##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 
 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended: September 14, 2008
 Commission file number 333-134701
 
 NETWORK COMMUNICATIONS, INC.
 Formed under the laws of the State of Georgia  I.R.S. Employer Identification Number 58-1404355
 2305 Newpoint Parkway, Lawrenceville, GA 30043
Telephone Number: (770) 962-7220
 
  þ o
  Large accelerated filer
o

    

  Accelerated filer
o

    

    Non-accelerated filer þ
(Do not check if a smaller reporting company)

  

    Smaller reporting company
o
  o þ
  Class
    
    Outstanding at September 14, 2008Common Stock, $0.001 par value per share
    
    100 shares




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TABLE OF CONTENTS
 PagePART I: FINANCIAL INFORMATIONItem 1. Condensed Consolidated Financial Statements (Unaudited)Condensed Consolidated Balance Sheets as of September 14, 2008 and March 30, 2008
    
    2Condensed Consolidated Statements of Operations for the three periods ended
September 14, 2008 and September 9, 2007
    
    3Condensed Consolidated Statements of Operations for the six periods ended September
14, 2008 and September 9, 2007
    
    4Condensed Consolidated Statement of Stockholders Equity as of September 14, 2008
    
    5Condensed Consolidated Statements of Cash Flows for the six periods ended September
14, 2008 and September 9, 2007
    
    6Notes to Condensed Consolidated Financial Statements
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    15Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    27Item 4. Controls and Procedures
    
    27PART II: OTHER INFORMATIONItem 1. Legal Proceedings
    
    28Item 1A. Risk Factors
    
    28Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    28Item 3. Defaults upon Senior Securities
    
    28Item 4. Submission of Matters to a Vote of Security Holders
    
    28Item 5. Other Information
    
    28Item 6. Exhibits
    
    28SignaturesEX-31.1: CERTIFICATION OF CEOEX-31.2: CERTIFICATION OF CFOEX-32.1: CERTIFICATION OF CEOEX-32.2: CERTIFICATION OF CFO
  1




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PART I  FINANCIAL INFORMATION
 
 Item 1. Condensed Consolidated Financial Statements
 NETWORK COMMUNICATIONS, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
 September 14, 2008
    
    
    March 30, 2008ASSETSCurrent assetsCash and cash equivalents
    
    $
    5,452,857
    
    
    $
    6,715,837Accounts receivable, net of allowance for
doubtful accounts of $3,738,912 and $2,793,357,
respectively
    
    
    18,965,603
    
    
    
    21,361,396Inventories
    
    
    5,135,108
    
    
    
    4,187,195Prepaid expenses and deferred charges
    
    
    2,379,958
    
    
    
    3,599,615Deferred tax assets
    
    
    1,462,272
    
    
    
    1,072,699Income tax receivable
    
    
    
    
    
    
    941,453Other current assets
    
    
    82,026
    
    
    
    45,012Total current assets
    
    
    33,477,824
    
    
    
    37,923,207Property, equipment and computer software, net
    
    
    23,885,598
    
    
    
    24,317,414Goodwill
    
    
    307,836,992
    
    
    
    306,518,991Deferred financing costs, net
    
    
    6,748,863
    
    
    
    7,425,819Intangible assets, net
    
    
    137,394,134
    
    
    
    145,421,474Other assets
    
    
    431,358
    
    
    
    307,408Total noncurrent assets
    
    
    476,296,945
    
    
    
    483,991,106Total assets
    
    $
    509,774,769
    
    
    $
    521,914,313LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilitiesAccounts payable
    
    $
    10,048,529
    
    
    $
    7,005,184Accrued compensation and related taxes
    
    
    2,592,904
    
    
    
    2,377,632Customer deposits
    
    
    1,223,106
    
    
    
    1,317,031Unearned revenue
    
    
    3,619,134
    
    
    
    9,664,249Accrued interest
    
    
    5,931,222
    
    
    
    6,747,765Income tax payable
    
    
    309,520
    
    
    
    Other current liabilities
    
    
    956,714
    
    
    
    1,215,707Current maturities of long-term debt
    
    
    766,359
    
    
    
    5,726,789Current maturities of capital lease obligations
    
    
    323,292
    
    
    
    386,404Total current liabilities
    
    
    25,770,780
    
    
    
    34,440,761Long-term debt, less current maturities
    
    
    281,965,516
    
    
    
    280,198,405Capital lease obligations, less current maturities
    
    
    250,979
    
    
    
    317,778Deferred tax liabilities
    
    
    36,445,614
    
    
    
    38,680,999Other long term liabilities
    
    
    
    
    
    
    230,000Total liabilities
    
    
    344,432,889
    
    
    
    353,867,943Commitments and contingencies (Note 8)Stockholders EquityCommon stock, $0.001 par value; 100 shares
authorized, issued and outstanding
    
    
    
    
    
    
    Additional paid-in capital (including warrants of
$533,583 at September 14, 2008 and March 30,
2008)
    
    
    194,579,776
    
    
    
    194,579,776Accumulated deficit
    
    
    (29,203,958
    )
    
    
    (26,520,887
    )Accumulated other comprehensive loss, net of tax
    
    
    (33,938
    )
    
    
    (12,519
    )Total stockholders equity
    
    
    165,341,880
    
    
    
    168,046,370Total liabilities and stockholders equity
    
    $
    509,774,769
    
    
    $
    521,914,313
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NETWORK COMMUNICATIONS, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
 Three Periods EndedSeptember 14, 2008
    
    
    September 9, 2007Sales
    
    $
    46,746,442
    
    
    $
    56,013,011Cost of sales (exclusive of production
depreciation and software amortization expense
shown separately below)
    
    
    31,492,587
    
    
    
    36,397,154Production depreciation and software amortization
    
    
    1,193,699
    
    
    
    1,179,495Gross profit
    
    
    14,060,156
    
    
    
    18,436,362Selling, general and administrative expenses
    
    
    4,724,653
    
    
    
    6,028,698Depreciation and software amortization
    
    
    419,408
    
    
    
    414,415Amortization of intangibles
    
    
    3,995,938
    
    
    
    3,954,456Operating income
    
    
    4,920,157
    
    
    
    8,038,793Other income (expense)Interest and dividend income
    
    
    29,778
    
    
    
    107,996Interest expense
    
    
    (6,699,379
    )
    
    
    (10,739,804
    )Other income (expense)
    
    
    14,845
    
    
    
    (28,487
    )Total other expense
    
    
    (6,654,756
    )
    
    
    (10,660,295
    )Loss before benefit from income taxes
    
    
    (1,734,599
    )
    
    
    (2,621,502
    )Income tax benefit
    
    
    (617,767
    )
    
    
    (739,642
    )Net loss
    
    $
    (1,116,832
    )
    
    $
    (1,881,860
    )
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NETWORK COMMUNICATIONS, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
 Six Periods EndedSeptember 14, 2008
    
    
    September 9, 2007Sales
    
    $
    95,196,491
    
    
    $
    109,510,884Cost of sales (exclusive of production
depreciation and software amortization expense
shown separately below)
    
    
    64,208,310
    
    
    
    71,905,031Production depreciation and software amortization
    
    
    2,374,634
    
    
    
    2,197,500Gross profit
    
    
    28,613,547
    
    
    
    35,408,353Selling, general and administrative expenses
    
    
    10,502,741
    
    
    
    11,982,772Depreciation and software amortization
    
    
    834,331
    
    
    
    772,093Amortization of intangibles
    
    
    8,027,340
    
    
    
    7,664,660Operating income
    
    
    9,249,135
    
    
    
    14,988,828Other income (expense)Interest and dividend income
    
    
    88,010
    
    
    
    198,932Interest expense
    
    
    (13,369,269
    )
    
    
    (17,580,661
    )Other income (expense)
    
    
    64,817
    
    
    
    (17,130
    )Total other expense
    
    
    (13,216,442
    )
    
    
    (17,398,859
    )Loss before benefit from income taxes
    
    
    (3,967,307
    )
    
    
    (2,410,031
    )Income tax benefit
    
    
    (1,284,236
    )
    
    
    (667,973
    )Net loss
    
    $
    (2,683,071
    )
    
    $
    (1,742,058
    )
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NETWORK COMMUNICATIONS, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY (UNAUDITED)
 AccumulatedAdditional
    
    
    
    
    
    
    OtherCommon Stock
    
    
    Paid-In
    
    
    Accumulated
    
    
    ComprehensiveShares
    
    
    Amount
    
    
    Capital
    
    
    Deficit
    
    
    Loss, net of tax
    
    
    TotalBalance at March 30,
2008
    
    
    100
    
    
    $
    
    
    
    $
    194,579,776
    
    
    $
    (26,520,887
    )
    
    $
    (12,519
    )
    
    $
    168,046,370Comprehensive loss:Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,683,071
    )
    
    
    
    
    
    
    (2,683,071
    )Foreign currency
translation
adjustments, net
of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (21,419
    )
    
    
    (21,419
    )Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,704,490
    )Balance at September
14, 2008
    
    
    100
    
    
    $
    
    
    
    $
    194,579,776
    
    
    $
    (29,203,958
    )
    
    $
    (33,938
    )
    
    $
    165,341,880
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NETWORK COMMUNICATIONS, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 Six Periods EndedSeptember 14, 2008
    
    
    September 9, 2007Cash flows from operating activitiesNet loss
    
    $
    (2,683,071
    )
    
    $
    (1,742,058
    )Adjustments to reconcile net loss to net cash used in operating activities:Deferred income taxes
    
    
    (2,624,958
    )
    
    
    (3,598,120
    )Depreciation and amortization
    
    
    12,076,808
    
    
    
    15,375,194Other non-cash adjustments
    
    
    1,986,745
    
    
    
    1,799,546Changes in operating assets and liabilities, net of acquired businesses
    
    
    (264,097
    )
    
    
    (1,504,426
    )Net cash provided by operating activities
    
    
    8,491,427
    
    
    
    10,330,136Cash flows from investing activitiesPurchase of property, equipment and computer software
    
    
    (2,849,410
    )
    
    
    (2,650,603
    )Proceeds from the sale of assets
    
    
    
    
    
    
    5,352Payments for businesses acquired, net of cash
    
    
    (1,336,499
    )
    
    
    (30,074,366
    )Net cash used in investing activities
    
    
    (4,185,909
    )
    
    
    (32,719,617
    )Cash flows from financing activitiesNet payments on revolver
    
    
    
    
    
    
    (7,000,000
    )Proceeds from term loans
    
    
    
    
    
    
    30,000,000Payments on term loans
    
    
    (5,343,610
    )
    
    
    (2,864,098
    )Payments on capital leases
    
    
    (224,888
    )
    
    
    (262,833
    )Payment of debt issuance costs
    
    
    
    
    
    
    (492,233
    )Net cash (used in) provided by financing activities
    
    
    (5,568,498
    )
    
    
    19,380,836Net decrease in cash
    
    
    (1,262,980
    )
    
    
    (3,008,645
    )Cash at beginning of fiscal year
    
    
    6,715,837
    
    
    
    9,338,083Cash at end of period
    
    $
    5,452,857
    
    
    $
    6,329,438Supplemental disclosurePayments for businesses acquired:Fair value of assets acquired
    
    $
    
    
    
    $
    30,103,932Less liabilities assumed
    
    
    
    
    
    
    317,156Total purchase price
    
    
    
    
    
    
    29,786,776Deferred purchase price
    
    
    1,336,499
    
    
    
    287,590Cash paid for acquired businesses
    
    $
    1,336,499
    
    
    $
    30,074,366Noncash investing and financing activitiesAssets acquired through capital lease
    
    $
    94,976
    
    
    $
    341,152
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NETWORK COMMUNICATIONS, INC. AND SUBSIDIARIES
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 1. Organization and Basis of Presentation
 The Real Estate Book (TREB) Apartment Finder, New Home Finder, Mature Living Choices, Unique Homes Magazine, Enclave Magazine,
Blacks Guide, Kansas City Homes and Gardens, New England Home, Home by Design Homes and
Lifestyles
 Summary of Significant Accounting Policies
 Basis of Presentation
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NETWORK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 Recent Accounting Pronouncements
 The Hierarchy of Generally Accepted Accounting Principles The Meaning of Presenting Fairly in
Conformity with Generally Accepted Accounting Principles"
 Determination of the
Useful Life of Intangible Assets Goodwill and Other Intangible Assets
 , Disclosures about Derivative Instruments and
Hedging Activities
 Noncontrolling Interests in Consolidated
Financial Statements  an Amendment of ARB No. 51
 Business Combinations
 The Fair Value Option for Financial Assets
and Financial Liabilities  Including an Amendment of FASB Statement No. 115
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NETWORK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 Fair Value Measurements
   -
    
    Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or
liabilities that the reporting entity has the ability to access at the measurement date.-
    
    Level 2 inputs are inputs, other than quoted prices included within Level 1, that are
observable for the asset or liability, either directly or indirectly. If the asset or
liability has a specified (contractual) term, a Level 2 input must be observable for
substantially the full term of the asset or liability.-
    
    Level 3 inputs are unobservable inputs for the asset or liability.
     3. Inventories
  September 14, 2008
    
    
    March 30, 2008Distribution products and marketing aids for resale
    
    $
    528,716
    
    
    $
    477,763Production, paper and ink
    
    
    3,681,333
    
    
    
    2,527,987Work-in-process
    
    
    925,059
    
    
    
    1,181,445$
    5,135,108
    
    
    $
    4,187,195
 4. Acquisitions
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NETWORK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
  Allocation of purchase price
   New England Home
 Relocating in St. Louis
 The Greater Jacksonville Apartment Guide
    Fair Value at
    
    
    Weighted-Average(Dollars in thousands)
    
    Purchase Price
    
    
    Amortization PeriodTangible assetsCurrent assets
    
    $
    266Fixed assets
    
    
    543Total tangible assets
    
    
    809Intangible assetsAdvertiser lists
    
    
    9,772
    
    
    9 yearsDistribution network
    
    
    178
    
    
    10 yearsAmortizable trademarks and trade names
    
    
    1,043
    
    
    5 yearsUnamortizable trademarks and trade names
    
    
    1,900
    
    
    
    Subscribers lists
    
    
    4
    
    
    4 yearsNon-compete
    
    
    2,595
    
    
    5 yearsGoodwill
    
    
    13,803Total intangible assets
    
    
    29,295Liabilities assumed
    
    
    (317
    )Total purchase price
    
    $
    29,787
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NETWORK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
  Unaudited Pro Forma Results of OperationsThree Periods Ended
    
    Six Periods Ended(Dollars in thousands)
    
    September 9, 2007
    
    September 9, 2007Sales
    
    $
    56,915
    
    
    $
    112,983Loss before benefit from income taxes
    
    
    (2,576
    )
    
    
    (2,236
    )Net loss
    
    $
    (1,853
    )
    
    $
    (1,630
    )
 New England Home
 5. Comprehensive loss
  Three Periods Ended
    
    
    Six Periods Ended(Dollars in thousands)
    
    September 14, 2008
    
    
    September 9, 2007
    
    
    September 14, 2008
    
    
    September 9, 2007Net loss
    
    $
    (1,117
    )
    
    $
    (1,882
    )
    
    $
    (2,683
    )
    
    $
    (1,742
    )Foreign currency
translation
adjustments, net of
tax
    
    
    (18
    )
    
    
    (71
    )
    
    
    (21
    )
    
    
    83Comprehensive loss
    
    $
    (1,135
    )
    
    $
    (1,953
    )
    
    $
    (2,704
    )
    
    $
    (1,659
    )
 6. Income Taxes
  Three Periods Ended
    
    Six Periods Ended(Dollars in thousands)
    
    September 14, 2008
    
    September 9, 2007
    
    September 14, 2008
    
    September 9, 2007Income tax benefit
    
    $
    (618
    )
    
    $
    (740
    )
    
    $
    (1,284
    )
    
    $
    (668
    )Effective tax rate
    
    
    35.6
    %
    
    
    28.2
    %
    
    
    32.4
    %
    
    
    27.7
    %
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NETWORK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 7. Long-term Debt
  September 14, 2008
    
    
    March 30, 200810 3/4% Senior Notes, due December 1, 2013
    
    $
    175,000,000
    
    
    $
    175,000,000New Senior Term loan facility
    
    
    71,100,703
    
    
    
    76,444,312Senior Subordinated Note
    
    
    38,433,207
    
    
    
    36,446,462284,533,910
    
    
    
    287,890,774Less:Unamortized discount on noncurrent
Senior Notes
and Senior Subordinated Note
    
    
    (1,802,035
    )
    
    
    (1,965,580
    )Current maturities
    
    
    (766,359
    )
    
    
    (5,726,789
    )Long-term debt, less current maturities
    
    $
    281,965,516
    
    
    $
    280,198,405
 Note 12. Long-term Debt
 New Senior Credit Facility
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NETWORK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
        8. Commitments and Contingencies
 Operating Leases
  Employment Agreements
  Other
  13




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NETWORK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 9. Related Party Transactions
     14




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NETWORK COMMUNICATIONS, INC. AND SUBSIDIARIES
PART I  FINANCIAL INFORMATION
 
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Cautionary Statement Regarding Forward-Looking Information
  Overview of Operations
   The Real Estate Book (TREB) Apartment Finder Blacks Guide Kansas City Homes & Gardens Atlanta Homes & Lifestyles Colorado Homes & Lifestyles, Mountain
Living New England Home
  15




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
    
    advertising volume;
    
    expansion into other local real estate markets;
    
    strong brand recognition; and
    
    per unit cost to produce our publications.
 Business Trends
  
    
    Sales volume of existing homes and months of supply of unsold homes Indicators for
the resale home market remained depressed during the June 2008 to August 2008 timeframe.
The annualized rate of sales in August 2008 was 4.9 million units which was down 11% from
the August 2007 rate of 5.5 million. The median home price in August 2008 was $203,100, a
decrease of 10% from the prior year. The total inventory of unsold existing homes in
August 2008 stood at 4.3 million units or 10.4 months of inventory at the current sales
pace. Revenues for The Real Estate Book(TREB) and Unique Homes(UH) brands have been
adversely impacted by the challenging market conditions. Revenues for the TREB and UH
brands declined by 34% and 28%, respectively, in the current fiscal quarter compared to the
prior year. Real estate is a local business and we do benefit from TREBs geographic
diversification, however, all regions of the country are now being adversely impacted by
the housing downturn. Although the Pending Homes Sales Index, a forward-looking indicator
based on signed contracts, rose 7.4% from July to August, we expect conditions in the
resale and new home markets to remain challenging due to credit market conditions and
general economic weakness.
    
    The market tightness index The National Multi Housing Councils (NMHC) market
tightness index in July 2008 stood at 40, a decrease from 44 in April 2008. A reading
above 50 indicates that markets are experiencing higher occupancy rates and higher rental
rates. The national vacancy rate for investment grade apartments increased to 6% in the
second quarter, its highest reading since 2004. Apartment rents grew by 2.3% compared to
the prior year, the lowest change in over three years. The number of completions of new
multifamily communities in the quarter was down approximately 17% year-over-year reflecting
the challenges in the credit markets that began last year.
    
    Interest rates and the growth in consumer debt Interest rates remain reasonable,
however the availability of credit is a major issue for consumers. Ongoing challenges in
the credit markets are restricting lenders funding of mortgages and home equity lines of
credit. In addition, the continuing decline in home values has reduced the amount of home
equity available to fund consumer discretionary spending. We currently operate home design
and improvement magazines in 20 regional markets in the United States. We have
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experienced tightening in advertising expenditures within some of the markets as a result of
the general economic slowdown, declining consumer sentiment and a reduction in high end new
home developments. Overall, we believe that our Home & Lifestyletitles are less
susceptible to fluctuations in discretionary spending because of their focus on the high end
of the market, while our home improvement titles provide home service providers with a cost
effective advertising vehicle that compares favorably to competing lead generation
alternatives.
 Revenue
  Costs
   Depreciation and Amortization
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Interest Income and Interest Expense
  Income Taxes
  Three Periods Ended
    
    Six Periods Ended(Dollars in thousands)
    
    September 14, 2008
    
    September 9, 2007
    
    September 14, 2008
    
    September 9, 2007Income tax benefit
    
    $
    (618
    )
    
    $
    (740
    )
    
    $
    (1,284
    )
    
    $
    (668
    )Effective tax rate
    
    
    35.6
    %
    
    
    28.2
    %
    
    
    32.4
    %
    
    
    27.7
    %
  Results of Operations
 TREB New Home Finder Unique Homes Enclave, By Design. Apartment Finder Mature Living Choices Blacks
Guide
 Three Periods Ended
    
    
    Six Periods EndedSeptember 14, 2008
    
    
    September 9, 2007
    
    
    September 14, 2008
    
    
    September 9, 2007(Dollars in thousands)
    
    Amount
    
    
    %
    
    
    Amount
    
    
    %
    
    
    Amount
    
    
    %
    
    
    Amount
    
    
    %Resale and new sales
    
    $
    19,980
    
    
    
    42.7
    %
    
    $
    29,427
    
    
    
    52.5
    %
    
    $
    42,387
    
    
    
    44.5
    %
    
    $
    57,759
    
    
    
    52.7
    %Rental and leasing
    
    
    19,623
    
    
    
    42.0
    %
    
    
    18,012
    
    
    
    32.2
    %
    
    
    38,950
    
    
    
    40.9
    %
    
    
    34,934
    
    
    
    31.9
    %Remodeling and home
improvement
    
    
    7,143
    
    
    
    15.3
    %
    
    
    8,574
    
    
    
    15.3
    %
    
    
    13,859
    
    
    
    14.6
    %
    
    
    16,818
    
    
    
    15.4
    %Total revenue
    
    
    46,746
    
    
    
    100.0
    %
    
    
    56,013
    
    
    
    100.0
    %
    
    
    95,196
    
    
    
    100.0
    %
    
    
    109,511
    
    
    
    100.0
    %Costs and expenses:Cost of sales (including
production depreciation and
software amortization)
    
    
    32,686
    
    
    
    69.9
    %
    
    
    37,577
    
    
    
    67.1
    %
    
    
    66,583
    
    
    
    69.9
    %
    
    
    74,102
    
    
    
    67.7
    %Selling, general and
administrative (including
non-production depreciation
and software amortization)
    
    
    5,144
    
    
    
    11.0
    %
    
    
    6,443
    
    
    
    11.5
    %
    
    
    11,337
    
    
    
    11.9
    %
    
    
    12,755
    
    
    
    11.6
    %Amortization of intangibles
    
    
    3,996
    
    
    
    8.6
    %
    
    
    3,954
    
    
    
    7.1
    %
    
    
    8,027
    
    
    
    8.5
    %
    
    
    7,665
    
    
    
    7.0
    %Income from operations
    
    $
    4,920
    
    
    
    10.5
    %
    
    $
    8,039
    
    
    
    14.3
    %
    
    $
    9,249
    
    
    
    9.7
    %
    
    $
    14,989
    
    
    
    13.7
    %
 18




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##### Table of Contents



Three Periods Ended September 14, 2008 Compared to Three Periods Ended September 9, 2007
 Revenue.
 TREB TREB TREB Unique Homes
 Apartment Finder Blacks Guide
 Kansas City Homes &
Gardens, Accent Home & Garden, At Home In Arkansas, Relocating in Las Vegas, New England Home,
Relocating in St. Louis, Homes & Lifestyles
 Cost of sales
 Production depreciation and software amortization expense.
 Selling, general and administrative expenses (SG&A)
 19




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##### Table of Contents



Non-production depreciation and software amortization expense.
 Amortization of intangibles
 Net interest expense
 Net income
 Six Periods Ended September 14, 2008 Compared to Six Periods Ended September 9, 2007
 Revenue.
 TREB TREB TREB Unique Homes
 Apartment Finder Blacks Guide
 Kansas City Homes & Gardens, Accent Home & Garden, At Home In Arkansas, Relocating in Las Vegas,
New England Home, Relocating in St. Louis, Homes &
Lifestyles
 20




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##### Table of Contents



Cost of sales
 Production depreciation and software amortization expense.
 Selling, general and administrative expenses (SG&A)
 Non-production depreciation and software amortization expense.
 Amortization of intangibles
 Net interest expense
 Net income
 Liquidity and Capital Resources
   21




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##### Table of Contents



Six Periods Ended(Dollars in thousands)
    
    September 14, 2008
    
    
    September 9, 2007Net cash provided by operating activities
    
    $
    8,491
    
    
    $
    10,330Net cash used in investing activities
    
    
    (4,186
    )
    
    
    (32,720
    )Net cash (used in) provided by financing activities
    
    
    (5,568
    )
    
    
    19,381Net decrease in cash
    
    
    (1,263
    )
    
    
    (3,009
    )Cash at beginning of fiscal year
    
    
    6,716
    
    
    
    9,338Cash at end of period
    
    $
    5,453
    
    
    $
    6,329
    Senior Notes and Credit Agreement
   New senior credit facility.
 22




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##### Table of Contents



Critical Accounting Policies and Estimates
  Principles of Consolidation and Fiscal Year End
  23




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##### Table of Contents



Revenue Recognition and Unearned Revenue
 Accounting for Revenue Arrangements with Multiple Deliverables, Revenue Recognition .
 Print
  Online
  Unearned revenue
  Trade Accounts Receivable
    Goodwill
 Goodwill and other Intangible Assets
 24




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##### Table of Contents



Impairment of Long Lived Assets
 Accounting
for the Impairment or Disposal of Long-Lived Assets
 Intangible Assets
  Recent Accounting Pronouncements
 The Hierarchy of Generally Accepted Accounting Principles The Meaning of Presenting Fairly in
Conformity with Generally Accepted Accounting Principles.
 Determination of the
Useful Life of Intangible Assets Goodwill and Other Intangible Assets
 , Disclosures about Derivative Instruments and Hedging
Activities
 Noncontrolling Interests in Consolidated
Financial Statements  an Amendment of ARB No. 51
 25




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##### Table of Contents



Business Combinations
 The Fair Value Option for Financial Assets and
Financial Liabilities  Including an Amendment of FASB Statement No. 115
 Fair Value Measurements(
   -
    
    Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or
liabilities that the reporting entity has the ability to access at the measurement date.-
    
    Level 2 inputs are inputs, other than quoted prices included within Level 1, that are
observable for the asset or liability, either directly or indirectly. If the asset or
liability has a specified (contractual) term, a Level 2 input must be observable for
substantially the full term of the asset or liability.-
    
    Level 3 inputs are unobservable inputs for the asset or liability.
     26




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##### Table of Contents



Off-Balance Sheet Arrangements
  Contractual Obligations
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
 Quantitative
and Qualitative Disclosures About Market Risk
 
 Item 4. Controls and Procedures
   1.
    
    Deficiencies in our IT environment due to untimely removal of network access for terminated employees.2.
    
    Deficiencies in our IT environment due to backup tapes not being stored offsite on a consistent basis.3.
    
    Deficiencies in maintaining adequate controls over certain key spreadsheets used in our financial
reporting process including review of these spreadsheets.
  1.
    
    Remediation efforts were made to ensure notification of IT upon the
departure of employees for purposes of terminating their network
access. The Company is currently reviewing the access eligibility of
the current users of its network. Testing of these remediation efforts
is pending.2.
    
    Remediation efforts were made to ensure consistent storage of backup
tapes offsite as we signed on 10/1/2008 an agreement with a third
party data management company to transport the backup tapes to an
offsite location on a daily basis. Testing of these remediation
efforts is pending.
 3.
    
    Remediation efforts were made to ensure adequate controls over key
spreadsheets by implementing review and password protection on the
spreadsheets and formulas and maintaining historic data in a read only
access as well as a formal review process. Testing of these
remediation efforts is pending.
Other than the items noted above, there was no change in our internal
control over financial reporting that occurred during our fiscal
quarter ended September 14, 2008 that has materially affected, or is
reasonably likely to materially affect, our internal control over
financial reporting.
 27




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##### Table of Contents



NETWORK COMMUNICATIONS, INC. AND SUBSIDIARIES
 
  
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
 Item 1A.  Risk Factors
 
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 5. Other Information
  
 Item 6. Exhibits
  28




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##### Table of Contents



SIGNATURES
  Network Communications, Inc.Date: October 24, 2008
    
    By:
    
    /s/ Daniel R. McCarthy

Chairman and Chief Executive Officer(Principal Executive Officer)Date: October 24, 2008
    
    By:
    
    /s/ Gerard P. ParkerSenior Vice President and Chief Financial Officer(Principal Financial and Accounting Officer)




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##### Table of Contents



NETWORK COMMUNICATIONS, INC. AND SUBSIDIARIES
PART II  OTHER INFORMATION
 Exhibit Index  (Exhibits Physically Filed Herewith)
 Number
    
    Title31.1
    
    
    Certification of the Chairman and Chief Executive
Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.31.2
    
    
    Certification of the Senior Vice President and Chief
Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.32.1*
    
    
    Certification of Chairman and Chief Executive
Officer pursuant to Title 18 of the United States
Code Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.32.2*
    
    
    Certification of Senior Vice President and Chief
Financial Officer pursuant to Title 18 of the United
States Code Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
 
 *
    
    This exhibit is hereby furnished to the SEC as an accompanying
document and is not to be deemed filed for purposes of Section 18 of
the Securities Exchange Act of 1934 or otherwise subject to the
liabilities of that Section, nor shall it be deemed incorporated by
reference into any filing under the Securities Act of 1933 or the
Securities Exchange Act of 1934.