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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, 2003.

OR

     
[   ]   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)

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 checkmark 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 November 7, 2003   428,613 shares as of November 7, 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
SIGNATURES
Exhibit 10.1
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Block Communications, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

                   
      September 30   December 31
      2003   2002
     
 
      (unaudited)   (note 1)
Assets
                
Current assets:
                
 
Cash and cash equivalents
   $ 9,328,138     $ 9,781,645  
 
Receivables, less allowances for doubtful accounts and discounts of $3,877,000 and $3,552,000, respectively
     38,054,589       45,454,639  
 
Recoverable income taxes
     8,265,836       9,029,371  
 
Inventories
     8,594,603       7,032,626  
 
Prepaid expenses
     3,104,422       4,498,401  
 
Broadcast rights
     6,175,214       6,546,678  
 
Deferred income taxes
     9,671,950       9,271,000  
 
 
    
     
 
Total current assets
     83,194,752       91,614,360  
Property, plant and equipment:
                
 
Land and land improvements
     12,411,095       12,255,696  
 
Buildings and leasehold improvements
     42,900,871       41,483,466  
 
Machinery and equipment
     222,334,875       215,180,502  
 
Cable television distribution systems and equipment
     205,015,647       195,399,291  
 
Security alarm and video systems installation costs
     7,003,315       6,591,940  
 
Construction in progress
     34,013,663       13,777,267  
 
 
    
     
 
 
     523,679,466       484,688,162  
 
Less allowances for depreciation and amortization
     276,351,443       235,410,950  
 
 
    
     
 
 
     247,328,023       249,277,212  
Other assets:
                
 
Goodwill
     51,987,021       51,987,021  
 
Other intangibles, net of accumulated amortization
     38,317,356       39,471,513  
 
Cash value of life insurance
     26,847,207       25,594,543  
 
Deferred income taxes
     20,021,228       16,659,000  
 
Pension intangibles
     11,931,764       11,931,764  
 
Prepaid pension costs
     3,371,125       2,437,798  
 
Deferred financing costs
     10,624,716       12,099,099  
 
Broadcast rights, less current portion
     4,783,573       6,676,317  
 
Other
     1,221,060       3,976,050  
 
 
    
     
 
 
     169,105,050       170,833,105  
 
 
    
     
 
 
   $ 499,627,825     $ 511,724,677  
 
 
    
     
 

1

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements
                     
        September 30   December 31
        2003   2002
       
 
        (unaudited)   (note 1)
Liabilities and stockholders’ equity
                
Current liabilities:
                
 
Accounts payable
   $ 8,500,190     $ 13,831,059  
 
Salaries, wages and payroll taxes
     15,965,476       19,046,005  
 
Workers’ compensation and medical reserves
     7,920,142       8,863,918  
 
Other accrued liabilities
     35,969,338       32,846,215  
 
Current maturities of long-term debt
     1,223,514       4,649,871  
 
 
    
     
 
Total current liabilities
     69,578,660       79,237,068  
Long-term debt, less current maturities
     264,769,465       255,786,939  
Other long-term obligations
     139,425,138       144,113,551  
Minority interest
     11,838,035       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
     (22,585,286 )     (22,860,033 )
 
Additional paid-in capital
     1,058,687       771,274  
 
Retained earnings
     34,235,325       41,426,921  
 
 
    
     
 
 
     14,016,527       20,645,881  
 
 
    
     
 
 
   $ 499,627,825     $ 511,724,677  
 
 
    
     
 

See accompanying notes.

2

Table of Contents

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements

Block Communications, Inc. and Subsidiaries

Condensed Consolidated Statements of Income (unaudited)

                                     
        Three months ended   Nine months ended
        September 30   September 30
        2003   2002   2003   2002
       
 
 
 
Revenue:
                                
 
Publishing
   $ 60,028,762     $ 62,100,899     $ 183,666,594     $ 188,310,327  
 
Cable
     27,441,732       25,204,115       81,705,836       75,541,372  
 
Broadcasting
     8,927,978       9,439,506       28,210,365       28,126,969  
 
Other Communications
     5,483,234       6,499,480       17,443,592       19,217,490  
 
 
    
     
     
     
 
 
     101,881,706       103,244,000       311,026,387       311,196,158  
Expense:
                                
 
Publishing
     62,916,865       60,888,697       186,013,902       183,635,801  
 
Cable
     25,350,966       22,425,860       74,582,392       67,631,965  
 
Broadcasting
     9,021,176       8,589,109       27,302,938       26,598,294  
 
Other Communications
     5,359,794       5,872,134       16,074,191       17,721,018  
 
Corporate general and administrative
     1,511,632       1,512,473       3,348,451       2,969,548  
 
 
    
     
     
     
 
 
     104,160,433       99,288,273       307,321,874       298,556,626  
 
 
    
     
     
     
 
Operating income (loss)
     (2,278,727 )     3,955,727       3,704,513       12,639,532  
Nonoperating income (expense):
                                
 
Interest expense
     (4,795,664 )     (6,037,895 )     (15,016,194 )     (16,680,122 )
 
Gain on disposition of Monroe Cablevision
     —       (459,360 )     —       21,140,829  
 
Change in fair value of interest rate swaps
     4,007,138       (2,472,043 )     1,776,801       (2,193,986 )
 
Loss on extinquishment of debt
     —       —       —       (8,989,786 )
 
Interest income
     86,785       115,573       186,545       146,520  
 
 
    
     
     
     
 
 
     (701,741 )     (8,853,725 )     (13,052,848 )     (6,576,545 )
 
 
    
     
     
     
 
Income (loss) from continuing operations before income taxes and minority interest
     (2,980,468 )     (4,897,998 )     (9,348,335 )     6,062,987  
Provision (credit) for income taxes
     (1,447,189 )     (1,769,633 )     (2,998,224 )     2,611,512  
 
 
    
     
     
     
 
Income (loss) from continuing operations before minority interest
     (1,533,279 )     (3,128,365 )     (6,350,111 )     3,451,475  
Minority interest
     78,646       (134,934 )     103,203       (222,055 )
 
 
    
     
     
     
 
Income (loss) from continuing operations
     (1,454,633 )     (3,263,299 )     (6,246,908 )     3,229,420  
Loss from discontinued operations (including loss on disposal of $235,591 in 2003)
     —       (186,325 )     (445,658 )     (929,573 )
Income tax benefit
     —       (76,393 )     (151,524 )     (381,125 )
 
 
    
     
     
     
 
Loss on discontinued operations
     —       (109,932 )     (294,134 )     (548,448 )
 
 
    
     
     
     
 
Net income (loss)
   $ (1,454,633 )   $ (3,373,231 )   $ (6,541,042 )   $ 2,680,972  
 
 
    
     
     
     
 

See accompanying notes.

3

Table of Contents

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 $155,000)
                                                
 
Total comprehensive loss
                                                
 
Cash dividends declared:
                                                
   
Class A stock—$2.50 per share
                                                
   
Common Stock:
                                                
     
Voting—$1.35 per share
                                                
     
Non-voting—$1.35 per share
                                                
 
Executive stock incentives issued at $407.97 per share
                                     1,808       180  
 
Redemption of non-voting common shares at $458.50 per share
                                     (981 )     (98 )
 
    
     
     
     
     
     
 
Balances at September 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 $190,875)
                                                
 
Total comprehensive income
                                                
 
Cash dividends declared:
                                                
   
Class A stock—$2.50 per share
                                                
   
Common Stock:
                                                
     
Voting—$1.40 per share
                                                
     
Non-voting—$1.40 per share
                                                
 
    
     
     
     
     
     
 
Balances at September 30, 2002
     12,620     $ 1,262,000       29,400     $ 2,940       427,786     $ 42,779