Block Communications 10-Q

10-Q 1 j0238401e10vq.htm BLOCK COMMUNICATIONS Block Communications 10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q


(Mark one)
[X]		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2003.


[ ]		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________to____________.

Commission File Number 333-96619

Block Communications, Inc.

(Exact name of registrant as specified in its charter)


Ohio (State or other jurisdiction of incorporation or organization)		34-4374555 (I.R.S. Employer Identification Number)

541 N. Superior Street, Toledo, Ohio 43660

(Address of principal executive offices)
(Zip code)

(419) 724-6257

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year,
if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for past 90 days. YES [X] NO [ ]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). YES[ ] NO [X]

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practical date.


Voting Common Stock , (par value $.10)		Non-voting Common Stock, (par value $.10)
29,400 shares as of August 5, 2003		428,613 shares as of August 5, 2003

TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION
	Item 1. Financial Statements
		Condensed Consolidated Balance Sheets
		Condensed Consolidated Statements of Income
		Condensed Consolidated Statement of Stockholders’ Equity
		Condensed Consolidated Statements of Cash Flows
	NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
	Management’s Discussion and Analysis of Financial Position and Results of Operations
	Item 4. Controls and procedures
PART II. OTHER INFORMATION
	Item 6. Exhibits and Reports on Form 8-K
Signature
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements

Block Communications, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets


		June 30		December 31
		2003		2002

		(unaudited)		(note 1)
Assets
Current assets:
	Cash and cash equivalents	$	14,387,557	$	9,781,645
	Receivables, less allowances for doubtful accounts and discounts of $3,853,000 and $3,552,000, respectively		42,207,594		45,454,639
	Recoverable income taxes		7,831,271		9,029,371
	Inventories		6,642,422		7,032,626
	Prepaid expenses		3,419,571		4,498,401
	Broadcast rights		6,173,901		6,546,678
	Deferred income taxes		9,671,950		9,271,000

Total current assets			90,334,266		91,614,360
Property, plant and equipment:
	Land and land improvements		12,402,357		12,255,696
	Buildings and leasehold improvements		42,945,696		41,483,466
	Machinery and equipment		220,681,636		215,180,502
	Cable television distribution systems and equipment		202,304,194		195,399,291
	Security alarm and video systems installation costs		6,872,480		6,591,940
	Construction in progress		27,023,144		13,777,267

			512,229,507		484,688,162
	Less allowances for depreciation and amortization		264,485,911		235,410,950

			247,743,596		249,277,212
Other assets:
	Goodwill		51,987,021		51,987,021
	Other intangibles, net of accumulated amortization		38,700,147		39,471,513
	Cash value of life insurance		26,332,857		25,594,543
	Deferred income taxes		18,856,209		16,659,000
	Pension intangibles		11,931,764		11,931,764
	Prepaid pension costs		2,460,151		2,437,798
	Deferred financing costs		11,116,177		12,099,099
	Broadcast rights, less current portion		3,667,732		6,676,317
	Other		5,223,576		3,976,050

			170,275,634		170,833,105

		$	508,353,496	$	511,724,677

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements


			June 30			December 31
			2003			2002

			(unaudited)			(note 1)
Liabilities and stockholders’ equity
Current liabilities:
	Accounts payable		$	8,768,974		$	13,831,059
	Salaries, wages and payroll taxes			14,916,705			19,046,005
	Workers’ compensation and medical reserves			8,206,927			8,863,918
	Other accrued liabilities			34,878,298			32,846,215
	Current maturities of long-term debt			1,092,751			4,649,871

Total current liabilities				67,863,655			79,237,068
Long-term debt, less current maturities				268,702,558			255,786,939
Other long-term obligations				144,150,412			144,113,551
Minority interest				11,916,681			11,941,238
Stockholders’ equity:
	5% Non-cumulative, non-voting Class A Stock, par value $100 a share (entitled in liquidation to $100 per share in priority over Common Stock)— 15,680 shares authorized; 12,620 shares issued and outstanding			1,262,000			1,262,000
	Common Stock, par value $.10 a share:
		Voting Common Stock—29,400 shares authorized, issued and outstanding		2,940			2,940
		Non-voting Common Stock—588,000 shares authorized; 428,613 and 427,786 shares issued and outstanding		42,861			42,779
	Accumulated other comprehensive loss			(22,633,965	)		(22,860,033	)
	Additional paid-in capital			1,058,687			771,274
	Retained earnings			35,987,667			41,426,921

				15,720,190			20,645,881

			$	508,353,496		$	511,724,677

See accompanying notes.

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements

Block Communications, Inc. and Subsidiaries

Condensed Consolidated Statements of Income (unaudited)


		Three months ended						Six months ended
		June 30						June 30
		2003			2002			2003			2002

Revenue:
	Publishing	$	64,172,610		$	64,646,626		$	123,637,832		$	126,209,428
	Cable		27,355,527			25,240,422			54,264,104			50,337,257
	Broadcasting		10,214,156			9,686,810			19,282,387			18,687,463
	Other Communications		6,061,378			6,488,681			11,960,358			12,718,010

			107,803,671			106,062,539			209,144,681			207,952,158
Expense:
	Publishing		62,313,037			61,227,791			123,097,037			122,747,104
	Cable		24,542,132			22,392,149			49,231,426			45,206,105
	Broadcasting		8,936,736			8,954,146			18,281,762			18,009,185
	Other Communications		5,474,888			5,899,585			10,714,397			11,848,884
	Corporate general and administrative		757,363			505,795			1,836,819			1,457,075

			102,024,156			98,979,466			203,161,441			199,268,353

Operating income			5,779,515			7,083,073			5,983,240			8,683,805
Nonoperating income (expense):
	Interest expense		(5,273,158	)		(5,894,078	)		(10,220,530	)		(10,642,227	)
	Gain on disposition of Monroe Cablevision		—			—			—			21,600,189
	Change in fair value of interest rate swaps		(1,402,215	)		(1,183,769	)		(2,230,337	)		278,057
	Loss on extinguishment of debt		—			(8,989,786	)		—			(8,989,786	)
	Interest income		69,556			22,116			99,760			30,947

			(6,605,817	)		(16,045,517	)		(12,351,107	)		2,277,180

Income (loss) from continuing operations before income taxes and minority interest			(826,302	)		(8,962,444	)		(6,367,867	)		10,960,985
Provision (credit) for income taxes			(159,788	)		(2,471,245	)		(1,551,035	)		4,381,145

Income (loss) from continuing operations before minority interest			(666,514	)		(6,491,199	)		(4,816,832	)		6,579,840
Minority interest			(15,154	)		(79,947	)		24,557			(87,121	)

Income (loss) from continuing operations			(681,668	)		(6,571,146	)		(4,792,275	)		6,492,719
Loss from discontinued operations (including loss on disposal of $235,591 in 2003)			(328,367	)		(572,225	)		(445,658	)		(743,248	)
Income tax benefit			(111,645	)		(244,874	)		(151,524	)		(304,732	)

Loss on discontinued operations			(216,722	)		(327,351	)		(294,134	)		(438,516	)

Net income (loss)		$	(898,390	)	$	(6,898,497	)	$	(5,086,409	)	$	6,054,203

See accompanying notes.

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements

Block Communications, Inc. and Subsidiaries

Condensed Consolidated Statement of Stockholders’ Equity (unaudited)


								Common Stock

				Class A Stock				Voting				Non-Voting

				Shares		Amount		Shares		Amount		Shares			Amount

Balances at January 1, 2003					12,620	$	1,262,000		29,400	$	2,940		427,786		$	42,779
	Net loss
	Amortization of fair value of interest rate swaps at January 1, 2001 (net of deferred tax of $127,500)
	Total comprehensive loss
	Cash dividends declared:
		Class A stock—$2.50 per share
		Common Stock:
			Voting—$0.70 per share
			Non-voting—$0.70 per share

	Executive stock incentives at $407.97 per share												1,808			180
	Redemption of non-voting common shares at $458.50 per share												(981	)		(98	)

Balances at June 30, 2003					12,620	$	1,262,000		29,400	$	2,940		428,613		$	42,861

Balances at January 1, 2002					12,620	$	1,262,000		29,400	$	2,940		427,786		$	42,779
	Net income
	Amortization of fair value of interest rate swaps at January 1, 2001 (net of deferred tax of $127,500)

	Total comprehensive income
	Cash dividends declared:
		Class A stock—$2.50 per share
		Common Stock:
			Voting—$0.70 per share
			Non-voting—$0.70 per share



Balances at June 30, 2002					12,620	$	1,262,000		29,400	$	2,940		427,786		$	42,779

[Additional columns below]

[Continued from above table, first column(s) repeated]

Accumulated

Other Additional

Comprehensive Paid-in Retained

Loss Capital Earnings Total

Balances at January 1, 2003
$ (22,860,033 ) $ 771,274 $ 41,426,921 $ 20,645,881

Net loss
(5,086,409 ) (5,086,409 )

Amortization of fair value of interest rate swaps at January 1, 2001 (net of deferred tax of $127,500)
226,068 226,068

Total comprehensive loss
(4,860,341 )

Cash dividends declared:

Class A stock—$2.50 per share
(31,550 ) (31,550 )

Common Stock:

Voting—$0.70 per share
(20,580 ) (20,580 )

Non-voting—$0.70 per share
(300,715 ) (300,715 )

(352,845 ) (352,845 )

Executive stock incentives at $407.97 per share
737,103 737,283

Redemption of non-voting common shares at $458.50 per share
(449,690 ) (449,788 )

Balances at June 30, 2003
$ (22,633,965 ) $ 1,058,687 $ 35,987,667 $ 15,720,190

Balances at January 1, 2002
$ (4,725,589 ) $ 771,274 $ 40,229,696 $ 37,583,100

Net income
6,054,203 6,054,203

Amortization of fair value of interest rate swaps at January 1, 2001 (net of deferred tax of $127,500)
226,069 226,069

Total comprehensive income
6,280,272

Cash dividends declared:

Class A stock—$2.50 per share
(31,550 ) (31,550 )

Common Stock:

Voting—$0.70 per share
(20,580 ) (20,580 )

Non-voting—$0.70 per share
(299,451 ) (299,451 )

(351,581 ) (351,581 )

Balances at June 30, 2002
$ (4,499,520 ) $ 771,274 $ 45,932,318 $ 43,511,791

See accompanying notes.

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements

Block Communications, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (unaudited)


			Six months ended
			June 30
			2003			2002

Operating activities
Net income (loss)			$	(5,086,409	)	$	6,054,203
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
	Depreciation			24,885,786			22,277,829
	Amortization of intangibles and deferred charges			1,540,536			1,293,452
	Amortization of broadcast rights			3,395,873			3,322,689
	Payments for broadcast rights			(3,397,766	)		(2,531,544	)
	Gain on sale of Monroe Cablevision			—			(21,600,189	)
	Loss on disposal of discontinued operation			235,591			—
	Deferred income taxes (credit)			(2,725,409	)		3,500,000
	Provision for bad debts			549,051			986,654
	Minority interest			(24,557	)		87,121
	Change in fair value of interest rate swaps			2,230,337			(278,057	)
	Loss on disposal of property and equipment			42,686			402,814
	Write-off of deferred charges related to extinguished debt			—			2,697,784
	Changes in operating assets and liabilities:
		Receivables		2,697,994			3,525,876
		Inventories		375,268			1,108,986
		Prepaid expenses		1,078,830			783,574
		Accounts payable		(5,062,085	)		(1,325,934	)
		Salaries, wages, payroll taxes and other accrued liabilities		(4,378,720	)		(2,365,385	)
		Other assets		2,535,397			60,592
		Postretirement benefits and other long-term obligations		4,077,026			3,577,513

Net cash provided by operating activities				22,969,429			21,577,978
Investing activities
Additions to property, plant and equipment				(23,478,139	)		(12,647,899	)
Change in cash value of life insurance				(738,314	)		(459,201	)
Proceeds from sale of Monroe Cablevision				—			12,059,115
Proceeds from disposal of property and equipment				28,013			40,617

Net cash used in investing activities				(24,188,440	)		(1,007,368	)
Financing activities
Borrowings under new term loan agreement				10,000,000			75,000,000
Payments under new term loan agreement				(3,946,000	)		—
Issuance of subordinated notes				—			175,000,000
Payments on long-term revolver				—			(92,500,000	)
Payments on previous term loan				—			(75,000,000	)
Payments on senior notes				—			(67,499,000	)
Financing costs deferred				—			(10,000,968	)
Proceeds from issuance of common stock				737,283			—
Payments on redemption of shares				(449,788	)		—
Cash dividends paid				(352,845	)		(351,581	)
Payments on notes payable and capital leases				(163,727	)		(202,805	)

Net cash provided by financing activities				5,824,923			4,445,646

Increase in cash and cash equivalents				4,605,912			25,016,256
Cash and cash equivalents at beginning of period				9,781,645			5,882,732

Cash and cash equivalents at end of period			$	14,387,557		$	30,898,988

Non-cash borrowings for equipment under capital lease			$	—		$	903,798

See accompanying notes.

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements

BLOCK COMMUNICATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

NOTE 1 — BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements of Block Communications, Inc. (the Company) have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six month periods ended June 30, 2003 are not necessarily indicative of the results that may be expected for the year ending December 31, 2003. For further information, refer to the December 31, 2002 audited consolidated financial statements and footnotes thereto.

The balance sheet at December 31, 2002 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements.

New Accounting Standards

In June 2001, SFAS No. 143, Accounting for Asset Retirement Obligations, was issued and is effective for fiscal years beginning after June 15, 2002. The pronouncement requires legal obligations associated with the retirement of long-lived assets to be recognized at their fair value at the time that the obligations are incurred. Upon initial recognition of a liability, that cost should be capitalized as part of the related long-lived asset and allocated to expense over the estimated useful life of the asset. The adoption of this standard on January 1, 2003 has had no impact on the Company’s financial position or results of operations for the six months ended June 30, 2003.

In July 2002, SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities, was issued and applies to fiscal years beginning after December 31, 2002. SFAS No. 146 requires certain costs associated with a restructuring, discontinued operation or plant closing to be recognized as incurred rather that at the date of commitment to an exit or disposal plan. The adoption of this standard on January 1, 2003 has had no material impact on the Company’s financial position or results of operations for the six months ended June 30, 2003.

In December 2002, SFAS No. 148, Accounting for Stock-Based Compensation—Transition and Disclosure, was issued and provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. The Company has previously adopted the fair value method of accounting for stock-based employee compensation therefore all years presented reflect this method and no pro-forma disclosures are required.

In November 2002, the Financial Accounting Standards Board issued Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. This Interpretation significantly changes previous practice in the accounting for and disclosure of guarantees. Guarantees meeting the characteristics described in the Interpretation are required to be initially recorded at fair value, which is different from the general current practice of recording a liability only when a loss is probable and can be reasonably estimated. The Interpretation’s initial recognition and initial measurement provisions are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. The Interpretation also requires a guarantor to make significant new disclosures for virtually all guarantees even if the likelihood of the guarantor having to make payments under the guarantee is remote. The Interpretation’s disclosure requirements were effective for financial statements beginning in 2002. The Company does not currently guarantee indebtedness of any party outside of the consolidated group. Please refer to Note 7 for disclosures relating to guarantees within the consolidated group.

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements

In January 2003, the Financial Accounting Standards Board issued interpretation No. 46, Consolidation of Variable Interest Entities, an interpretation of Accounting Research Bulletin No. 51 (FIN 46). FIN 46 requires consolidation of variable interest entities in which an enterprise absorbs a majority of the entity’s expected losses, receives a majority of the entity’s expected residual returns, or both, as a result of ownership, contractual or other financial interest in the entity. Currently, entities are generally consolidated by an enterprise that has a controlling financial interest through ownership or a majority voting interest in the entity. The adoption of FIN 46 has had no impact on the Company’s financial position or results of operations for the six months ended June 30, 2003.

NOTE 2—DISCONTINUED OPERATIONS

As of May 31, 2003, the Company suspended operations of Community Communication Services, Inc. (CCS), an alternative advertising distribution company. In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, the results of operations of CCS are reported separately from results of continuing operations for all periods presented. The reported loss from discontinued operations includes revenues of $68,050 and $163,767 for the three months ended June 30, 2003 and 2002 respectively, and revenues of $151,258 and $287,182 for the six months ended June 30, 2003 and 2002, respectively. Results for the three- and six-month periods ended June 30, 2003 include a loss on disposal of the discontinued operations of $235,591. Previously, results of operations of CCS were included in the Other Communications segment.

NOTE 3—ACQUISITION

Effective March 29, 2002, the Company consummated an asset exchange agreement with Comcast Corporation which resulted in an exchange of 100% of the assets of Monroe Cablevision for 100% of the assets of Comcast’s Bedford, Michigan operations and $12.1 million cash. The Company recorded a $21.1 million gain on the disposition of Monroe Cablevision resulting from the difference in fair value versus the net book value of assets exchanged. For tax reporting, the transaction has been treated as a like kind exchange and the amount of the gain in excess of the cash received has been deferred. The operations of Monroe Cablevision are included in the Company’s financial statements through March 28, 2002.

The net assets of the acquired Bedford system have been recorded at their fair value and relate primarily to the cable distribution system and intangibles. The operations of the Bedford system have been included in the Company’s financial statements since March 29, 2002.

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements

NOTE 4—LONG-TERM DEBT

During the first six months of 2003, the Company made $3,946,000 in payments on the outstanding Term Loan B, as required under the May 2002 credit agreement. On June 30, 2003 the Company borrowed $10,000,000 on Term Loan A under the same credit agreement.

Long-term debt consists of the following:


	June 30,		December 31,
	2003		2002

Subordinated notes	$	175,000,000	$	175,000,000
Fair value adjustment of subordinated notes		11,126,941		7,658,715

Subordinated notes, as adjusted		186,126,941		182,658,715
Senior term loan		80,679,000		74,625,000
Capital leases		2,989,368		3,153,095

		269,795,309		260,436,810
Current maturities		1,092,751		4,649,871

	$	268,702,558	$	255,786,939

NOTE 5—OTHER LONG-TERM OBLIGATIONS

Other long-term obligations consist of the following:


	June 30,		December 31,
	2003		2002

Other postretirement benefits	$	84,811,098	$	83,365,000
Pension liabilities		37,904,382		36,171,121
Deferred compensation obligations		15,512,662		14,360,574
Broadcast rights payable		3,623,883		7,330,489
Other		2,298,387		2,886,367

	$	144,150,412	$	144,113,551

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements

NOTE 6 — BUSINESS SEGMENT INFORMATION

The Company has three reportable segments — publishing, cable and broadcasting. The publishing segment operates two daily newspapers located in Ohio and Pennsylvania. The cable segment includes two cablevision companies located in Ohio. The broadcasting segment has five television stations located in Idaho, Illinois, Indiana, Kentucky, and Ohio. The “Other” category includes non-reportable segments and corporate items. The non-reportable segments provide services such as telephony, security systems and monitoring, and cable plant construction. The following table presents certain financial information for the three reportable segments and the other category.


		Three months ended						Six months ended
		June 30						June 30

		2003			2002			2003			2002

Revenues:
	Publishing	$	65,094,199		$	65,589,540		$	125,419,258		$	127,842,873
	Intersegment		921,589			942,914			1,781,426			1,633,445

	External Publishing		64,172,610			64,646,626			123,637,832			126,209,428
	Cable		27,378,690			25,274,544			54,310,050			50,371,379
	Intersegment		23,163			34,122			45,946			34,122

	External Cable		27,355,527			25,240,422			54,264,104			50,337,257
	Broadcasting		10,214,156			9,686,810			19,282,387			18,687,463
	Other		6,061,378			6,488,681			11,960,358			12,718,010

			107,803,671			106,062,539			209,144,681			207,952,158
Operating income (loss):
	Publishing		2,721,342			4,288,528			2,204,722			4,978,881
	Intersegment		861,769			869,691			1,663,927			1,516,557

	Net Publishing		1,859,573			3,418,837			540,795			3,462,324
	Cable		1,933,741			1,935,356			3,299,591			3,536,846
	Intersegment		(879,654	)		(912,917	)		(1,733,087	)		(1,594,306	)

	Net Cable		2,813,395			2,848,273			5,032,678			5,131,152
	Broadcasting		1,277,420			732,664			1,000,625			678,278
	Corporate expenses		(757,363	)		(505,795	)		(1,836,819	)		(1,457,075	)
	Other		586,490			589,094			1,245,961			869,126

			5,779,515			7,083,073			5,983,240			8,683,805
Nonoperating income (expense)			6,605,817			16,045,517			12,351,107			(2,277,180	)

Income (loss) from continuing operations before income taxes and minority interest		$	(826,302	)	$	(8,962,444	)	$	(6,367,867	)	$	10,960,985

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements

NOTE 7 — SUPPLEMENTAL GUARANTOR INFORMATION

The Company’s credit facilities are guaranteed jointly and severally by all of the Company’s wholly owned subsidiaries (collectively, the Guarantors). Such guarantees are full and unconditional. WAND (TV) Partnership, a partially owned subsidiary of the Company, is not a guarantor of the credit facilities.

Supplemental consolidating financial information of the Company, specifically including such information for the Guarantors, is presented below. Financial information for the Parent Company includes both the Holding Company and its one division, The Toledo Blade Company. Investments in subsidiaries are presented using the cost method of accounting and eliminated. Separate financial statements of the Guarantors are not provided as the consolidating financial information contained herein provides a more meaningful disclosure to allow investors to determine the nature of assets held and the operations of the combined groups.

CONSOLIDATING CONDENSED BALANCE SHEET

June 30, 2003


	Unconsolidated

	Parent			Guarantor		Non-Guarantor
	Company			Subsidiaries		Subsidiary		Eliminations			Consolidated

Assets:
Current assets	$	32,157,777		$	55,152,876	$	2,007,932	$	1,015,681		$	90,334,266
Property, plant and equipment, net		25,636,730			215,923,910		5,860,737		322,219			247,743,596
Intangibles, net		4,277,670			58,142,051		28,068,958		198,489			90,687,168
Cash value of life insurance		26,103,609			229,248		—		—			26,332,857
Prepaid pension costs		—			2,460,151		—		—			2,460,151
Pension intangibles		1,442,550			10,489,214		—		—			11,931,764
Investments in subsidiaries		167,185,850			—		—		(167,185,850	)		—
Other		23,541,334			15,322,360		—		—			38,863,694

	$	280,345,520		$	357,719,810	$	35,937,627	$	(165,649,461	)	$	508,353,496

Liabilities and stockholders’ equity:
Current liabilities	$	14,493,396		$	51,788,435	$	567,788	$	1,014,036		$	67,863,655
Long-term debt		268,702,558			—		—		—			268,702,558
Other long-term obligations		9,861,202			228,644,208		—		(94,354,998	)		144,150,412
Minority interest		—			—		—		11,916,681			11,916,681
Stockholders’ equity		(12,711,636	)		77,287,167		35,369,839		(84,225,180	)		15,720,190

	$	280,345,520		$	357,719,810	$	35,937,627	$	(165,649,461	)	$	508,353,496

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements

NOTE 7 — SUPPLEMENTAL GUARANTOR INFORMATION (continued)

CONSOLIDATING CONDENSED BALANCE SHEET
December 31, 2002


	Unconsolidated

	Parent			Guarantor		Non-Guarantor
	Company			Subsidiaries		Subsidiary		Eliminations			Consolidated

Assets:
Current assets	$	31,824,209		$	57,565,103	$	2,136,861	$	88,187		$	91,614,360
Property, plant and equipment, net		26,920,217			215,990,124		5,994,444		372,427			249,277,212
Intangibles, net		4,494,448			58,696,639		28,068,958		198,489			91,458,534
Cash value of life insurance, net		25,369,465			225,078		—		—			25,594,543
Prepaid pension costs		—			2,437,798		—		—			2,437,798
Pension intangibles		1,442,550			10,489,214		—		—			11,931,764
Investments in subsidiaries		178,302,804			—		—		(178,302,804	)		—
Other		18,618,079			20,792,387		—		—			39,410,466

	$	286,971,772		$	366,196,343	$	36,200,263	$	(177,643,701	)	$	511,724,677

Liabilities and stockholders’ equity:
Current liabilities	$	23,530,460		$	54,864,676	$	756,010	$	85,922		$	79,237,068
Long-term debt		255,786,939			—		—		—			255,786,939
Other long-term obligations		11,310,112			238,274,771		—		(105,471,332	)		144,113,551
Minority interest		—			—		—		11,941,238			11,941,238
Stockholders’ equity		(3,655,739	)		73,056,896		35,444,253		(84,199,529	)		20,645,881

	$	286,971,772		$	366,196,343	$	36,200,263	$	(177,643,701	)	$	511,724,677

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements

NOTE 7 — SUPPLEMENTAL GUARANTOR INFORMATION (continued)

CONSOLIDATING CONDENSED STATEMENT OF INCOME
Three Months Ended June 30, 2003


		Unconsolidated

		Parent			Guarantor			Non-Guarantor
		Company			Subsidiaries			Subsidiary			Eliminations			Consolidated

Revenue		$	22,043,184		$	86,844,928		$	1,704,980		$	(2,789,421	)	$	107,803,671
Expenses			21,221,127			81,869,687			1,656,889			(2,723,547	)		102,024,156

Operating income (loss)			822,057			4,975,241			48,091			(65,874	)		5,779,515
Nonoperating income (expense)			(6,602,912	)		(735	)		(2,170	)		—			(6,605,817	)

Income (loss) from continuing operations
	Before income tax and minority interest		(5,780,855	)		4,974,506			45,921			(65,874	)		(826,302	)
Provision (credit) for income taxes			(1,884,120	)		1,724,332			—			—			(159,788	)

Income (loss) from continuing operations
	Before minority interest		(3,896,735	)		3,250,174			45,921			(65,874	)		(666,514	)
Minority interest			—			—			—			(15,154	)		(15,154	)

Income (loss) from continuing operations			(3,896,735	)		3,250,174			45,921			(81,028	)		(681,668	)
Loss from discontinued operations, net			—			(216,722	)		—			—			(216,722	)

Net income (loss)		$	(3,896,735	)	$	3,033,452		$	45,921		$	(81,028	)	$	(898,390	)

CONSOLIDATING CONDENSED STATEMENT OF INCOME
Three Months Ended June 30, 2002


		Unconsolidated

		Parent			Guarantor			Non-Guarantor
		Company			Subsidiaries			Subsidiary		Eliminations			Consolidated

Revenue		$	21,037,089		$	85,777,555		$	1,751,366	$	(2,503,471	)	$	106,062,539
Expenses			20,208,285			79,707,373			1,659,828		(2,596,020	)		98,979,466

Operating income (loss)			828,804			6,070,182			91,583		92,549			7,083,073
Nonoperating income (expense)			(16,051,073	)		2,288			3,268		—			(16,045,517	)

Income (loss) from continuing operations
	Before income tax and minority interest		(15,222,269	)		6,072,470			94,806		92,549			(8,962,444	)
Provision (credit) for income taxes			(5,243,320	)		2,772,075			—		—			(2,471,245	)

Income (loss) from continuing operations
	Before minority interest		(9,978,949	)		3,300,395			94,806		92,549			(6,491,199	)
Minority interest			—			—			—		(79,947	)		(79,947	)

Income (loss) from continuing operations			(9,978,949	)		3,300,395			94,806		12,602			(6,571,146	)
Loss from discontinued operations, net			—			(327,351	)		—		—			(327,351	)

Net income (loss)		$	(9,978,949	)	$	2,973,044		$	94,806	$	12,602		$	(6,898,497	)

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

NOTE 7 — SUPPLEMENTAL GUARANTOR INFORMATION (continued)

CONSOLIDATING CONDENSED STATEMENT OF INCOME
Six Months Ended June 30, 2003


		Unconsolidated

		Parent			Guarantor			Non-Guarantor
		Company			Subsidiaries			Subsidiary			Eliminations			Consolidated

Revenue		$	41,694,230		$	169,822,922		$	3,194,036		$	(5,566,507	)	$	209,144,681
Expenses			42,391,399			163,019,636			3,266,705			(5,516,299	)		203,161,441

Operating income (loss)			(697,169	)		6,803,286			(72,669	)		(50,208	)		5,983,240
Nonoperating expense			(12,348,010	)		(1,352	)		(1,745	)		—			(12,351,107	)

Income (loss) from continuing operations
	Before income tax and minority interest		(13,045,179	)		6,801,934			(74,414	)		(50,208	)		(6,367,867	)
Provision (credit) for income taxes			(3,828,564	)		2,277,529			—			—			(1,551,035	)

Income (loss) from continuing operations
	Before minority interest		(9,216,615	)		4,524,405			(74,414	)		(50,208	)		(4,816,832	)
Minority interest			—			—			—			24,557			24,557

Income (loss) from continuing operations			(9,216,615	)		4,524,405			(74,414	)		(25,651	)		(4,792,275	)
Loss from discontinued operations			—			(294,134	)		—			—			(294,134	)

Net income (loss)		$	(9,216,615	)	$	4,230,271		$	(74,414	)	$	(25,651	)	$	(5,086,409	)

CONSOLIDATING CONDENSED STATEMENT OF INCOME
Six Months Ended June 30, 2002


	Unconsolidated

	Parent			Guarantor			Non-Guarantor
	Company			Subsidiaries			Subsidiary		Eliminations			Consolidated

Revenue	$	40,106,115		$	168,929,507		$	3,564,164	$	(4,647,628	)	$	207,952,158
Expenses		41,065,813			159,992,781			3,307,436		(5,097,677	)		199,268,353

Operating income (loss)		(959,698	)		8,936,726			256,728		450,049			8,683,805
Nonoperating income		2,265,409			4,496			7,275		—			2,277,180

Income from continuing operations before income tax and minority interest		1,305,711			8,941,222			264,003		450,049			10,960,985
Provision for income taxes		535,342			3,845,803			—		—			4,381,145

Income from continuing operations before minority interest		770,369			5,095,419			264,003		450,049			6,579840
Minority interest		—			—			—		(87,121	)		(87,121	)

Income from continuing operations		770,369			5,095,419			264,003		362,928			6,492,719
Loss from discontinued operations		—			(438,516	)		—		—			(438,516	)

Net income	$	770,369		$	4,656,903		$	264,003	$	362,928		$	6,054,203

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

NOTE 7 — SUPPLEMENTAL GUARANTOR INFORMATION (continued)

CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
Six months ended June 30, 2003


	Unconsolidated

	Parent			Guarantor			Non-Guarantor
	Company			Subsidiaries			Subsidiary			Eliminations			Consolidated

Net cash provided by (used in) operating activities	$	(8,261,815	)	$	30,537,570		$	743,262		$	(49,588	)	$	22,969,429
Additions to property, plant and equipment		(768,288	)		(22,332,666	)		(427,393	)		50,208			(23,478,139	)
Other investing activities		(754,869	)		44,568			—			—			(710,301	)

Net cash used in investing activities		(1,523,157	)		(22,288,098	)		(427,393	)		50,208			(24,188,440	)
Borrowings on term loan		10,000,000			—			—			—			10,000,000
Payments on term loan		(3,946,000	)		—			—			—			(3,946,000	)
Other financing activity		7,713,667			(7,942,124	)		—			(620	)		(229,077	)

Net cash provided by (used in) financing activities		13,767,667			(7,942,124	)		—			(620	)		5,824,923

Increase in cash and equivalents		3,982,695			307,348			315,869			—			4,605,912
Cash and equivalents at beginning of period		8,854,800			455,633			471,212			—			9,781,645

Cash and equivalents at end of period	$	12,837,495		$	762,981		$	787,081		$	—		$	14,387,557

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

NOTE 7 — SUPPLEMENTAL GUARANTOR INFORMATION (continued)

CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
Six months ended June 30, 2002


	Unconsolidated

	Parent			Guarantor			Non-Guarantor
	Company			Subsidiaries			Subsidiary			Eliminations			Consolidated

Net cash provided by (used in) operating activities	$	(16,311,823	)	$	38,260,888		$	(818,180	)	$	447,093		$	21,577,978
Additions to property, plant and equipment		(352,297	)		(11,312,302	)		(545,089	)		(438,211	)		(12,647,899	)
Other investing activities		11,638,263			2,268			—			—			11,640,531

Net cash provided by (used in) investing activities		11,285,966			(11,310,034	)		(545,089	)		(438,211	)		(1,007,368	)
Issuance of subordinated notes		175,000,000			—			—			—			175,000,000
Borrowings on term loan		75,000,000			—			—			—			75,000,000
Payments on long-term debt		(234,999,000	)		—			—			—			(234,999,000	)
Other financing activity		16,277,839			(26,824,311	)		—			(8,882	)		(10,555,354	)

Net cash provided by (used in) financing activities		31,278,839			(26,824,311	)		—			(8,882	)		4,445,646

Increase (decrease) in cash and equivalents		26,252,982			126,543			(1,363,269	)		—			25,016,256
Cash and equivalents at beginning of period		3,186,078			(64,937	)		2,761,591			—			5,882,732

Cash and equivalents at end of period	$	29,439,060		$	61,606		$	1,398,322		$	—		$	30,898,988

PART I. FINANCIAL INFORMATION
Management’s Discussion and Analysis of Financial Position and Results of Operations

The following analysis of the financial condition and results of operations of Block Communications, Inc. (the “Company”) should be read in conjunction with our unaudited Consolidated Condensed Financial Statements and notes thereto included elsewhere herein and with the management’s discussion and analysis, consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2002.

Overview

We are a privately held diversified media company with our primary operations in cable television, newspaper publishing and television broadcasting. We provide cable television service to the greater Toledo, Ohio metropolitan area (Buckeye CableSystem) and the Sandusky, Ohio area (Erie County CableSystem). At December 31, 2002, we had approximately 152,000 subscribers. We publish two daily metropolitan newspapers, the Pittsburgh Post-Gazette in Pittsburgh, Pennsylvania, and The Blade in Toledo, Ohio, each of which is the leading publication in its market. The aggregate average daily and Sunday paid circulation of our two newspapers is approximately 385,100 and 601,400, respectively, as of December 31, 2002. We own and operate four television stations: two in Louisville, Kentucky, and one each in Boise, Idaho and Lima, Ohio; and we are a two-thirds owner of a television station in Decatur, Illinois. We also have other communication operations including a telephony business and a commercial and residential security business.

Critical Accounting Policies and Estimates

We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and the related disclosures. We base our estimates and judgments on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. We evaluate these estimates and judgments on a continual basis. Actual results may differ from these estimates and judgments.

We believe the following critical accounting policies affect our significant estimates and judgments used in the preparation of the consolidated financial statements. We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. If the financial condition of our customers were to change, resulting in an impairment of their ability to make payments, additional allowances could be required. We maintain various employment related liabilities, such as workers’ compensation and medical reserves, based on historical performance and current trends. Actual results could differ from estimates resulting in adjustments to the recorded liability. Actuarial assumptions have a significant impact on the determination of net periodic pension costs and credits and other post-employment benefits. If actual experience differs from these assumptions, future periodic pension and post-employment costs could be adversely affected.

General

For the six months ended June 30, 2003, we had revenues, operating income and a net loss from continuing operations of $209.1 million, $6.0 million and $4.8 million, respectively. This represents an increase in revenues of $1.2 million and a decrease in operating income of $2.7 million as compared to the six months ended June 30, 2002. Advertising revenues are generally highest in the fourth quarter, due in part to increases in retail advertising in the period leading up to and including the holiday season. In addition, broadcasting advertising revenues are generally higher in even-numbered election years due to political advertising. Advertising revenues in the markets we operate in were soft throughout the first six months of 2003 due primarily to economic uncertainties resulting from, among other things, geopolitical concerns.

Set forth below are the operating results and a reconciliation of net income to EBITDA for the three and six month periods ended June 30, 2003 and 2002.

PART I. FINANCIAL INFORMATION
Management’s Discussion and Analysis of Financial Position and Results of Operations

Block Communications, Inc. and Subsidiaries

Results of Operations (unaudited)


		Three months ended June 30,

		2003					2002

Revenue:
	Publishing	$	64,172,610		59.5	%	$	64,646,626		61.0	%
	Cable		27,355,527		25.4			25,240,422		23.8
	Broadcasting		10,214,156		9.5			9,686,810		9.1
	Other Communications		6,061,378		5.6			6,488,681		6.1

			107,803,671		100.0			106,062,539		100.0
Expense:
	Publishing		62,313,037		57.8			61,227,791		57.7
	Cable		24,542,132		22.8			22,392,149		21.1
	Broadcasting		8,936,736		8.3			8,954,146		8.4
	Other Communications		5,474,888		5.1			5,899,585		5.6
	Corporate general and administrative		757,363		0.7			505,795		0.5

			102,024,156		94.6			98,979,466		93.3

Operating income			5,779,515		5.4	%		7,083,073		6.7	%
Nonoperating income (expense):
	Interest expense		(5,273,158	)				(5,894,078	)
	Loss on disposition of Monroe Cablevision		—					—
	Loss on early extinguishment of debt		—					(8,989,786	)
	Change in fair value of interest rate swaps		(1,402,215	)				(1,183,769	)
	Interest income		69,556					22,116

			(6,605,817	)				(16,045,517	)

Loss from continuing operations before income taxes and minority interest			(826,302	)				(8,962,444	)
Credit for income taxes			(159,788	)				(2,471,245	)
Minority interest			(15,154	)				(79,947	)

Loss from continuing operations			(681,668	)				(6,571,146	)
Loss from discontinued operations, net			(216,722	)				(327,351	)

Net loss			(898,390	)				(6,898,497	)
Add:
	Interest expense		5,273,158					5,894,078
	Provision for income taxes		(271,433	)				(2,716,119	)
	Depreciation		12,424,633					10,954,638
	Amortization of intangibles and deferred charges		775,907					920,926
	Amortization of broadcast rights		1,672,460					1,748,818
	Loss on disposal of property and equipment		3,224					5,948
	Change in fair value of interest rate swaps		1,402,215					1,183,769
	Loss on disposal of discontinued operation		235,591					—
	Loss on early extinguishment of debt		—					8,989,786
Less:
	Payments on broadcast rights		(1,638,874	)				(1,351,658	)

EBITDA		$	18,978,491				$	18,731,689

PART I. FINANCIAL INFORMATION
Management’s Discussion and Analysis of Financial Position and Results of Operations

Block Communications, Inc. and Subsidiaries

Results of Operations (unaudited)


		Six months ended June 30,

		2003					2002

Revenue:
	Publishing	$	123,637,832		59.1	%	$	126,209,428		60.7	%
	Cable		54,264,104		25.9			50,337,257		24.2
	Broadcasting		19,282,387		9.2			18,687,463		9.0
	Other Communications		11,960,358		5.7			12,718,010		6.1

			209,144,681		100.0			207,952,158		100.0
Expense:
	Publishing		123,097,037		58.9			122,747,104		59.0
	Cable		49,231,426		23.5			45,206,105		21.7
	Broadcasting		18,281,762		8.7			18,009,185		8.7
	Other Communications		10,714,397		5.1			11,848,884		5.7
	Corporate general and administrative		1,836,819		0.9			1,457,075		0.7

			203,161,441		97.1			199,268,353		95.8

Operating income			5,983,240		2.9	%		8,683,805		4.2	%
Nonoperating income (expense):
	Interest expense		(10,220,530	)				(10,642,227	)
	Gain on disposition of Monroe Cablevision		—					21,600,189
	Loss on early extinguishment of debt		—					(8,989,786	)
	Change in fair value of interest rate swaps		(2,230,337	)				278,057
	Interest income		99,760					30,947

			(12,351,107	)				2,277,180

Income from continuing operations before income taxes and minority interest			(6,367,867	)				10,960,985
Provision (credit) for income taxes			(1,551,035	)				4,381,145
Minority interest			24,557					(87,121	)

Income (loss) from continuing operations			(4,792,275	)				6,492,719
Loss from discontinued operations, net			(294,134	)				(438,516	)

Net income (loss)			(5,086,409	)				6,054,203
Add:
	Interest expense		10,220,530					10,642,227
	Provision for income taxes		(1,702,559	)				4,076,413
	Depreciation		24,885,786					22,277,829
	Amortization of intangibles and deferred charges		1,540,536					1,293,452
	Amortization of broadcast rights		3,395,873					3,322,689
	Loss on disposal of property and equipment		42,686					402,814
	Change in fair value of interest rate swaps		2,230,337					(278,057	)
	Loss on disposal of discontinued operations		235,591					—
	Loss on early extinguishment of debt		—					8,989,786
	Gain on disposal of Monroe Cablevision		—					(21,600,189	)
Less:
	Payments on broadcast rights		(3,397,766	)				(2,531,544	)

EBITDA		$	32,364,605				$	32,649,623

PART I. FINANCIAL INFORMATION
Management’s Discussion and Analysis of Financial Position and Results of Operations

Set forth below is a reconciliation of net income to EBITDA by operating segment for the three and six month periods ended June 30, 2003 and 2002.

Block Communications, Inc. and Subsidiaries
Reconciliation of Net Income to EBITDA by Segment


		Publishing			Cable			Broadcasting			Other			Corporate			Consolidated

		Three months ended June 30, 2003
Net income (loss)		$	806,505		$	1,953,598		$	817,359		$	422,649		$	(4,898,501	)	$	(898,390	)
Adjustments to net income (loss):
	Interest expense		50,112			—			—			—			5,223,046			5,273,158
	Provision (credit) for income taxes		1,003,120			860,874			442,737			(164,526	)		(2,413,638	)		(271,433	)
	Depreciation		2,865,999			7,745,190			740,975			1,072,469			—			12,424,633
	Amortization of intangibles and deferred charges		88,167			184,891			4,235			—			498,614			775,907
	Amortization of broadcast rights		—			74,249			1,598,211			—			—			1,672,460
	Film payments		—			(72,679	)		(1,566,195	)		—			—			(1,638,874	)
	(Gain) loss on disposal of assets		(9,500	)		6,113			6,868			(257	)		—			3,224
	Change in fair value of derivative		—			—			—			—			1,402,215			1,402,215
	Loss on disposal of discontinued operation		—			—			—			235,591			—			235,591

EBITDA		$	4,804,403		$	10,752,236		$	2,044,190		$	1,565,926		$	(188,264	)	$	18,978,491

		Three months ended June 30, 2002
Net income (loss)		$	1,592,000		$	1,477,164		$	630,976		$	338,297		$	(10,936,934	)	$	(6,898,497	)
Adjustments to net income (loss):
	Interest expense		49,746			—			—			—			5,844,332			5,894,078
	Provision (credit) for income taxes		1,777,089			1,372,452			25,954			(321,426	)		(5,570,188	)		(2,716,119	)
	Depreciation		2,680,000			6,584,814			648,883			1,040,941			—			10,954,638
	Amortization of intangibles and deferred charges		81,916			—			7,709			446,138			385,163			920,926
	Amortization of broadcast rights		—			76,929			1,671,889			—			—			1,748,818
	Film payments		—			(38,169	)		(1,313,489	)		—			—			(1,351,658	)
	(Gain) loss on disposal of assets		(8,194	)		12,108			—			2,034			—			5,948
	Change in fair value of derivative		—			—			—			—			1,183,769			1,183,769
	Loss on early extinguishment of debt		—			—			—			—			8,989,786			8,989,786

EBITDA		$	6,172,557		$	9,485,298		$	1,671,922		$	1,505,984		$	(104,072	)	$	18,731,689

		Six months ended June 30, 2003
Net income (loss)		$	(359,932	)	$	3,501,817		$	643,531		$	1,028,225		$	(9,900,050	)	$	(5,086,409	)
Adjustments to net income (loss):
	Interest expense		98,719			—			—			—			10,121,811			10,220,530
	Provision (credit) for income taxes		802,205			1,533,069			379,906			(227,922	)		(4,189,817	)		(1,702,559	)
	Depreciation		5,731,998			15,573,275			1,439,707			2,140,806			—			24,885,786
	Amortization of intangibles and deferred charges		176,334			369,782			8,470			—			985,950			1,540,536
	Amortization of broadcast rights		—			153,926			3,241,947			—			—			3,395,873
	Film payments		—			(171,886	)		(3,225,880	)		—			—			(3,397,766	)
	(Gain) loss on disposal of assets		(9,500	)		45,502			6,868			(184	)		—			42,686
	Change in fair value of derivative		—			—			—			—			2,230,337			2,230,337
	Loss on disposal of discontinued operation		—			—			—			235,591			—			235,591

EBITDA		$	6,439,824		$	21,005,485		$	2,494,549		$	3,176,516		$	(751,769	)	$	32,364,605

		Six months ended June 30, 2002
Net income (loss)		$	1,369,693		$	3,067,870		$	426,424		$	662,009		$	528,207		$	6,054,203
Adjustments to net income (loss):
	Interest expense		86,974			—			—			—			10,555,253			10,642,227
	Provision (credit) for income taxes		2,005,698			2,066,375			173,411			(536,131	)		367,060			4,076,413
	Depreciation		5,656,000			13,282,705			1,292,636			2,046,488			—			22,277,829
	Amortization of intangibles and deferred charges		176,334			—			15,419			446,138			655,561			1,293,452
	Amortization of broadcast rights		—			148,439			3,174,250			—			—			3,322,689
	Film payments		—			(107,280	)		(2,424,264	)		—			—			(2,531,544	)
	(Gain) loss on disposal of assets		(7,244	)		402,389			—			7,669			—			402,814
	Change in fair value of derivative		—			—			—			—			(278,057	)		(278,057	)
	Loss on early extinguishment of debt														8,989,786			8,989,786
	Gain on sale of Monroe Cablevision		—			—			—			—			(21,600,189	)		(21,600,189	)

EBITDA		$	9,287,455		$	18,860,498		$	2,657,876		$	2,626,173		$	(782,379	)	$	32,649,623

PART I. FINANCIAL INFORMATION
Management’s Discussion and Analysis of Financial Position and Results of Operations

We define EBITDA as net income before interest expense, provision for income taxes, depreciation and amortization (including amortization of broadcast rights), other non-cash charges, gains or losses on disposition of assets, other non-recurring items, and extraordinary items and after payments for broadcast rights. Other media companies may measure EBITDA in a different manner. We have included EBITDA data because such data is commonly used as a measure of performance for media companies and is also used by investors to measure a company’s ability to service debt. EBITDA is also a significant component of the financial covenants contained in our senior debt agreements. EBITDA is not, and should not be used as, an indicator of or alternative to operating income (loss), net income (loss) or cash flow as reflected in our consolidated financial statements, is not intended to represent funds available for debt service, dividends or other discretionary uses, is not a measure of financial performance under accounting principles generally accepted in the United States, and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with accounting principles generally accepted in the United States. Refer to our financial statements, including our statement of cash flows, which appear elsewhere in this report. The foregoing calculations of EBITDA are not necessarily comparable to similarly titled amounts of other companies.

Three Months Ended June 30, 2003 Compared to Three Months Ended June 30, 2002

Revenues

Total revenues for the three month period ended June 30, 2003 were $107.8 million, an increase of $1.7 million, or 1.6%, as compared to the same period of the prior year. This increase was attributable to cable revenue and broadcasting advertising revenue growth, partially offset by decreases in publishing and other communications revenue as discussed below.

Cable Television. Cable revenue for the quarter was $27.4 million, an increase of $2.1 million, or 8.4%, as compared to the same period of 2002. The increase in cable revenue was principally the result of an increase of $5.22, to $60.11, in the average monthly revenue per basic subscriber, based on the average number of subscribers throughout the quarter. An increase in the monthly basic cable service charge and continued rollout of new services drove the increase in average monthly revenue per subscriber. Average monthly high-speed data revenue per customer of $45.34 decreased $1.27 as compared to the second quarter of 2002. This decrease is primarily due to digital packaging discounts offered as part of the aggressive digital marketing campaign launched during the third quarter of 2002. For the quarter ended June 30, 2003, average monthly digital revenue per home was $14.59, a decrease of $1.78 as compared to the same period of the prior year. This decrease is due to a change in the composition of the digital subscriber base. At the start of the digital launch, the subscriber base consisted primarily of early adopters who, on average, purchased higher tiers of digital service, whereas later subscribers opted, on average, for lower tiers of service, thereby reducing per-subscriber revenue. This shift in the subscriber base is a result of the aggressive marketing campaign mentioned above.

Revenue generating units increased in the digital and high-speed data categories during the quarter ended June 30, 2003. Net digital additions totaled 2,118 during the quarter, resulting in 32,978 digital homes as of June 30, 2003. Net high-speed data additions totaled 1,115 during the quarter, resulting in 25,621 high-speed data customers as of June 30, 2003. Basic subscribers at the end of the period totaled 151,353, a decrease of 687 basic subscribers in the second quarter of 2003 due to an increase in non-pay disconnects and fewer installations in the Toledo system resulting from economic conditions offset by seasonal growth in the Erie County system.

Newspaper Publishing. Publishing revenue for the quarter was $64.2 million, a decrease of $474,000, or 0.7%, as compared to the second quarter of 2002. The decrease consisted of a $248,000, or 0.5%, decrease in advertising revenue due primarily to a decrease in retail and classified advertising of $639,000, or 2.4%, and $1.3 million, or 6.6%, respectively, resulting from continued economic softness. These decreases were partially offset by an increase in national advertising of $1.3 million, or 18.7%. For the second quarter of 2003, circulation revenue decreased $229,000, or 1.9%, primarily due to a decrease in single copy revenue resulting from economic conditions and a decrease in the average earned rate per copy. Other revenue, which consists of third party and total market delivery, was consistent with the same quarter of the previous year.

Television Broadcasting. Broadcasting revenue for the quarter was $10.2 million, an increase of $527,000, or 5.4%, as compared to the three months ended June 30, 2002. The increase in broadcasting revenue was due to an increase in local and political advertising revenue of $361,000 and $203,000, respectively, partially offset by an increase in agency commissions of $100,000. Combined regional and national advertising were consistent with prior periods.

PART I. FINANCIAL INFORMATION
Management’s Discussion and Analysis of Financial Position and Results of Operations

Other Communications. Other communications revenue for the quarter was $6.1 million, a decrease of $427,000, or 6.6%, as compared to same period of the prior year. This is partially due to a decrease in our security system sales revenue of $366,000, resulting from a planned reduction in the growth of our security business with the intent of improving operating margins and controlling capital investments. Telecom revenue for the quarter was $4.5 million, a decrease of $61,000, due to a planned decrease in long-distance revenue of $141,000, offset by an increase in telecom switched services revenue. During the second quarter of 2003, the telecom switched services revenue increased due to the net addition of 25 new telecom customers, representing a 4.1% increase in the customer base. Effective June 14, 2003, an incumbent carrier invoked the FCC order on reciprocal compensation rate reduction. As a result, we expect our telecom operation to recognize a net reduction in monthly reciprocal compensation revenue of approximately $65,000 from historical levels.

Operating Expenses

Operating expenses for the quarter were $102.0 million, an increase of $3.0 million, or 3.1%, as compared to the second quarter of 2002. The increase in operating expense was attributable to increased publishing and cable expenses, offset by decreased broadcasting and other communications expenses.

Cable Television. Cable operating expenses were $24.5 million, an increase of $2.1 million, or 9.6%, as compared to the same period of the prior year. The increase was primarily due to a $1.2 million, or 17.6%, increase in depreciation to $7.7 million. This increase in depreciation is attributable to the capital expenditures associated with the rebuild of our Toledo cable system and continued rollout of cable modems and digital cable service. In addition, depreciation expense for the Erie County system has been accelerated in anticipation of a first quarter 2004 rebuild completion date. Basic cable programming expenses increased $404,000, or 7.2%, to $6.0 million, due to price increases from programming suppliers. Programming expense for the digital tier increased $227,000, due to an increase in the number of digital subscribers as compared to the same quarter of the prior year.

Newspaper Publishing. Publishing operating expenses were $62.3 million, an increase of $1.1 million, or 1.8%, from the three months ended June 30, 2002. The increase was partially due to a $193,000, or 2.6%, increase in the cost of newsprint and ink, resulting from a weighted-average price per ton increase of $26.79, or 6.2%, partially offset by a 3.3% decrease in consumption from the same period of the prior year. G&A expenses increased $367,000 primarily due to a favorable variance in bad debt expense recognized in the second quarter of 2002 resulting from cash collections on a significant retail account, which had been fully reserved. Other departmental operating costs increased primarily due to contractual wage increases. Depreciation expense increased $186,000 due to the completion of components of the Pittsburgh Post-Gazette facility upgrade project in 2003.

Television Broadcasting. Broadcasting operating expenses were $8.9 million, a decrease of $17,000, or 0.2%, from the same period of the prior year. The decrease results primarily from decreases in general and administrative and broadcast film amortization expense of $290,000 and $74,000, respectively, partially offset by increases in programming and sales expenses of $135,000 and $117,000, respectively.

Other Communications. Other communications operating expenses were $5.5 million, a decrease of $425,000, or 7.2%, from the same period of 2002. This variance is due to a decrease of $145,000, or 8.1%, in operating expenses related to security alarm system sales and monitoring caused by a decrease in sales volumes, as well as by cost control initiatives. Telecom operating expenses decreased $298,000, or 7.2%, due primarily to a decrease of $198,000 in long-distance expense.

Operating Income

Operating income decreased $1.3 million as compared to the three months ended June 30, 2002. Cable operating income decreased $35,000 due to increases in depreciation and cable programming expenses, partially offset by revenue growth generated from rate increases and rollout of new services. Publishing operating income decreased $1.6 million, primarily due to decreases in advertising revenue and increased operating expenses as discussed above. Broadcasting operating income increased $545,000 due to increases in advertising revenue and flat operating expenses. Other communications operating income was consistent with the prior year. Corporate general and administrative expenses increased $252,000 from the prior year due to increases in salary expense, professional fees, and amortization of deferred financing costs.

PART I. FINANCIAL INFORMATION
Management’s Discussion and Analysis of Financial Position and Results of Operations

Net Income

For the three months ended June 30, 2003, the company reported a loss from continuing operations of $682,000, compared to a loss from continuing operations of $6.6 million reported for the same period of the prior year. This decrease in the loss from continuing operations is primarily due to a $9.0 million loss recognized in the second quarter of 2002 related to the early extinguishment of debt, partially offset by a decrease in the credit for income taxes of $2.3 million, which reflects the tax benefit of the extinguishment loss. The variance from prior year also reflects a decrease in operating income and a $218,000 increase in the expense attributable to the change in fair value of interest rate swaps, partially offset by a decrease in interest expense of $621,000.

Effective May 31, 2003, the Company suspended operations of Community Communication Services, Inc. (CCS), an alternative advertising distribution company. Results of CCS are reported separately from results of continuing operations for all periods presented. Loss from discontinued operations net of tax decreased $111,000 from the prior year due to cost control measures and the discontinuation of operations in May. The Toledo Blade will fulfill the advertising needs of approximately 60% of CCS customers through the publishing group’s direct mail or total market delivery products.

As a result of the foregoing, the company reported a net loss of $898,000 for the three months ended June 30, 2003, as compared to a net loss of $6.9 million for the same period of the prior year.

Depreciation and Amortization

Depreciation and amortization increased $1.3 million, or 11.2%, as compared to the same period of the prior year. The increase was primarily due to asset additions resulting from the rebuild of our cable system in Toledo, accelerated depreciation expense on the Erie County system and other capital expenditures to maintain operating assets.

EBITDA

EBITDA increased $247,000, or 1.3%, as compared to the three months ended June 30, 2002. A reconciliation of EBITDA to net income is provided above. EBITDA as a percentage of revenue for the quarter ended June 30, 2003 decreased to 17.6% from 17.7% for the three months ended June 30, 2002. The decrease in EBITDA as a percentage of revenue was primarily due to the increase in publishing and cable operating expenses, partially offset by the continued rollout of high margin advanced cable products and overall improvements in our telecom operations. Net loss as a percentage of revenue was 0.8% as of June 30, 2003, as compared to net loss as a percentage of revenue at June 30, 2002 of 6.5%. As discussed above, the second quarter of 2002 included a $5.8 million loss on early extinguishment of debt, net of tax.

Six Months Ended June 30, 2003 Compared to Six Months Ended June 30, 2002

Revenues

Total revenues for the six month period ended June 30, 2003 were $209.1 million, an increase of $1.2 million, or 0.6%, as compared to the same period of the prior year. This increase was attributable to cable revenue and broadcasting advertising revenue, partially offset by decreases in publishing and other communications revenue as discussed below.

Cable Television. Cable revenue was $54.3 million, an increase of $3.9 million, or 7.8%, as compared to the same period of 2002. The increase in cable revenue was principally the result of an increase of $5.28, to $59.53, in the average monthly revenue per basic subscriber, based on the average number of subscribers throughout the period. An increase in the monthly basic cable service charge and continued rollout of new services drove the increase in average monthly revenue per subscriber. Average monthly high-speed data revenue per customer was $45.61, a decrease of $1.22, as compared to the first six months of 2002. This decrease is primarily due to digital packaging discounts offered as part of the aggressive digital marketing campaign launched during the third quarter of 2002. For the six months ended June 30, 2003, average monthly digital revenue per home was $14.85, a decrease of $1.56 as compared to the same period of the prior year. This decrease is due to a change in the composition of the digital subscriber base. At the start of the digital launch, the subscriber base consisted primarily of early adopters who, on average, purchased higher tiers of digital service, whereas later subscribers opted, on average, for lower tiers of service, thereby reducing per-subscriber revenue. This shift in the subscriber base is a result of the aggressive marketing campaign mentioned above.

PART I. FINANCIAL INFORMATION
Management’s Discussion and Analysis of Financial Position and Results of Operations

Revenue generating units increased in the digital and high-speed data categories during the six months ended June 30, 2003. Net digital additions totaled 6,886 for the period, resulting in 32,978 digital homes as of June 30, 2003. Net high-speed data additions totaled 3,056 for the period, resulting in 25,621 high-speed data customers. Basic subscribers at the end of the period totaled 151,353, a decrease of 1,039 basic subscribers in the six months ended June 30, 2003 due to an increase in non-pay disconnects and fewer installations in the Toledo system resulting from economic conditions offset by seasonal growth in the Erie County system.

Newspaper Publishing. Publishing revenue was $123.6 million, a decrease of $2.6 million, or 2.0%, as compared to the same period of 2002. The decrease consisted of a $2.3 million, or 2.3%, decrease in advertising revenue due primarily to a decrease in retail and classified advertising of $1.8 million, or 3.6%, and $2.3 million, or 6.2%, respectively, resulting from continued economic softness. These decreases were partially offset by an increase in national advertising of $1.6 million, or 12.0%. For the first six months of 2003, circulation revenue decreased $315,000, or 1.3%, due to a decrease in single copy sales resulting from the impact of severe weather during the first quarter and continued economic softness. Other revenue, which consists of third party and total market delivery, was consistent with the same period of the previous year.

Television Broadcasting. Broadcasting revenue was $19.3 million, an increase of $595,000, or 3.2%, as compared to the six months ended June 30, 2002. The increase in broadcasting revenue was due to an increase in local and national advertising revenue of $632,000, or 5.1%, and $159,000, or 2.5%, respectively, partially offset by a decrease in political advertising of $170,000.

Other Communications. Other communications revenue was $12.0 million, a decrease of $758,000, or 5.9%, as compared to same period of the prior year. This is due to a decrease in our security system sales revenue of $961,000, resulting from a planned reduction in the growth of our security business with the intent of improving operating margins and controlling capital investments. Telecom revenue for the quarter was $9.0 million, an increase of $201,000 due to an increase in telecom switched services revenue of $514,000, partially offset by a planned decrease in long-distance revenue of $313,000. During the first six months of 2003, the telecom switched services revenue increased due to the net addition of 63 new telecom customers, representing an 11.0% increase in the customer base. Effective June 14, 2003, an incumbent carrier invoked the FCC order on reciprocal compensation rate reduction. As a result, we expect our telecom operation to recognize a net reduction in monthly reciprocal compensation revenue of approximately $65,000 from historical levels.

Operating Expenses

Operating expenses for the first six months were $203.2 million, an increase of $3.9 million, or 2.0%, as compared to the first six months of 2002. The increase in operating expense was attributable to increased publishing, cable, broadcast, and corporate general and administrative expenses, offset by decreased other communications expenses.

Cable Television. Cable operating expenses were $49.2 million, an increase of $4.0 million, or 8.9%, as compared to the same period of the prior year. The increase was primarily due to a $2.3 million, or 17.2%, increase in depreciation, to $15.6 million. This increase in depreciation is attributable to the capital expenditures associated with the rebuild of our Toledo cable system and continued rollout of cable modems and digital cable service. In addition, depreciation expense for the Erie County system has been accelerated in anticipation of a first quarter 2004 rebuild completion date. Basic cable programming expenses increased $760,000, or 6.7%, to $12.0 million, due to price increases from programming suppliers. Programming expense for the digital tier increased $470,000, due to an increase in the number of digital subscribers as compared to the same quarter of the prior year.

Newspaper Publishing. Publishing operating expenses were $123.1 million, an increase of $350,000, or 0.3%, from the six months ended June 30, 2002. The increase was due to increases in circulation, advertising and production expense of $241,000, $173,000 and $92,000, respectively, primarily due to contractual wage increases. These increases are partially offset by a decrease in newsprint expense of $353,000, or 2.4%, resulting from a 3.4% decrease in consumption from the same period of the prior year, partially offset by an increase in the weighted-average price per ton of $1.83, or 0.4%.

PART I. FINANCIAL INFORMATION
Management’s Discussion and Analysis of Financial Position and Results of Operations

Television Broadcasting. Broadcasting operating expenses were $18.3 million, an increase of $273,000, or 1.5%, from the same period of the prior year. The increase results primarily from increases in programming, sales and depreciation expense of $288,000, $174,000 and $147,000 respectively, partially offset by decreases in general and administrative expenses of $293,000. Other savings resulted from overall cost control initiatives.

Other Communications. Other communications operating expenses were $10.7 million, a decrease of $1.1 million, or 9.6%, from the same period of 2002. This variance is primarily due to a decrease of $709,000, or 17.4%, in operating expenses related to security alarm system sales and monitoring caused by a decrease in sales volumes, as well as by cost control initiatives. Telecom operating expenses decreased $454,000, or 5.7%, due primarily to a decrease of $318,000 in long-distance expense.

Operating Income

Operating income decreased $2.7 million as compared to the six months ended June 30, 2002. Cable operating income decreased $98,000 due to increases in depreciation and cable programming expenses, partially offset by revenue growth generated from rate increases and rollout of new services. Publishing operating income decreased $2.9 million, primarily due to decreases in advertising revenue. Broadcasting operating income increased $322,000 due primarily to increases in advertising revenue. Other communications operating income increased $377,000 due to revenue growth and efficiencies recognized in the telecom operations. Corporate general and administrative expenses increased $380,000 from the prior year due to increases in salary expense, professional fees, and amortization of deferred financing costs.

Net Income

For the six months ended June 30, 2003, the company reported a loss from continuing operations of $4.8 million, compared to income from continuing operations of $6.5 million reported for the same period of the prior year. The decrease in income from continuing operations is primarily due to a $21.6 million gain recognized in the first quarter of 2002 attributable to the like-kind exchange of Monroe Cablevision, partially offset by a $9.0 million loss recognized in the second quarter of 2002 related to the early extinguishment of debt and the tax effect of both transactions. The variance from prior year also reflects a decrease in operating income and a $2.5 million increase in the expense attributable to the change in fair value of interest rate swaps, partially offset by a decrease in interest expense of $422,000.

Effective May 31, 2003, the Company suspended operations of Community Communication Services, Inc. (CCS), as discussed above. Results of CCS are reported separately from results of continuing operations for all periods presented. Loss from discontinued operations net of tax decreased $144,000 from the prior year due to cost control measures and the discontinuation of operations in May.

As a result of the foregoing, the company reported a net loss of $5.1 million for the six months ended June 30, 2003, as compared to net income of $6.1 million for the same period of the prior year.

Depreciation and Amortization

Depreciation and amortization increased $2.9 million, or 12.1%, as compared to the same period of the prior year. The increase in depreciation expense was primarily due to asset additions resulting from the rebuild of our cable system in Toledo, accelerated depreciation expense on the Erie County system and other capital expenditures to maintain operating assets. Amortization expense increased due to the intangibles recorded as a result of the like-kind exchange of Monroe Cablevision and an increase in deferred costs relating to the 2002 refinancing.

PART I. FINANCIAL INFORMATION
Management’s Discussion and Analysis of Financial Position and Results of Operations

EBITDA

EBITDA decreased $285,000, or 0.9%, as compared to the six months ended June 30, 2002. A reconciliation of EBITDA to net income is provided above. EBITDA as a percentage of revenue decreased to 15.5% in the six months ended June 30, 2003, from 15.7% in the same period of the prior year. The decrease in EBITDA as a percentage of revenue was primarily due to the reduction in publishing advertising revenue resulting from the economic conditions during 2003, offset by the continued rollout of high margin advanced cable products, the increase in cable service charges and overall improvements in our telecom operations. Net loss as a percentage of revenue was 2.4% for the six months ended June 30, 2003, as compared to net income as a percentage of revenue at June 30, 2002 of 2.9%. As discussed above, the first six months of 2002 included a $13.5 million gain, net of tax, related to the like-kind exchange and a $5.8 million loss, net of tax, on early extinguishment of debt.

Liquidity and Capital Resources

Historically, our primary sources of liquidity have been cash flow from operations and borrowings under our senior credit facilities. The need for liquidity arises primarily from capital expenditures and interest payable on the senior subordinated notes and the senior credit facility.

Net cash provided by operating activities was $23.0 million and $21.6 million for the six months ended June 30, 2003 and June 30, 2002, respectively. The net cash provided by operating activities is determined by adding back depreciation and amortization, and adjusting for other non-cash items. Cash used in investing activities was $24.2 million and $1.0 million for the six months ended June 30, 2003 and June 30, 2002, respectively. Cash used in investing activities in the first six months of 2002 is reduced by $12.1 million of proceeds from the sale of Monroe Cablevision. The remaining increase in 2003 investing activities is due to increase in capital expenditures discussed below.

Our capital expenditures have historically been financed with cash flow from operations and borrowings under our senior credit facility. We made capital expenditures of $23.5 million and $13.6 million, including capital leases, for the six months ended June 30, 2003 and June 30, 2002, respectively. Capital expenditures for the six months ended June 30, 2003 were used primarily to begin the rebuild of the Erie County Cable system, continue the rebuild of the Bedford, MI system acquired from Comcast in the like-kind exchange, begin the first stages of the Pittsburgh Post-Gazette facility upgrade and maintain other operating assets. We expect to make capital expenditures of $47.5 million in the last two quarters of 2003. These include the continued rollout of advanced cable services, continued rebuild of the Erie County cable system, continuation of the Post-Gazette production facility upgrade and various other improvements to the publishing and broadcasting operations.

In April 2002, we issued $175 million of 9¼% senior subordinated notes. The notes are guaranteed on a senior subordinated basis by substantially all of our subsidiaries. The proceeds were used to repay our existing senior term loan and senior notes and to prepay a portion of our existing senior revolving credit facility. As a result, we made $19.0 million in optional pre-payments on our long-term revolving credit agreements. In May 2002, we entered into new senior credit facilities totaling $200.0 million. The proceeds were used to refinance the remaining balance of the existing senior revolving credit facility and capital expenditures. The new senior credit facilities are guaranteed by substantially all of our present and future domestic subsidiaries and are collateralized by a pledge of substantially all of our and the guarantor subsidiaries’ material assets.

Financing activities provided $5.8 million of cash for the six months ended June 30, 2003, compared to $4.4 million from the same period of the prior year. The financing activities in the first six months of 2003 includes a $10.0 million borrowing on the Term Loan A and a $3.6 million mandatory pre-payment on the senior credit facilities due to $7.1 million of excess cash flow generated during the year ended December 31, 2002. The expiration dates under Term Loan A required draws of $20.0 million prior to June 30, 2003, therefore the unborrowed portion of $10.0 million was cancelled on that date. During the first six months of 2002, financing activities reflect the complete refinancing discussed above. At June 30, 2003, the balances outstanding and available under our new senior credit facilities and subordinated notes were $255.7 million and $91.5 million, respectively, and the interest rate on the balance outstanding was 7.26%. At June 30, 2002, the balances outstanding and available under our senior credit facility and senior notes were $250.0 million and $112.8 million, respectively, and the interest rate on the balance outstanding was 8.03%. The decrease in the effective interest rate partially offset by an increase in the amount outstanding generated an overall decrease in interest expense of $422,000, or 4.0%.

PART I. FINANCIAL INFORMATION
Management’s Discussion and Analysis of Financial Position and Results of Operations

We believe that funds generated from operations and the borrowing availability under our new senior credit facilities will be sufficient to finance our current operations, our cash obligations in connection with the planned capital expenditures, and our current and future financial obligations.

Our labor agreements with the eight unions representing employees of The Blade expired in March 2003. Negotiations are continuing with these unions and we are hopeful that we will reach successor labor agreements with them. However, we can give no assurance that such agreements will be reached. In the event we are unsuccessful in reaching successor agreements, management will evaluate all alternatives available at that time.

Quantitative and Qualitative Disclosure About Market Risk

Our revolving credit and term loan agreements bear interest at floating rates. Accordingly, we are exposed to potential losses related to changes in interest rates. We do not enter into derivatives or other financial instruments for trading or speculative purposes; however, in order to manage our exposure to interest rate risk, we have entered into interest rate swaps. As of June 30, 2003, our interest rate swap agreements expire in varying amounts through April 2009.

The fair value of $80.7 million of our long-term debt approximates its carrying value as it bears interest at floating rates. As of June 30, 2003, the estimated fair value of our interest rate swap agreements was $2.5 million, which represents the amount required to enter into offsetting contracts with similar remaining maturities based on quoted market prices. This is reflected in our financial statements as other non-current assets. Changes in the fair value of derivative financial instruments are recognized either in income or as an adjustment to the carrying value of the underlying debt depending on whether the derivative financial instruments qualify for hedge accounting. At June 30, 2003, we had $175.0 million outstanding on our 9¼% senior subordinated notes, with a carrying value of $186.1 million, as adjusted for the fair value hedge.

As of June 30, 2003, we had entered into interest rate swaps that approximated $241.0 million, including the effect of any offsetting swaps, or 94.3%, of our borrowings under all of our credit facilities. The interest rate swaps consist of $121.0 million relating to our revolving credit and term loan agreements, and $175.0 million principal amount of the senior subordinated notes. In addition, we had entered into an interest rate swap agreement that has the economic effect of substantially offsetting $55.0 million of the swap agreements totaling $121.0 million. In the event of an increase in market interest rates, the change in interest expense would be dependent upon the weighted average outstanding borrowings and derivative instruments in effect during the reporting period following the increase. Based on our outstanding borrowings and interest rate swap agreements as of June 30, 2003, our exposure to interest rate risk is not material. A hypothetical 100 basis point increase in interest rates along the entire interest rate yield curve would increase our annual interest expense by approximately $147,000.

Recent Accounting Pronouncements

In July 2002, SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities, was issued and applies to fiscal years beginning after December 31, 2002. SFAS No. 146 requires certain costs associated with a restructuring, discontinued operation or plant closing to be recognized as incurred rather that at the date of commitment to an exit or disposal plan. The adoption of this standard on January 1, 2003 has had no impact on the Company’s financial position or results of operations for the six months ended June 30, 2003.

In December 2002, SFAS No. 148, Accounting for Stock-Based Compensation—Transition and Disclosure, was issued and provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. The Company has previously adopted the fair value method of accounting for stock-based employee compensation; therefore all years presented reflect this method and no pro-forma disclosures are required.

PART I. FINANCIAL INFORMATION
Management’s Discussion and Analysis of Financial Position and Results of Operations

In November 2002, the Financial Accounting Standards Board issued Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. This Interpretation significantly changes previous practice in the accounting for and disclosure of guarantees. Guarantees meeting the characteristics described in the in the Interpretation are required to be initially recorded at fair value, which is different from the general current practice of recording a liability only when a loss is probable and can be reasonably estimated . The Interpretation’s initial recognition and initial measurement provisions are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. The Interpretation also requires a guarantor to make significant new disclosures for virtually all guarantees even if the likelihood of the guarantor having to make payments under the guarantee is remote. The Interpretation’s disclosure requirements were effective for financial statements beginning in 2002. The Company does not currently guarantee indebtedness of any party outside of the consolidated group. Please refer to Note 6 for disclosures relating to guarantees within the consolidated group.

Forward-Looking Statements

Certain statements contained herein may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially from expectations contained in such statements.

Factors that may materially affect our future financial condition and results of operations, as well as any forward-looking statements, include economic and market conditions and many other factors beyond our control. For an additional discussion of risk factors relating to our future financial condition and results of operations, reference is made to the discussion under the caption “Risk Factors” in the Company’s Annual Report on Form 10-K dated March 27, 2003.

PART I. FINANCIAL INFORMATION
Item 4. Controls and procedures

The Managing Director and the Chief Financial Officer of the Company (its principal executive officer and principal financial officer, respectively) have concluded, based on their evaluation as of a date within 90 days prior to the date of the filing of this Report, that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports filed or submitted by it under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and include controls and procedures designed to ensure that information required to be disclosed by the Company in such reports is accumulated and communicated to the Company’s management, including the Managing Director and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

There were no significant changes in the Company’s internal controls or in other factors that could significantly affect these controls subsequent to the date of such evaluation.

PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

Exhibit 31.1 Certification of the Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002

Exhibit 31.2 Certification of the Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002

Exhibit 32.1 Certification of the Chief Executive Officer under Section 906 of the Sarbanes-Oxley Act of 2002

Exhibit 32.2 Certification of the Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act of 2002

(b) Reports on Form 8-K filed in the second quarter of 2003:

Form 8-K filed on May 13, 2003 – The Company issued a press release announcing earnings results for the quarter ended March 31, 2003

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	BLOCK COMMUNICATIONS, INC.
	(Registrant)

Date: August 5, 2003	By:	/s/ Allan Block

		Allan Block
		Managing Director

Date: August 5, 2003	By:	/s/ Gary J. Blair

		Gary J. Blair
		Executive Vice President/
		Chief Financial Officer

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				Accumulated
				Other			Additional
				Comprehensive			Paid-in			Retained
				Loss			Capital			Earnings			Total

Balances at January 1, 2003				$	(22,860,033	)	$	771,274		$	41,426,921		$	20,645,881
	Net loss										(5,086,409	)		(5,086,409	)
	Amortization of fair value of interest rate swaps at January 1, 2001 (net of deferred tax of $127,500)				226,068									226,068

	Total comprehensive loss													(4,860,341	)
	Cash dividends declared:
		Class A stock—$2.50 per share									(31,550	)		(31,550	)
		Common Stock:
			Voting—$0.70 per share								(20,580	)		(20,580	)
			Non-voting—$0.70 per share								(300,715	)		(300,715	)

											(352,845	)		(352,845	)
	Executive stock incentives at $407.97 per share							737,103						737,283
	Redemption of non-voting common shares at $458.50 per share							(449,690	)					(449,788	)

Balances at June 30, 2003				$	(22,633,965	)	$	1,058,687		$	35,987,667		$	15,720,190

Balances at January 1, 2002				$	(4,725,589	)	$	771,274		$	40,229,696		$	37,583,100
	Net income										6,054,203			6,054,203
	Amortization of fair value of interest rate swaps at January 1, 2001 (net of deferred tax of $127,500)				226,069									226,069

	Total comprehensive income													6,280,272
	Cash dividends declared:
		Class A stock—$2.50 per share									(31,550	)		(31,550	)
		Common Stock:
			Voting—$0.70 per share								(20,580	)		(20,580	)
			Non-voting—$0.70 per share								(299,451	)		(299,451	)

											(351,581	)		(351,581	)

Balances at June 30, 2002				$	(4,499,520	)	$	771,274		$	45,932,318		$	43,511,791