   |                   |   |  |  |   | (1,000     | )
|Other                                                                                               |  |               | (604       | ) |                       |   |        |                           |  |   |                         |   |                   |   |  |  |   | (604       | )
|                                                                                                    |  |               |            |   |                       |   |         |                           |  |   |                          |   |                   |   |   |  |   |            |  
|Net cash used in investing activities                                                               |  |               | (1,102,607 | ) |                       |   | (4,208  | )                         |  |   | (252                     | ) |                   |   |  |  |   | (1,107,067 | )
|                                                                                                    |  |               |            |   |                       |   |         |                           |  |   |                          |   |                   |   |   |  |   |            |  
|                                                                                                    |  |               |            |   |                      
|Financing Activities                                                                                |  |               |            |   |                       |   |         |                           |  |   |                          |   |                   |   |   |  |   |            |  
|Borrowings of long-term debt                                                                        |  |               | 1,130,000  |   |                       |   |        |                           |  |   |                         |   |                   |   |  |  |   | 1,130,000  |  
|Payment of debt issue costs                                                                         |  |               | (19,212    | ) |                       |   |        |                           |  |   |                         |   |                   |   |  |  |   | (19,212    | )
|Repayment of long-term debt                                                                         |  |               | (52,950    | ) |                       |   |        |                           |  |   |                         |   |                   |   |  |  |   | (52,950    | )
|                                                                                                    |  |               |            |   |                       |   |         |                           |  |   |                          |   |                   |   |   |  |   |            |  
|Net cash provided by financing activities                                                           |  |               | 1,057,838  |   |                       |   |        |                           |  |   |                         |   |                   |   |  |  |   | 1,057,838  |  
|                                                                                                    |  |               |            |   |                       |   |         |                           |  |   |                          |   |                   |   |   |  |   |            |  
|Effect of exchange rate changes on cash                                                             |  |               |           |   |                       |   |        |                           |  |   | 1,555                    |   |                   |   |  |  |   | 1,555      |  
|                                                                                                    |  |               |            |   |                      
|Net increase (decrease) in cash                                                                     |  |               | (17,839    | ) |                       |   | 80,708  |                           |  |   | 6,890                    |   |                   |   |  |  |   | 69,759     |  
|Cash at beginning of period                                                                         |  |               | 21,463     |   |                       |   | 13,173  |                           |  |   | 17,983                   |   |                   |   |  |  |   | 52,619     |  
|                                                                                                    |  |               |            |   |                       |   |         |                           |  |   |                          |   |                   |   |   |  |   |            |  
|Cash at end of period                                                                               |  | $             | 3,624      |   |                       | $ | 93,881  |                           |  | $ | 24,873                   |   |                   | $ |  |  | $ | 122,378    |  
|                                                                                                    |  |               |            |   |                       |   |         |                           |  |   |                          |   |                   |   |   |  |   |            |  
|                                                                                                   
|Condensed Consolidating Statement of Cash Flows Nine Months Ended September 30, 2006 (in thousands) | 
|                                                                                                    |  |               |            |   |                      
|                                                                                                    |  | ParentCompany |            |   | GuarantorSubsidiaries |   |         | Non-GuarantorSubsidiaries |  |   | ConsolidatingAdjustments |   | ConsolidatedTotal |  
|Operating Activities                                                                                |  |               |            |   |                       |   |         |                           |  |   |                          |   |                   |   |   |  |   |            |  
|Net cash provided by (used in) operating activities                                                 |  | $             | 45,296     |   |                       | $ | 15,176  |                           |  | $ | (6,044                   | ) |                   | $ |  |  | $ | 54,428     |  
|                                                                                                    |  |               |            |   |                      
|Investing Activities                                                                                |  |               |            |   |                       |   |         |                           |  |   |                          |   |                   |   |   |  |   |            |  
|Additions to property, plant and equipment                                                          |  |               | (5,501     | ) |                       |   | (2,487  | )                         |  |   | (423                     | ) |                   |   |  |  |   | (8,411     | )
|Purchases of auction rate securities                                                                |  |               | (437,358   | ) |                       |   | (30,556 | )                         |  |   |                         |   |                   |   |  |  |   | (467,914   | )
|Proceeds from sales of auction rate securities                                                      |  |               | 433,261    |   |                       |   | 26,072  |                           |  |   |                         |   |                   |   |  |  |   | 459,333    |  
|Investments and advances to affiliated companies                                                    |  |               | (3,000     | ) |                       |   |        |                           |  |   |                         |   |                   |   |  |  |   | (3,000     | )
|Other                                                                                               |  |               | (330       | ) |                       |   |        |                           |  |   |                         |   |                   |   |  |  |   | (330       | )
|                                                                                                    |  |               |            |   |                       |   |         |                           |  |   |                          |   |                   |   |   |  |   |            |  
|Net cash used in investing activities                                                               |  |               | (12,928    | ) |                       |   | (6,971  | )                         |  |   | (423                     | ) |                   |   |  |  |   | (20,322    | )
|                                                                                                    |  |               |            |   |                       |   |         |                           |  |   |                          |   |                   |   |   |  |   |            |  
|                                                                                                    |  |               |            |   |                      
|Financing Activities                                                                                |  |               |            |   |                       |   |         |                           |  |   |                          |   |                   |   |   |  |   |            |  
|Proceeds from issuance of common stock                                                              |  |               | 5,731      |   |                       |   |        |                           |  |   |                         |   |                   |   |  |  |   | 5,731      |  
|Repurchase of common stock                                                                          |  |               | (3,913     | ) |                       |   |        |                           |  |   |                         |   |                   |   |  |  |   | (3,913     | )
|Repayment of long-term debt                                                                         |  |               | (14,441    | ) |                       |   |        |                           |  |   |                         |   |                   |   |  |  |   | (14,441    | )
|                                                                                                    |  |               |            |   |                       |   |         |                           |  |   |                          |   |                   |   |   |  |   |            |  
|Net cash used in financing activities                                                               |  |               | (12,623    | ) |                       |   |        |                           |  |   |                         |   |                   |   |  |  |   | (12,623    | )
|                                                                                                    |  |               |            |   |                       |   |         |                           |  |   |                          |   |                   |   |   |  |   |            |  
|Effect of exchange rate changes on cash                                                             |  |               |           |   |                       |   |        |                           |  |   | 1,062                    |   |                   |   |  |  |   | 1,062      |  
|                                                                                                    |  |               |            |   |                      
|Net increase (decrease) in cash                                                                     |  |               | 19,745     |   |                       |   | 8,205   |                           |  |   | (5,405                   | ) |                   |   |  |  |   | 22,545     |  
|Cash at beginning of period                                                                         |  |               | 23,484     |   |                       |   | 16,525  |                           |  |   | 24,311                   |   |                   |   |  |  |   | 64,320     |  
|                                                                                                    |  |               |            |   |                       |   |         |                           |  |   |                          |   |                   |   |   |  |   |            |  
|Cash at end of period                                                                               |  | $             | 43,229     |   |                       | $ | 24,730  |                           |  | $ | 18,906                   |   |                   | $ |  |  | $ | 86,865     |  
|                                                                                                    |  |               |            |   |                       |   |         |                           |  |   |                          |   |                   |   |   |  |   |            |  



17



---

VALASSIS COMMUNICATIONS, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)



|11. | INCOME TAXES
|--- | ------------

On July 13, 2006, the FASB issued Interpretation
(FIN) No. 48, Accounting for Uncertainty in Income TaxesAn Interpretation of FASB Statement No. 109. FIN No. 48 clarifies the accounting for uncertainty in income taxes recognized in an entitys financial
statements and prescribes recognition and measurement standards for the disclosure of tax positions taken or expected to be taken on a tax return. FIN No. 48 requires that the tax effects of a position be recognized only if it is
more-likely-than-not to be sustained based solely on its technical merits as of the reporting date. The more-likely-than-not threshold represents a positive assertion by management that a company is entitled to the economic benefit of a
tax position. If a tax position is not considered more-likely-than-not to be sustained based solely on its technical merits, a company cannot recognize any benefit for the tax position. In addition, the tax position must continue to meet the
more-likely-than-not threshold in each reporting period after initial recognition in order to support continued recognition of a benefit. With the adoption of FIN No. 48, companies are required to adjust their financial statements to reflect
only those tax positions that are more-likely-than-not to be sustained. In addition to initial recognition and measurement, FIN No. 48 provides guidance on derecognition of tax benefits, classification on the balance sheet, interest and
penalties, accounting in interim periods, disclosure, and transition. Valassis adopted FIN No. 48 effective January 1, 2007.

As a result of
adopting FIN No. 48, Valassis recognized a cumulative increase in its liability for unrecognized tax benefits of $4.2 million, resulting in a total liability for unrecognized tax benefits on January 1, 2007 of $5.7 million, all of which
would impact Valassis effective tax rate if recognized. This cumulative change decreased retained earnings by $3.9 million and increased current income tax expense by $0.3 million. On March 2, 2007, Valassis acquired all the stock of
ADVO. Following the application of FIN No. 48 to ADVOs tax positions, ADVO recognized an additional liability of $1.3 million for unrecognized tax benefits. The adjustment for ADVO served to increase goodwill on the opening balance sheet
under purchase accounting principles by $1.3 million. As of September 30, 2007, Valassis had $10.1 million in unrecognized tax benefits, of which $6.6 million would impact Valassis effective tax rate if recognized.

Valassis files tax returns in various federal, state, and local jurisdictions. In many cases, Valassis liabilities for unrecognized tax benefits relate to tax
years that remain open for examination by a jurisdictions taxing authority. The following table summarizes open tax years by major jurisdiction, including the period ending March 2, 2007 for ADVO for which returns are not yet filed:



|               |  |             |  |                        
|-------------- |  | ----------- |  | -----------------------
|Jurisdiction   |  | VCI         |  | ADVO                   
|United States  |  | 2004 - 2006 |  | 09/02, 09/04 - 03/02/07
|California     |  | 2000 - 2006 |  | 09/03 - 03/02/07       
|Connecticut    |  | 2000 - 2006 |  | 09/04 - 03/02/07       
|Illinois       |  | 2004 - 2006 |  | 09/04 - 03/02/07       
|Kansas         |  | 2003 - 2006 |  | 09/04 - 03/02/07       
|Massachusetts  |  | 1996 - 2006 |  | 09/04 - 03/02/07       
|North Carolina |  | 2002 - 2006 |  | 09/98 - 03/02/07,      
|               |  |             |  | 09/04 - 03/02/07       
|Pennsylvania   |  | 2003 - 2006 |  | 09/02 - 03/02/07       
|Texas          |  | 2003 - 2006 |  | 09/03 - 03/02/07       

Prior to September 30, 2008, Valassis anticipates that several events may occur that could have a significant
effect on the liabilities for unrecognized tax benefits as reported. These anticipated events include the settlement or payment of ongoing state audits and the closure of negotiations in connection with historic state planning positions. Management
expects these events would result in a decrease in liability for unrecognized tax benefits of $1.2 million to $3.0 million. Further effects could be recognized as Valassis completes routine process studies, but there is not sufficient data to
estimate the impact of these changes at this time.

Valassis policy for recording interest and penalties associated with liabilities for unrecognized
tax benefits is to record these items as part of income tax expense. This accounting policy does not represent a change in policy from prior periods. The gross amount of interest and penalties recorded as of January 1, 2007 is $1.3 million. The
amount of interest and penalties accrued for both the three and nine month period ended September 30, 2007 was $0.2 million and $0.6 million, respectively. The gross amount of interest and penalties recorded for Valassis as of
September 30, 2007 was $3.5 million.



18



---

VALASSIS COMMUNICATIONS, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)



In July 2007, the State of Michigan enacted substantial changes to its corporate tax structure. The tax law changes
include the elimination of the Single Business Tax (SBT) and the creation of an income tax and a modified gross receipts tax. The new taxes will be effective January 1, 2008. As enacted, the new Michigan tax structure does not have a material
impact on Valassis financial condition, results of operation or liquidity.



19



---

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

Certain statements under the caption Managements Discussion and Analysis of Financial Condition and Results of Operations, including, specifically, statements made in Overview, and
elsewhere in this Quarterly Report on Form 10-Q 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 the actual results, performance or achievements of Valassis to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements and
may cause future results to differ from Valassis operating results in the past. Such factors include, among others, the following: price competition from Valassis existing competitors; new competitors in any of Valassis' businesses; a
shift in customer preference for different promotional materials, promotional strategies or coupon delivery methods; an unforeseen increase in Valassis' paper or postal costs; changes which affect the businesses of Valassis customers and lead
to reduced sales promotion spending; challenges and costs of achieving synergies and cost savings in connection with the ADVO acquisition and in integrating ADVOs operations may be greater than expected; Valassis substantial
indebtedness, and its ability to incur additional indebtedness, may affect Valassis financial health; certain covenants in Valassis debt documents could adversely restrict its financial and operating flexibility; fluctuations in the
amount, timing, pages, weight and kinds of advertising pieces from period to period, due to a change in Valassis customers promotional needs, inventories and other factors; Valassis failure to attract and retain qualified personnel
may affect its business and results of operations; a rise in interest rates could increase Valassis borrowing costs; the outcome of ADVOs pending shareholder lawsuits; possible governmental regulation or litigation affecting aspects of
Valassis business; and general economic conditions, whether nationally or in the market areas in which Valassis conducts its business, may be less favorable than expected. Valassis disclaims 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 Amended 2006 10-K and Quarterly Reports on Form 10-Q filed
subsequently thereto, and other filings by Valassis with the United States Securities and Exchange Commission (SEC).

Overview

On March 2, 2007, we acquired the shares of ADVO common stock for an acquisition price of
approximately $1.2 billion, including the refinancing of approximately $125.0 million in existing ADVO debt. We funded the ADVO acquisition, together with the refinancing of ADVO debt and the payment of related fees and expenses, with an $870.0
million senior secured credit facility with a syndicate of lenders, an unsecured $540.0 million offering of 81/4% Senior Notes due 2015 and existing cash on hand.

The combination of Valassis and ADVO provides the delivery of value-oriented
consumer promotions by blending home newspaper delivery with shared direct mail. We offer products and services including newspaper-delivered promotions such as inserts, sampling, polybags and on-page advertisements; shared mail; direct mail;
in-store marketing; direct-to-door advertising and sampling; Internet-delivered marketing; loyalty marketing software; coupon and promotion clearing; promotion planning; and analytic services. We can now reach over 60 million households through
weekly newspaper distribution and 90% of U.S. homes through shared mail distribution.

For the three months ended September 30, 2007, we achieved
revenues of $607.2 million, an increase of $358.4 million, or 144.0%, from the quarter ended September 30, 2006. We consolidated ADVOs financial results with ours beginning March 2, 2007, which accounted for $348.9 million of this
increase in revenue. Net earnings for the quarter ended September 30, 2007 were $16.4 million, representing an increase of 148.3% from the comparable period last year and we delivered diluted earnings per share (EPS) of $0.34.

We have added the ADVO business as a separate reportable business segment effective the date of the acquisition. During the first quarter of 2007, we also combined our
Run of Press (ROP) business segment into our Neighborhood Targeted business segment due to similarities in the businesses.

Segment Results

FSI

In the quarter ended September 30, 2007,
FSI revenues were $102.6 million, representing a decrease of 3.1% compared to the quarter ended September 30, 2006. The decrease in revenues was attributable to an expected reduction in FSI pricing of approximately 9%, partially offset by a 4%
increase in industry volume and a slight increase in market share as compared to the third quarter of 2006. For the nine months ended September 30, 2007, FSI revenues were $311.0 million, representing a decrease of 8.0% compared to the year-ago
period. This decline was also due to an approximate 10% decrease in FSI pricing, partially offset by slight industry growth and market share gains. FSI cost of goods sold decreased slightly during the three and nine months ended September 30,
2007 versus the comparable periods a year-ago on a cost-per-thousand (CPM) basis.



20



---

Neighborhood Targeted

Beginning with the first quarter of 2007, we combined our ROP segment with our Neighborhood Targeted segment. The majority of business within this combined segment is media placement. The segments have similar sales and operational
processes and now share common sales and management teams.

Our Neighborhood Targeted product revenues increased 13.3% in the quarter ended
September 30, 2007 to $117.4 million versus the quarter ended September 30, 2006. This increase was the result of strong results in ROP and preprints primarily in the telecommunications, financial services and consumer packaged goods
client verticals. For the nine months ended September 30, 2007, Neighborhood Targeted products revenue increased 15.6% to $338.1 million from the year-ago period. In the first quarter of 2006, we lost a significant amount of business from our
telecommunications clients due to industry consolidation, which we re-secured later in 2006. This is reflected in our increased revenue and segment profit in 2007. Segment profit increased significantly as a result of the higher volume experienced
in both the three and nine months ended September 30, 2007.

Household Targeted

The Household Targeted segment had revenues of $10.3 million in the quarter ended September 30, 2007, a decrease of 18.3% from the quarter ended September 30, 2006. The decrease in revenues for this segment
is due to continued softness in solo direct mail programs. This segment recorded $1.1 million in segment loss for the quarter ended September 30, 2007, which includes $0.9 million in SG&A expenses incurred during the quarter associated with
our new interactive initiative. For the nine months ended September 30, 2007, segment revenue decreased 24.0%, also due to softness in solo direct mail programs. The segment lost $1.6 million during the nine months ended September 30, 2007
due to the revenue decline coupled with increased SG&A related to the interactive initiative mentioned above.

International & Services

The International & Services segment had revenues of $28.0 million in the third quarter of 2007, an increase of 4.5% from the third quarter of
2006, due to higher coupon clearing volumes in the United States and the United Kingdom, and our in-store initiatives. Segment profits in the third quarter of 2007 were $2.9 million, representing an increase of $5.1 million from the year-ago period.
Segment profit in the third quarter of 2006 was adversely affected by $3.6 million in costs associated with the close down of our French agency business and eSettlement. For the nine months ended September 30, 2007 segment revenues increased
4.4% from the year-ago period.

ADVO

ADVO revenues for the third quarter of 2007 were $348.9 million, representing an increase of 1.5% from ADVOs
third calendar quarter of 2006. This growth was achieved despite the elimination of the Missing Child Card (MCC) which historically represented approximately 2% of revenues. During the second quarter, ADVO eliminated the use of the MCC
due to a shift from a detached address card to printing the consumer address on the ShopWise® wrap. In addition, the third calendar quarter of 2006 included billing adjustments representing
approximately 2% of revenues. These billing adjustments resulted from order entry issues associated with the implementation of the, then new, enterprise order-to-cash system. The elimination of the MCC in the current quarter was completely offset by
the billing adjustments in the prior quarter resulting in overall revenue growth quarter over quarter.

Advertising pieces were 8.6 billion, down 8.9% from the comparable prior period primarily due to a reduction in packages and a reduction in MCC pieces, offset slightly by increased advertising inserts from other products. Packages were 1.0
billion for the current period, down 2.5% from the third calendar quarter of 2006. The reduction in packages was in part due to package and profile consolidation in certain targeted markets. The reduction in pieces and packages resulted in a 7.0%
decrease in average pieces per package. Revenue per thousand pieces was $38.04 for the third quarter of 2007, increasing 11.6% over the comparable prior period. This increase resulted from the reduction in the lower priced MCC product, the postal
rate pass-through, and an improvement in the ShopWise® wrap sell-through percentage.

ADVOs gross margin percentage increased to 24.3% from 18.3% in the third calendar quarter of 2006 and 22.6% in the second quarter of 2007. Consolidating packages and profiles and print and paper costs synergies resulted in the higher
gross margin percentage for the quarter. Also contributing was the decrease in unused postage as a percentage of base postage from 21.8% in the prior years quarter to 21.1% in the current quarter. Gross margin of 18.3% in the third calendar
quarter of 2006 included the unfavorable effect of the billing adjustments.



21



---

Selling, General and Administrative Costs

Selling, general and administrative (SG&A) costs increased in the third quarter of 2007 to $96.3 million from $38.5 million in the third quarter of 2006. The increase resulted from the inclusion of ADVO SG&A
costs in our consolidated results beginning March 2, 2007. ADVO accounted for $58.0 million in SG&A expense for the quarter ended September 30, 2007. In addition, the third quarter 2006 included $2.9 million in costs related to the
acquisition of ADVO not repeated in the third quarter of 2007. The effect of this was offset by increased incentive compensation in the third quarter of 2007. For the nine months ended September 30, 2007, SG&A increased to $247.2 million
from $101.7 million in the comparable period last year. This increase was primarily due to the inclusion of ADVO which accounts for $134.7 million. The remaining increase was due to increases in incentive compensation and non-recurring costs related
to the acquisition of ADVO.

Amortization Expense

Amortization expense of $2.4 million was recorded for the quarter ended September 30, 2007. As a result of the allocation of purchase price for the ADVO acquisition, $180.0 million of amortizable intangibles were recorded with an
average life of 20 years.

Non-operating Items

Interest expense was $24.6 million in the third quarter of 2007, compared to $15.9 million in the third quarter of
2006, which included $11.3 million related to early termination of a $400 million interest rate swap. The increase was due to the issuance of $540.0 million of unsecured 81/4% Senior Notes due 2015 and borrowings of $590.0 million under a senior secured term loan in connection with the acquisition of ADVO on March 2, 2007. For the nine months
ended September 30, 2007, interest expense was $60.4 million compared to $20.9 million in the comparable period of 2006, due to the debt incurred as a result of the ADVO acquisition.

Net Earnings

Net earnings were $16.4 million in the third quarter of
2007, an increase of $9.8 million, or 148.3%, from the third quarter of 2006. The increase in earnings was due to the inclusion of ADVO earnings, partially offset by a decline in FSI pricing, softness in the Household Targeted segment and additional
interest expense associated with financing the acquisition of ADVO. ADVO contributed $15.0 million of net earnings during this period, which excludes the impact of interest expense. Diluted earnings per share were $0.34 in the third quarter of 2007,
compared to $0.14 in the third quarter of 2006.

Net earnings for the nine months ended September 30, 2007 were $37.5 million, representing a decrease
of 15.6% from the year ago period. ADVO contributed $29.8 million of net earnings during this period, which excludes the impact of interest expense. Diluted earnings per share were $0.78 for the nine months ended September 30, 2007, compared to
$0.93 for the nine months ended September 30, 2006.

Financial Condition, Liquidity and Sources of Capital

Valassis believes that it has sufficient liquidity to support the ongoing activities of its business, repay its existing long-term debt and invest in future growth
opportunities. Operating cash flows are Valassis primary source of liquidity and are expected to be used for, among other things, interest and principal payments on its debt obligations and capital expenditures necessary to support growth and
productivity improvement.

The following table presents our available sources of liquidity as of September 30, 2007:



|                                         |  |                |       |     |                   |   |           |  |   |       |    
|---------------------------------------- |  | -------------- | ----- | --- | ----------------- | - | --------- |  | - | ----- | ---
|Source of Liquidity (in millions)        |  | FacilityAmount |       |     | AmountOutstanding |   | Available | 
|Cash and cash equivalents                |  | $              |      |     |                   | $ |          |  | $ | 122.4 |    
|Debt facilities:                         |  |                |       |     |                   |   |           |  |   |       |    
|Senior Secured Revolving Credit Facility |  |                | 108.8 | (1) |                   |   |          |  |   | 108.8 | (1)
|Senior Secured Delayed Draw Term Loan(2) |  |                | 160.0 |     |                   |   |          |  |   | 160.0 |    
|                                         |  |                |       |     |                   |   |           |  |   |       |    
|Total Available                          |  |                |       |     |                   |   |           |  | $ | 391.2 |    
|                                         |  |                |       |     |                   |   |           |  |   |       |    

---

|(1) | net of $11.2 million in outstanding letters of credit
|--- | -----------------------------------------------------

|(2) | The Senior Secured Delayed Draw Term Loan is available until June 2008 to refinance the 2033 Secured Notes, including in the event the holders exercise their put rights in May 2008.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



22



---

Sources and Uses of Cash and Cash Equivalents

Cash and cash equivalents totaled $122.4 million at September 30, 2007, compared to $52.6 million at December 31, 2006. This was the result of cash provided by operating and financing activities of $117.4
million and $1.1 billion, respectively, offset by cash used for investing activities during the nine-month period ended September 30, 2007.

Cash flow
from operating activities was $117.4 million during the nine months ended September 30, 2007 versus $54.4 million during the comparable prior period. This increase is the result of the acquisition of ADVO and significant positive changes in
working capital, primarily related to an improvement in accounts receivable collections. The prior period also included significant payments of advances related to long-term customer contracts; reduced payments of this nature in the current period
further contributed to positive changes in working capital. In addition, although net earnings declined by $6.9 million in the current nine-month period, the non-cash charges to earnings for depreciation and amortization increased by $33.1 million
due to the depreciation and amortization of the tangible and intangible assets related to the ADVO acquisition.

Net cash used in investing activities
during the nine months ended September 30, 2007 was $1.1 billion, due to the acquisition of ADVO for $1.2 billion, offset by net sales of $102.5 million in auction-rate securities. See Note 2 Acquisition of ADVO to Condensed
Consolidated Financial Statements in Item 1 of this Quarterly Report on Form 10-Q for additional details relating to the acquisition.

Net cash
provided by financing activities during the nine months ended September 30, 2007 was $1.1 billion, solely as the result of $1.1 billion provided from our borrowings of long term debt in order to fund the acquisition of ADVO, as described below
under Current and Long-term Debt.

Cash and cash equivalents do not include investments in auction-rate securities of $102.5 million at
December 31, 2006. Auction-rate securities are considered highly liquid due to the short duration of their reset periods. Valassis has no auction-rate securities as of September 30, 2007.

Current and Long-term Debt

As of September 30, 2007, we had
outstanding $1.3 billion in aggregate indebtedness, which consisted of $100.0 million of the 2009 Secured Notes, $160.0 million of the 2033 Secured Notes, $540.0 million of the unsecured 2015 Notes (each as defined below), and $537.1 million under
the senior secured term loan B portion of our senior secured credit facility. During the quarter ended September 30, 2007, we had total outstanding letters of credit of approximately $11.2 million.

Our Senior Secured Credit Facility

General

On March 2, 2007, in connection with our acquisition of ADVO, 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 consists 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 until 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 principal repayable in quarterly installments at a
rate of 1.0% per year during the first six years of the delayed draw term loan, with the remaining balance thereafter to be repaid in full on the seventh anniversary of the closing date of the delayed draw term loan at which time the remaining
balance will be payable in full (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.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



23



---

All borrowings under our senior secured credit facility, including, without limitation, amounts drawn under the revolving
line of credit and the delayed draw term loan, are subject to the satisfaction of customary conditions, including absence of a default and accuracy of representations and warranties. As of September 30, 2007, we had $537.1 million outstanding
under the term loan B and $108.8 million available under the revolving line of credit (after giving effect to outstanding letters of credit). Subsequent to September 30, 2007, we made an additional voluntary prepayment of $25.0 million under
our term loan B, which is classified as current debt in our consolidated balance sheet as of September 30, 2007. The delayed draw term loan is available until June 2008 and the proceeds may only be used to refinance all of our Senior Secured
Convertible Notes due 2033 (the 2033 Secured Notes), including in the event the holders of the 2033 Secured Notes exercise their put rights in May 2008. The terms of the incremental facility will be substantially similar to the terms of
our senior secured credit facility, except with respect to the pricing of the incremental facility, which could be higher than that for the revolving line of credit and the term loan. The proceeds of the incremental facility may be used for general
corporate purposes.

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 margin. After the delivery of financial statements and compliance certificates for two consecutive fiscal
quarters following the closing of the ADVO acquisition, the applicable margins for the revolving line of credit may be subject to a downward adjustment based upon the ratio of our secured debt to our consolidated adjusted EBITDA (as defined in the
credit agreement) being within certain defined ranges.

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 (the Security Agreement), dated as of March 2, 2007. 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, 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. 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.

Covenants

Subject to customary and otherwise agreed
upon exceptions, our senior secured credit facility contains affirmative and negative covenants, including, but not limited to,



| |  |  | the payment of other obligations;
| | - |  | ---------------------------------



| |  |  | the maintenance of organizational existences, including, but not limited to, maintaining our property and insurance;
| | - |  | --------------------------------------------------------------------------------------------------------------------



| |  |  | compliance with all material contractual obligations and requirements of law;
| | - |  | -----------------------------------------------------------------------------



| |  |  | limitations on the incurrence of indebtedness;
| | - |  | ----------------------------------------------



| |  |  | limitations on creation and existence of liens;
| | - |  | -----------------------------------------------



24



---

| |  |  | limitations on certain fundamental changes to our corporate structure and nature of our business, including mergers;
| | - |  | --------------------------------------------------------------------------------------------------------------------



| |  |  | limitations on asset sales;
| | - |  | ---------------------------



| |  |  | limitations on restricted payments, including certain dividends and stock repurchases;
| | - |  | --------------------------------------------------------------------------------------



| |  |  | limitations on capital expenditures;
| | - |  | ------------------------------------



| |  |  | limitations on any investments, provided that certain permitted acquisitions and strategic investments are allowed;
| | - |  | ---------------------------------------------------------------------------------------------------------------------



| |  |  | limitations on optional prepayments and modifications of certain debt instruments;
| | - |  | ----------------------------------------------------------------------------------



| |  |  | limitations on modifications to material agreements;
| | - |  | ----------------------------------------------------



| |  |  | limitations on transactions with affiliates;
| | - |  | --------------------------------------------



| |  |  | limitations on entering into certain swap agreements;
| | - |  | -----------------------------------------------------



| |  |  | limitations on negative pledge clauses or clauses restricting subsidiary distributions;
| | - |  | ---------------------------------------------------------------------------------------



| |  |  | limitations on sale-leaseback and other lease transactions; and
| | - |  | ---------------------------------------------------------------



| |  |  | limitations on changes to our fiscal year.
| | - |  | ------------------------------------------

Our
senior secured credit facility also requires us to comply with a maximum senior secured leverage ratio, as defined in the credit agreement (generally, the ratio of our consolidated senior secured indebtedness to consolidated EBITDA for the most
recent four quarters), ranging from 4.25 to 1.00 to 3.50 to 1.00 (depending on the applicable period), and a minimum consolidated interest coverage ratio, as defined in the credit agreement (generally, the ratio of our consolidated EBITDA for such
period to consolidated interest expense for such period), ranging from 1.60 to 1.00 to 2.00 to 1.00 (depending on the applicable period).

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

65/8% Senior Secured Notes due 2009

In January 1999, we issued $100.0 million aggregate principal amount of our 6 5/8% Senior Notes due 2009 in a private placement transaction. We pay interest on the 2009
Secured Notes on January 15 and July 15 of each year until maturity of the notes. The Security Agreement secures our 6 5/8% Senior Notes due 2009 (the 2009 Secured Notes) on an equal and ratable basis with the indebtedness
under our senior secured credit facility to the extent required by the indenture governing the 2009 Secured Notes.

We may redeem all or any of the 2009
Secured Notes at any time at a price equal to the greater of (i) 100% of the principal amount of the 2009 Secured Notes to be redeemed or (ii) the sum of the present values of the remaining scheduled payments discounted to the redemption
date on a semiannual basis at the Treasury Rate plus 50 basis points, plus any accrued and unpaid interest to the applicable redemption date. There are no mandatory redemption provisions.

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. The holders of the 2033 Secured Notes receive cash
interest payments of 1 5/8% per year on the original discounted amount, payable on November 22 and May 22 of each year through May 2008. Original issue discount accrues on each 2033 Secured Note, so long as it remains outstanding, at
5/8% per annum beginning May 22, 2008, on a semi-annual bond equivalent basis.



25



---

The Security Agreement secures the 2033 Secured Notes on an equal and ratable basis with the indebtedness under our
senior secured credit facility to the extent required by the indenture governing the 2033 Secured Notes.

The holders of the 2033 Secured Notes may require
us to purchase all or a portion of their notes with cash on May 22, 2008, May 22, 2013, May 22, 2018, May 22, 2023 and May 22, 2028 at a price of $667.24, $723.48, $784.46, $850.58 and $922.27 per $1,000
principal amount at maturity, respectively.

If a change of control occurs, each holder of the 2033 Secured Notes may require us to repurchase all or a
portion of such holders notes at their accreted value plus accrued and unpaid interest. We may redeem for cash all or a portion of the 2033 Secured Notes at their accreted value plus accrued and unpaid interest at any time on or after
May 22, 2008.

The 2033 Secured Notes are convertible by their holders when (i) a market price trigger (as defined below) occurs, (ii) there
is a credit rating assigned to the 2033 Secured Notes by Moodys Investor Service, Inc. of Ba3 or lower or BB- or lower by Standard & Poors Rating Group, or (iii) in respect of a 2033 Secured Note, we or the holder of that
note has exercised redemption rights related to that note. A market price trigger occurs (a) the first time that the closing sales price per share of our common stock for at least 20 trading days in any period of 30 consecutive trading days
exceeds 120% of the accreted conversion price per share of common stock or (b) the first time that the average trading prices for the 2033 Secured Notes over a 10 consecutive trading day period is less than 105% of the product of the closing
per share sale price of our common stock times the number of shares of our common stock issuable per 2033 Secured Note upon conversion during such 10 day period. The accreted conversion price as of any day is equal to the issue price of a 2033
Secured Note plus the accrued original issue discount to that day divided by the number of shares issuable upon conversion of that note. The 2033 Secured Notes are convertible at a base rate of 15.1627 shares plus an incremental share factor of up
to 9.8556. The incremental shares begin to accrue when the stock price at the time of the conversion is greater than the base conversion price and the number of incremental shares is based upon the incremental share factor and our common stock price
at the time of the conversion. On May 22, 2008, the total conversion rate (base rate plus incremental shares) is fixed based upon our common stock price as of that date.

On February 14, 2007, in contemplation of the proposed financing in connection with the acquisition of ADVO, Moodys lowered the rating of the 2033 Secured Notes to Ba2 with a stable outlook. Similarly,
S&P lowered the rating on the 2033 Secured Notes to BB- with negative implications on CreditWatch pending the closing of the financing. Both rating agencies rated the 2033 Secured Notes slightly higher than our general rating to reflect the
anticipated security interest that holders of the 2033 Secured Notes received upon the closing of the ADVO acquisition. Pursuant to the indenture governing the 2003 Secured Notes, the rating by S&P triggered the right of the holders of the 2033
Secured Notes to convert these notes. However, the conversion price is out-of-the-money. Lower debt ratings may increase our cost of borrowing as well as adversely affect our access to the capital markets.

81/4% Senior Notes due 2015

On March 2,
2007, we issued in a private placement $540.0 million aggregate principal amount of 81/4% Senior Notes due 2015
(the 2015 Notes). The net proceeds from the offering of the 2015 Notes were $527.8 million, after deducting $12.2 million in commissions and fees related to the offering. The net proceeds of the 2015 Notes, together with a portion of our
available cash and initial borrowings under our senior secured credit facility, were used to fund our acquisition of ADVO, refinance approximately $125.0 million of outstanding ADVO indebtedness, and pay related fees and expenses.

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 remains outstanding. The exchange notes are substantially
identical to the original notes, except that the exchange notes are not subject to certain transfer restrictions.

The 2015 Notes were issued under an
indenture with Wells Fargo Bank, National Association (the 2015 indenture). Subject to a number of exceptions, the 2015 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.



26



---

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 redemption prices specified in the 2015 indenture plus accrued and unpaid interest to the redemption date. In addition, on or prior to March 1, 2010, we may redeem at our option up to 35%
of the principal amount of the outstanding 2015 Notes with the proceeds of certain equity offerings at the redemption prices specified in the 2015 indenture. 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.

All of our indentures governing the 2009 Secured Notes, 2033 Secured Notes and the 2015 Notes contain cross-default provisions which become applicable if
we default under any mortgage, indebtedness or instrument for money borrowed by us and the default results in the acceleration of such indebtedness in excess of $25.0 million. Our credit agreement contains a cross-default provision which becomes
applicable if we default under any mortgage, indebtedness or instrument for money borrowed by us in excess of $25.0 million.

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

On
April 4, 2007 and June 29, 2007, we entered into forward dated swap agreements with notional principal amounts of $300.0 million and $180.0 million, respectively. The swap agreements expire in December 2010 and effectively fix the interest
rate for an aggregate of $480.0 million of our variable rate debt under the term loan B portion of our senior credit facility. Under SFAS No. 133, each swap is recorded as a cash flow hedge in which the fair value is recorded as an asset or
liability and changes in the fair value are recorded as a component of other comprehensive income while any ineffective portion will be recorded in earnings and reflected in the consolidated statement of income as part of interest expense.

Covenant Compliance

As of September 30, 2007, we were
in compliance with all of our indenture and senior secured credit facility covenants.

Future Commitments and Contractual Obligations

Valassis intends to use cash generated by operations to meet interest and principal repayment obligations, for general corporate purposes and to reduce its indebtedness.



27



---

Valassis contractual obligations as of September 30, 2007 are as follows:

Payments due by Period



|                              |  |       |         |                |   |           |  |           |       |                 |   |       |  |   |         |       
|----------------------------- |  | ----- | ------- | -------------- | - | --------- |  | --------- | ----- | --------------- | - | ----- |  | - | ------- | ------
|(in millions of U.S. dollars) |  | Total |         | LessThan 1Year |   | 1-3 Years |  | 3-5 Years |       | MoreThan 5Years |  
|Long-term debt                |  | $     | 1,416.8 |                | $ | 30.9      |  | $         | 100.0 |                 | $ |      |  | $ | 1,285.9 | (1)(2)
|Interest on long-term debt    |  | $     | 599.1   |                |   | 84.6      |  |           | 151.5 |                 |   | 162.9 |  |   | 200.1   |       
|Operating leases              |  | $     | 115.3   |                |   | 22.5      |  |           | 46.6  |                 |   | 26.5  |  |   | 19.7    |       
|Other long-term liabilities   |  | $     | 19.5    |                |   | 9.3       |  |           | 2.30  |                 |   |      |  |   | 7.9     |       
|Revolving credit facility     |  |       |        |                |   |          |  |           |      |                 |   |      |  |   |        |       
|Delayed draw loan             |  |       |        |                |   |          |  |           |      |                 |   |      |  |   |        |       
|                              |  |       |         |                |   |           |  |           |       |                 |   |       |  |   |         |       
|                              |  | $     | 2,150.7 |                | $ | 147.3     |  | $         | 300.4 |                 | $ | 189.4 |  | $ | 1,513.6 |       
|                              |  |       |         |                |   |           |  |           |       |                 |   |       |  |   |         |       

---

|(1) | Non-current long-term debt is included at face value.
|--- | -----------------------------------------------------

|(2) | Includes $160.0 million of our 2033 Notes which, if put by the holders of such Notes by May 22, 2008, is expected to be paid with borrowings under the available Delayed Draw
Term Loan.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Off-balance Sheet Arrangements

As of September 30, 2007, Valassis 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 $20.1 million for the nine months ended September 30, 2007, and are anticipated to be
less than $40.0 million for the 2007 fiscal year. Management expects future capital expenditure requirements of approximately $35.0 million in each of 2008 and 2009 to meet the business needs of enhancing technology and replacing equipment as
required. It is expected that these expenditures will be made using funds provided by operations.

RECENT ACCOUNTING PRONOUNCEMENTS

On July 13, 2006, the FASB issued Interpretation (FIN) No. 48, Accounting for Uncertainty in Income TaxesAn Interpretation of FASB Statement
No. 109. This FIN No. 48 clarifies the accounting for uncertainty in income taxes recognized in an entitys financial statements and prescribes a recognition threshold and measurement standard for the disclosure of tax positions
taken or expected to be taken on a tax return. Under FIN No. 48, the threshold for recognizing an uncertain tax position is lowered from probable to more-likely-than-not. In addition, FIN No. 48 provides guidance on
derecognition of tax benefits, classification on the balance sheet, interest and penalties, accounting in interim periods, disclosure, and transition. Valassis adopted FIN No. 48 effective January 1, 2007.

As a result of adopting FIN No. 48, Valassis and ADVO recognized increases to their liabilities for unrecognized tax benefits. Valassis recognized a cumulative
increase to its liability for unrecognized tax benefits of $4.2 million as of January 1, 2007, the adoption date. The change decreased retained earnings by $3.9 million and increased current income tax expense by $0.3 million. ADVO recognized a
cumulative increase to its liability for unrecognized tax benefits of $1.3 million upon adoption of FIN No. 48 as of the March 2, 2007 acquisition date. The adjustment for ADVO was recorded as an increase to goodwill on the opening balance
sheet under purchase accounting principles. As of September 30, 2007, Valassis had $10.1 million of unrecognized tax benefits, of which $6.6 million would impact the effective tax rate if recognized. For additional information, see Note
11, Income Taxes to our condensed consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q.

In September
2006, the FASB issued SFAS No. 157 Fair Value Measurements. SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value
measurements. SFAS No. 157 does not require any new fair value measurements; rather it applies under existing accounting pronouncements that require or permit fair value measurements. SFAS No. 157 is effective for fiscal years beginning
after November 15, 2007. We will adopt SFAS No. 157 as required and do not expect a material impact on our financial condition, results of operations and liquidity.



28



---

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 and estimates have not
changed materially from those disclosed in Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations included in our Amended 2006 10-K, as supplemented by our Quarterly Reports on Form 10-Q filed
subsequently thereto.



29



---

|Item 3. | Quantitative and Qualitative Disclosure about Market Risk
|------- | ---------------------------------------------------------

Valassis principal market risks are interest rates on various debt instruments and foreign exchange rates at its international subsidiaries.

Interest Rates

Valassis borrowings under its credit agreement are subject to a variable rate of interest calculated on either a prime rate
or a Euro dollar rate. To reduce its exposure to fluctuating interest rates, Valassis entered into two interest rate swap agreements which effectively converted an aggregate of $480.0 million, or 89.4% of its total variable rate debt, to fixed rate
debt. As of September 30, 2007, an aggregate principal amount of $57.1 million outstanding under the secured term loan B portion of the senior secured credit facility was subject to interest rate variability.

Foreign Currency

Currencies to which Valassis has exposure are the
Mexican peso, Canadian dollar, British pound and euro. Currency restrictions are not expected to have a significant effect on our cash flows, liquidity, or capital resources. Historically, we have purchased the Mexican peso under three to
twelve-month forward foreign exchange contracts to stabilize the cost of production in Mexico. Actual exchange losses or gains are recorded against production expense when the contracts are executed. As of September 30, 2007, Valassis had a
commitment to purchase $2.9 million in Mexican pesos over the next eight months.



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

As of the end of the period covered by
this Quarterly Report, Valassis carried out an evaluation, under the supervision and with the participation of Valassis Disclosure Committee, including the Chief Executive Officer and Chief Financial Officer, of disclosure controls and
procedures pursuant to Securities Exchange Act of 1934 Rule 13a-15. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, the disclosure controls and
procedures are effective in ensuring that the information required to be disclosed in the reports that Valassis files or submits under the Securities Exchange Act of 1934 (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 Valassis management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding
required disclosure.

On March 2, 2007, we completed the ADVO acquisition, at which time ADVO became a wholly-owned subsidiary of Valassis. See Note 2
to the condensed unaudited consolidated financial statements contained in Item 1 of this Quarterly Report on Form 10-Q for further details relating to the ADVO acquisition. We are currently in the process of assessing and integrating
ADVOs internal control over financial reporting into our internal control over financial reporting. Other than with respect to such integration, there has been no change in our internal control over financial reporting during the three months
ended September 30, 2007 that materially affected, or is reasonably likely to materially affect our internal control over financial reporting.



30



---

Part IIOther Information



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

On January 18, 2006, Valassis filed a
lawsuit in Michigan Federal Court 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 complaint alleges the 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. Specifically, the complaint alleges that News has tied the purchase of its in-store promotion and advertising services to the purchase of space in its FSI and that News has attempted to monopolize the
FSI market. The complaint alleges damages in excess of $1.5 billion, injunctive relief and costs for violation of the Sherman Act.

Upon its completion of
the acquisition of 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. These complaints generally allege 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 December 12,
2006, the Kelleher plaintiffs filed a Motion to Partially Lift Discovery Stay, in response to which defendants filed a response on January 16, 2007. The presiding judge denied the plaintiffs motion to lift the stay on discovery. In
addition, the court ordered the matters consolidated under a single action entitled, Robert Kelleher et al. v. ADVO, Inc., et al., Civil Case No. 3:06CV01422(AVC). A revised, consolidated complaint was filed by the plaintiffs on
June 8, 2007. On August 24, 2007, the defendants filed a Motion to Dismiss the plaintiffs complaint. The plaintiff filed a Brief in Opposition to the defendants motion on October 10, 2007 and the defendants
responsive pleading is due November 9, 2007.

Valassis is 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 Amended 2006 10-K, which factors are amended and supplemented in our Quarterly Reports on Form 10-Q filed
subsequently thereto, and which could materially affect our business, financial condition or future results. The risks described in our Amended 2006 10-K and Quarterly Reports on Form 10-Q 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.



31



---

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

No
shares of Valassis common stock were repurchased during the quarter ended September 30, 2007. There are 6.1 million shares currently available under approved share repurchase programs.



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

Exhibits



| | 31.1 | Section 302 Certification from Alan F. Schultz
| | ---- | ----------------------------------------------



| | 31.2 | Section 302 Certification from Robert L. Recchia
| | ---- | ------------------------------------------------



| | 32.1 | Section 906 Certification from Alan F. Schultz
| | ---- | ----------------------------------------------



| | 32.2 | Section 906 Certification from Robert L. Recchia
| | ---- | ------------------------------------------------



32



---

Signatures

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, 2007



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.




33



---

EXHIBIT INDEX



|            |  |                                                 
|----------- |  | ------------------------------------------------
|Exhibit No. |  | Description                                     
|31.1        |  | Section 302 Certification from Alan F. Schultz  
|            | 
|31.2        |  | Section 302 Certification from Robert L. Recchia
|            | 
|32.1        |  | Section 906 Certification from Alan F. Schultz  
|            | 
|32.2        |  | Section 906 Certification from Robert L. Recchia



34