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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: December 7, 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
    
    Smaller reporting company o(Do not check if a smaller reporting company)
  o þ
  Class
    
    Outstanding at December 7, 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 December 7, 2008 and March 30, 2008
    
    
    2Condensed Consolidated Statements of Operations for the three periods ended December
7, 2008 and December 2, 2007
    
    
    3Condensed Consolidated Statements of Operations for the nine periods ended December
7, 2008 and December 2, 2007
    
    
    4Condensed Consolidated Statement of Stockholders Equity as of December 7, 2008
    
    
    5Condensed Consolidated Statements of Cash Flows for the nine periods ended December
7, 2008 and December 2, 2007
    
    
    6Notes to Condensed Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    16Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    30Item 4. Controls and Procedures
    
    
    30PART II: OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    32Item 1A. Risk Factors
    
    
    32Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    32Item 3. Defaults upon Senior Securities
    
    
    32Item 4. Submission of Matters to a Vote of Security Holders
    
    
    32Item 5. Other Information
    
    
    32Item 6. Exhibits
    
    
    32SignaturesEX-10.27: SECOND AMENDMENT TO REVOLVING LOAN CREDIT AGREEMENTEX-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)
 December 7, 2008
    
    
    March 30, 2008ASSETSCurrent assetsCash and cash equivalents
    
    $
    3,384,391
    
    
    $
    6,715,837Accounts receivable, net of allowance for
doubtful accounts of $4,191,636 and $2,793,357,
respectively
    
    
    19,483,734
    
    
    
    21,361,396Inventories
    
    
    4,134,411
    
    
    
    4,187,195Prepaid expenses and deferred charges
    
    
    2,013,289
    
    
    
    3,599,615Deferred tax assets
    
    
    1,715,121
    
    
    
    1,072,699Income tax receivable
    
    
    180,639
    
    
    
    941,453Other current assets
    
    
    63,072
    
    
    
    45,012Total current assets
    
    
    30,974,657
    
    
    
    37,923,207Property, equipment and computer software, net
    
    
    23,701,238
    
    
    
    24,317,414Goodwill
    
    
    222,434,470
    
    
    
    306,518,991Deferred financing costs, net
    
    
    6,410,384
    
    
    
    7,425,819Intangible assets, net
    
    
    133,409,859
    
    
    
    145,421,474Other assets
    
    
    426,396
    
    
    
    307,408Total noncurrent assets
    
    
    386,382,347
    
    
    
    483,991,106Total assets
    
    $
    417,357,004
    
    
    $
    521,914,313LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilitiesAccounts payable
    
    $
    8,793,420
    
    
    $
    7,005,184Accrued compensation and related taxes
    
    
    2,618,709
    
    
    
    2,377,632Customer deposits
    
    
    1,179,689
    
    
    
    1,317,031Unearned revenue
    
    
    2,225,868
    
    
    
    9,664,249Accrued interest
    
    
    817,710
    
    
    
    6,747,765Other current liabilities
    
    
    653,148
    
    
    
    1,215,707Current maturities of long-term debt
    
    
    766,359
    
    
    
    5,726,789Current maturities of capital lease obligations
    
    
    284,942
    
    
    
    386,404Total current liabilities
    
    
    17,339,845
    
    
    
    34,440,761Long-term debt, less current maturities
    
    
    286,893,421
    
    
    
    280,198,405Capital lease obligations, less current maturities
    
    
    195,868
    
    
    
    317,778Deferred tax liabilities
    
    
    28,483,834
    
    
    
    38,680,999Other long-term liabilities
    
    
    
    
    
    
    230,000Total liabilities
    
    
    332,912,968
    
    
    
    353,867,943Commitments and contingencies (Note 9)Stockholders EquityCommon stock, $0.001 par value; 100 shares
authorized, issued and outstanding
    
    
    
    
    
    
    Additional paid-in capital (including warrants of
$533,583 at December 7, 2008 and March 30, 2008)
    
    
    194,579,776
    
    
    
    194,579,776Accumulated deficit
    
    
    (109,973,165
    )
    
    
    (26,520,887
    )Accumulated other comprehensive loss, net of tax
    
    
    (162,575
    )
    
    
    (12,519
    )Total stockholders equity
    
    
    84,444,036
    
    
    
    168,046,370Total liabilities and stockholders equity
    
    $
    417,357,004
    
    
    $
    521,914,313
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NETWORK COMMUNICATIONS, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
 Three Periods EndedDecember 7, 2008
    
    
    December 2, 2007Sales
    
    $
    43,476,382
    
    
    $
    54,454,838Cost of sales (exclusive of production depreciation and
software amortization expense shown separately below)
    
    
    30,270,543
    
    
    
    35,121,576Production depreciation and software amortization
    
    
    1,198,280
    
    
    
    1,257,471Gross profit
    
    
    12,007,559
    
    
    
    18,075,791Selling, general and administrative expenses
    
    
    4,704,072
    
    
    
    5,570,229Nonproduction depreciation and software amortization
    
    
    421,017
    
    
    
    441,816Amortization of intangibles
    
    
    3,984,276
    
    
    
    4,195,551Impairment loss
    
    
    85,352,000
    
    
    
    Operating (loss) income
    
    
    (82,453,806
    )
    
    
    7,868,195Other income (expense)Interest and dividend income
    
    
    59,592
    
    
    
    94,409Interest expense
    
    
    (6,811,533
    )
    
    
    (7,191,964
    )Other income (expense)
    
    
    22,890
    
    
    
    (20,434
    )Total other expense
    
    
    (6,729,051
    )
    
    
    (7,117,989
    )(Loss) income before (benefit) expense from income taxes
    
    
    (89,182,857
    )
    
    
    750,206Income tax (benefit) expense
    
    
    (8,413,650
    )
    
    
    181,728Net (loss) income
    
    $
    (80,769,207
    )
    
    $
    568,478
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NETWORK COMMUNICATIONS, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
 Nine Periods EndedDecember 7, 2008
    
    
    December 2, 2007Sales
    
    $
    138,672,873
    
    
    $
    163,965,722Cost of sales (exclusive of production depreciation
and software amortization expense shown separately
below)
    
    
    94,478,853
    
    
    
    107,026,607Production depreciation and software amortization
    
    
    3,572,914
    
    
    
    3,454,971Gross profit
    
    
    40,621,106
    
    
    
    53,484,144Selling, general and administrative expenses
    
    
    15,206,813
    
    
    
    17,553,001Nonproduction depreciation and software amortization
    
    
    1,255,348
    
    
    
    1,213,909Amortization of intangibles
    
    
    12,011,616
    
    
    
    11,860,211Impairment loss
    
    
    85,352,000
    
    
    
    Operating (loss) income
    
    
    (73,204,671
    )
    
    
    22,857,023Other income (expense)Interest and dividend income
    
    
    147,602
    
    
    
    293,341Interest expense
    
    
    (20,180,802
    )
    
    
    (24,772,625
    )Other income (expense)
    
    
    87,707
    
    
    
    (37,564
    )Total other expense
    
    
    (19,945,493
    )
    
    
    (24,516,848
    )Loss before benefit from income taxes
    
    
    (93,150,164
    )
    
    
    (1,659,825
    )Income tax benefit
    
    
    (9,697,886
    )
    
    
    (486,245
    )Net loss
    
    $
    (83,452,278
    )
    
    
    (1,173,580
    )
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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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (83,452,278
    )
    
    
    
    
    
    
    (83,452,278
    )Foreign currency
translation adjustments,
net of
tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (150,056
    )
    
    
    (150,056
    )Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (83,602,334
    )Balance at December 7, 2008
    
    
    100
    
    
    $
    
    
    
    $
    194,579,776
    
    
    $
    (109,973,165
    )
    
    $
    (162,575
    )
    
    $
    84,444,036
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NETWORK COMMUNICATIONS, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 Nine Periods EndedDecember 7, 2008
    
    
    December 2, 2007Cash flows from operating activitiesNet loss
    
    $
    (83,452,278
    )
    
    $
    (1,173,580
    )Adjustments to reconcile net loss to net cash used in operating activities:Deferred income taxes
    
    
    (10,839,587
    )
    
    
    (5,123,305
    )Depreciation and amortization
    
    
    18,100,632
    
    
    
    21,690,283Impairment loss
    
    
    85,352,000
    
    
    
    Other noncash adjustments
    
    
    3,024,538
    
    
    
    2,759,819Changes in operating assets and liabilities, net of acquired businesses
    
    
    (8,062,843
    )
    
    
    (10,432,266
    )Net cash provided by operating activities
    
    
    4,122,462
    
    
    
    7,720,951Cash flows from investing activitiesPurchase of property, equipment and computer software
    
    
    (4,259,898
    )
    
    
    (3,876,015
    )Proceeds from the sale of assets
    
    
    2,250
    
    
    
    5,352Payments for businesses acquired, net of cash
    
    
    (1,336,499
    )
    
    
    (31,643,145
    )Net cash used in investing activities
    
    
    (5,594,147
    )
    
    
    (35,513,808
    )Cash flows from financing activitiesProceeds from revolving facility
    
    
    4,000,000
    
    
    
    21,500,000Payments on revolving facility
    
    
    
    
    
    
    (25,000,000
    )Proceeds from term loan facility
    
    
    
    
    
    
    30,000,000Payments on term loan facility
    
    
    (5,535,200
    )
    
    
    (2,864,098
    )Payments on capital leases
    
    
    (324,561
    )
    
    
    (393,942
    )Payment of debt issuance costs
    
    
    
    
    
    
    (518,232
    )Net cash (used in) provided by financing activities
    
    
    (1,859,761
    )
    
    
    22,723,728Net decrease in cash
    
    
    (3,331,446
    )
    
    
    (5,069,129
    )Cash at beginning of fiscal year
    
    
    6,715,837
    
    
    
    9,338,083Cash at end of period
    
    $
    3,384,391
    
    
    $
    4,268,954Supplemental disclosurePayments for businesses acquired:Fair value of assets acquired
    
    $
    
    
    
    $
    31,672,711Less liabilities assumed
    
    
    
    
    
    
    317,156Total purchase price
    
    
    
    
    
    
    31,355,555Deferred purchase price
    
    
    1,336,499
    
    
    
    287,590Cash paid for acquired businesses
    
    $
    1,336,499
    
    
    $
    31,643,145Noncash investing and financing activitiesAssets acquired through capital lease
    
    $
    101,189
    
    
    $
    463,003
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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
 2. 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
  December 7, 2008
    
    
    March 30, 2008Distribution products and marketing aids for resale
    
    $
    414,801
    
    
    $
    477,763Production, paper and ink
    
    
    3,153,084
    
    
    
    2,527,987Work-in-process
    
    
    566,526
    
    
    
    1,181,445Total
    
    $
    4,134,411
    
    
    $
    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
   Apartment Rental Source
  Fair Value at
    
    
    Weighted-Average(Dollars in thousands)
    
    Purchase Price
    
    
    Amortization PeriodTangible assetsCurrent assets
    
    $
    266Fixed assets
    
    
    558Total tangible assets
    
    
    824Intangible assetsAdvertiser lists
    
    
    10,657
    
    
    9 yearsDistribution network
    
    
    286
    
    
    10 yearsAmortizable trademarks and trade names
    
    
    1,157
    
    
    5 yearsUnamortizable trademarks and trade names
    
    
    1,900
    
    
    
    Subscribers lists
    
    
    4
    
    
    4 yearsNon-compete
    
    
    2,640
    
    
    3 yearsGoodwill
    
    
    14,205Total intangible assets
    
    
    30,849Liabilities assumed
    
    
    (317
    )Total purchase price
    
    $
    31,356
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NETWORK COMMUNICATIONS, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
  Unaudited Pro Forma Results of OperationsThree Periods Ended
    
    Nine Periods Ended(Dollars in thousands)
    
    December 2, 2007
    
    December 2, 2007Sales
    
    $
    54,583
    
    
    $
    167,950Income
(loss) before expense (benefit) from income taxes
    
    
    768
    
    
    
    (1,414
    )Net income (loss)
    
    $
    580
    
    
    $
    (1,016
    )
 New England Home
 5. Goodwill
 Goodwill and
other Intangible Assets
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NETWORK COMMUNICATIONS, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
    (Dollars in thousands)Balance, March 30, 2008
    
    $
    306,519Additions
    
    
    1,267Impairment loss
    
    
    (85,352
    )Balance, December 7, 2008
    
    $
    222,434
 6. Comprehensive (loss) income
  Three Periods Ended
    
    
    Nine Periods Ended(Dollars in thousands)
    
    December 7, 2008
    
    
    December 2, 2007
    
    
    December 7, 2008
    
    
    December 2, 2007Net (loss) income
    
    $
    (80,769
    )
    
    $
    568
    
    
    $
    (83,452
    )
    
    $
    (1,174
    )Foreign currency translation
adjustments, net of
tax
    
    
    (129
    )
    
    
    29
    
    
    
    (150
    )
    
    
    113Comprehensive (loss) income
    
    $
    (80,898
    )
    
    $
    597
    
    
    $
    (83,602
    )
    
    $
    (1,061
    )
 7. Income Taxes
  Three Periods Ended
    
    Nine Periods Ended(Dollars in thousands)
    
    December 7, 2008
    
    December 2, 2007
    
    December 7, 2008
    
    December 2, 2007Income tax (benefit)
expense
    
    $
    (8,414
    )
    
    $
    182
    
    
    $
    (9,698
    )
    
    $
    (486
    )Effective tax
rate
    
    
    9.4
    %
    
    
    24.2
    %
    
    
    10.4
    %
    
    
    29.3
    %
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NETWORK COMMUNICATIONS, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
  8. Long-term Debt
  December 7, 2008
    
    
    March 30, 200810 3/4% Senior Notes, due December 1, 2013
    
    $
    175,000,000
    
    
    $
    175,000,000New Senior Term loan facility
    
    
    70,909,113
    
    
    
    76,444,312New Revolving loan facility
    
    
    4,000,000
    
    
    
    Senior Subordinated Note
    
    
    39,470,928
    
    
    
    36,446,462289,380,041
    
    
    
    287,890,774Less:Unamortized discount on noncurrent
Senior Notes
and Senior Subordinated Note
    
    
    (1,720,261
    )
    
    
    (1,965,580
    )Current maturities
    
    
    (766,359
    )
    
    
    (5,726,789
    )Long-term debt, less current maturities
    
    $
    286,893,421
    
    
    $
    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)
         9. Commitments and Contingencies
 Operating Leases
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NETWORK COMMUNICATIONS, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 Employment Agreements
  Other
  10. Related Party Transactions
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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
  16




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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 September 2008 to November 2008 timeframe.
The annualized rate of home sales in November 2008 was 4.5 million units which was down
11% from the November 2007 rate of 5.0 million. The median home price in November 2008 was
$181,300, a decrease of 13% from the prior year. The total inventory of unsold existing
homes in November 2008 stood at 4.2 million units or 11.2 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 38% and 39%, 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 and all market segments are
being adversely impacted by the housing downturn. The preliminary
existing home sale number for December 2008 showed an increase in the
annualized rate of home sales to 4.7 million. The inventory of
existing homes declined by 486,790, shrinking the months supply of
inventory to 9.3 months.
    
    The market tightness index The National Multi Housing Councils (NMHC) market
tightness index in October 2008 stood at 24, a decrease from 40 in July 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 slightly to
6.2% in the third quarter of 2008 from 6.0% in the second quarter of 2008, its highest
reading since 2004. The vacancy rate in the third quarter of 2007 was 4.4%. Apartment
rents grew by 1.7% compared to the prior year, the lowest growth rate in five years. Multi
family housing trends have historically been correlated to the employment market and job
growth. The increase in vacancy rates and the softening in rents is being influenced by
the overall downturn in the economy and the increase in the unemployment rate.
    
    Interest rates and the growth in consumer debt Interest rates have been declining,
however the availability of credit for consumers remains constricted. In addition, the
continuing decline in home values
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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 experienced a meaningful tightening in advertising expenditures within our
markets as a result of the general economic slowdown, declining consumer sentiment and a
reduction in high end new home developments. Although we believe that our Home & Lifestyle
titles have been less susceptible to fluctuations in discretionary spending because of their
focus on the high end of the market, currently there is a decline in advertising spend
across all segments of the market.
 Revenue
  Costs
   Depreciation and Amortization
   18




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##### Table of Contents



Interest Income and Interest Expense
  Income Taxes
  Three Periods Ended
    
    Nine Periods Ended(Dollars in thousands)
    
    December 7, 2008
    
    December 2, 2007
    
    December 7, 2008
    
    December 2, 2007Income tax (benefit) expense
    
    $
    (8,414
    )
    
    $
    182
    
    
    $
    (9,698
    )
    
    $
    (486
    )Effective tax rate
    
    
    9.4
    %
    
    
    24.2
    %
    
    
    10.4
    %
    
    
    29.3
    %
  Results of Operations
 TREB New Home Finder Unique Homes Enclave, By Design. Apartment Finder Mature Living Choices Blacks
Guide
 Three Periods Ended
    
    
    Nine Periods EndedDecember 7, 2008
    
    
    December 2, 2007
    
    
    December 7, 2008
    
    
    December 2, 2007(Dollars in thousands)
    
    Amount
    
    
    %
    
    
    Amount
    
    
    %
    
    
    Amount
    
    
    %
    
    
    Amount
    
    
    %Resale and new sales
    
    $
    18,474
    
    
    
    42.5
    %
    
    $
    29,171
    
    
    
    53.6
    %
    
    $
    60,862
    
    
    
    43.9
    %
    
    $
    86,930
    
    
    
    53.0
    %Rental and leasing
    
    
    19,528
    
    
    
    44.9
    %
    
    
    18,294
    
    
    
    33.6
    %
    
    
    58,478
    
    
    
    42.2
    %
    
    
    53,228
    
    
    
    32.5
    %Remodeling and home improvement
    
    
    5,474
    
    
    
    12.6
    %
    
    
    6,990
    
    
    
    12.8
    %
    
    
    19,333
    
    
    
    13.9
    %
    
    
    23,808
    
    
    
    14.5
    %Total revenue
    
    
    43,476
    
    
    
    100.0
    %
    
    
    54,455
    
    
    
    100.0
    %
    
    
    138,673
    
    
    
    100.0
    %
    
    
    163,966
    
    
    
    100.0
    %Costs and expenses:Cost of sales (including production 
depreciation and software amortization)
    
    
    31,469
    
    
    
    72.4
    %
    
    
    36,379
    
    
    
    66.8
    %
    
    
    98,052
    
    
    
    70.7
    %
    
    
    110,482
    
    
    
    67.4
    %Selling, general and administrative
(including nonproduction depreciation
and software amortization)
    
    
    5,125
    
    
    
    11.8
    %
    
    
    6,012
    
    
    
    11.0
    %
    
    
    16,462
    
    
    
    11.9
    %
    
    
    18,767
    
    
    
    11.5
    %Amortization of intangibles
    
    
    3,984
    
    
    
    9.2
    %
    
    
    4,196
    
    
    
    7.7
    %
    
    
    12,012
    
    
    
    8.7
    %
    
    
    11,860
    
    
    
    7.2
    %Impairment
loss
    
    
    85,352
    
    
    
    196.3
    %
    
    
    
    
    
    
    
    
    
    
    85,352
    
    
    
    61.5
    %
    
    
    
    
    
    
    (Loss) income from operations
    
    $
    (82,454
    )
    
    
    (189.7
    %)
    
    $
    7,868
    
    
    
    14.5
    %
    
    $
    (73,205
    )
    
    
    (52.8
    %)
    
    $
    22,857
    
    
    
    13.9
    %
 19




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##### Table of Contents



Three Periods Ended December 7, 2008 Compared to Three Periods Ended December 2, 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
 20




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##### Table of Contents



Production depreciation and software amortization expense.
 Gross Profit.
 Selling, general and administrative expenses (SG&A)
 Nonproduction depreciation and software amortization expense.
 Amortization of intangibles
 Net interest expense
 Impairment
loss.
 Net income
 Nine Periods Ended December 7, 2008 Compared to Nine Periods Ended December 2, 2007
 Revenue.
 TREB TREB TREB Unique Homes
 21




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##### Table of Contents



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.
 Gross Profit.
 22




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##### Table of Contents



Selling, general and administrative expenses (SG&A)
 Nonproduction depreciation and software amortization expense.
 Amortization of intangibles
 Net interest expense
 Impairment
loss.
 Net income
 Liquidity and Capital Resources
    Nine Periods Ended(Dollars in thousands)
    
    December 7, 2008
    
    
    December 2, 2007Net cash provided by operating
activities
    
    $
    4,122
    
    
    $
    7,721Net cash used in investing
activities
    
    
    (5,594
    )
    
    
    (35,514
    )Net cash (used in) provided by
financing
activities
    
    
    (1,860
    )
    
    
    22,724Net decrease in cash
    
    
    (3,332
    )
    
    
    (5,069
    )Cash at beginning of fiscal
year
    
    
    6,716
    
    
    
    9,338Cash at end of period
    
    $
    3,384
    
    
    $
    4,269
  23




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##### Table of Contents



Senior Notes and Credit Agreement
   New senior credit facility.
    24




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##### Table of Contents



Critical Accounting Policies and Estimates
  Principles of Consolidation and Fiscal Year End
  Revenue Recognition and Unearned Revenue
 Accounting for Revenue Arrangements with
Multiple Deliverables, Revenue
Recognition .
 25




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##### Table of Contents



Print
  Online
  Unearned revenue
  Trade Accounts Receivable
    Customer Deposits
  Goodwill
 Goodwill and
other Intangible Assets
 26




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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
 27




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##### Table of Contents



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
 Fair Value Measurements(
  28




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##### Table of Contents



-
    
    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.
     29




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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 October 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.
 30




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##### Table of Contents



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 December 7, 2008 that has materially affected, or is
reasonably likely to materially affect, our internal control over
financial reporting.
 31




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##### Table of Contents



NETWORK COMMUNICATIONS, INC. AND SUBSIDIARIES
 
 PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
 We have determined that our goodwill has become impaired and if our goodwill or amortizable
intangible assets become further impaired we may be required to record a further significant charge
to earnings.
  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
  32




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##### Table of Contents



SIGNATURES
  Network Communications, Inc.Date:  January 26, 2009
    
    By:
    
    /s/  Daniel R. McCarthyChairman and Chief Executive Officer(Principal Executive Officer)Date: January 26, 2009
    
    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
    
    Title10.27
    
    Second Amendment dated December 4, 2008 to Revolving
Loan Credit Agreements dated July 20, 2007 by and
among the Company, Gallarus Media Holdings, Inc. the
Lenders and Toronto Dominion (Texas) LLC as
administrative agent for the Lenders31.1
    
    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.