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 September 30, 2002.

[ ]

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		34-4374555

	(State or other jurisdiction of		(I.R.S. Employer
	incorporation or organization)		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)

541 N. Superior Street, P.O. Box 921, Toledo, Ohio 43697-0921

(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 [ ] 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 November 13, 2002		427,786 shares as of November 13, 2002

TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION
	Financial Statements
		Condensed Consolidated Balance Sheets
		Condensed Consolidated Statement of Income (unaudited)
		Condensed Consolidated Statement of Stockholders’ Equity (unaudited)
		Condensed Consolidated Statements of Cash Flows (unaudited)
		NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
	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
SIGNATURES
Certification of the Managing Director
Certification of the Chief Financial Officer
Amendment 1 to Credit Agreement
Certification
Certification

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

CONDENSED CONSOLIDATED BALANCE SHEETS

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 4. Controls and procedures

PART II. OTHER INFORMATION

Item 6. Exhibits and reports on Form 8-K

SIGNATURES

Certification of the Managing Director

Certification of the Chief Financial Officer

PART I. FINANCIAL INFORMATION

Financial Statements

Block Communications, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

	September 30		December 31
	2002		2001

	*(unaudited)*		*(note 1)*
Assets
Current assets:
Cash and cash equivalents	$	13,639,504	$	5,882,732
Receivables, less allowances for doubtful accounts and discounts of $4,327,416 and $4,861,094, respectively		39,044,573		45,892,946
Recoverable income taxes		8,546,646		4,483,300
Inventories		7,275,714		5,548,784
Prepaid expenses		2,024,643		3,703,756
Broadcast rights		6,861,966		6,083,782
Deferred income taxes		6,657,225		9,803,800

Total current assets		84,050,271		81,399,100
Property, plant and equipment:
Land and land improvements		12,208,365		12,194,446
Buildings and leasehold improvements		41,483,269		41,186,933
Machinery and equipment		212,182,037		209,196,143
Cable television distribution systems and equipment		188,187,544		187,804,505
Security alarm and video systems installation costs		6,427,522		5,923,280
Construction in progress		16,240,442		11,495,916

		476,729,179		467,801,223
Less allowances for depreciation and amortization		227,005,281		204,605,517

		249,723,898		263,195,706
Other assets:
Goodwill		53,656,362		52,461,687
Other intangibles, net of accumulated amortization		38,384,439		31,451,414
Deferred income taxes		9,668,567		12,946,900
Prepaid pension costs		12,783,347		11,145,446
Cash value of life insurance, net of policy loans of $0 and $12,735,560, respectively		25,076,312		10,691,105
Pension intangibles		7,230,030		7,230,030
Broadcast rights, less current portion		7,656,104		6,217,880
Deferred financing costs		12,590,560		5,676,725
Other		2,921,804		3,138,246

		169,967,525		140,959,433

	$	503,741,694	$	485,554,239

PART I. FINANCIAL INFORMATION
Financial Statements

	September 30 2002			December 31 2001

	*(unaudited)*			*(note 1)*
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	11,529,060		$	12,355,122
Salaries, wages and payroll taxes		15,691,972			16,321,468
Workers’ compensation and medical reserves		8,588,765			9,184,074
Other accrued liabilities		35,935,444			33,946,679
Current maturities of long-term debt		1,045,200			9,908,334

Total current liabilities		72,790,441			81,715,677
Long-term debt, less current maturities		260,361,550			227,355,513
Other long-term obligations		118,171,686			126,635,551
Minority interest		12,486,453			12,264,398
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; 427,786 shares issued and outstanding		42,779			42,779
Accumulated other comprehensive loss		(4,386,486	)		(4,725,589	)
Additional paid-in capital		771,274			771,274
Retained earnings		42,239,057			40,229,696

		39,931,564			37,583,100

	$	503,741,694		$	485,554,239

See accompanying notes.

PART I. FINANCIAL INFORMATION
Financial Statements

Block Communications, Inc. and Subsidiaries

Condensed Consolidated Statements of Income (unaudited)

	Three months ended						Nine months ended
	September 30						September 30
		2002			2001			2002			2001

Revenue:
Publishing	$	62,100,899		$	65,896,144		$	188,310,327		$	195,610,215
Cable		25,204,115			22,567,781			75,541,372			65,952,776
Broadcasting		9,439,506			8,083,412			28,126,969			25,676,117
Other Communications		6,634,754			5,310,748			19,639,946			16,840,764

		103,379,274			101,858,085			311,618,614			304,079,872
Expense:
Publishing		60,888,697			66,160,637			183,635,801			196,943,958
Cable		22,425,860			19,147,290			67,631,965			56,232,854
Broadcasting		8,589,109			8,898,327			26,598,294			27,499,396
Other Communications		6,193,733			6,538,829			19,073,047			20,075,914
Corporate general and administrative		1,512,473			96,965			2,969,548			1,047,224

		99,609,872			100,842,048			299,908,655			301,799,346

Operating income		3,769,402			1,016,037			11,709,959			2,280,526
Nonoperating income (expense):
Interest expense		(6,037,895	)		(4,757,348	)		(16,680,122	)		(14,179,801	)
Gain (loss) on disposition of Monroe Cablevision		(459,360	)		—			21,140,829			—
Loss on early extinguishment of debt		—			—			(8,989,786	)		—
Change in fair value of interest rate swaps		(2,472,043	)		(5,296,326	)		(2,193,986	)		(6,201,349	)
Interest income		115,573			35,639			146,520			64,221

		(8,853,725	)		(10,018,035	)		(6,576,545	)		(20,316,929	)

Income (loss) before income taxes and minority interest		(5,084,323	)		(9,001,998	)		5,133,414			(18,036,403	)
Provision (credit) for income taxes		(1,846,026	)		(2,497,162	)		2,230,387			(5,093,461	)

Income (loss) before minority interest		(3,238,297	)		(6,504,836	)		2,903,027			(12,942,942	)
Minority interest		(134,934	)		145,339			(222,055	)		185,777

Net income (loss)	$	(3,373,231	)	$	(6,359,497	)	$	2,680,972		$	(12,757,165	)

See accompanying notes.

PART I. FINANCIAL INFORMATION
Financial Statements

Block Communications, Inc. and Subsidiaries

Condensed Consolidated Statement of Stockholders’ Equity (unaudited)


					Common Stock
													Accumulated
	Class A Stock				Voting				Non-Voting				Other			Additional
													Comprehensive			Paid-in		Retained
	Shares		Amount		Shares		Amount		Shares		Amount		Loss			Capital		Earnings			Total

Balances at January 1, 2002		12,620	$	1,262,000		29,400	$	2,940		427,786	$	42,779	$	(4,725,589	)	$	771,274	$	40,229,696		$	37,583,100
Net income																			2,680,972			2,680,972
Amortization of fair value of interest rate swaps at January 1, 2001 (net of deferred tax of $190,875)														339,103								339,103

Total comprehensive income																						3,020,075
Cash dividends declared:
Class A stock--$2.50 per share																			(31,550	)		(31,550	)
Common Stock:
Voting--$1.40 per share																			(41,160	)		(41,160	)
Non-voting--$1.40 per share																			(598,901	)		(598,901	)

																			(671,611	)		(671,611	)

Balances at September 30, 2002		12,620	$	1,262,000		29,400	$	2,940		427,786	$	42,779	$	(4,386,486	)	$	771,274	$	42,239,057		$	39,931,564

Balances at January 1, 2001		12,620	$	1,262,000		29,400	$	2,940		430,123	$	43,012	$	(521,942	)	$	771,274	$	59,832,216		$	61,389,500
Net loss																			(12,757,165	)		(12,757,165	)
Fair value of interest rate swaps at January 1, 2001, less accumulated amortization of $529,978 (net of deferred tax of $567,125)														(1,009,020	)							(1,009,020	)

Total comprehensive loss																						(13,766,185	)
Cash dividends declared:
Class A stock--$2.50 per share																			(31,550	)		(31,550	)
Common Stock:
Voting--$1.20 per share																			(35,280	)		(35,280	)
Non-voting--$1.20 per share																			(516,146	)		(516,146	)

																			(582,976	)		(582,976	)

Balances at September 30, 2001		12,620	$	1,262,000		29,400	$	2,940		430,123	$	43,012	$	(1,530,962	)	$	771,274	$	46,492,075		$	47,040,339

See accompanying notes.

PART I. FINANCIAL INFORMATION
Financial Statements

Block Communications, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (unaudited)

	Nine months ended September 30
	2002			2001

Operating activities
Net income (loss)	$	2,680,972		$	(12,757,165	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation		33,737,180			29,800,233
Amortization of intangibles and deferred charges		1,919,494			2,906,096
Amortization of broadcast rights		4,977,936			4,628,984
Payments for broadcast rights		(4,121,864	)		(4,044,622	)
Gain on sale of Monroe Cablevision		(21,140,829	)		—
Deferred income taxes (credit)		3,500,000			(2,808,976	)
Provision for bad debts		1,033,655			1,975,416
Minority interest		222,055			(185,777	)
Change in fair value of interest rate swaps		2,193,986			6,201,349
Gain on disposal of property and equipment		(571,220	)		(18,358	)
Write off of deferred charges related to extinguished debt		2,697,784			—
Changes in operating assets and liabilities:
Receivables		4,116,003			4,151,186
Inventories		(1,769,368	)		4,234,345
Prepaid expenses		1,542,510			733,874
Accounts payable		(833,469	)		(9,734,302	)
Salaries, wages, payroll taxes and other accrued liabilities		594,136			(1,445,539	)
Other assets		(2,044,730	)		(4,595,559	)
Postretirement benefits and other long-term obligations		(2,454,918	)		3,214,320

Net cash provided by operating activities		26,279,313			22,255,505
Investing activities
Additions to property, plant and equipment		(20,059,706	)		(52,009,257	)
Change in cash value of life insurance		(14,385,206	)		5,694,107
Payments for acquisitions		—			(1,390,000	)
Proceeds from sale of Monroe Cablevision		12,059,115			—
Proceeds from disposal of property and equipment		890,386			24,111

Net cash used in investing activities		(21,495,411	)		(47,681,039	)
Financing activities
Issuance of subordinated notes		175,000,000			—
Borrowings under new term loan agreement		75,000,000			—
Payments on senior notes		(67,499,000	)		(11,000,000	)
Payments on term loan		(75,187,500	)		—
Borrowings (payments) on long term revolver		(92,500,000	)		53,000,000
Net payments on short term revolver		—			(444,562	)
Financing costs deferred		(10,768,413	)		—
Cash dividends paid		(671,611	)		(582,976	)
Payments on notes payable and capital leases		(400,606	)		(239,397	)

Net cash provided by financing activities		2,972,870			40,733,065

Increase in cash and cash equivalents		7,756,772			15,307,531
Cash and cash equivalents at beginning of period		5,882,732			4,212,970

Cash and cash equivalents at end of period	$	13,639,504		$	19,520,501

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

See accompanying notes.

PART I. FINANCIAL INFORMATION
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 nine month periods ended September 30, 2002 are not necessarily indicative of the results that may be expected for the year ending December 31, 2002. For further information, refer to the December 31, 2001 audited consolidated financial statements and footnotes thereto.

The balance sheet at December 31, 2001 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. Certain balances in the prior year have been reclassified to conform to the presentation adopted in the current period.

New Accounting Standards

Effective January 1, 2001, the Company adopted Statement of the Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended by Statement Nos. 137 and 138, (collectively, SFAS No. 133), which requires the Company to record all derivatives on the balance sheet at fair value. At September 30, 2002, the Company participates in nine interest-rate swap contracts. One of these contracts is accounted for as a fair value hedge and therefore changes in the fair value of the derivative have no impact on the Company’s results of operations. The remaining contracts either do not qualify for hedge accounting or the Company has not elected to implement hedge accounting. Accordingly, a non-cash derivative valuation loss of $2,194,000 and $6,201,000 has been recognized during the nine-month periods ended September 30, 2002 and 2001, respectively.

Effective January 1, 2002, the Company adopted SFAS No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. Purchased goodwill and indefinite lived intangible assets are no longer amortized but reviewed annually for impairment, or more frequently if impairment indicators arise. Intangible assets with lives restricted by contractual, legal or other means will continue to be amortized over their useful lives. During the nine-month period ended September 30, 2001, the Company recognized $2,511,000 of amortization expense related to goodwill and indefinite-lived intangibles, resulting in a net loss of $10,246,000 when adjusted for the non-amortization provisions of SFAS No. 142. The Company has completed the initial impairment testing required by SFAS No. 142. No impairment charges have been recognized based on the results of this testing.

Effective January 1, 2002, the Company adopted SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, which supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, and provides a single accounting model for long-lived assets to be disposed of. The adoption of this standard has had no effect on the Company’s consolidated results of operations or financial position for the nine months ended September 30, 2002.

In April 2002, SFAS No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections, was issued and requires a gain or loss related to the extinguishment of debt to no longer be recorded as extraordinary item. The Company has elected early adoption as encouraged by SFAS No. 145, which would not otherwise require adoption until fiscal year 2003. As a result, losses on extinguishment of debt totaling $9.0 million are included in income from continuing operations at September 30, 2002.

PART I. FINANCIAL INFORMATION
Financial Statements

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. The pronouncement requires certain costs associated with a restructuring, discontinued operation or plant closing to be recognized as incurred rather than at the date of commitment to an exit or disposal plan. The Company does not expect the adoption of this standard to significantly impact its financial position or results of operations.

NOTE 2—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.

NOTE 3—LONG-TERM DEBT

In April 2002, the Company issued $175 million of 9¼% senior subordinated notes, the proceeds of which where used to pay off the existing senior term loan and senior notes and a portion of the balance outstanding under the revolving credit agreement. The subordinated notes mature April 15, 2009. On May 15, 2002 the company refinanced the remainder of its senior credit facilities. The new senior credit facilities include a $40 million delayed draw term loan A, a $75 million term loan B, and an $85 million revolver. Term loan A matures May 2009, however the availability is reduced if required withdrawals are not made ($20 million by June 30, 2003 and $20 million by December 31, 2003). Term loan B matures November 2009. The term loan A and revolving credit agreements provide for scheduled reductions beginning September 2004, with a final maturity date of May 2009. Only the availability under term loan B was drawn at the date of the refinance.

In conjunction with the refinancing, the Company has recognized a second quarter loss of $9.0 million consisting of premiums paid to the existing noteholders and unamortized deferred financing costs relating to the refinanced debt. As noted above, this amount is included in income from continuing operations as the Company has elected early adoption of SFAS No. 145.

During 2002, the company has entered into several additional swap contracts related to the new debt and existing swaps. One of these is a cancelable swap that effectively converts a portion of the Company’s fixed rate subordinated notes to a variable rate based on LIBOR. This contract has been accounted for as a fair value hedge, resulting in the recognition of a swap asset with an offsetting adjustment to the carrying value of the underlying debt. The table below details the amounts recognized as long-term debt:

	September 30,		December 31,
	2002		2001

Subordinated notes	$	175,000,000	$	—
Senior term loan		74,812,500		75,000,000
Long-term revolver		—		92,500,000
Senior notes payable		—		67,499,000
Capital leases		2,768,039		2,264,847
Fair value adjustment of subordinated notes		8,826,211		—

		261,406,750		237,263,847
Current maturities		1,045,200		9,908,334

	$	260,361,550	$	227,355,513

PART I. FINANCIAL INFORMATION
Financial Statements

NOTE 4—OTHER LONG-TERM OBLIGATIONS

Other long-term obligations consist of the following:

		September 30,		December 31,
		2002		2001

Other postretirement benefits	$	82,561,437	$	80,824,000
Pension liabilities		12,207,341		17,412,753
Deferred compensation obligations		14,700,021		13,594,736
Interest rate swap liability		—		6,739,531
Broadcast rights payable		7,109,760		6,446,520
Other		1,593,127		1,618,011

	$	118,171,686	$	126,635,551

NOTE 5—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, cable plant construction and distributed advertising services. The following table presents certain financial information for the three reportable segments and the other category.

PART I. FINANCIAL INFORMATION
Financial Statements

NOTE 5—BUSINESS SEGMENT INFORMATION (continued)

	Three months ended						Nine months ended
	September 30						September 30

	2002			2001			2002			2001

Revenues:
Publishing	$	63,232,636		$	67,124,633		$	191,075,509		$	199,735,735
Intersegment		1,131,737			1,228,489			2,765,182			4,125,520

External Publishing		62,100,899			65,896,144			188,310,327			195,610,215

Cable		25,227,800			22,776,581			75,599,179			66,572,776
Intersegment		23,685			208,800			57,807			620,000

External Cable		25,204,115			22,567,781			75,541,372			65,952,776

Broadcasting		9,439,506			8,083,412			28,126,969			25,676,117
Other		6,634,754			5,310,748			19,639,946			16,840,764

		103,379,274			101,858,085			311,618,614			304,079,872
Operating income (loss):
Publishing		2,284,316			471,966			7,263,197			1,322,088
Intersegment		1,072,114			736,459			2,588,671			2,655,831

Net Publishing		1,212,202			(264,493	)		4,674,526			(1,333,743	)

Cable		1,665,492			2,493,395			5,202,338			6,833,919
Intersegment		(1,112,763	)		(927,096	)		(2,707,069	)		(2,886,003	)

Net Cable		2,778,255			3,420,491			7,909,407			9,719,922

Broadcasting		850,397			(814,915	)		1,528,675			(1,823,279	)
Corporate expenses		(1,512,473	)		(96,965	)		(2,969,548	)		(1,047,224	)
Other		441,021			(1,228,081	)		566,899			(3,235,150	)

		3,769,402			1,016,037			11,709,959			2,280,526
Nonoperating income (expense)		(8,853,725	)		(10,018,035	)		(6,576,545	)		(20,316,929	)

Income (loss) before income taxes and minority interest	$	(5,084,323	)	$	(9,001,998	)	$	5,133,414		$	(18,036,403	)

NOTE 6—SUPPLEMENTAL GUARANTOR INFORMATION

The new credit facilities referred to in Note 3 to these financial statements 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.

PART I. FINANCIAL INFORMATION
Financial Statements

NOTE 6—SUPPLEMENTAL GUARANTOR INFORMATION (continued)

CONSOLIDATING CONDENSED BALANCE SHEEET
September 30, 2002

	Unconsolidated

	Parent		Guarantor		Non-Guarantor
	Company		Subsidiaries		Subsidiary		Eliminations			Consolidated

Assets:
Current assets	$	39,679,243	$	40,697,861	$	3,628,891	$	44,276		$	84,050,271
Property, plant and equipment, net		27,251,205		216,320,748		5,908,223		243,722			249,723,898
Intangibles, net		4,465,948		59,307,406		28,068,958		198,489			92,040,801
Cash value of life insurance, net		24,866,934		209,378		—		—			25,076,312
Prepaid pension costs		1,532,392		11,250,955		—		—			12,783,347
Pension intangibles		645,495		6,584,535		—		—			7,230,030
Investments in subsidiaries		183,830,526		—		—		(183,830,526	)		—
Other		8,521,852		24,315,183		—		—			32,837,035

	$	290,793,595	$	358,686,066	$	37,606,072	$	(183,344,039	)	$	503,741,694

Liabilities and stockholders’ equity:
Current liabilities	$	18,552,900	$	53,714,929	$	533,893	$	(11,281	)	$	72,790,441
Long-term debt		260,361,550		—		—		—			260,361,550
Other long-term obligations		5,502,791		222,014,657		—		(109,345,762	)		118,171,686
Minority interest		—		—		—		12,486,453			12,486,453
Stockholders’ equity		6,376,354		82,956,480		37,072,179		(86,473,449	)		39,931,564

	$	290,793,595	$	358,686,066	$	37,606,072	$	(183,344,039	)	$	503,741,694

PART I. FINANCIAL INFORMATION
Financial Statements

NOTE 6—SUPPLEMENTAL GUARANTOR INFORMATION (continued)

CONSOLIDATING CONDENSED BALANCE SHEEET
December 31, 2001

	Unconsolidated

	Parent		Guarantor		Non-Guarantor
	Company		Subsidiaries		Subsidiary		Eliminations			Consolidated

Assets:
Current assets	$	15,717,915	$	57,636,621	$	4,138,933	$	3,905,631		$	81,399,100
Property, plant and equipment, net		28,992,144		228,208,431		5,962,544		32,587			263,195,706
Intangibles, net		4,784,698		50,860,955		28,068,959		198,489			83,913,101
Cash value of life insurance, net		10,486,057		205,048		—		—			10,691,105
Prepaid pension costs		1,852,686		9,276,267		—		16,493			11,145,446
Pension intangibles		645,495		6,584,535		—		—			7,230,030
Investments in subsidiaries		211,745,229		—		—		(211,745,229	)		—
Other		10,366,210		17,627,480		2,554		(16,493	)		27,979,751

	$	284,590,434	$	370,399,337	$	38,172,990	$	(207,608,522	)	$	485,554,239

Liabilities and stockholders’ equity:
Current liabilities	$	24,017,694	$	52,111,863	$	1,773,706	$	3,812,414		$	81,715,677
Long-term debt		227,355,513		—		—		—			227,355,513
Other long-term obligations		21,238,306		242,620,050		—		(137,222,805	)		126,635,551
Minority interest		—		—		—		12,264,398			12,264,398
Stockholders’ equity		11,978,921		75,667,424		36,399,284		(86,462,529	)		37,583,100

	$	284,590,434	$	370,399,337	$	38,172,990	$	(207,608,522	)	$	485,554,239

PART I. FINANCIAL INFORMATION
Financial Statements

NOTE 6—SUPPLEMENTAL GUARANTOR INFORMATION (continued)

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

	Unconsolidated

	Parent			Guarantor		Non-Guarantor
	Company			Subsidiaries		Subsidiary		Eliminations			Consolidated

Revenue	$	20,810,725		$	83,336,788	$	2,006,458	$	(2,774,697	)	$	103,379,274
Expenses		21,591,068			78,952,009		1,602,578		(2,535,783	)		99,609,872

Operating income (loss)		(780,343	)		4,384,779		403,880		(238,914	)		3,769,402
Nonoperating income (expense)		(8,860,176	)		1,439		5,012		—			(8,853,725	)

Income (loss) before income taxes and minority interest		(9,640,519	)		4,386,218		408,892		(238,914	)		(5,084,323	)
Provision (credit) for income taxes		(3,600,091	)		1,754,065		—		—			(1,846,026	)

Income (loss) before minority interest		(6,040,428	)		2,632,153		408,892		(238,914	)		(3,238,297	)
Minority interest		—			—		—		(134,934	)		(134,934	)

Net income (loss)	$	(6,040,428	)	$	2,632,153	$	408,892	$	(373,848	)	$	(3,373,231	)

CONSOLIDATING CONDENSED STATEMENT OF INCOME
Three Months Ended September 30, 2001

	Unconsolidated

	Parent			Guarantor		Non-Guarantor
	Company			Subsidiaries		Subsidiary			Eliminations			Consolidated

Revenue	$	22,002,906		$	83,365,035	$	1,418,548		$	(4,928,404	)	$	101,858,085
Expenses		21,449,712			81,689,437		1,871,526			(4,168,627	)		100,842,048

Operating income (loss)		553,194			1,675,598		(452,978	)		(759,777	)		1,016,037
Nonoperating income (expense)		(10,053,187	)		22,596		12,556			—			(10,018,035	)

Income (loss) before income taxes and minority interest		(9,499,993	)		1,698,194		(440,422	)		(759,777	)		(9,001,998	)
Provision (credit) for income taxes		(3,085,952	)		588,790		—			—			(2,497,162	)

Income (loss) before minority interest		(6,414,041	)		1,109,404		(440,422	)		(759,777	)		(6,504,836	)
Minority interest		—			—		—			145,339			145,339

Net income (loss)	$	(6,414,041	)	$	1,109,404	$	(440,422	)	$	(614,438	)	$	(6,359,497	)

PART I. FINANCIAL INFORMATION
Financial Statements

NOTE 6—SUPPLEMENTAL GUARANTOR INFORMATION (continued)

CONSOLIDATING CONDENSED STATEMENT OF INCOME
Nine Months Ended September 30, 2002

	Unconsolidated

	Parent			Guarantor		Non-Guarantor
	Company			Subsidiaries		Subsidiary		Eliminations			Consolidated

Revenue	$	60,916,840		$	252,553,477	$	5,570,622	$	(7,422,325	)	$	311,618,614
Expenses		62,656,881			239,975,220		4,910,014		(7,633,460	)		299,908,655

Operating income (loss)		(1,740,041	)		12,578,257		660,608		211,135			11,709,959
Nonoperating income (expense)		(6,594,767	)		5,935		12,287		—			(6,576,545	)

Income (loss) before income taxes and minority interest		(8,334,808	)		12,584,192		672,895		211,135			5,133,414
Provision (credit) for income taxes		(3,064,749	)		5,295,136		—		—			2,230,387

Income (loss) before minority interest		(5,270,059	)		7,289,056		672,895		211,135			2,903,027
Minority interest		—			—		—		(222,055	)		(222,055	)

Net income (loss)	$	(5,270,059	)	$	7,289,056	$	672,895	$	(10,920	)	$	2,680,972

CONSOLIDATING CONDENSED STATEMENT OF INCOME
Nine Months Ended September 30, 2001

	Unconsolidated

	Parent			Guarantor		Non-Guarantor
	Company			Subsidiaries		Subsidiary			Eliminations			Consolidated

Revenue	$	65,458,206		$	246,501,090	$	4,720,684		$	(12,600,108	)	$	304,079,872
Expenses		64,555,454			243,509,354		5,311,893			(11,577,355	)		301,799,346

Operating income (loss)		902,752			2,991,736		(591,209	)		(1,022,753	)		2,280,526
Nonoperating income (expense)		(20,372,728	)		27,551		28,248			—			(20,316,929	)

Income (loss) before income taxes and minority interest		(19,469,976	)		3,019,287		(562,961	)		(1,022,753	)		(18,036,403	)
Provision (credit) for income taxes		(5,796,161	)		702,700		—			—			(5,093,461	)

Income (loss) before minority interest		(13,673,815	)		2,316,587		(562,961	)		(1,022,753	)		(12,942,942	)
Minority interest		—			—		—			185,777			185,777

Net income (loss)	$	(13,673,815	)	$	2,316,587	$	(562,961	)	$	(836,976	)	$	(12,757,165	)

PART I. FINANCIAL INFORMATION
Financial Statements

NOTE 6—SUPPLEMENTAL GUARANTOR INFORMATION (continued)

CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
Nine Months Ended September 30, 2002

	Unconsolidated

	Parent			Guarantor			Non-Guarantor
	Company			Subsidiaries			Subsidiary			Eliminations			Consolidated

Net cash provided by (used in) operating activities	$	(25,349,097	)	$	51,327,298		$	52,317		$	248,795		$	26,279,313
Additions to property, plant and equipment		(505,039	)		(18,647,903	)		(695,629	)		(211,135	)		(20,059,706	)
Other investing activities		(2,288,273	)		852,568			—			—			(1,435,705	)

Net cash used in investing activities		(2,793,312	)		(17,795,335	)		(695,629	)		(211,135	)		(21,495,411	)
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		(235,186,500	)		—			—			—			(235,186,500	)
Other financing activity		22,597,748			(34,400,718	)		—			(37,660	)		(11,840,630	)

Net cash provided by (used in) financing activities		37,411,248			(34,400,718	)		—			(37,660	)		2,972,870

Increase (decrease) in cash and equivalents		9,268,839			(868,755	)		(643,312	)		—			7,756,772
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	$	12,454,917		$	(933,692	)	$	2,118,279		$	—		$	13,639,504

PART I. FINANCIAL INFORMATION
Financial Statements

NOTE 6—SUPPLEMENTAL GUARANTOR INFORMATION (continued)

CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
Nine Months Ended September 30, 2001

	Unconsolidated

	Parent			Guarantor			Non-Guarantor
	Company			Subsidiaries			Subsidiary			Eliminations			Consolidated

Net cash provided by (used in) operating activities	$	(8,777,486	)	$	29,806,088		$	1,173,090		$	53,813		$	22,255,505
Additions to property, plant and equipment		(2,396,736	)		(49,514,143	)		(44,565	)		(53,813	)		(52,009,257	)
Other investing activities		4,275,848			52,370			—			—			4,328,218

Net cash provided by (used in) investing activities		1,879,112			(49,461,773	)		(44,565	)		(53,813	)		(47,681,039	)
Payments on long-term debt		(11,000,000	)		—			—			—			(11,000,000	)
Borrowings on long-term revolver		53,000,000			—			—			—			53,000,000
Other financing activity		(20,206,701	)		18,939,766			—			—			(1,266,935	)

Net cash provided by financing activities		21,793,299			18,939,766			—			—			40,733,065

Increase (decrease) in cash and equivalents		14,894,925			(715,919	)		1,128,525			—			15,307,531
Cash and equivalents at beginning of period		2,021,900			1,290,070			901,000			—			4,212,970

Cash and equivalents at end of period	$	16,916,825		$	574,151		$	2,029,525		$	—		$	19,520,501

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 Financial Statements and notes thereto included elsewhere herein.

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 three months ended September 30, 2002, we had revenues, EBITDA and net loss of $103.4 million, $14.9 million and $3.4 million, respectively. This represents increases in revenues and EBITDA as compared to the quarter ended September 30, 2001 of $1.5 million and $2.4 million, respectively. 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.

For the nine-month period ended September 30, 2002, we had revenues, EBITDA and net income of $311.6 million, $47.6 million and $2.7 million, respectively. This represents increases in revenues and EBITDA as compared to the nine-month period ended September 30, 2001 of $7.5 million and $11.8 million, respectively. The net income is due to a $21.1 million gain on the disposition of Monroe Cablevision partially offset by a $9.0 million loss on the early extinguishment of debt.

Set forth below are the operating results and a reconciliation of net income to EBITDA for the three months ended September 30, 2002 and 2001 and the nine months ended September 30, 2002 and 2001.

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 September 30,

	2002					2001

Revenue:
Publishing	$	62,100,899		60.1	%	$	65,896,144		64.7	%
Cable		25,204,115		24.4			22,567,781		22.2
Broadcasting		9,439,506		9.1			8,083,412		7.9
Other Communications		6,634,754		6.4			5,310,748		5.2

		103,379,274		100.0			101,858,085		100.0
Expense:
Publishing		60,888,697		58.9			66,160,637		65.0
Cable		22,425,860		21.7			19,147,290		18.8
Broadcasting		8,589,109		8.3			8,898,327		8.7
Other Communications		6,193,733		6.0			6,538,829		6.4
Corporate general and administrative		1,512,473		1.5			96,965		0.1

		99,609,872		96.4			100,842,048		99.0

Operating income (loss)		3,769,402		3.6	%		1,016,037		1.0	%
Nonoperating income (expense):
Interest expense		(6,037,895	)				(4,757,348	)
Loss on disposition of Monroe Cablevision		(459,360	)				—
Loss on early extinguishment of debt		—					—
Change in fair value of interest rate swaps		(2,472,043	)				(5,296,326	)
Interest income		115,573					35,639

		(8,853,725	)				(10,018,035	)

Income (loss) before income taxes and minority interest		(5,084,323	)				(9,001,998	)
Provision (credit) for income taxes:		(1,846,026	)				(2,497,162	)
Minority interest		(134,934	)				145,339

Net income (loss)	$	(3,373,231	)			$	(6,359,497	)

Add:
Interest expense		6,037,895					4,757,348
Provision for income taxes		(1,846,026	)				(2,497,162	)
Depreciation		11,459,351					10,007,856
Amortization of intangibles and deferred charges		626,042					1,010,617
Amortization of broadcast rights		1,655,247					1,576,461
(Gain) loss on disposal of property and equipment		(974,034	)				(54,968	)
Change in fair value of interest rate swaps		2,472,043					5,296,326
(Gain) on disposal of Monroe Cablevision		459,360					—
Less:
Payments on broadcast rights		(1,590,320	)				(1,252,610	)

EBITDA	$	14,926,327				$	12,484,371

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)

	Nine months ended September 30,

	2002					2001

Revenue:
Publishing	$	188,310,327		60.4	%	$	195,610,215		64.3	%
Cable		75,541,372		24.2			65,952,776		21.7
Broadcasting		28,126,969		9.0			25,676,117		8.4
Other Communications		19,639,946		6.3			16,840,764		5.5

		311,618,614		100.0			304,079,872		100.0
Expense:
Publishing		183,635,801		58.9			196,943,958		64.8
Cable		67,631,965		21.7			56,232,854		18.5
Broadcasting		26,598,294		8.5			27,499,396		9.0
Other Communications		19,073,047		6.1			20,075,914		6.6
Corporate general and administrative		2,969,548		1.0			1,047,224		0.3

		299,908,655		96.2			301,799,346		99.3

Operating income (loss)		11,709,959		3.8	%		2,280,526		0.7	%
Nonoperating income (expense):
Interest expense		(16,680,122	)				(14,179,801	)
Gain on disposition of Monroe Cablevision		21,140,829					—
Loss on early extinguishment of debt		(8,989,786	)				—
Change in fair value of interest rate swaps		(2,193,986	)				(6,201,349	)
Interest income		146,520					64,221

		(6,576,545	)				(20,316,929	)

Income (loss) before income taxes and minority interest		5,133,414					(18,036,403	)
Provision (credit) for income taxes:		2,230,387					(5,093,461	)
Minority interest		(222,055	)				185,777

Net income (loss)	$	2,680,972				$	(12,757,165	)

Add:
Interest expense		16,680,122					14,179,801
Provision for income taxes		2,230,387					(5,093,461	)
Depreciation		33,737,180					29,800,233
Amortization of intangibles and deferred charges		1,919,494					2,906,096
Amortization of broadcast rights		4,977,936					4,628,984
(Gain) loss on disposal of property and equipment		(571,220	)				(18,358	)
Change in fair value of interest rate swaps		2,193,986					6,201,349
Loss on early extinguishment of debt		8,989,786					—
(Gain) on disposal of Monroe Cablevision		(21,140,829	)				—
Less:
Payments on broadcast rights		(4,121,864	)				(4,044,622	)

EBITDA	$	47,575,950				$	35,802,857

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

Three Months Ended September 30, 2002 Compared to Three Months Ended September 30, 2001

Revenues

Total revenues for the three-month period ended September 30, 2002 increased $1.5 million, or 1.5%, as compared to the three-month period ended September 30, 2001, to $103.4 million from $101.9 million. This increase was attributable to cable, broadcast and telephony operations, offset by a decrease in publishing revenues as discussed below.

Cable Television. Cable revenue for the quarter was $25.2 million, an increase of $2.6 million, or 11.7%, as compared to the same period of 2001. The increase in cable revenue was principally the result of an increase of $7.22, to $54.73, 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 $45.96, an increase of $1.77 as compared to the third quarter of 2001. Since the launch of the digital product in fall of 2001, average monthly digital revenue per home has grown to $14.51 for the quarter ended September 30, 2002.

Revenue generating units increased in the digital (Buckeye Digital Link) and high-speed data (Buckeye Express) categories during the quarter ended September 30, 2002. Net digital additions totaled 7,013 during the quarter, resulting in 19,674 digital homes as of September 30, 2002. Net high-speed data additions totaled 2,282 during the quarter, resulting in 20,829 high-speed data customers as of September 30, 2002. Basic subscribers at the end of the period totaled 153,450, a decrease of 90 basic subscribers during the quarter. The increase in cable revenue also reflects certain dial-up Internet customers that our cable operations began servicing in 2002. During the three months ended September 30, 2002, our cable segment reported $351,000 of revenue relating to these customers for whom 2001 revenues were included in the other communications segment.

Newspaper Publishing. Publishing revenue was $62.1 million, a decrease of $3.8 million, or 5.8%, as compared to the third quarter of 2001. The decrease consisted of a $3.1 million, or 5.9%, decrease in advertising revenue due primarily to a decrease in classified advertising of $1.7 million, or 8.0%, resulting from continued softness in help-wanted advertising. Local and national advertising decreased $1.2 million, or 4.9%, and $365,000, or 5.5%, respectively, due to the overall economic environment. Circulation revenue decreased $737,000, or 5.6%, due to the occurrence of one less Sunday during the three months ended September 30, 2002 as compared with the same quarter of the previous year. Other revenue, which consists of third party and total market delivery, was consistent with the same period of 2001.

Television Broadcasting. Broadcasting revenue was $9.4 million, an increase of $1.4 million, or 16.8%, as compared to the three-months ended September 30, 2001. The increase in broadcasting revenue was due to an increase in local advertising revenue of $623,000, or 11.1%, an increase in national advertising of $495,000, or 16.7%, and an increase in political advertising of $437,000.

Other Communications . Other communications revenue was $6.6 million, an increase of $1.3 million, or 24.9%, as compared to the same period of the prior year. This increase was due to growth in telephony switched services revenue of $1.8 million (including an increase of $341,000 in reciprocal compensation) resulting from growth in the telephony customer base. During the third quarter of 2002, twenty-one new retail telephony customers were added, representing a 3.7% increase. The growth in telephony revenue was partially offset by a reduction in revenue due to certain residential dial-up Internet customers now being serviced by our cable operations. Other communications results for the three months ended September 30, 2001 included $218,000 of revenue relating to these Internet customers.

Operating Expenses

Operating expenses for the quarter were $99.6 million, a decrease of $1.2 million, or 1.2%, as compared to the third quarter of 2001. The decrease in operating expense was largely attributable to decreased publishing expenses, which were partially offset by increased cable expenses.

Cable Television . Cable operating expenses were $22.4 million, an increase of $3.3 million, or 17.1%, compared to the same period of the prior year. The increase was primarily due to a $2.1 million, or 40.8%, increase in depreciation, to $7.1 million. This increase in

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

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. Basic cable programming expenses increased $418,000, or 8.4%, to $5.4 million, due to price increases from programming suppliers, offset by a decrease in total basic subscribers.

Newspaper Publishing. Publishing operating expenses were $60.9 million, a decrease of $5.3 million, or 8.0%, from the three months ended September 30, 2001. The decrease was due to a $3.0 million, or 30.0%, decrease in newsprint and ink expense, resulting from a weighted-average price per ton decrease of $174.86, or 29.3%, and a 3.2% decrease in consumption from the same period of the prior year. Additional savings resulted from overall cost controls and headcount reductions.

Television Broadcasting. Broadcasting operating expenses were $8.6 million, a decrease of $309,000, or 3.5%, from the same period of the prior year. The decrease results primarily from cost controls implemented to offset salary and inflationary costs, with reductions in news departments of $178,000, or 12.3% and in general and administrative expenses of $144,000, or 7.1%.

Other Communications . Other communications operating expenses were $6.2 million, a decrease of $345,000, or 5.3%, from the same period of 2001. This variance is primarily due to a decrease of $304,000, or 13.0% 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.

Operating Income

Operating income increased $2.8 million as compared to the three months ended September 30, 2001. Cable operating income decreased $642,000 due to increases in depreciation and basic cable programming expenses, partially offset by revenue growth generated from rate increases and rollout of new services. Publishing operating income increased $1.5 million, primarily due to newsprint savings and the implementation of an overall expense reduction program, offset by decreases in advertising revenue. Broadcasting operating income increased $1.7 million due to advertising revenue growth in all categories and an overall expense reduction program. Other communications operating income increased $1.7 million due to revenue growth from increased telephony sales and decreased operating expense. Corporate general and administrative expenses increased $1.4 million from the prior year due to increases in salary expense, professional fees, and amortization of deferred financing costs.

Net Income

For the three months ended September 30, 2002, the company reported a net loss of $3.4 million compared to a $6.4 million net loss reported for the three months ended September 30, 2001. The decrease in net loss is due to the increase in operating income and a $2.8 million decrease in the expense attributable to the change in fair value of interest rate swaps, partially offset by the increase in interest expense of $1.3 million.

Depreciation and Amortization

Depreciation and amortization increased $1.1 million, or 9.7%, 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 and other capital expenditures to maintain operating assets, partially offset by the effect of the non-amortization provisions of SFAS No. 142, adopted in the current year.

EBITDA

EBITDA increased $2.4 million, or 19.6%, as compared to the three months ended September 30, 2001. EBITDA is defined 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. EBITDA is not intended to replace operating income (loss), net income (loss), cash flow, or other measures of financial performance and liquidity reported in accordance with U.S. generally accepted accounting principles. EBITDA as a percentage of revenue increased to 14.4% in the three months ended September 30, 2002, from 12.3% in the same period of the prior year. The increase in EBITDA margin was primarily due to the continued rollout of high margin advanced cable products, lower newsprint prices, efficiencies gained due to continued growth in our telephony customer base, and the implementation of overall expense reduction programs.

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

Nine Months Ended September 30, 2002 Compared to Nine Months Ended September 30, 2001

Revenues

Total revenues for the nine-month period ended September 30, 2002 increased $7.5 million, or 2.5%, as compared to the nine months ended September 30, 2001, to $311.6 million from $304.1 million. This increase was primarily attributable to cable, broadcast and telephony operations, offset by a decrease in publishing revenues as discussed below.

Cable Television. Cable revenue was $75.5 million, an increase of $9.6 million, or 14.5%, as compared to the same period of the prior year. The increase in cable revenue was principally the result of an increase of $8.17, to $54.44, 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 $46.34, an increase of $3.16 as compared to the first nine months of 2001. Since the launch of the digital product in fall of 2001, average monthly digital revenue per home has grown to $14.94 for the nine months ended September 30, 2002.

Revenue generating units increased in the digital and high-speed data categories during the nine months ended September 30, 2002. Net digital additions totaled 11,299 for the period, resulting in 19,674 digital homes as of September 30, 2002. Year-to-date net high-speed data additions totaled 7,655, resulting in 20,829 high-speed data customers as of September 30, 2002. Basic subscribers at the end of the period totaled 153,450, a decrease of 4,997 basic subscribers from the same period of the prior year. This is due to the decrease of 5,261 basic subscribers recognized upon consummation of the March 2002 like-kind exchange of Monroe Cablevision, as adjusted to reflect the independent appraisal report. The increase in cable revenue also reflects certain dial-up Internet customers that began to be serviced by our cable operations in 2002. During the nine months ended September 30, 2002, our cable segment reported $951,000 of revenue relating to these customers for whom 2001 revenues were included in the other communications segment.

Newspaper Publishing. Publishing revenue was $188.3 million, a decrease of $7.3 million, or 3.7%, as compared to the same period of 2001. The decrease consisted of a $7.0 million, or 4.5%, decrease in advertising revenue due to a decrease in classified advertising of $4.1 million, or 6.8%, resulting from continued softness in help-wanted advertising, as well as a decrease in local and national advertising of $578,000, or 0.7%, and $2.6 million, or 11.5%, respectively. The decrease in advertising revenue was due to the continued economic conditions that are generating lower advertising sales. Circulation and other revenue, which consists of third party and total market delivery, were consistent with same period of the prior year.

Television Broadcasting. Broadcasting revenue was $28.1 million, an increase of $2.5 million, or 9.5%, as compared to the nine months ended September 30, 2001. The increase in broadcasting revenue was due to an increase in all categories of advertising revenue, particularly in national and political advertising, with increases of $1.2 million and $1.1 million, respectively. Increases in net revenue were partially offset by a proportional increase in agency commissions.

Other Communications . Other communications revenue was $19.6 million, an increase of $2.8 million, or 16.6%, as compared to the same period of the prior year. The increase resulted from growth in telephony switched services revenue of $4.2 million (including an increase of $1.4 million in reciprocal compensation) resulting from growth in the telephony customer base. Since September 30, 2001, 128 new retail telephony customers have been added, representing a 27.6% increase. The growth in telephony revenue was partially offset by a reduction in revenue due to certain residential dial-up Internet customers now being serviced by our cable operations. Other communications results for the nine months ended September 30, 2001 included $915,000 of revenue relating to these Internet customers.

Operating Expenses

Operating expenses for the nine months ended September 30, 2002 were $299.9 million, a decrease of $1.9 million, or 0.6%, as compared to the nine months ended September 30, 2001. The decrease in operating expense was largely attributable to decreased publishing expenses, which were partially offset by increased cable expenses.

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

Cable Television . Cable operating expenses were $67.6 million, an increase of $11.4 million, or 20.3%, as compared to the same period of the prior year. The increase was primarily due to a $5.3 million, or 35.3%, increase in depreciation to $20.4 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. Basic cable programming expenses increased $2.0 million, or 13.7%, to $16.7 million, due to price increases from programming suppliers. General and administrative expenses increased $2.7 million, or 43.9%, partially due to increased personal property taxes.

Newspaper Publishing. Publishing operating expenses were $183.6 million, a decrease of $13.3 million, or 6.8%, from the same period of 2001. The decrease was principally due to a $7.4 million, or 25.1%, decrease in newsprint and ink expense, resulting from a weighted-average price per ton decrease of $144.61, or 24.7%, and a 3.0% decrease in consumption from the same period of the prior year. Additional savings resulted from overall cost controls and headcount reductions.

Television Broadcasting. Broadcasting operating expenses were $26.6 million, a decrease of $901,000, or 3.3%, from the nine months ended September 30, 2001, partly due to a reduction in news department expenses of $426,000, or 10.0%. This decrease also reflects a reduction of $552,000 in expense related to amortization of intangibles due to implementation of SFAS No. 142 in the current year. Otherwise, operating expenses were held essentially flat due to general cost controls implemented to offset salary and inflationary costs.

Other Communications . Other communications operating expenses were $19.1 million, a decrease of $1.0 million, or 5.0%, from the same period of 2001. The decrease was due to a $931,000, or 13.4%, decrease in operating expenses relating to security alarm system sales and monitoring caused by a decrease in sales volumes, as well as by cost control initiatives.

Operating Income

Operating income increased $9.4 million as compared to the same period of the prior year. Cable operating income decreased $1.8 million primarily due to increases in depreciation and basic cable programming expenses, partially offset by revenue growth generated from rate increases and rollout of new services. Publishing operating income increased $6.0 million, primarily due to newsprint savings and the implementation of an overall expense reduction program. Broadcasting operating income increased $3.4 million due to revenue growth in all advertising categories and an overall expense reduction program. Other communications operating income increased $3.8 million due to revenue growth from increased telephony sales. Corporate general and administrative expenses increased $1.9 million from the same period of 2001 due primarily to increases in salary expense, professional fees, and amortization of deferred financing costs.

Net Income

For the nine months ended September 30, 2002, the company reported net income of $2.7 million compared to a $12.8 million net loss reported for the nine months ended September 30, 2001. The increase in net income is due to the increase in operating income, a $21.1 million gain recognized on the like-kind exchange of Monroe Cablevision and a $4.0 million decrease in the expense attributable to the change in fair value of interest rate swaps, partially offset by a $9.0 million loss related to the early extinguishment of debt and a $2.5 million increase in interest expense.

Depreciation and Amortization

Depreciation and amortization increased $3.0 million, or 9.0%, 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 and other capital expenditures to maintain operating assets, partially offset by the effect of the non-amortization provisions of SFAS No. 142, adopted in the current year.

EBITDA

EBITDA increased $11.8 million, or 32.9%, as compared to the nine months ended September 30, 2001. EBITDA is defined 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 charges, and extraordinary items and after payments for broadcast rights. EBITDA as a percentage of revenue increased to 15.3% in the first nine months of 2002, from 11.8% in the same period of the prior year. The increase in EBITDA margin was primarily due to the continued rollout of high margin advanced cable products, lower newsprint prices, efficiencies gained due to continued growth in our telephony customer base, and the implementation of overall expense reduction programs.

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

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 $26.3 million and $22.3 million for the nine months ended September 30, 2002 and September 30, 2001, respectively. The net cash provided by operating activities is determined by adding back depreciation and amortization, and adjusting for other non-cash items, including, for the nine months ended September 30, 2002, a $2.2 million loss resulting from the change in fair value of interest rate swaps, a $21.1 million gain attributable to the exchange of Monroe Cablevision, Inc., and a $2.7 million write off of deferred financing costs related to extinguished debt. Net cash provided by operating activities also reflects a $7.0 million contribution to the corporate pension plan. No contributions were made in 2001. Cash used in investing activities was $21.5 million for the nine months ended September 30, 2002, compared to $47.7 million from the same period of the prior year. Net cash used in investing activities for the nine months ended September 30, 2002 includes $12.7 million to payoff cash advances on life insurance policies, offset by $12.1 million of proceeds received from Comcast Corp. in the exchange of Monroe Cablevision, Inc.

Our capital expenditures have historically been financed with cash flow from operations and borrowings under our senior credit facility. We made capital expenditures of $21.0 million and $52.0 million, including capital leases, for the nine months ended September 30, 2002 and September 30, 2001, respectively. Capital expenditures for the nine months ended September 30, 2001 were used primarily to rebuild the Toledo cable system and maintain other operating assets. We expect to make capital expenditures of $16.9 million in the last quarter of 2002. These include the continued rollout of advanced cable services, continued rebuild of the cable system acquired from Comcast, conversion of two television stations to low power digital format in response to FCC requirements, and various other improvements to the publishing and broadcasting operations.

Financing activities provided $3.0 million of cash for the nine months ended September 30, 2002, compared to $40.7 million from the same period of the prior year. During the first half of 2002, we refinanced the entirety of our previous debt outstanding, resulting in new proceeds of $250.0 million and $10.8 million of deferred finance costs. At September 30, 2002, the balances outstanding and available under our new senior credit facilities and subordinated notes were $249.8 million and $112.4 million, respectively, and the interest rate on the balance outstanding was 8.06%. At September 30, 2001, the balances outstanding and available under our previous senior credit facility and senior notes were $250.2 million and $8 million, respectively, and the interest rate on the balance outstanding was 7.26%. The increase in the effective interest rate generated an increase in interest expense of $2.5 million, or 17.6%.

In April 2002, we issued $175 million of 9¼% senior subordinated notes. As noted above, 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. 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 will be used to fund future 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.

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.

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

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 September 30, 2002, our interest rate swap agreements expire in varying amounts through April 2009.

The fair market value of $75.0 million of our long-term debt approximates its carrying value as it bears interest at floating rates. As of September 30, 2002, the estimated fair value of our interest rate swap agreements was $423,000, which represents the amount required to enter into offsetting contracts with similar remaining maturities based on quoted market prices.

As of September 30, 2002, we had entered into interest rate swaps that approximated $221 million, or 88.4%, 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 $100.0 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 notional amount of the $121.0 million notional amount of the swap agreements. 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 current outstanding borrowings and interest rate swap contracts, our exposure to interest rate risk is not material.

Recent Accounting Pronouncements

Effective January 1, 2001, the Company adopted Statement of the Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities , as amended by Statement Nos. 137 and 138, (collectively, SFAS No. 133), which requires the Company to record all derivatives on the balance sheet at fair value. At September 30, 2002, the Company participates in nine interest-rate swap contracts. One of these contracts is accounted for as a fair value hedge and therefore changes in the fair value of the derivative have no impact on the Company’s results of operations. The remaining contracts either do not qualify for hedge accounting or the Company has not elected to implement hedge accounting. Accordingly, a non-cash derivative valuation loss of $2,194,000 and $6,201,000 has been recognized during the nine-month periods ended September 30, 2002 and 2001, respectively.

Effective January 1, 2002, the Company adopted SFAS No. 141, Business Combinations , and SFAS No. 142, Goodwill and Other Intangible Assets. Purchased goodwill and indefinite lived intangible assets are no longer amortized but reviewed annually for impairment, or more frequently if impairment indicators arise. Intangible assets with lives restricted by contractual, legal or other means will continue to be amortized over their useful lives. During the nine-month period ended September 30, 2001, the Company recognized $2,511,000 of amortization expense related to goodwill and indefinite-lived intangibles, resulting in a net loss of $10,246,000 when adjusted for the non-amortization provisions of SFAS No. 142. The Company has completed the initial impairment testing required by SFAS No. 142. No impairment charges have been recognized based on the results of this testing.

Effective January 1, 2002, the Company adopted SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, which supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, and provides a single accounting model for long-lived assets to be disposed of. The adoption of this standard has had no effect on the Company’s consolidated results of operations or financial position for the nine months ended September 30, 2002.

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. The pronouncement requires certain costs associated with a restructuring, discontinued operation or plant closing to be recognized as incurred rather than at the date of commitment to an exit or disposal plan. The Company does not expect the adoption of this standard to significantly impact its financial position or results of operations.

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

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 Prospectus dated August 7, 2002 relating to the Company’s 9.25% Senior Subordinated Notes due 2009.

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 10.1 Amendment No. 1 dated September 12, 2002 to the Credit Agreement dated May 15, 2002 by and among the Company and Bank of America N.A., as Administrative Agent

		Exhibit 99.1 Certification of the Managing Director pursuant to 18 U.S.C. Sec. 1350.

		Exhibit 99.2 Certification of the Chief Financial Officer pursuant to 18 U.S.C. Sec. 1350.

	(b) No reports on Form 8-K were filed during the quarter ended September 30, 2002.

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: November 14, 2002	By:	/s/ Allan Block

		Allan Block Managing Director

Date: November 14, 2002	By:	/s/ Gary J. Blair

		Gary J. Blair Executive Vice President / Chief Financial Officer

Certification of the Managing Director

I, Allan Block, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Block Communications, Inc.;

2.	Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.	Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as definted in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

	a.	designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

	b.	evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

	c.	presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.	The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

	a.	all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

	b.	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6.	The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.


/s/ Allan Block

Name:	Allan Block
Title:	Managing Director
Date:	November 14, 2002

Certification of the Chief Financial Officer

I, Gary Blair, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Block Communications, Inc.;

2.	Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.	Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as definted in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

	a.	designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

	b.	evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

	c.	presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.	The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

	d.	all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

	e.	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6.	The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.


/s/ Gary J. Blair

Name:	Gary Blair
Title:	Executive Vice-President / Chief Financial Officer
Date:	November 14, 2002

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BLOCK COMMUNICATIONS INC 10-Q