##### 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 10, 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 September 10, 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 September 10, 2006 and March 26, 2006
    
    
    2Condensed Consolidated Statements of Operations for the three periods ended
September 10, 2006 and September 11, 2005
    
    
    3Condensed Consolidated Statements of Operations for the six periods ended September
10, 2006 and September 11, 2005
    
    
    4Condensed Consolidated Statements of Stockholders Equity as of September 10, 2006
    
    
    5Condensed Consolidated Statements of Cash Flows for the six periods ended September
10, 2006 and September 11, 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
    
    
    35Signatures
    
    
    36EX-31.1: SECTION 302 CERTIFICATION OF CEOEX-31.2: SECTION 302 CERTIFICATION OF CFOEX-32.1: SECTION 906 CERTIFICATION OF CEOEX-32.2: SECTION 906 CERTIFICATION OF CFO
  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 10, 2006
    
    
    March 26, 2006ASSETSCurrent assetsCash and cash equivalents
    
    $
    14,873,990
    
    
    $
    16,418,335Accounts receivable, net of allowance for
doubtful accounts of $2,172,266 and $1,517,075,
respectively
    
    
    18,448,020
    
    
    
    17,702,681Inventories
    
    
    3,723,844
    
    
    
    3,514,621Prepaid expenses and deferred charges
    
    
    1,834,866
    
    
    
    2,923,030Deferred tax assets
    
    
    845,011
    
    
    
    590,142Income tax receivable
    
    
    
    
    
    
    2,092,113Other current assets
    
    
    2,357,903
    
    
    
    521,029Total current assets
    
    
    42,083,634
    
    
    
    43,761,951Property, equipment and computer software, net
    
    
    22,529,662
    
    
    
    28,001,751Goodwill
    
    
    285,063,488
    
    
    
    283,159,664Deferred financing costs, net
    
    
    13,112,863
    
    
    
    13,965,184Intangible assets, net
    
    
    142,741,479
    
    
    
    146,084,373Other assets
    
    
    313,364
    
    
    
    273,533Total noncurrent assets
    
    
    463,760,856
    
    
    
    471,484,505Total assets
    
    $
    505,844,490
    
    
    $
    515,246,456LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilitiesAccounts payable
    
    $
    6,708,046
    
    
    $
    6,257,052Accrued compensation, benefits and related taxes
    
    
    5,498,495
    
    
    
    5,676,556Customer deposits
    
    
    1,843,065
    
    
    
    1,415,699Unearned revenue
    
    
    2,582,965
    
    
    
    7,431,466Accrued interest
    
    
    5,811,913
    
    
    
    6,797,466Other accrued expenses
    
    
    982,173
    
    
    
    1,020,155Income tax payable
    
    
    1,225,311
    
    
    
    Current maturities of long-term debt
    
    
    500,000
    
    
    
    500,000Current portion of capital lease obligations
    
    
    718,008
    
    
    
    676,103Total current liabilities
    
    
    25,869,976
    
    
    
    29,774,497Long-term debt, less current maturities
    
    
    252,172,063
    
    
    
    250,666,705Capital lease obligations, less current portion
    
    
    218,275
    
    
    
    501,958Deferred tax liabilities
    
    
    49,803,179
    
    
    
    54,232,211Total liabilities
    
    
    328,063,493
    
    
    
    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 September 10, 2006 and March 26,
2006)
    
    
    194,557,402
    
    
    
    194,475,028Accumulated deficit
    
    
    (16,776,405
    )
    
    
    (14,403,943
    )Total stockholders equity
    
    
    177,780,997
    
    
    
    180,071,085Total liabilities and stockholders equity
    
    $
    505,844,490
    
    
    $
    515,246,456
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NETWORK COMMUNICATIONS, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
 Three Periods EndedSeptember 10, 2006
    
    
    September 11, 2005Sales
    
    $
    48,563,965
    
    
    $
    41,797,908Cost of sales (exclusive of production depreciation and software
amortization expense shown separately below)
    
    
    32,118,864
    
    
    
    26,694,744Production depreciation and software amortization
    
    
    2,510,420
    
    
    
    2,123,470Gross profit
    
    
    13,934,681
    
    
    
    12,979,694Selling, general and administrative expenses
    
    
    4,810,870
    
    
    
    4,707,276Depreciation and software amortization
    
    
    882,039
    
    
    
    746,084Amortization of intangibles
    
    
    3,395,001
    
    
    
    3,414,490Operating income
    
    
    4,846,771
    
    
    
    4,111,844Other income (expense)Interest and dividend income
    
    
    94,775
    
    
    
    36,457Interest expense
    
    
    (6,599,153
    )
    
    
    (4,676,913
    )Unrealized (loss) / realized gain on derivatives
    
    
    (12,570
    )
    
    
    3,000Other income (expense), net
    
    
    25,526
    
    
    
    (4,352
    )Other expense
    
    
    (6,491,422
    )
    
    
    (4,641,808
    )Loss from continuing operations before benefit from income taxes
    
    
    (1,644,651
    )
    
    
    (529,964
    )Income tax benefit
    
    
    (559,755
    )
    
    
    (345,634
    )Net loss from continuing operations
    
    
    (1,084,896
    )
    
    
    (184,330
    )Discontinued operations (Note 5)Income/(loss) from discontinued operations of $59,920 and
$(207) net of applicable income tax expense/(benefit) of
$24,567 and $(85), respectively
    
    
    35,353
    
    
    
    (122
    )Loss on disposal of discontinued operations of $205,216 net of
applicable income tax benefit of $84,139
    
    
    (121,077
    )
    
    
    Net loss
    
    $
    (1,170,620
    )
    
    $
    (184,452
    )
  3




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NETWORK COMMUNICATIONS, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
 Six Periods EndedSeptember 10, 2006
    
    
    September 11, 2005Sales
    
    $
    96,234,330
    
    
    $
    81,550,505Cost of sales (exclusive of production depreciation and software
amortization expense shown separately below)
    
    
    61,784,751
    
    
    
    51,319,315Production depreciation and software amortization
    
    
    4,982,411
    
    
    
    4,222,041Gross profit
    
    
    29,467,168
    
    
    
    26,009,149Selling, general and administrative expenses
    
    
    11,307,316
    
    
    
    10,675,921Depreciation and software amortization
    
    
    1,750,577
    
    
    
    1,483,420Amortization of intangibles
    
    
    6,998,833
    
    
    
    6,725,955Operating income
    
    
    9,410,442
    
    
    
    7,123,853Other income (expense)Interest and dividend income
    
    
    222,391
    
    
    
    63,282Interest expense
    
    
    (13,104,662
    )
    
    
    (8,911,592
    )Unrealized (loss) / realized gain on derivatives
    
    
    (5,253
    )
    
    
    3,000Other income
    
    
    15,626
    
    
    
    2,795Other expense
    
    
    (12,871,898
    )
    
    
    (8,842,515
    )Loss from continuing operations before benefit from income taxes
    
    
    (3,461,456
    )
    
    
    (1,718,662
    )Income tax benefit
    
    
    (1,201,327
    )
    
    
    (858,164
    )Net loss from continuing operations
    
    
    (2,260,129
    )
    
    
    (860,498
    )Discontinued operations (Note 5)Income from discontinued operations of $14,821 and $4,634 net
of applicable income tax expense of $6,077 and $1,900,
respectively
    
    
    8,744
    
    
    
    2,734Loss on disposal of discontinued operations of $205,216 net of
applicable income tax benefit of $84,139
    
    
    (121,077
    )
    
    
    Net loss
    
    $
    (2,372,462
    )
    
    $
    (857,764
    )
  4




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NETWORK COMMUNICATIONS, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS 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
    
    
    
    
    
    
    
    
    
    
    82,374
    
    
    
    
    
    
    
    82,374Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,372,462
    )
    
    
    (2,372,462
    )Balance at September 10, 2006
    
    
    100
    
    
    $
    
    
    
    $
    194,557,402
    
    
    $
    (16,776,405
    )
    
    $
    177,780,997
  5




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NETWORK COMMUNICATIONS, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 Six Periods EndedSeptember 10, 2006
    
    
    September 11, 2005Cash flows from operating activitiesNet loss
    
    $
    (2,372,462
    )
    
    $
    (857,764
    )Adjustments to reconcile net loss to net cash provided by operating activities:Depreciation and amortization of property, equipment and other assets
    
    
    6,732,988
    
    
    
    5,705,270Amortization of intangible assets
    
    
    6,998,833
    
    
    
    6,725,955Amortization of deferred financing costs
    
    
    919,886
    
    
    
    1,009,896Amortization of debt discount for pay-in-kind Senior Subordinated Note
    
    
    31,387
    
    
    
    31,387Amortization of debt discount for Senior Notes
    
    
    132,159
    
    
    
    Interest expense for pay-in-kind Senior Subordinated Note
    
    
    1,591,812
    
    
    
    1,366,667Unrealized loss on derivatives
    
    
    5,253
    
    
    
    Loss on sale of discontinued operations
    
    
    205,216
    
    
    
    Deferred income taxes
    
    
    (4,683,901
    )
    
    
    (4,689,940
    )Changes in operating assets and liabilities, net of acquired businesses:Accounts receivable
    
    
    (839,225
    )
    
    
    (3,617,192
    )Inventories
    
    
    (209,223
    )
    
    
    (1,520,699
    )Prepaid expenses and deferred charges
    
    
    1,088,164
    
    
    
    1,239,267Income tax receivable/payable
    
    
    3,317,424
    
    
    
    3,382,140Other current assets and other assets
    
    
    (14,604
    )
    
    
    (416,608
    )Accounts payable
    
    
    415,994
    
    
    
    (511,091
    )Accrued compensation, benefits and related taxes
    
    
    (205,386
    )
    
    
    745,051Other current liabilities and other liabilities
    
    
    (6,085,130
    )
    
    
    (1,428,780
    )Net cash provided by operating activities
    
    
    7,029,185
    
    
    
    7,163,559Cash flows from investing activitiesPurchase of property, equipment and computer software
    
    
    (1,142,699
    )
    
    
    (1,651,970
    )Proceeds from the sale of discontinued operations
    
    
    100,000
    
    
    
    Deposits on future equipment purchases
    
    
    (1,865,354
    )
    
    
    Acquisitions of businesses, net of cash acquired
    
    
    (5,084,608
    )
    
    
    (25,078,675
    )Net cash used in investing activities
    
    
    (7,992,661
    )
    
    
    (26,730,645
    )Cash flows from financing activitiesNet payments on revolver
    
    
    
    
    
    
    (1,000,000
    )Proceeds from term loans
    
    
    
    
    
    
    30,000,000Payments on term loans
    
    
    (250,000
    )
    
    
    (9,693,940
    )Capitalization from parent
    
    
    82,374
    
    
    
    96,582Payments on capital leases
    
    
    (345,678
    )
    
    
    (271,603
    )Payment of debt issuance costs
    
    
    (67,565
    )
    
    
    (400,431
    )Net cash ( used in) / provided by financing activities
    
    
    (580,869
    )
    
    
    18,730,608Net decrease in cash
    
    
    (1,544,345
    )
    
    
    (836,478
    )Cash at beginning of period
    
    
    16,418,335
    
    
    
    4,090,960Cash at end of period
    
    $
    14,873,990
    
    
    $
    3,254,482Supplemental disclosureAcquisition of businesses:Fair value of assets acquired
    
    $
    5,725,069
    
    
    $
    27,873,377Less liabilities assumed
    
    
    
    
    
    
    2,794,702Total purchase price
    
    
    5,725,069
    
    
    
    25,078,675Less contingent consideration
    
    
    640,461
    
    
    
    Cash paid for acquisitions of businesses
    
    $
    5,084,608
    
    
    $
    25,078,675Noncash investing and financing activitiesAssets acquired through capital lease
    
    $
    103,900
    
    
    $
    228,043
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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
 8




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NETWORK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 3. Inventories
  September 10, 2006
    
    
    March 26, 2006Distribution products and marketing aids for resale
    
    $
    520,117
    
    
    $
    505,159Production, paper and ink
    
    
    2,325,107
    
    
    
    2,174,130Work-in-process
    
    
    878,620
    
    
    
    835,332$
    3,723,844
    
    
    $
    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 Accent on Lifestyle
 9




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##### Table of Contents



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
    
    
    14Total tangible assets
    
    
    19Intangible assetsAdvertiser list
    
    
    2,405
    
    
    7 yearsDistribution Network
    
    
    234
    
    
    10 yearsTrade name
    
    
    610
    
    
    5 yearsSubscriber list
    
    
    8
    
    
    4 yearsNon-compete
    
    
    515
    
    
    5 yearsOther intangibles
    
    
    30
    
    
    5 yearsGoodwill
    
    
    1,904Total intangible assets
    
    
    5,706Total purchase price
    
    
    5,725Less contingent consideration
    
    
    640Cash paid for acquisitions of businesses
    
    $
    5,085
  Unaudited Pro Forma Results of OperationsThree
Periods Ended
    
    Six Periods EndedSeptember 10, 2006
    
    September 11, 2005
    
    September 10, 2006
    
    September 11, 2005(in thousands)
    
    (in thousands)Sales
    
    $
    46,867
    
    
    $
    45,447
    
    
    $
    97,112
    
    
    $
    87,920Loss before benefit from income taxes
    
    
    (1,943
    )
    
    
    (469
    )
    
    
    (3,443
    )
    
    
    (1,304
    )Net loss
    
    $
    (1,391
    )
    
    $
    (144
    )
    
    $
    (2,361
    )
    
    $
    (592
    )
  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
  September 10, 2006
    
    
    March 26, 200610 3/4% Senior Notes, due December 1, 2013
    
    $
    175,000,000
    
    
    $
    175,000,000New Senior Term loan
    
    
    49,750,000
    
    
    
    50,000,000Revolver
    
    
    
    
    
    
    Senior Subordinated Note
    
    
    30,432,796
    
    
    
    28,840,984255,182,796
    
    
    
    253,840,984Less:Unamortized discount on noncurrent Senior
Notes and Senior Subordinated Note
    
    
    (2,510,733
    )
    
    
    (2,674,279
    )Current portion
    
    
    (500,000
    )
    
    
    (500,000
    )$
    252,172,063
    
    
    $
    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
   OptionalRedemptionPeriod
    
    Percentage2009
    
    
    105.375
    %2010
    
    
    102.688
    %2011 and thereafter
    
    
    100.000
    %
 12




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NETWORK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
   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
 The Original Apartment
Magazine
 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 is continuing to slow with the
inventory of unsold homes increasing to 7.5 months in
August 2006. August sales of
existing homes fell to a 6.3 million annual sales rate from an annual rate of 6.9
million in March 2006. For the first time in eleven years, the median price of an
existing home sold in August dropped by 1.7% compared to August of the prior year. Our
business in The Real Estate Bookhas continued to perform well, growing at 14% in this
period compared to prior year. Real estate is a local business with differing results.
We publish The Real Estate Bookin over 425 markets. We
anticipate that the geographic diversity
of markets served by our publications insulates our financial results
from a downturn in any one region.
    
    The market tightness index The market tightness index in July 2006 stood at 85,
an increase from an index of 80 in July 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 improved in the second quarter of
calendar 2006 including a slowdown in the level of condo conversions.
    
    Interest rates and the growth in consumer debt The interest rate environment
continues to be favorable and serves to attract home improvement
consumers. 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.
 17




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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
    
    

    Six Periods EndedSeptember 10, 2006
    
    
    September 11, 2005
    
    
    September 10, 2006
    
    
    September 11, 2005Amount
    
    
    %
    
    
    Amount
    
    
    %
    
    
    Amount
    
    
    %
    
    
    Amount
    
    
    %Resale and new
sales
    
    $
    28,762
    
    
    
    59.2
    %
    
    $
    25,056
    
    
    
    60.0
    %
    
    $
    57,816
    
    
    
    60.1
    %
    
    $
    49,801
    
    
    
    61.1
    %Rental and
leasing
    
    
    13,619
    
    
    
    28.1
    %
    
    
    12,714
    
    
    
    30.4
    %
    
    
    26,549
    
    
    
    27.6
    %
    
    
    24,760
    
    
    
    30.4
    %Remodeling and home
improvement
    
    
    6,183
    
    
    
    12.7
    %
    
    
    4,028
    
    
    
    9.6
    %
    
    
    11,869
    
    
    
    12.3
    %
    
    
    6,989
    
    
    
    8.5
    %Total
revenue
    
    
    48,564
    
    
    
    100.0
    %
    
    
    41,798
    
    
    
    100.0
    %
    
    
    96,234
    
    
    
    100.0
    %
    
    
    81,550
    
    
    
    100.0
    %Cost and expenses:Operating
(including
production
depreciation 
and
software
amortization)
    
    
    34,629
    
    
    
    71.3
    %
    
    
    28,818
    
    
    
    69.0
    %
    
    
    66,767
    
    
    
    69.4
    %
    
    
    55,541
    
    
    
    68.1
    %Selling, general
and administrative
(including
non-production
depreciation and
software
amortization
    
    
    5,693
    
    
    
    11.7
    %
    
    
    5,453
    
    
    
    13.0
    %
    
    
    13,058
    
    
    
    13.5
    %
    
    
    12,159
    
    
    
    14.9
    %Amortization of
intangibles
    
    
    3,395
    
    
    
    7.0
    %
    
    
    3,415
    
    
    
    8.2
    %
    
    
    6,999
    
    
    
    7.3
    %
    
    
    6,726
    
    
    
    8.3
    %Income from
operations
    
    $
    4,847
    
    
    
    10.0
    %
    
    $
    4,112
    
    
    
    9.8
    %
    
    $
    9,410
    
    
    
    9.8
    %
    
    $
    7,124
    
    
    
    8.7
    %
 Three Periods Ended September 10, 2006 Compared to Three Periods Ended September 11, 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
 Net interest expense
 21




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##### Table of Contents



Discontinued operations
 Net income
 Six Periods Ended September 10, 2006 Compared to Six Periods Ended September 11, 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,
 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 Accent on Lifestyle.
 Net interest expense
 Discontinued operations
 Net income
 Liquidity and Capital Resources
  Cash
 23




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##### Table of Contents



Six periods Ended
    
    
    Six periods EndedSeptember 10, 2006
    
    
    September 11, 2005(in thousands)Net cash provided by operating activities
    
    $
    7,029
    
    
    $
    7,163Net cash used in investing activities
    
    
    (7,992
    )
    
    
    (26,731
    )Net cash (used in) / provided by financing
activities
    
    
    (581
    )
    
    
    18,731Net decrease in cash & cash equivalents
    
    
    (1,544
    )
    
    
    (837
    )Cash at beginning of period
    
    
    16,418
    
    
    
    4,091Cash at end of period
    
    $
    14,874
    
    
    $
    3,254
    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
  Revenue
Recognition
 Accounting for Revenue
Arrangements with Multiple
Deliverables Revenue
Recognition.
 25




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##### Table of Contents



Print
  Online
  Unearned Revenue
  Trade Accounts Receivable
    Goodwill
 Goodwill and Other
Intangible Assets
  Impairment
of Long Lived Assets
 Accounting for
the Impairment or Disposal of Long-lived
Assets




---



##### Table of Contents



Intangible Assets
  Off-Balance Sheet Arrangements




---



##### 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 facility
    
    $
    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




---



##### 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.
  32




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##### Table of Contents



TREB Apartment Finder
 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:    October 20, 2006
    By:
    /s/  Daniel R. McCarthyChairman and Chief Executive Officer(Principal Executive Officer)Date:    October 20, 2006
    By:
    /s/  Gerard P. ParkerSenior Vice President and Chief Financial Officer(Principal Financial Officer) 36




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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