Certain statements found in this document constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks and uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, the following: price competition from our existing competitors; new competitors in any of our businesses; a shift in client preference for different promotional materials, strategies or coupon delivery methods, including, without limitation, as a result of declines in newspaper circulation; an unforeseen increase in paper or postal costs; changes which affect the businesses of our clients and lead to reduced sales promotion spending, including, without limitation, a decrease of marketing budgets which are generally discretionary in nature and easier to reduce in the short-term than other expenses; our substantial indebtedness, and ability to refinance such indebtedness, if necessary, and our ability to incur additional indebtedness, may affect our financial health; the financial condition, including bankruptcies, of our clients, suppliers, senior secured credit facility lenders or other counterparties; our ability to comply with or obtain modifications or waivers of the financial covenants contained in our debt documents; certain covenants in our debt documents could adversely restrict our financial and operating flexibility; recent disruptions in the credit markets that make it difficult for companies to secure financing; we do not currently comply with the continued listing requirements of The New York Stock Exchange and therefore our common stock may be delisted; fluctuations in the amount, timing, pages, weight and kinds of advertising pieces from period to period, due to a change in our clients' promotional needs, inventories and other factors; our failure to attract and retain qualified personnel may affect our business and results of operations; a rise in interest rates could increase our borrowing costs; we may be required to recognize additional impairment charges against goodwill and intangible assets in the future; the outcome of ADVO's pending shareholder lawsuits; our current litigation with News America Incorporated may be costly and divert management's attention; possible governmental regulation or litigation affecting aspects of our business; the credit and liquidity crisis in the financial markets could continue to affect our results of operations and financial condition; changes in our credit ratings may have an adverse impact on our business; counterparties to our senior secured credit facility and interest rate swaps may not be able to fulfill their obligations due to disruptions in the global credit markets; uncertainty in the application and interpretation of applicable state sales tax laws may expose us to additional sales tax liability; and general economic conditions, whether nationally, internationally, or in the market areas in which we conduct our business, including the adverse impact of the ongoing economic downturn on the marketing expenditures and activities of our clients and prospective clients as well as our vendors, with whom we rely on to provide us with quality materials at the right prices and in a timely manner. We disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Additional risks include, but are not limited to those risk factors described in our 2008 Form 10-K and other filings by us with the United States Securities and Exchange Commission ("SEC").

Overview

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

For the first quarter of 2009, we achieved revenues of $551.2 million, representing a decrease of 7.7% compared to $597.1 million for the first quarter of 2008. This decrease is due primarily to the negative effect the economic slowdown has had on our clients' marketing budgets. First quarter of 2009 net earnings were $13.0 million, representing an increase of 19.1% from $10.9 million (after retrospective application of FSP APB 14-1 as described in Note 10 to our unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q) in the first quarter of 2008. This was due primarily to a gain of $4.5 million, net of taxes, related to repurchases of senior secured credit facility debt at a discount, partially offset by lower operating income as a result of the revenue decline experienced during the quarter. First quarter of 2009 earnings per share, or EPS, were $0.27, an increase from $0.23 in the first quarter of 2008.

Segment Results

Shared Mail

For the first quarter of 2009, revenues for the Shared Mail segment were $310.9 million, representing a 12.7% decrease compared to $356.3 million for the first quarter of 2008. The challenging economic environment continued to negatively impact the Shared Mail segment during the first quarter of 2009.

The decrease in Shared Mail revenues was attributable to volume declines, shifts to lower-priced and lighter-weight inserts and lower sell rates from the RedPlum® wrap product. The Shared Mail segment continued to experience volume declines as clients reduce their advertising spending during this current volatile economic period.

The drop in volume was demonstrated in the packages and pieces statistics. Shared Mail packages delivered for the first quarter of 2009 were 982 million, decreasing 4.9% from the first quarter of 2008 as a result of volume declines in shared mail products and our ongoing business optimization efforts to reduce underperforming packages. Total shared mail pieces were 8.2 billion for the first quarter of 2009 decreasing 4.6% from the corresponding period in the prior year. Average pieces per package were 8.1 pieces for the first quarter of 2009 compared to 8.0 pieces for the prior year quarter.

Shared Mail's gross margin percentage was 24.0% for the first quarter of 2009 decreasing 1.9 percentage points from the first quarter of 2008. Contributing to the gross margin decline were lower volumes, a reduction of traditionally high margin RedPlum® wrap revenue and lighter weight inserts from grocery clients. Substantially mitigating the decline in gross margin were our business optimization efforts to reduce underperforming packages and two recently formed newspaper alliances that were operative during the first quarter of 2009.

Shared Mail segment profit was $18.8 million for the first quarter of 2009 compared to $30.9 million in the first quarter of 2008. The decrease was primarily attributable to the revenue decline experienced during the first quarter of 2009.

Neighborhood Targeted

Our Neighborhood Targeted revenues were $112.6 million in the quarter ended March 31, 2009, representing an increase of 12.4% from $100.2 million for the quarter ended March 31, 2008. This increase was primarily due to increased advertising spending by our customers in the financial services, specialty retail and telecommunications verticals. Segment profit was $10.6 million for the first quarter of 2009 compared to $11.1 million for the first quarter of 2008, due primarily to a shift in client and product mix. Revenues from solo preprints and ROP increased, but were partially offset by a significant decrease in sampling and polybag advertising, a higher-margin product that has been more negatively impacted by reductions in our customers' advertising budgets.

FSI

In the quarter ended March 31, 2009, FSI revenues were $93.6 million, representing a decrease of 5.1% from $98.6 million for the quarter ended March 31, 2008. The decreased revenues were attributable to continued pricing deterioration and decreased newspaper circulation. Industry units grew 1.2% and our share remained steady compared to the comparable period in 2008. FSI cost of goods sold increased for the quarter ended March 31, 2009 from the year-ago period on a cost-per-thousand (CPM) basis, primarily due to increased paper and print costs, partially offset by lower media costs.

FSI segment profit was $1.0 million for the quarter ended March 31, 2009, representing a decrease of 50% from the year-ago quarter. This decrease was due to the effect of lower revenues and higher cost of sales, partially offset by lower selling, general and administrative costs.

International, Digital Media & Services

First quarter 2009 revenues for this segment were $34.1 million, a decrease of 18.8% from $42.0 million for the first quarter of 2008. This decrease is attributable to the sale of our French and direct mail services businesses and the discontinuance of other European media business in the second half of 2008, which accounted for $7.9 million of revenue (1.3% of our consolidated revenues) in the year-ago quarter, as well as foreign currency fluctuations. This segment experienced segment profit of $4.0 million during the first quarter of 2009 compared to a $1.8 million loss during the first quarter of 2008, primarily due to the discontinuance of the unprofitable businesses described above.

Selling, General and Administrative Costs

Selling, general and administrative (SG&A) costs decreased in the first quarter of 2009 to $86.2 million from $97.2 million in the first quarter of 2008. This decrease was primarily attributable to reductions in headcount and discretionary spending as part of our previously disclosed 2009 Profit Maximization Plan. The remaining decrease was due to discontinued businesses ($2.1 million) and other cost reductions.

Amortization Expense

We recorded amortization expense of $3.1 million during the quarter ended March 31, 2009, an increase of $0.8 million from the first quarter of 2008, due to a decrease in the estimated remaining life of an intangible asset.

Other Expenses (Income)

Interest expense was $21.6 million in the first quarter of 2009, compared to $26.1 million (after retrospective application of FSP APB 14-1 as discussed in Note 10 to the unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q) in the first quarter of 2008. The decrease was due to lower debt balances as a result of repayments made in 2008 as well as the repayment of $51.8 million of our 2009 Senior Secured Notes in January 2009. In addition, we repurchased, at a weighted average discount to par of 23.6%, an aggregate principal amount of $32.8 million of outstanding term loans under our senior secured credit facility, which we refer to as the "Term Loan Repurchases" pursuant to modified Dutch auctions during the quarter for an aggregate purchase price of $25.4 million, including fees. These repurchases resulted in a pre-tax gain of $7.4 million, representing the difference between the face amounts (par value) of the term loans repurchased and the repurchase prices of the term loans, including fees, which is included in other income.

Net Earnings

Net earnings were $13.0 million in the first quarter of 2009, an increase of $2.1 million, or 19.1%, from the first quarter of 2008. The increase in earnings was due to a gain of $4.5 million, net of tax, from the Term Loan Repurchases, partially offset by reduced operating income. Diluted earnings per share were $0.27 in the first quarter of 2009, compared to $0.23 in the first quarter of 2008.

Financial Condition, Liquidity and Sources of Capital

The following table presents our available sources of liquidity as of March 31,
2009:



                                              Facility          Amount
  Source of Liquidity (in millions)            Amount         Outstanding    Available
  Cash and cash equivalents                                                 $      85.0
  Debt facilities:
  Senior Secured Revolving Credit Facility   $    89.5  (1)            -           89.5

  Total Available                                                           $     174.5

(1) On January 22, 2009, we amended our credit agreement and voluntarily reduced the aggregate revolving credit commitments thereunder from $120.0 million to $100.0 million. The amount above is net of $10.5 million in outstanding letters of credit.

Sources and Uses of Cash and Cash Equivalents

Cash and cash equivalents totaled $85.0 million at March 31, 2009 compared to $126.6 million at December 31, 2008. This was the result of cash provided by operating activities of $39.7 million, offset by cash used in investing and financing activities of $2.0 million and $78.7 million, respectively, during the quarter ended March 31, 2009.

Cash flows from operating activities were $39.7 million during the quarter ended March 31, 2009 compared to $3.4 million during the year-ago quarter. For the quarter ended March 31, 2009, net earnings excluding non-cash items such as the pre-tax $7.4 million gain on debt extinguishment, depreciation and amortization, decreased by $11.0 million from the corresponding period in 2008. Despite these decreases, $47.3 million of net changes in assets and liabilities increased cash from operations and are further described below:

• an increase in accounts payable due to timing of vendor payments;

• an increase in prepaid expenses resulting from timing of paid postage; and

• increased cash flow from net changes in customer receivables and progress billings due to timing and volume of jobs that were prebilled.

Net cash used in investing activities was $2.0 million and $9.0 million for the quarter ended March 31, 2009 and 2008, respectively, due to capital acquisitions of property, plant and equipment.

Net cash used in financing activities for the quarter ended March 31, 2009 was $78.7 million. This included $51.8 million related to the satisfaction of our 2009 Notes and $44.1 million in principal repayments and fees on our senior secured credit facility associated with modified Dutch auction repurchases. Cash used by financing activities in the comparable year ago period was a result of principal payments on the term loan B portion of our senior secured credit facility.

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

Current and Long-term Debt

As of March 31, 2009, we had outstanding $1.1 billion in aggregate indebtedness, which consisted of $540.0 million of the unsecured 2015 Notes, $432.4 million and $143.9 million under the term loan B and delayed draw term loan portions, respectively, of our senior secured credit facility and $0.1 million of our Senior Secured Convertible Notes due 2033, or the "2033 Secured Notes." As of March 31, 2009, we had total outstanding letters of credit of approximately $10.5 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 originally consisted of the following:

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

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

• a seven-year amortizing delayed draw term loan in an aggregate principal amount equal to $160.0 million, with 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 maturity date of the term loan B (the "delayed draw term loan"); and

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

On January 22, 2009, we entered into the First Amendment, or the Amendment, to our senior secured credit facility. As a result of the Amendment, we are permitted to repurchase from tendering lenders term loans outstanding under the senior secured credit facility at prices below par acceptable to such lenders through one or more modified Dutch auctions. The Amendment provides that we may use up to an aggregate of $125.0 million to effect modified Dutch auctions at any time or times during 2009. In connection with the Amendment, we agreed to voluntarily permanently reduce the aggregate revolving credit commitments under the senior secured credit facility from $120.0 million to $100.0 million in exchange for the ability to keep $20.0 million of revolving credit loans outstanding during any modified Dutch auction. Under the Amendment, we are permitted to exclude from the definition of "Consolidated Interest Expense" swap termination and cancellation costs incurred in connection with any purchase, repurchase, payment or prepayment of any loans under the senior secured credit facility, including pursuant to a modified Dutch auction. The Amendment also made certain technical and conforming changes to the terms of the senior secured credit facility. During the three months ended March 31, 2009, we repurchased an aggregate principal amount of approximately $32.8 million of our outstanding term loans under our senior secured credit facility at a discount to par, resulting in a pre-tax gain of $7.4 million, representing the difference between the face amounts (par value) of the term loans repurchased and the repurchase prices of the term loans, including fees, which is recognized in the current period income statement. Taxes payable on this gain will be deferred for five years and then recognized at 20% per year for each of the next five years.

All borrowings under our senior secured credit facility, including, without limitation, amounts drawn under the revolving line of credit, are subject to the satisfaction of customary conditions, including absence of a default and accuracy of representations and warranties. As of March 31, 2009, we had $432.4 million and $143.9 million outstanding under the term loan B and delayed draw portions, respectively, and $89.5 million available under the revolving line of credit portion (after giving effect to the reduction in the revolving line of credit availability pursuant to the Amendment and outstanding letters of credit) of our senior secured credit facility.

Interest and Fees

Borrowings under our senior secured credit facility bear interest, at our option, at either the base rate (defined as the higher of the prime rate announced by the commercial bank selected by the administrative agent to the facility or the federal funds effective rate, plus 0.5%), or at a Eurodollar rate (as defined in the credit agreement), in each case, plus an applicable margin. For the quarter ended March 31, 2009, we elected three-month LIBOR as the applicable base interest rate on borrowings under our senior secured credit facility. As of April 1, 2009, we have elected one-month LIBOR as the applicable base interest rate.

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"), as amended. In addition, our obligations under our senior secured credit facility and the guarantee obligations of the subsidiary guarantors are secured by first priority liens on substantially all of our and our subsidiary guarantors' present and future assets and by a pledge of all of the equity interests in our subsidiary guarantors and 65% of the capital stock of our existing and future restricted foreign subsidiaries.

Prepayments

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

Covenants

Our senior secured credit facility also requires us to comply with a maximum senior secured leverage ratio, as defined in our senior secured credit facility (generally, the ratio of our consolidated senior secured indebtedness to consolidated EBITDA for the most recent four quarters), ranging from 4.25:1.00 to 3.50:1.00 (depending on the applicable period), and a minimum consolidated interest coverage ratio, as defined in our senior secured credit facility (generally, the ratio of our consolidated EBITDA for such period to consolidated interest expense for such period), ranging from 1.60:1.00 to 2.00:1.00 (depending on the applicable period). For purposes of calculating the minimum consolidated interest coverage ratio, the Amendment permits us to exclude from the definition of "consolidated interest expense" swap termination and cancellation costs incurred in connection with any purchase, repurchase, payments or repayment of any loans under our senior secured credit facility. The table below shows the required and actual financial ratios under our senior secured credit facility as of March 31, 2009.

                                                             Required Ratio         Actual Ratio
Maximum senior secured leverage ratio                   No greater than 3.75:1.00      2.80:1.00
Minimum consolidated interest coverage ratio            No less than 1.75:1.00         2.37:1.00

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

Events of Default

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

See our 2008 Form 10-K for further information regarding interest and fees, guarantees and security, prepayment and covenants related to our senior secured credit facility.

6 5/8% Senior Secured Notes due 2009

On January 15, 2009, we satisfied and discharged the 2009 Secured Notes indenture in accordance with the terms of the indenture. Upon satisfaction and discharge, the indenture ceased to be of further effect (except for certain rights of the Trustee.)

Senior Secured Convertible Notes due 2033

In May 2003, we issued $239,794,000 aggregate principal amount of the 2033 Secured Notes in a private placement transaction at an issue price of $667.24 per note, resulting in gross proceeds to us of $160.0 million. During the second quarter of 2008, we conducted a cash tender offer for the 2033 Secured Notes that was intended to satisfy the put rights of the holders of such notes that were exercisable on May 22, 2008 under the indenture governing such notes. Pursuant to the tender offer, we repurchased an aggregate principal amount of $239.7 million (or $159.9 million, net of discount) of the 2033 Secured Notes for an aggregate purchase price of $159.9 million. As of March 31, 2009, an aggregate principal amount of $85,000 (or approximately $57,000 net of discount) of the 2033 Secured Notes remained outstanding pursuant to the 2033 Secured Notes indenture. We used the delayed draw term loan portion of our senior secured credit facility to finance the tender offer.

8 1/4% Senior Notes due 2015

On March 2, 2007, we issued in a private placement $540.0 million aggregate principal amount of the 2015 Notes. Interest on the 2015 Notes is payable every six months on March 1 and September 1, commencing September 1, 2007. The 2015 Notes are fully and unconditionally guaranteed, jointly and severally, by substantially all of our existing and future domestic restricted subsidiaries on a senior unsecured basis. In August 2007, in accordance with the terms of the . . .