##### 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: December 3, 2006
 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 December 3, 2006Common 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 3, 2006 and March 26, 2006
    
    2Condensed Consolidated Statements of Operations for the three periods ended December 3, 2006 and December 4, 2005
    
    3Condensed Consolidated Statements of Operations for the nine periods ended December 3, 2006 and December 4, 2005
    
    4Condensed Consolidated Statement of Stockholders Equity as of December 3, 2006
    
    5Condensed Consolidated Statements of Cash Flows for the nine periods ended December 3, 2006 and December 4, 2005
    
    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
    
    29Item 4.
    
    Controls and Procedures
    
    30PART II: OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    31Item 1A.
    
    Risk Factors
    
    31Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    35Item 3.
    
    Defaults upon Senior Securities
    
    35Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    35Item 5.
    
    Other Information
    
    35Item 6.
    
    Exhibits
    
    35SignaturesEX-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)
 December 3, 2006
    
    
    March 26, 2006ASSETSCurrent assetsCash and cash equivalents
    
    $
    3,144,013
    
    
    $
    16,418,335Accounts receivable, net of allowance for
doubtful accounts of $2,397,349 and $1,517,075,
respectively
    
    
    20,828,861
    
    
    
    17,702,681Inventories
    
    
    3,717,795
    
    
    
    3,514,621Prepaid expenses and deferred charges
    
    
    1,938,004
    
    
    
    2,923,030Deferred tax assets
    
    
    932,568
    
    
    
    590,142Income tax receivable
    
    
    
    
    
    
    2,092,113Other current assets
    
    
    3,588
    
    
    
    521,029Total current assets
    
    
    30,564,829
    
    
    
    43,761,951Property, equipment and computer software, net
    
    
    24,125,061
    
    
    
    28,001,751Goodwill
    
    
    289,748,140
    
    
    
    283,159,664Deferred financing costs, net
    
    
    12,923,756
    
    
    
    13,965,184Intangible assets, net
    
    
    148,196,455
    
    
    
    146,084,373Other assets
    
    
    325,909
    
    
    
    273,533Total noncurrent assets
    
    
    475,319,321
    
    
    
    471,484,505Total assets
    
    $
    505,884,150
    
    
    $
    515,246,456LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilitiesAccounts payable
    
    $
    6,745,735
    
    
    $
    6,257,052Accrued compensation, benefits and related taxes
    
    
    5,990,268
    
    
    
    5,676,556Customer deposits
    
    
    1,795,968
    
    
    
    1,415,699Unearned revenue
    
    
    2,281,400
    
    
    
    7,431,466Accrued interest
    
    
    700,305
    
    
    
    6,797,466Other accrued expenses
    
    
    1,115,652
    
    
    
    1,020,155Income tax payable
    
    
    1,495,961
    
    
    
    Current maturities of long-term debt
    
    
    500,000
    
    
    
    500,000Current portion of capital lease obligations
    
    
    482,861
    
    
    
    676,103Total current liabilities
    
    
    21,108,150
    
    
    
    29,774,497Long-term debt, less current maturities
    
    
    259,931,002
    
    
    
    250,666,705Capital lease obligations, less current portion
    
    
    352,635
    
    
    
    501,958Deferred tax liabilities
    
    
    47,647,738
    
    
    
    54,232,211Total liabilities
    
    
    329,039,525
    
    
    
    335,175,371Commitments 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 December 3, 2006 and March 26,
2006)
    
    
    194,622,402
    
    
    
    194,475,028Accumulated deficit
    
    
    (17,777,777
    )
    
    
    (14,403,943
    )Total stockholders equity
    
    
    176,844,625
    
    
    
    180,071,085Total liabilities and stockholders equity
    
    $
    505,884,150
    
    
    $
    515,246,456
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NETWORK COMMUNICATIONS, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
 Three Periods EndedDecember 3, 2006
    
    
    December 4, 2005Sales
    
    $
    49,946,598
    
    
    $
    43,287,240Cost of sales (exclusive of production depreciation and software
amortization expense shown separately below)
    
    
    32,072,113
    
    
    
    28,616,484Production depreciation and software amortization
    
    
    2,569,820
    
    
    
    2,160,346Gross profit
    
    
    15,304,665
    
    
    
    12,510,410Selling, general and administrative expenses
    
    
    5,648,083
    
    
    
    4,407,616Depreciation and software amortization
    
    
    902,910
    
    
    
    759,231Amortization of intangibles
    
    
    3,589,475
    
    
    
    3,529,632Operating income
    
    
    5,164,197
    
    
    
    3,813,931Other income (expense)Interest and dividend income
    
    
    77,234
    
    
    
    8,749Interest expense
    
    
    (6,822,854
    )
    
    
    (10,986,918
    )Unrealized loss on derivatives
    
    
    (1,225
    )
    
    
    Other expense
    
    
    (15,182
    )
    
    
    (2,320
    )Total other expense
    
    
    (6,762,027
    )
    
    
    (10,980,489
    )Loss from continuing operations before benefit from income taxes
    
    
    (1,597,830
    )
    
    
    (7,166,558
    )Income tax benefit
    
    
    (596,458
    )
    
    
    (2,228,722
    )Net loss from continuing operations
    
    
    (1,001,372
    )
    
    
    (4,937,836
    )Discontinued operations (Note 5)Income from discontinued operations of $1,783 net of applicable
income tax expense of $731
    
    
    
    
    
    
    1,052Net loss
    
    $
    (1,001,372
    )
    
    $
    (4,936,784
    )
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NETWORK COMMUNICATIONS, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
 Nine Periods EndedDecember 3, 2006
    
    
    December 4, 2005Sales
    
    $
    146,180,928
    
    
    $
    124,837,745Cost of sales (exclusive of production depreciation and software
amortization expense shown separately below)
    
    
    93,856,864
    
    
    
    79,935,800Production depreciation and software amortization
    
    
    7,552,231
    
    
    
    6,382,387Gross profit
    
    
    44,771,833
    
    
    
    38,519,558Selling, general and administrative expenses
    
    
    16,955,399
    
    
    
    15,083,537Depreciation and software amortization
    
    
    2,653,487
    
    
    
    2,242,651Amortization of intangibles
    
    
    10,588,308
    
    
    
    10,255,587Operating income
    
    
    14,574,639
    
    
    
    10,937,783Other income (expense)Interest and dividend income
    
    
    299,625
    
    
    
    72,032Interest expense
    
    
    (19,927,516
    )
    
    
    (19,898,509
    )Unrealized loss on derivatives
    
    
    (6,478
    )
    
    
    Other income
    
    
    444
    
    
    
    3,475Total other expense
    
    
    (19,633,925
    )
    
    
    (19,823,002
    )Loss from continuing operations before benefit from income taxes
    
    
    (5,059,286
    )
    
    
    (8,885,219
    )Income tax benefit
    
    
    (1,797,785
    )
    
    
    (3,086,886
    )Net loss from continuing operations
    
    
    (3,261,501
    )
    
    
    (5,798,333
    )Discontinued operations (Note 5)Income from discontinued operations of $14,821 and $6,417 net of
applicable income tax expense of $6,077 and $2,631,
respectively
    
    
    8,744
    
    
    
    3,786Loss on disposal of discontinued operations of $205,216 net of
applicable income tax benefit of $84,139
    
    
    (121,077
    )
    
    
    Net loss
    
    $
    (3,373,834
    )
    
    $
    (5,794,547
    )
  4




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NETWORK COMMUNICATIONS, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY (UNAUDITED)
 AdditionalCommon Stock
    
    
    Paid-In
    
    
    AccumulatedShares
    
    
    Amount
    
    
    Capital
    
    
    Deficit
    
    
    TotalBalance at March 26, 2006
    
    
    100
    
    
    $
    
    
    
    $
    194,475,028
    
    
    $
    (14,403,943
    )
    
    $
    180,071,085Capitalization from parent
    
    
    
    
    
    
    
    
    
    
    147,374
    
    
    
    
    
    
    
    147,374Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,373,834
    )
    
    
    (3,373,834
    )Balance at December 3, 2006
    
    
    100
    
    
    $
    
    
    
    $
    194,622,402
    
    
    $
    (17,777,777
    )
    
    $
    176,844,625
  5




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NETWORK COMMUNICATIONS, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 Nine Periods EndedDecember 3, 2006
    
    
    December 4, 2005Cash flows from operating activitiesNet loss
    
    $
    (3,373,834
    )
    
    $
    (5,794,547
    )Adjustments to reconcile net loss to net cash provided by operating activities:Depreciation and amortization of property, equipment and other assets
    
    
    10,205,718
    
    
    
    8,625,038Amortization of intangible assets
    
    
    10,588,308
    
    
    
    10,255,587Amortization of deferred financing costs
    
    
    1,428,169
    
    
    
    8,033,698Amortization of debt discount for PIK Senior Subordinated Note and Senior Notes
    
    
    245,319
    
    
    
    47,080Interest expense for PIK Senior Subordinated Note
    
    
    2,393,978
    
    
    
    2,058,333Unrealized loss on derivatives
    
    
    6,478
    
    
    
    Loss on disposal of asset
    
    
    37,183
    
    
    
    Loss on sale of discontinued operations
    
    
    205,216
    
    
    
    Deferred income taxes
    
    
    (6,926,899
    )
    
    
    (7,427,798
    )Changes in operating assets and liabilities, net of acquired businesses:Accounts receivable
    
    
    (3,220,066
    )
    
    
    (5,594,376
    )Inventories
    
    
    (203,174
    )
    
    
    (1,776,136
    )Prepaid expenses and deferred charges
    
    
    985,026
    
    
    
    1,434,824Income tax receivable/payable
    
    
    3,588,074
    
    
    
    2,119,960Other current assets and other assets
    
    
    460,587
    
    
    
    (479,209
    )Accounts payable
    
    
    453,683
    
    
    
    817,722Accrued compensation, benefits and related taxes
    
    
    274,048
    
    
    
    1,621,773Other current liabilities and other liabilities
    
    
    (11,355,677
    )
    
    
    (2,980,402
    )Net cash provided by operating activities
    
    
    5,792,137
    
    
    
    10,961,547Cash flows from investing activitiesPurchase of property, equipment and computer software
    
    
    (5,627,796
    )
    
    
    (2,366,977
    )Proceeds from the sale of discontinued operations
    
    
    100,000
    
    
    
    Acquisitions of businesses, net of cash acquired
    
    
    (19,405,363
    )
    
    
    (31,651,202
    )Net cash used in investing activities
    
    
    (24,933,159
    )
    
    
    (34,018,179
    )Cash flows from financing activitiesNet proceeds from revolver
    
    
    7,000,000
    
    
    
    153,709Proceeds from term loans
    
    
    
    
    
    
    80,000,000Payments on term loans
    
    
    (375,000
    )
    
    
    (215,794,208
    )Proceeds from Senior Notes
    
    
    
    
    
    
    172,709,250Capitalization from parent
    
    
    147,374
    
    
    
    96,582Payments on capital leases
    
    
    (518,933
    )
    
    
    (422,796
    )Derivative payment
    
    
    
    
    
    
    (47,000
    )Payment of debt issuance costs
    
    
    (386,741
    )
    
    
    (9,446,588
    )Net cash provided by financing activities
    
    
    5,866,700
    
    
    
    27,248,949Net (decrease)/increase in cash
    
    
    (13,274,322
    )
    
    
    4,192,317Cash at beginning of fiscal year
    
    
    16,418,335
    
    
    
    4,090,960Cash at end of period
    
    $
    3,144,013
    
    
    $
    8,283,277Supplemental disclosureAcquisition of businesses:Fair value of assets acquired
    
    $
    20,001,918
    
    
    $
    34,531,735Less liabilities assumed
    
    
    36,094
    
    
    
    2,880,533Total purchase price
    
    
    19,965,824
    
    
    
    31,651,202Less contingent consideration
    
    
    560,461
    
    
    
    Cash paid for acquisitions of businesses
    
    $
    19,405,363
    
    
    $
    31,651,202Noncash investing and financing activitiesAssets acquired through capital lease
    
    $
    176,368
    
    
    $
    418,286
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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,
 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)
 Impairment of Long Lived Assets
 Accounting for the Impairment or Disposal
of Long-Lived Assets Corporate Choices
  Recent Accounting Pronouncements
 Inventory Costs
 Accounting Changes and Error Corrections
 Accounting for Uncertainty in Income
Taxesan Interpretation of FASB Statement 109
 Fair Value Measurements
 Considering the
Effects of Prior Year Misstatements When Quantifying Misstatements in Current Year Financial
Statements
 8




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NETWORK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 3. Inventories
  December 3, 2006
    
    
    March 26, 2006Distribution products and marketing aids for resale
    
    $
    586,151
    
    
    $
    505,159Production, paper and ink
    
    
    2,321,572
    
    
    
    2,174,130Work-in-process
    
    
    810,072
    
    
    
    835,332$
    3,717,795
    
    
    $
    3,514,621
 4. Acquisitions
  Allocation of purchase price
  Kansas City New Homes Journal
 The Apartment Community Guide
 Pittsburgh Apartment Source
 Dallas Home Improvement
 Accent Homes and Garden
 The Original Apartment
Magazine
  9




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NETWORK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
  Fair Value at
    
    
    Weighted-Average(In thousands of dollars)
    
    Purchase Price
    
    
    Amortization PeriodTangible assetsCurrent assets
    
    $
    5Fixed assets
    
    
    562Total tangible assets
    
    
    567Intangible assetsAdvertiser list
    
    
    7,743
    
    
    6 yearsDistribution Network
    
    
    1,091
    
    
    10 yearsTrade names
    
    
    2,222
    
    
    5 yearsSubscriber list
    
    
    8
    
    
    4 yearsNon-compete
    
    
    1,703
    
    
    5 yearsOther intangibles
    
    
    80
    
    
    5 yearsGoodwill
    
    
    6,588Total intangible assets
    
    
    19,435Liabilities assumed
    
    
    (36
    )Total purchase price
    
    
    19,966Less contingent consideration
    
    
    561Cash paid for acquisitions of businesses
    
    $
    19,405
  Unaudited Pro Forma Results of OperationsThree Periods Ended
    
    Nine periods EndedDecember 3, 2006
    
    December 4, 2005
    
    December 3, 2006
    
    December 4, 2005(in thousands)
    
    (in thousands)Sales
    
    $
    55,055
    
    
    $
    51,592
    
    
    $
    152,167
    
    
    $
    139,512Loss before benefit from income taxes
    
    
    (1,753
    )
    
    
    (7,339
    )
    
    
    (5,196
    )
    
    
    (8,643
    )Net loss
    
    $
    (1,101
    )
    
    $
    (5,047
    )
    
    $
    (3,462
    )
    
    $
    (5,639
    )
  5. Discontinued Operations
 Corporate
Choices Accounting for the Impairment or Disposal of Long-lived Assets Corporate Choices
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NETWORK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 6. Long-term Debt
  December 3, 2006
    
    
    March 26, 200610 3/4% Senior Notes, due December 1, 2013
    
    $
    175,000,000
    
    
    $
    175,000,000New Senior Term loan
    
    
    49,625,000
    
    
    
    50,000,000Revolver
    
    
    7,000,000
    
    
    
    ___Senior Subordinated Note
    
    
    31,234,962
    
    
    
    28,840,984262,859,962
    
    
    
    253,840,984Less:Unamortized discount on noncurrent SeniorNotes and Senior Subordinated Note
    
    
    (2,428,960
    )
    
    
    (2,674,279
    )Current portion
    
    
    (500,000
    )
    
    
    (500,000
    )$
    259,931,002
    
    
    $
    250,666,705
 Senior Subordinated Debt
      Accounting for
Convertible Debt and Debt Issued with Stock Purchase Warrants
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NETWORK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
   Refinancing
  10 3/4% Senior Notes
   12




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NETWORK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 OptionalRedemptionPeriod
    
    Percentage2009
    
    
    105.375
    %2010
    
    
    102.688
    %2011 and thereafter
    
    
    100.000
    %
  New Senior Credit Facility
         13




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NETWORK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
   7. Commitments and Contingencies
 Commitments
  Operating Leases
  Employment Agreements
  Other
  8. Related Party Transactions
   14




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NETWORK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 9. Subsequent Events
 Tucson Apartment Showcase.
 15




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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
 16




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LivingChoices.com
    
    
    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 show that the market remains slow with the
inventory of unsold homes standing at 7.3 months in November 2006. November sale of
existing homes fell to a 6.28 million annual sales rate from an annual rate of 6.9
million in March 2006. The median price of an existing home sold in November dropped
by 3.1% compared to November of the prior year. This was the first time on record
that sales prices compared to a year ago have fallen for four straight months. Our
business in The Real Estate Bookhas continued to grow, expanding at 8.5% in this
period compared to prior year. This growth rate is down from the year-over year
growth rates of 14.3% and 17.9% that we posted in the second and first quarters of
fiscal 2007, respectively. Real estate is a local business with differing results. We
publish The Real Estate Bookin over 425 markets. We anticipate that the diversity of
the markets served by our publications will insulate us from any one region bearing a
significant risk to our financial results.
    
    The market tightness index The market tightness index in October 2006 stood at
70, a decrease from an index of 87 in October 2005. A reading above 50 indicates
that markets are experiencing higher occupancy rates and higher rental rates.
Overall, market conditions in the multi-family industry continued to improve in the
third quarter of calendar 2006 including a slowdown in the level of condo
conversions and an uptick in apartment stock.
 17




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
    
    Interest rates and the growth in consumer debt The interest rate environment
continues to look favorable and serves to attract home improvement consumers as
indicated by the increase in consumer debt. Our home design and improvement
magazines currently operate within ten regional markets in the United States and
have continued to experience growth in advertising pages and editorial content.
 Revenue
 Accounting for Revenue
Arrangements with Multiple Deliverables, Revenue Recognition
 Costs
   Depreciation and Amortization
   18




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Interest Income and Interest Expense
  Income Tax Expenses
  19




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Results of Operations
 TREB New Home Finder Unique Homes Enclave Apartment
Finder Mature Living Choices Blacks Guide
 Three Periods Ended
    
    
    Nine periods EndedDecember 3, 2006
    
    
    December 4, 2005
    
    
    December 3, 2006
    
    
    December 4, 2005Amount
    
    
    %
    
    
    Amount
    
    
    %
    
    
    Amount
    
    
    %
    
    
    Amount
    
    
    %Resale and new
sales
    
    $
    29,295
    
    
    
    58.7
    %
    
    $
    27,217
    
    
    
    62.9
    %
    
    $
    87,110
    
    
    
    59.6
    %
    
    $
    76,436
    
    
    
    61.2
    %Rental and
leasing
    
    
    15,105
    
    
    
    30.2
    %
    
    
    12,033
    
    
    
    27.8
    %
    
    
    41,654
    
    
    
    28.5
    %
    
    
    37,376
    
    
    
    30.0
    %Remodeling and home
improvement
    
    
    5,547
    
    
    
    11.1
    %
    
    
    4,037
    
    
    
    9.3
    %
    
    
    17,417
    
    
    
    11.9
    %
    
    
    11,026
    
    
    
    8.8
    %Total
revenue
    
    
    49,947
    
    
    
    100.0
    %
    
    
    43,287
    
    
    
    100.0
    %
    
    
    146,181
    
    
    
    100.0
    %
    
    
    124,838
    
    
    
    100.0
    %Cost and expenses:Operating
(including
production
depreciation and
software
amortization)
    
    
    34,642
    
    
    
    69.4
    %
    
    
    30,777
    
    
    
    71.1
    %
    
    
    101,409
    
    
    
    69.4
    %
    
    
    86,318
    
    
    
    69.1
    %Selling, general
and administrative
(including
non-production
depreciation and
software
amortization)
    
    
    6,551
    
    
    
    13.1
    %
    
    
    5,167
    
    
    
    11.9
    %
    
    
    19,609
    
    
    
    13.4
    %
    
    
    17,326
    
    
    
    13.9
    %Amortization of
intangibles
    
    
    3,590
    
    
    
    7.2
    %
    
    
    3,529
    
    
    
    8.2
    %
    
    
    10,588
    
    
    
    7.2
    %
    
    
    10,256
    
    
    
    8.2
    %Income from
operations
    
    $
    5,164
    
    
    
    10.3
    %
    
    $
    3,814
    
    
    
    8.8
    %
    
    $
    14,575
    
    
    
    10.0
    %
    
    $
    10,938
    
    
    
    8.8
    %
 Three Periods Ended December 3, 2006 Compared to Three Periods Ended December 4, 2005
 Revenue.
 TREB TREB TREB Unique Homes
 Apartment Finder
 20




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##### Table of Contents



Blacks Guide
 Kansas City Homes & Gardens, Accent Home & Garden, At Home
In Arkansas, Relocating in Las Vegas,
 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 Atlanta Home Improvement, At Home In Arkansas Relocating In Las Vegas, Kansas City New Homes Journal, The Apartment Community Guide, Pittsburgh Apartment
Source, Dallas Home Improvement, Accent Homes and Garden The Original Apartment Magazine.
 Net interest expense
 21




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##### Table of Contents



Net income
 Nine Periods Ended December 3, 2006 Compared to Nine Periods Ended December 4, 2005
 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, regional Home Improvement magazines, and the
Homes & Lifestyles magazines
 Cost of sales
 22




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##### Table of Contents



Production depreciation and software amortization expense.
 Selling, general and administrative expenses (SG&A)
 Non-production depreciation and software amortization expense.
 Amortization of intangibles Atlanta Home Improvement, At
Home In Arkansas Relocating In Las Vegas, Kansas City New Homes Journal, The Apartment Community
Guide, Pittsburgh Apartment Source, Dallas Home Improvement, Accent Homes and Garden The
Original Apartment Magazine.
 Net interest expense
 Discontinued operations.
 Net income
 Liquidity and Capital Resources
  Cash
 23




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##### Table of Contents



Nine periods Ended
    
    
    Nine periods EndedDecember 3, 2006
    
    
    December 4, 2005(in thousands)Net cash provided by
operating activities
    
    $
    5,792
    
    
    $
    10,961Net cash used in investing
activities
    
    
    (24,933
    )
    
    
    (34,018
    )Net cash provided by
financing
activities
    
    
    5,867
    
    
    
    27,249Net (decrease) / increase
in cash & cash
equivalents
    

    
    (13,274
    )
    
    
    4,192Cash at beginning of
period
    
    
    16,418
    
    
    
    4,091Cash at end of period
    
    $
    3,144
    
    
    $
    8,283
    Commitments
  Refinancing
  New senior credit facility
  24




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##### Table of Contents



Critical Accounting Policies and Estimates
  Principles of Consolidation and Fiscal Year End
  25




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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
 26




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##### Table of Contents



Impairment of Long Lived Assets
 Accounting for the Impairment or Disposal of Long-Lived
Assets
 Corporate Choices
 Intangible Assets
  Off-Balance Sheet Arrangements
  27




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##### Table of Contents



Contractual Obligations
  Payments Due by PeriodLess Than
    
    
    1 to 3
    
    
    3 to 5
    
    
    More ThanTotal
    
    
    1 Year
    
    
    Years
    
    
    Years
    
    
    5 Years(Dollars in thousands)Long-term debt:Variable rate bank debt
    
    $
    50,000
    
    
    $
    500
    
    
    $
    1,000
    
    
    $
    1,000
    
    
    $
    47,500Fixed rate Subordinated Note
    
    
    28,841
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28,841Fixed rate Senior Notes
    
    
    175,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    175,000Future interest payments (1)
    
    
    206,752
    
    
    
    26,163
    
    
    
    53,594
    
    
    
    55,624
    
    
    
    71,371Capital lease obligations
    
    
    1,252
    
    
    
    676
    
    
    
    514
    
    
    
    53
    
    
    
    9Operating lease obligations
    
    
    12,885
    
    
    
    3,678
    
    
    
    4,958
    
    
    
    2,929
    
    
    
    1,320Total contractual obligations
    
    $
    474,730
    
    
    $
    31,017
    
    
    $
    60,066
    
    
    $
    59,606
    
    
    $
    324,041
 
 (1)
    
    This line item is comprised of fixed and variable interest rates on the debt balances
as of March 26, 2006. For the variable rate portion, the Company has assumed that the
effective interest rate as of March 26, 2006 will remain consistent over the remaining life
of the variable rate bank debt.  28




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##### Table of Contents



NETWORK COMMUNICATIONS, INC. AND SUBSIDIARIES  PART I  FINANCIAL INFORMATION
 
 Item 3. Quantitative and Qualitative Disclosures about Market Risk
   Interest Rates
   Interest Rate
    
    Interest RateDecrease
    
    Increase100 BPS
    
    50 BPS
    
    50 BPS
    
    100 BPS(Dollars in thousands)Senior secured credit facilities
    
    $
    850
    
    
    $
    425
    
    
    $
    (425
    )
    
    $
    (850
    )
 Inflation
   29




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##### Table of Contents



NETWORK COMMUNICATIONS, INC. AND SUBSIDIARIES  PART I  FINANCIAL INFORMATION
 
 Item 4. Controls and Procedures
  30




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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 depend on individual agents in the residential market for existing home sales for substantially
all of our revenues in TREB and any industry downturn and consequential decrease in real estate
prices in the residential market for existing home sales could adversely impact our financial
results.
     We rely on our proprietary distribution network as a competitive advantage to effectively and
efficiently distribute our publications. Any material hindrance to our ability to distribute our
publications effectively and efficiently may materially reduce the market appeal of our
publications for advertising.
  31




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##### Table of Contents



If we are unable to meet rapid changes in technology, our services and proprietary technology and
systems may become obsolete.
  The market for our products and services is highly competitive.
   Any significant increase in paper, ink or printing plate costs would cause our expenses to increase
significantly.
  An economic downturn or unexpected macroeconomic event could adversely affect our advertising
revenue, a substantial portion of which is derived from our free publications.
 TREB Apartment Finder
 32




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##### Table of Contents



Our success and growth depend to a significant degree upon the protection of our intellectual
property rights.
 TREB
 A loss of production capacity at our in-house printing facilities could adversely impact our
results of operations and financial condition.
  Loss of key personnel could impair our success.
   We are subject to state use taxes. If our distribution arrangements with our independent
distributors are characterized as a sale of publications as opposed to a distribution arrangement,
we could be subject to higher use taxes from the state tax authorities.
  33




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##### Table of Contents



Our arrangement with our independent distributors and independent contractors may become subject to
various additional federal and state regulatory laws that do not affect the current operations.
  To the extent we consummate acquisitions in the future, there will be integration risk.
  We will be exposed to risks relating to evaluations of controls required by Section 404 of the
Sarbanes-Oxley Act of 2002.
  We are controlled by principal equity holders who will be able to make important decisions about
our business and capital structure and their interests may differ from the interests of the
noteholders.
  34




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##### Table of Contents



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
  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. 35




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##### Table of Contents



SIGNATURE
 Network Communications, Inc.Date: January 17, 2006
    
    By:
    
    /s/ Daniel R. McCarthyChairman and Chief Executive Officer(Principal Executive Officer)Date: January 17, 2006
    
    By:
    
    /s/ Gerard P. ParkerSenior Vice President and Chief Financial Officer(Principal Financial 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