##### 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 9, 2007
 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
  o o þ
  o þ
  Class
    
    Outstanding at September 9, 2007Common 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 9, 2007 and March 25, 2007
    
    2Condensed Consolidated Statements of Operations for the three periods ended September 9, 2007 and September 10, 2006
    
    3Condensed Consolidated Statement of Operations for the six periods ended September 9, 2007 and September 10, 2007
    
    4Condensed Consolidated Statement of Stockholders Equity as of September 9, 2007
    
    5Condensed Consolidated Statements of Cash Flows for the six periods ended September 9, 2007 and September 10, 2006
    
    6Notes to Condensed Consolidated Financial Statements
    
    7-12Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    13-24Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    24Item 4.
    
    Controls and Procedures
    
    24PART II: OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    25Item 1A.
    
    Risk Factors
    
    25Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    25Item 3.
    
    Defaults upon Senior Securities
    
    25Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    25Item 5.
    
    Other Information
    
    25Item 6.
    
    Exhibits
    
    26SignaturesEX-10.1: TERM LOAN CREDIT AGREEMENTEX-10.2: REVOLVING LOAN CREDIT AGREEMENTEX-10.3: GUARANTEE, COLLATERAL AND INTERCREDITOR AGREEMENTEX-10.4: COPYRIGHT SECURITY AGREEMENTEX-10.5: TRADEMARK SECURITY AGREEMENTEX-10.6: PATENT SECURITY AGREEMENTEX-31.1: CERTIFICATIONEX-31.2: CERTIFICATIONEX-32.1: CERTIFICATIONEX-32.2: CERTIFICATION
  1




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 NETWORK COMMUNICATIONS, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
 September 9, 2007
    
    
    March 25, 2007ASSETSCurrent assetsCash and cash equivalents
    
    $
    6,329,438
    
    
    $
    9,338,083Accounts receivable, net of allowance for
doubtful accounts of $2,605,630 and
$1,912,911, respectively
    
    
    22,800,557
    
    
    
    17,478,518Inventories
    
    
    3,215,840
    
    
    
    3,216,504Prepaid expenses and deferred charges
    
    
    2,044,384
    
    
    
    4,036,080Deferred tax assets
    
    
    958,243
    
    
    
    724,489Income tax receivable
    
    
    
    
    
    
    549,158Other current assets
    
    
    52,901
    
    
    
    15,100Total current assets
    
    
    35,401,363
    
    
    
    35,357,932Property, equipment and computer software, net
    
    
    24,178,083
    
    
    
    23,940,897Goodwill
    
    
    303,157,174
    
    
    
    291,723,947Deferred financing costs, net
    
    
    8,215,602
    
    
    
    12,300,765Intangible assets, net
    
    
    155,456,820
    
    
    
    144,902,357Other assets
    
    
    323,226
    
    
    
    324,142Total noncurrent assets
    
    
    491,330,905
    
    
    
    473,192,108Total assets
    
    $
    526,732,268
    
    
    $
    508,550,040LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilitiesAccounts payable
    
    $
    9,280,923
    
    
    $
    9,392,050Accrued compensation, benefits and related taxes
    
    
    5,503,630
    
    
    
    5,195,397Customer deposits
    
    
    1,899,387
    
    
    
    1,986,128Unearned revenue
    
    
    3,957,819
    
    
    
    2,446,870Accrued interest
    
    
    5,909,280
    
    
    
    6,613,204Income tax payable
    
    
    926,876
    
    
    
    Other current liabilities
    
    
    803,022
    
    
    
    1,344,467Current maturities of long-term debt
    
    
    574,769
    
    
    
    3,084,182Current maturities of capital lease obligations
    
    
    425,216
    
    
    
    423,925Total current liabilities
    
    
    29,280,922
    
    
    
    30,486,223Long-term debt, less current maturities
    
    
    283,054,530
    
    
    
    258,491,120Capital lease obligations, less current maturities
    
    
    402,165
    
    
    
    325,137Deferred tax liabilities
    
    
    41,220,169
    
    
    
    44,584,535Other long term liabilities
    
    
    230,000
    
    
    
    460,000Total liabilities
    
    
    354,187,786
    
    
    
    334,347,015Commitments and contingencies (Note 7)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 9, 2007 and March 25, 2007)
    
    
    194,622,402
    
    
    
    194,622,402Accumulated deficit
    
    
    (22,085,232
    )
    
    
    (20,343,174
    )Accumulated other comprehensive income (loss)
    
    
    7,312
    
    
    
    (76,203
    )Total stockholders equity
    
    
    172,544,482
    
    
    
    174,203,025Total liabilities and stockholders equity
    
    $
    526,732,268
    
    
    $
    508,550,040
  2




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NETWORK COMMUNICATIONS, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
 Three Periods EndedSeptember 9, 2007
    
    
    September 10, 2006Sales
    
    $
    56,013,011
    
    
    $
    48,563,965Cost of sales (exclusive of production depreciation and software
amortization expense shown separately below)
    
    
    36,397,154
    
    
    
    32,118,864Production depreciation and software amortization
    
    
    1,179,495
    
    
    
    2,510,420Gross profit
    
    
    18,436,362
    
    
    
    13,934,681Selling, general and administrative expenses
    
    
    6,028,698
    
    
    
    4,810,870Depreciation and software amortization
    
    
    414,415
    
    
    
    882,039Amortization of intangibles
    
    
    3,954,456
    
    
    
    3,395,001Operating income
    
    
    8,038,793
    
    
    
    4,846,771Other income (expense)Interest and dividend income
    
    
    107,996
    
    
    
    94,775Interest expense
    
    
    (10,739,804
    )
    
    
    (6,599,153
    )Unrealized loss on derivatives
    
    
    
    
    
    
    (12,570
    )Other (expense) income
    
    
    (28,487
    )
    
    
    25,526Total other expense
    
    
    (10,660,295
    )
    
    
    (6,491,422
    )Loss from continuing operations before benefit from income taxes
    
    
    (2,621,502
    )
    
    
    (1,644,651
    )Income tax benefit
    
    
    (739,642
    )
    
    
    (559,755
    )Net loss from continuing operations
    
    
    (1,881,860
    )
    
    
    (1,084,896
    )Discontinued operations (Note 5)Income from discontinued operations of $59,920 net of
applicable income tax expense of $24,567
    
    
    
    
    
    
    35,353Loss on disposal of discontinued operations of $205,216 net of
applicable income tax benefit of $84,139
    
    
    
    
    
    
    (121,077
    )Net loss
    
    $
    (1,881,860
    )
    
    $
    (1,170,620
    )
  3




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NETWORK COMMUNICATIONS, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
 Six Periods EndedSeptember 9, 2007
    
    
    September 10, 2006Sales
    
    $
    109,510,884
    
    
    $
    96,234,330Cost of sales (exclusive of production depreciation and software
amortization expense shown separately below)
    
    
    71,905,031
    
    
    
    61,784,751Production depreciation and software amortization
    
    
    2,197,500
    
    
    
    4,982,411Gross profit
    
    
    35,408,353
    
    
    
    29,467,168Selling, general and administrative expenses
    
    
    11,982,772
    
    
    
    11,307,316Depreciation and software amortization
    
    
    772,093
    
    
    
    1,750,577Amortization of intangibles
    
    
    7,664,660
    
    
    
    6,998,833Operating income
    
    
    14,988,828
    
    
    
    9,410,442Other income (expense)Interest and dividend income
    
    
    198,932
    
    
    
    222,391Interest expense
    
    
    (17,580,661
    )
    
    
    (13,104,662
    )Unrealized loss on derivatives
    
    
    
    
    
    
    (5,253
    )Other (expense) income
    
    
    (17,130
    )
    
    
    15,626Total other expense
    
    
    (17,398,859
    )
    
    
    (12,871,898
    )Loss from continuing operations before benefit from income taxes
    
    
    (2,410,031
    )
    
    
    (3,461,456
    )Income tax benefit
    
    
    (667,973
    )
    
    
    (1,201,327
    )Net loss from continuing operations
    
    
    (1,742,058
    )
    
    
    (2,260,129
    )Discontinued operations (Note 5)Income from discontinued operations of $14,821 net of
applicable income tax expense of $6,077
    
    
    
    
    
    
    8,744Loss on disposal of discontinued operations of $205,216 net of
applicable income tax benefit of $84,139
    
    
    
    
    
    
    (121,077
    )Net loss
    
    $
    (1,742,058
    )
    
    $
    (2,372,462
    )
  4




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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
    
    
    income (loss)
    
    
    TotalBalance at March 25, 2007
    
    
    100
    
    
    $
    
    
    
    $
    194,622,402
    
    
    $
    (20,343,174
    )
    
    $
    (76,203
    )
    
    $
    174,203,025Comprehensive loss:Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,742,058
    )
    
    
    
    
    
    
    (1,742,058
    )Foreign currency
translation
adjustments, net of
tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    83,515
    
    
    
    83,515Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,658,543
    )Balance at September 9,
2007
    
    
    100
    
    
    $
    
    
    
    $
    194,622,402
    
    
    $
    (22,085,232
    )
    
    $
    7,312
    
    
    $
    172,544,482
  5




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NETWORK COMMUNICATIONS, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 Six Periods EndedSeptember 9, 2007
    
    
    September 10, 2006Cash flows from operating activitiesNet loss
    
    $
    (1,742,058
    )
    
    $
    (2,372,462
    )Adjustments to reconcile net loss to net cash used in operating activities:Unrealized loss on derivatives
    
    
    
    
    
    
    5,253Deferred income taxes
    
    
    (3,598,120
    )
    
    
    (4,683,901
    )Other, net
    
    
    17,174,740
    
    
    
    16,612,281Changes in operating assets and liabilities, net of acquired businesses
    
    
    (1,504,426
    )
    
    
    (2,531,986
    )Net cash provided by operating activities
    
    
    10,330,136
    
    
    
    7,029,185Cash flows from investing activitiesPurchase of property, equipment and computer software
    
    
    (2,650,603
    )
    
    
    (3,008,053
    )Proceeds from the sale of assets
    
    
    5,352
    
    
    
    100,000Payments for businesses acquired, net of cash
    
    
    (30,074,366
    )
    
    
    (5,084,608
    )Net cash used in investing activities
    
    
    (32,719,617
    )
    
    
    (7,992,661
    )Cash flows from financing activitiesNet payments on revolver
    
    
    (7,000,000
    )
    
    
    Proceeds from term loans
    
    
    30,000,000
    
    
    
    Payments on term loans
    
    
    (2,864,098
    )
    
    
    (250,000
    )Capitalization from parent
    
    
    
    
    
    
    82,374Payments on capital leases
    
    
    (262,833
    )
    
    
    (345,678
    )Payment of debt issuance costs
    
    
    (492,233
    )
    
    
    (67,565
    )Net cash provided by (used in) financing activities
    
    
    19,380,836
    
    
    
    (580,869
    )Net decrease in cash
    
    
    (3,008,645
    )
    
    
    (1,544,345
    )Cash at beginning of fiscal year
    
    
    9,338,083
    
    
    
    16,418,335Cash at end of period
    
    $
    6,329,438
    
    
    $
    14,873,990Supplemental disclosurePayments for businesses acquired:Fair value of assets acquired
    
    $
    30,103,932
    
    
    $
    5,084,608Less liabilities assumed
    
    
    317,156
    
    
    
    Total purchase price
    
    
    29,786,776
    
    
    
    5,084,608Deferred purchase price
    
    
    287,590
    
    
    
    Cash paid for acquired businesses
    
    $
    30,074,366
    
    
    $
    5,084,608Noncash investing and financing activitiesAssets acquired through capital lease
    
    $
    341,152
    
    
    $
    103,900
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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, Homes and Lifestyles
 2. Summary of Significant Accounting Policies
 Basis of Presentation
    7




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NETWORK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 Recent Accounting Pronouncements
 FASB SFAS The Fair Value Option for Financial Assets and
Financial Liabilities  Including an Amendment of FASB Statement No. 115 SFAS 159
 Accounting for
Uncertainty in Income Taxesan Interpretation of FASB Statement 109
 Fair Value Measurements
 3. Inventories
  September 9, 2007
    
    
    March 25, 2007Distribution products and marketing aids for resale
    
    $
    633,132
    
    
    $
    608,381Production, paper and ink
    
    
    1,742,081
    
    
    
    1,765,170Work-in-process
    
    
    840,627
    
    
    
    842,953$
    3,215,840
    
    
    $
    3,216,504
 4. Acquisitions
  8




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##### Table of Contents



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(in thousands)
    
    Purchase Price
    
    
    Amortization PeriodTangible assetsCurrent assets
    
    $
    266Fixed assets
    
    
    214Total tangible assets
    
    
    480Intangible assetsAdvertiser lists
    
    
    12,076
    
    
    10 yearsDistribution network
    
    
    178
    
    
    10 yearsConsumer database
    
    
    780
    
    
    4 yearsTrade names
    
    
    2,845
    
    
    11 yearsSubscriber lists
    
    
    4
    
    
    4 yearsNon-compete
    
    
    2,336
    
    
    3 yearsGoodwill
    
    
    11,405Total intangible assets
    
    
    29,624Liabilities assumed
    
    
    (317
    )Total purchase price
    
    $
    29,787
  9




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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 EndedSeptember 9, 2007
    
    September 10, 2006
    
    September 9, 2007
    
    September 10, 2006(in thousands)
    
    (in thousands)Sales
    
    $
    56,915
    
    
    $
    54,503
    
    
    $
    112,983
    
    
    $
    108,989Loss before benefit from income taxes
    
    
    (2,576
    )
    
    
    (1,732
    )
    
    
    (2,236
    )
    
    
    (3,621
    )Net loss
    
    $
    (1,853
    )
    
    $
    (1,226
    )
    
    $
    (1,630
    )
    
    $
    (2,475
    )
  5. Discontinued Operations
 Corporate
Choices Accounting for the Impairment or Disposal of Long-lived Assets Corporate Choices
 6. Long-term Debt
  September 9, 2007
    
    
    March 25, 200710 3/4% Senior Notes, due December 1, 2013
    
    $
    175,000,000
    
    
    $
    175,000,000Term Loan Facility
    
    
    
    
    
    
    49,500,000New Term Loan Facility
    
    
    76,635,902
    
    
    
    Revolving Loan Facility
    
    
    
    
    
    
    7,000,000Senior Subordinated Note
    
    
    34,149,781
    
    
    
    32,395,232285,785,683
    
    
    
    263,895,232Less:Unamortized discount on noncurrent
Senior Notes
and Senior Subordinated Note
    
    
    (2,156,384
    )
    
    
    (2,319,930
    )Current maturities
    
    
    (574,769
    )
    
    
    (3,084,182
    )Long-term debt, less current maturities
    
    $
    283,054,530
    
    
    $
    258,491,120
 Note 12. Long-term Debt
 New Senior Credit Facility
  10




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NETWORK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
         7. Commitments and Contingencies
 Commitments
  11




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NETWORK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
  Operating Leases
  Employment Agreements
  Other
  8. Related Party Transactions
   12




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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
 13




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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 and new home market deteriorated during the June to August timeframe. In August
2007, the inventory of unsold homes increased to 10 months which was a significant increase
from the 6.6 months of inventory in January 2007. The current inventory of unsold homes
reached 4.58 million, the highest number on record. The annualized rate of sales of
existing homes fell to 5.5 million in August 2007 compared to an annual rate of 6.4
million in January 2007. Resale home prices in July 2007, as measured by the
S&P/Case-Shiller home price index of 20 cities, fell 3.9% compared to the prior year. This
price decline was the steepest drop in sixteen years. Revenue of The Real Estate Book
(TREB) was negatively impacted by these market conditions. TREB revenue in the fiscal
second quarter was down compared to prior year by 8.3%. This follows a year-over-year
decline in the fiscal first quarter of 4.2%. Although we benefit from TREBs geographic
diversification, the current housing slowdown is impacting all regions. We expect
conditions in the resale homes market to remain challenging especially given the expected
impact of the recent dislocation in the mortgage market on the ability to finance home
purchases. The Pending Home Sale Index, which forecasts near-term
home sales, dropped 6.5% in August to the lowest level since
2001 when the index was started.
    
    The market tightness index- The July market tightness index was at 56. A reading above
50 indicates the markets are experiencing higher occupancy rates and higher rental rates.
During the July 2007 to September 2007 time period, the national apartment vacancy rate
declined by 0.2% while rents increased
1.4%. The rental market is benefiting from the downturn in the new and resale homes markets
and the tightening of credit standards for mortgages. According to the July survey
conducted by the National Multi Housing Council, 55% of respondents saw a decrease in the
number of renters leaving to become homeowners.
 14




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
    
    Interest rates and the growth in consumer debt- The interest rate environment remains
favorable especially with the September interest rate cut by the Federal Reserve. However,
the market for refinancing and home equity lines of credit has been adversely impacted by
the recent developments in the credit markets. There has been a decline in the amount of
available credit and lenders have tightened their underwriting standards. To date we have
not experienced a significant impact on our home design and home improvement magazines,
which serve sixteen regional markets in the United States. In the aggregate, the magazines
have continued to experience growth in advertising pages.
 Revenue
 Accounting for Revenue Arrangements with
Multiple Deliverables, Revenue Recognition
 Costs
   Depreciation and Amortization
   15




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Interest Income and Interest Expense
  Income Tax Expense
  Results of Operations
 TREB New Home Finder Unique Homes Enclave Apartment Finder Mature Living Choices Blacks
Guide
 Three Periods Ended
    
    
    Six Periods EndedSeptember 9, 2007
    
    
    September 10, 2006
    
    
    September 9, 2007
    
    
    September 10, 2006Amount
    
    
    %
    
    
    Amount
    
    
    %
    
    
    Amount
    
    
    %
    
    
    Amount
    
    
    %(in thousands)
    
    
    (in thousands)Resale and new sales
    
    $
    29,427
    
    
    
    52.5
    %
    
    $
    28,762
    
    
    
    59.2
    %
    
    $
    57,759
    
    
    
    52.7
    %
    
    $
    57,816
    
    
    
    60.1
    %Rental and leasing
    
    
    18,012
    
    
    
    32.2
    %
    
    
    13,619
    
    
    
    28.1
    %
    
    
    34,934
    
    
    
    31.9
    %
    
    
    26,549
    
    
    
    27.6
    %Remodeling and home
improvement
    
    
    8,574
    
    
    
    15.3
    %
    
    
    6,183
    
    
    
    12.7
    %
    
    
    16,818
    
    
    
    15.4
    %
    
    
    11,869
    
    
    
    12.3
    %Total revenue
    
    
    56,013
    
    
    
    100.0
    %
    
    
    48,564
    
    
    
    100.0
    %
    
    
    109,511
    
    
    
    100.0
    %
    
    
    96,234
    
    
    
    100.0
    %Costs and expenses:Cost of sales (including production
depreciation and software amortization)
    
    
    37,577
    
    
    
    67.1
    %
    
    
    34,629
    
    
    
    71.3
    %
    
    
    74,102
    
    
    
    67.7
    %
    
    
    66,767
    
    
    
    69.4
    %Selling, general and administrative
(including non-production depreciation
and software amortization)
    
    
    6,443
    
    
    
    11.5
    %
    
    
    5,693
    
    
    
    11.7
    %
    
    
    12,755
    
    
    
    11.6
    %
    
    
    13,058
    
    
    
    13.5
    %Amortization of intangibles
    
    
    3,954
    
    
    
    7.1
    %
    
    
    3,395
    
    
    
    7.0
    %
    
    
    7,665
    
    
    
    7.0
    %
    
    
    6,999
    
    
    
    7.3
    %Income from operations
    
    $
    8,039
    
    
    
    14.3
    %
    
    $
    4,847
    
    
    
    10.0
    %
    
    $
    14,989
    
    
    
    13.7
    %
    
    $
    9,410
    
    
    
    9.8
    %
 16




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##### Table of Contents



Three Periods Ended September 9, 2007 Compared to Three Periods Ended September 10, 2006
 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.
 17




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##### Table of Contents



Selling, general and administrative expenses (SG&A)
 Non-production depreciation and software amortization expense.
 Amortization of intangibles
 Net interest expense
 Net income
 Six Periods Ended September 9, 2007 Compared to six Periods Ended September 10, 2006
 Revenue.
 TREB TREB TREB Unique Homes
 Apartment Finder Blacks Guide
 Kansas City Homes & Gardens,
 18




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##### Table of Contents



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)
 Non-production depreciation and software amortization expense.
 Amortization of intangibles
 Net interest expense
 Net income
 19




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##### Table of Contents



Liquidity and Capital Resources
    Six Periods Ended
    
    
    Six Periods EndedSeptember 9, 2007
    
    
    September 10, 2006(in thousands)Net cash provided by operating
activities
    
    $
    10,330
    
    
    $
    7,029Net cash used in investing
activities
    
    
    (32,720
    )
    
    
    (7,992
    )Net cash provided by (used in)
financing
activities
    
    
    19,381
    
    
    
    (581
    )Net decrease in cash & cash
equivalents
    
    
    (3,009
    )
    
    
    (1,544
    )Cash at beginning of fiscal
year
    
    
    9,338
    
    
    
    16,418Cash at end of period
    
    $
    6,329
    
    
    $
    14,874
    Commitments
  Senior Notes and Credit Agreement
  New senior credit facility.
 20




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##### Table of Contents



Critical Accounting Policies and Estimates
  Principles of Consolidation and Fiscal Year End
  Revenue Recognition and Unearned Revenue
  21




---



##### Table of Contents



Accounting for Revenue Arrangements with
Multiple Deliverables, Revenue
Recognition .
 Print
  Online
  Unearned revenue
  Trade Accounts Receivable
    22




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##### Table of Contents



Goodwill
 Goodwill
and Other Intangible Assets
  Impairment of Long Lived Assets
 Accounting for the Impairment or Disposal of
Long-Lived Assets Corporate Choices
 Intangible Assets
  Recent Accounting Pronouncements
 FASB SFAS The Fair Value Option for Financial Assets and
Financial Liabilities  Including an Amendment of FASB Statement No. 115 SFAS 159
 Accounting for
Uncertainty in Income Taxesan Interpretation of FASB Statement 109
 Fair Value Measurements
 23




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##### Table of Contents



Off-Balance Sheet Arrangements
  Contractual Obligations
  Payments Due by PeriodLess Than
    
    1 to
    
    3 to
    
    More ThanTotal
    
    1 Year
    
    3 Years
    
    5 Years
    
    5 Years(Dollars in thousands)Long-term debt:Variable rate bank debt
    
    $
    76,636
    
    
    $
    575
    
    
    $
    1,533
    
    
    $
    1,533
    
    
    $
    72,995Fixed rate Subordinated Note
    
    
    34,150
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    34,150Fixed rate Senior Notes
    
    
    175,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    175,000Future interest payments(1)
    
    
    183,790
    
    
    
    29,410
    
    
    
    61,456
    
    
    
    62,291
    
    
    
    30,633Capital lease obligations
    
    
    749
    
    
    
    424
    
    
    
    303
    
    
    
    21
    
    
    
    1Manufacturing contract
    
    
    231
    
    
    
    231
    
    
    
    
    
    
    
    
    
    
    
    Operating lease obligations
    

    14,343
    
    

    4,356
    
    

    6,083
    
    

    3,573
    
    

    331Total contractual obligations
    
    $
    484,899
    
    
    $
    34,996
    
    
    $
    69,375
    
    
    $
    67,418
    
    
    $
    313,110
 
 (1)
    
    This line item is comprised of fixed and variable interest rates on
the debt balances as of September 9, 2007. For the variable rate
portion, the company has assumed that the effective interest rate as
of September 9, 2007 will remain consistent over the remaining life
of the variable rate bank debt. 
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
 Quantitative and Qualitative Disclosures About Market Risk
 
 Item 4. Controls and Procedures
  24




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##### Table of Contents



NETWORK COMMUNICATIONS, INC. AND SUBSIDIARIES
 
 PART II  OTHER INFORMATION
 
 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
 Note 6. Long-term Debt Part I-Item 2.  New Senior Credit Facility
 25




---



##### Table of Contents



Item 6. Exhibits
  Number
    
    Title10.1
    
    Term Loan Credit Agreement dated as of July 20,
2007, among Network Communications, Inc., Gallarus
Media Holdings, Inc., the Lenders , and Toronto
Dominion (Texas) LLC, as administrative agent and as
collateral agent for the Lenders.10.2
    
    Revolving Loan Credit Agreement dated as of July 20,
2007, among Network Communications, Inc., Gallarus
Media Holdings, Inc., the Lenders, and Toronto
Dominion (Texas) LLC, as administrative agent and as
collateral agent for the Lenders.10.3
    
    Guarantee, Collateral And Intercreditor Agreement
dated as of July 20, 2007, among Network
Communications, Inc., Gallarus Media Holdings, Inc.,
the Subsidiaries of the Network Communications Inc.
from time to time party thereto, Toronto Dominion
(Texas) LLC, as collateral agent, Toronto Dominion
(Texas) LLC, as administrative agent for the
Revolving Lenders and Toronto Dominion (Texas) LLC,
as administrative agent for the Term Lenders.10.4
    
    Copyright Security Agreement dated as of July 20,
2007, between Network Communications, Inc. and
Toronto Dominion (Texas) LLC, as the Collateral
Agent.10.5
    
    Trademark Security Agreement dated as of July 20,
2007, between Network Communications, Inc. and
Toronto Dominion (Texas) LLC, as the Collateral
Agent.10.6
    
    Patent Security Agreement dated as of July 20, 2007,
between Network Communications, Inc. and Toronto
Dominion (Texas) LLC, as the Collateral Agent.31.1
    
    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. 26




---



##### Table of Contents



SIGNATURE
 Network Communications, Inc.Date: October 18, 2007
    
    By:
    
    /s/ Daniel R. McCarthyChairman and Chief Executive Officer(Principal Executive Officer)Date: October 18, 2007
    
    By:
    
    /s/ Gerard P. ParkerSenior Vice President and Chief Financial Officer(Principal Financial Officer)




---



##### Table of Contents



NETWORK COMMUNICATIONS, INC. AND SUBSIDIARIES
PART II  OTHER INFORMATION
 Exhibit Index
 (Exhibits Physically Filed Herewith)
 Number
    
    Title10.1
    
    Term Loan Credit Agreement dated as of July 20,
2007, among Network Communications, Inc., Gallarus
Media Holdings, Inc., the Lenders , and Toronto
Dominion (Texas) LLC, as administrative agent and as
collateral agent for the Lenders.10.2
    
    Revolving Loan Credit Agreement dated as of July 20,
2007, among Network Communications, Inc., Gallarus
Media Holdings, Inc., the Lenders, and Toronto
Dominion (Texas) LLC, as administrative agent and as
collateral agent for the Lenders.10.3
    
    Guarantee, Collateral And Intercreditor Agreement
dated as of July 20, 2007, among Network
Communications, Inc., Gallarus Media Holdings, Inc.,
the Subsidiaries of the Network Communications Inc.
from time to time party thereto, Toronto Dominion
(Texas) LLC, as collateral agent, Toronto Dominion
(Texas) LLC, as administrative agent for the
Revolving Lenders and Toronto Dominion (Texas) LLC,
as administrative agent for the Term Lenders.10.4
    
    Copyright Security Agreement dated as of July 20,
2007, between Network Communications, Inc. and
Toronto Dominion (Texas) LLC, as the Collateral
Agent.10.5
    
    Trademark Security Agreement dated as of July 20,
2007, between Network Communications, Inc. and
Toronto Dominion (Texas) LLC, as the Collateral
Agent.10.6
    
    Patent Security Agreement dated as of July 20, 2007,
between Network Communications, Inc. and Toronto
Dominion (Texas) LLC, as the Collateral Agent.31.1
    
    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.