Block Communications 10Q 2005 Q3 Quarterly report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q


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

		For the quarterly period ended September 30, 2005.

		OR

o		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. YESþ NOo

Indicate by checkmark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). YESo NOþ

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YESo NOþ

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 8, 2005		428,613 shares as of November 8, 2005

TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION
	Item 1. Financial Statements
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3. Quantitative and Qualitative Disclosures About Market Risk
	Item 4. Controls and procedures
	Item 6. Exhibits
EX-31.1
EX-31.2
EX-32.1
EX-32.2

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Block Communications, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets


	September 30		December 31
	2005		2004
	*(unaudited)*		*(note 1)*
Assets
Current assets:
Cash and cash equivalents	$	7,700,554	$	3,548,624
Receivables, less allowances for doubtful accounts and discounts of $3,309,000 and $3,840,000, respectively		45,020,157		49,100,824
Recoverable income taxes		8,166,741		7,331,215
Inventories		7,730,786		4,331,026
Prepaid expenses		3,767,103		5,867,479
Broadcast rights		4,821,312		7,203,065

Total current assets		77,206,653		77,382,233

Property, plant and equipment:
Land and land improvements		12,990,187		12,792,916
Buildings and leasehold improvements		46,674,879		46,668,444
Machinery and equipment		235,597,440		227,764,973
Cable television distribution systems and equipment		250,533,829		245,009,957
Security alarm and video systems installation costs		7,889,512		7,529,792
Construction in progress		8,497,223		1,730,462

		562,183,070		541,496,544
Less allowances for depreciation and amortization		324,733,195		289,719,855

		237,449,875		251,776,689

Other assets:
Goodwill		52,034,273		52,034,273
Other intangibles, net of accumulated amortization		27,647,792		28,270,099
Cash value of life insurance		14,245,423		29,955,235
Pension intangibles		9,472,626		9,472,626
Prepaid pension costs		2,902,022		2,902,022
Deferred financing costs		6,693,028		8,167,411
Broadcast rights, less current portion		4,741,365		2,058,756
Other		826,860		735,771

		118,563,389		133,596,193


	$	433,219,917	$	462,755,115

See accompanying notes.

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements


	September 30			December 31
	2005			2004
	*(unaudited)*			*(note 1)*
Liabilities and stockholders’ equity (deficit)
Current liabilities:
Accounts payable	$	9,587,509		$	12,844,567
Salaries, wages and payroll taxes		13,473,794			13,670,056
Workers’ compensation and medical reserves		6,692,015			9,622,884
Other accrued liabilities		38,923,128			35,738,157
Current maturities of long-term debt		1,279,633			1,259,043

Total current liabilities		69,956,079			73,134,707

Long-term debt, less current maturities		250,629,012			264,084,074

Other long-term obligations		156,424,702			152,912,139

Minority interest		8,860,806			9,039,713

Stockholders’ equity (deficit):
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—29,400 shares authorized, issued and outstanding		2,940			2,940
Non-voting—588,000 shares authorized; 428,613 shares issued and outstanding		42,861			42,861
Accumulated other comprehensive loss		(30,325,304	)		(30,404,234	)
Additional paid-in capital		1,058,687			1,058,687
Retained deficit		(24,691,866	)		(8,377,772	)

		(52,650,682	)		(36,415,518	)

	$	433,219,917		$	462,755,115

See accompanying notes.

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements

Block Communications, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations (unaudited)


	Three months ended September 30						Nine months ended September 30
	2005			2004			2005			2004

Revenue:
Publishing	$	61,877,325		$	62,524,229		$	184,643,187		$	187,828,820
Cable		32,068,599			30,068,737			95,126,351			90,103,595
Broadcasting		8,725,241			9,067,468			27,335,879			28,568,341
Other communications		5,142,103			4,980,553			15,286,139			15,149,522

		107,813,268			106,640,987			322,391,556			321,650,278

Expense:
Cost of revenue:
Publishing		47,736,454			46,938,902			140,097,311			137,643,950
Cable		23,587,776			21,469,225			69,084,312			64,485,536
Broadcasting		5,656,297			5,423,152			16,666,795			16,750,255
Other communications		2,282,415			2,371,076			7,285,018			7,086,912

		79,262,942			76,202,355			233,133,436			225,966,653

Selling, general & administrative expense:
Publishing		18,994,904			19,069,805			54,963,924			56,009,685
Cable		6,667,797			7,569,774			19,567,725			19,284,599
Broadcasting		3,207,515			3,360,219			10,003,091			9,826,661
Other communications		2,379,354			2,059,019			6,289,986			6,127,678
Corporate expenses		1,054,374			866,821			2,491,865			3,938,273

		32,303,944			32,925,638			93,316,591			95,186,896

		111,566,886			109,127,993			326,450,027			321,153,549


Operating income (loss)		(3,753,618	)		(2,487,006	)		(4,058,471	)		496,729

Nonoperating income (expense):
Interest expense		(5,856,428	)		(5,009,451	)		(17,925,609	)		(14,518,860	)
Change in fair value of interest rate swaps		55,479			(1,904,609	)		2,199,442			3,313,418
Gain on life insurance proceeds		—			—			2,857,959			—
Investment income		457,728			87,569			1,145,191			249,913

		(5,343,221	)		(6,826,491	)		(11,723,017	)		(10,955,529	)

Loss before income taxes and minority interest		(9,096,839	)		(9,313,497	)		(15,781,488	)		(10,458,800	)
Provision for income taxes		12,467			237,987			84,549			410,042

Loss before minority interest		(9,109,306	)		(9,551,484	)		(15,866,037	)		(10,868,842	)
Minority interest		142,446			80,876			178,907			114,426

Net loss	$	(8,966,860	)	$	(9,470,608	)	$	(15,687,130	)	$	(10,754,416	)

See accompanying notes.

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements

Block Communications, Inc. and Subsidiaries

Condensed Consolidated Statement of Stockholders’ Equity (Deficit) (unaudited)


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

Balances at January 1, 2005		12,620	$	1,262,000		29,400	$	2,940		428,613	$	42,861	$	(30,404,234	)	$	1,058,687	$	(8,377,772	)	$	(36,415,518	)

Net loss																			(15,687,130	)		(15,687,130	)

Amortization of fair value of interest rate swaps at January 1, 2001														78,930								78,930

Total comprehensive loss																						(15,608,200	)

Cash dividends declared:
Class A stock—$2.50 per share																			(31,550	)		(31,550	)
Common Stock:
Voting—$1.30 per share																			(38,220	)		(38,220	)
Non-voting—$1.30 per share														��					(557,194	)		(557,194	)

																			(626,964	)		(626,964	)


Balances at September 30, 2005		12,620	$	1,262,000		29,400	$	2,940		428,613	$	42,861	$	(30,325,304	)	$	1,058,687	$	(24,691,866	)	$	(52,650,682	)


Balances at January 1, 2004		12,620	$	1,262,000		29,400	$	2,940		428,613	$	42,861	$	(29,303,806	)	$	1,058,687	$	(376,391	)	$	(27,313,709	)

Net loss																			(10,754,416	)		(10,754,416	)

Amortization of fair value of interest rate swaps at January 1, 2001 (net of deferred tax of $28,425)														50,505								50,505

Total comprehensive loss																						(10,703,911	)

Cash dividends declared:
Class A stock—$2.50 per share																			(31,550	)		(31,550	)
Common Stock:
Voting—$1.15 per share																			(33,810	)		(33,810	)
Non-voting—$1.15 per share																			(492,905	)		(492,905	)

																			(558,265	)		(558,265	)


Balances at September 30, 2004		12,620	$	1,262,000		29,400	$	2,940		428,613	$	42,861	$	(29,253,301	)	$	1,058,687	$	(11,689,072	)	$	(38,575,885	)

See accompanying notes.

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements

Block Communications, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (unaudited)


	Nine months ended September 30,
	2005			2004

Operating activities
Net loss	$	(15,687,130	)	$	(10,754,416	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation		39,995,545			36,788,149
Amortization of intangibles and deferred charges		1,776,062			2,158,868
Amortization of broadcast rights		4,554,086			4,724,655
Payments for broadcast rights		(4,930,969	)		(4,810,313	)
Deferred income taxes		—			(28,425	)
Provision for bad debts		3,088,607			2,924,837
Minority interest		(178,907	)		(114,426	)
Change in fair value of interest rate swaps		(2,199,442	)		(3,313,418	)
Gain on life insurance proceeds		(2,857,959	)		—
Loss on disposal of property and equipment		973,795			1,908,151
Changes in operating assets and liabilities:
Receivables		992,060			(250,487	)
Inventories		(3,399,760	)		407,314
Prepaid expenses		2,100,376			2,348,761
Accounts payable		(3,257,058	)		(4,027,112	)
Salaries, wages, payroll taxes and other accrued liabilities		98,016			3,892,129
Other assets		(413,160	)		4,112,840
Postretirement benefits and other long-term obligations		2,489,607			892,763

Net cash provided by operating activities		23,143,769			36,859,870

Investing activities
Additions to property, plant and equipment		(26,839,016	)		(36,540,961	)
Cash received on swap contracts		1,460,000			3,044,000
Life insurance proceeds received		21,161,833			541,230
Change in cash value of life insurance		(2,594,062	)		(2,294,133	)
Proceeds from disposal of property and equipment		171,490			81,969

Net cash used in investing activities		(6,639,755	)		(35,167,895	)

Financing activities
Payments on term loan		(10,631,350	)		(5,762,500	)
Net borrowings on revolver		(782,743	)		—
Cash dividends paid		(626,964	)		(558,265	)
Payments on capital leases		(311,027	)		(281,864	)

Net cash provided by used in financing activities		(12,352,084	)		(6,602,629	)


Increase (decrease) in cash and cash equivalents		4,151,930			(4,910,654	)
Cash and cash equivalents at beginning of period		3,548,624			11,461,283

Cash and cash equivalents at end of period	$	7,700,554		$	6,550,629

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 of America 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 of America 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 nine-month period ended September 30, 2005 are not necessarily indicative of the results that may be expected for the year ending December 31, 2005. For further information, refer to the December 31, 2004 audited consolidated financial statements and footnotes thereto.

The balance sheet at December 31, 2004 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 of America for complete financial statements.

Reclassifications

Certain balances in prior years have been reclassified to conform to the presentation adopted in the current year.

New Accounting Standards

In December 2004, SFAS No. 153,Accounting for Exchanges of Non-monetary Assets, an Amendment of APB Opinion No. 29,was issued and applies to non-monetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. SFAS No. 153 replaces the exception in Opinion 29 for non-monetary exchanges of similar productive assets with a general exception for exchanges of non-monetary assets that do not have commercial substance. Under the statement, a non-monetary exchange is deemed to have commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. The adoption of this standard has had no impact on the Company’s financial position or results of operations.

NOTE 2—RETIREMENT AND PENSION PLANS

The Company and certain subsidiaries have several defined benefit pension plans covering substantially all active and retired employees. Benefits are generally based on compensation and length of service. The components of net periodic pension cost are as follows:


	Three months ended September 30,						Nine months ended September 30,
	2005			2004			2005			2004

Service cost	$	1,085,984		$	1,298,927		$	3,257,951		$	3,896,780
Interest cost		3,708,926			3,708,846			11,126,779			11,126,539
Expected return on plan assets		(3,729,644	)		(3,733,503	)		(11,188,932	)		(11,200,508	)
Amortization of prior service cost		433,990			436,435			1,301,969			1,309,304
Actuarial loss recognized		851,395			608,122			2,554,185			1,824,367

	$	2,350,651		$	2,318,827		$	7,051,952		$	6,956,482

The assumptions used in the determination of 2005 net periodic pension cost include a discount rate of 6.00%, expected return on plan assets of 8.18%, and a rate of compensation increase of 4.34%, all calculated on a weighted average basis.

The Company has contributed $8,379,000 to these defined benefit pension plans during the nine months ended September 30, 2005 and estimates that total 2005 contributions to these plans will be approximately $9,500,000. Various factors, such

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements

as changes in liquidity, investment performance and shifts worked, may cause actual contributions to differ from this estimate.

NOTE 3—POST-RETIREMENT BENEFITS OTHER THAN PENSIONS

The Company and certain subsidiaries provide access to health care benefits for certain retired employees. The components of non-pension post-retirement benefit cost are as follows:


	Three months ended September 30,						Nine months ended September 30,
	2005			2004			2005			2004

Service cost	$	666,500		$	590,000		$	1,999,500		$	1,770,000
Interest cost		1,504,250			1,350,500			4,512,750			4,051,500
Amortization of prior service cost		(333,250	)		(250,000	)		(999,750	)		(750,000	)
Actuarial loss recognized		442,000			146,000			1,326,000			438,000

	$	2,279,500		$	1,836,500		$	6,838,500		$	3,673,000

The 2005 non-pension post-retirement benefit cost reflects an assumed discount rate of 6.00%.

The Company has contributed $3,209,000 to these post-retirement benefit plans during the nine months ended September 30, 2005 and estimates that total 2005 contributions to these plans will be approximately $4,500,000. As contributions are based on claims paid by the plans, actual experience may differ from this estimate.

On December 8, 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the Act) was enacted. Provisions of the Act include a prescription drug benefit under Medicare (Medicare Part D) as well as a federal subsidy to sponsors of retiree health care benefit plans that provide a benefit that is at least actuarially equivalent to Medicare Part D. The Company provides a prescription drug benefit for certain groups of retirees and has assessed that benefit to be at least actuarially equivalent to the benefit provided under Medicare Part D based on available information. Accordingly, under the guidance of Financial Accounting Standards Board Staff Position No. FAS 106-2,Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003(FSP FAS 106-2), the Company has accounted for anticipated subsidies under the Act. The non-pension post-retirement benefit cost for all periods presented includes the effect of anticipated subsidies.

Subsequent to September 30, 2005, the Company has amended the provisions of its post-retirement medical plan to eliminate the eligibility of a certain portion of the active non-union population that may have been eligible for retiree medical benefits under the previous plan and reduce benefits for certain non-union participants. The effect of this change on our net periodic non-pension post-retirement benefit expense for the fourth quarter 2005 and fiscal year 2006 has not yet been valued.

NOTE 4—LONG-TERM DEBT

Long-term debt consists of the following:


	September 30,		December 31,
	2005		2004

Subordinated notes	$	175,000,000	$	175,000,000
Fair value adjustment of subordinated notes		1,166,840		2,876,193

Subordinated notes, as adjusted		176,166,840		177,876,193

Senior term loans		73,547,650		84,179,000
Revolver		—		782,743
Capital leases		2,194,155		2,505,181

		251,908,645		265,343,117
Current maturities		1,279,633		1,259,043

	$	250,629,012	$	264,084,074

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements

NOTE 4—LONG-TERM DEBT (Continued)

The Company is exposed to market risk arising from changes in interest rates and therefore participates in interest-rate swap contracts as it deems necessary to minimize interest expense while stabilizing cash flows. At September 30, 2005, the Company participates in five interest–rate swap contracts relating to its long-term debt. During the first quarter of 2005, the Company terminated several interest-rate swap contracts in exchange for cash received of $1,460,000. The terminated swaps include two contracts that had previously been accounted for as fair value hedges. In accordance with the guidance of SFAS No. 133,Accounting for Derivative Instruments and Hedging Activities,the adjustments to the fair value of the hedge were recorded with an offset to the fair value of the underlying debt. Upon termination of these contracts, the remaining fair value adjustment of the subordinated notes will be amortized as interest expense using the effective interest rate method over the remaining life of the notes.

The remaining contracts either do not qualify for hedge accounting or the Company has not elected to implement hedge accounting. Accordingly, the Company has recognized a derivative valuation gain of $55,000 for the three months ended September 30, 2005 and a loss of $1.9 million for the same period of the prior year. The Company recognized derivative valuation gains of $2.2 million and $3.3 million for the nine-month periods ended September 30, 2005 and 2004, respectively.

We are currently in compliance with all of our debt covenants. However, absent a rebound in advertising revenues or progress in labor negotiations in the publishing segment, the Company will likely not be able to maintain compliance with these covenants in 2006. The actual impact of non-compliance cannot be predicted with certainty, as it would be dependent upon our financial condition as well as the condition of financial markets at that time. We are currently negotiating a refinancing of our senior and subordinated debt.

NOTE 5—OTHER LONG-TERM OBLIGATIONS

Other long-term obligations consist of the following:


	September 30,		December 31,
	2005		2004

Other postretirement benefits	$	92,340,307	$	88,722,000
Pension liabilities		47,900,225		49,207,229
Deferred compensation obligations		9,082,019		8,783,418
Broadcast rights payable		4,049,851		3,731,715
Other		3,052,300		2,467,777

	$	156,424,702	$	152,912,139

NOTE 6—INCOME TAXES

The provision for income taxes reflected in the Condensed Consolidated Statement of Operations for all periods presented includes adjustments necessary to maintain a full valuation allowance against the net balance of deferred tax assets. The Company believes that, based on a number of factors, the available objective evidence creates sufficient uncertainty regarding the realization of the net deferred tax asset balance such that a full valuation allowance is warranted. Factors considered include the existence of cumulative losses in the most recent fiscal years, the length of time over which temporary differences are expected to reverse, and the availability of prudent and feasible tax strategies.

During the nine-months ended September 30, 2005, the Company has recognized interest income of $734,000 relating to a federal income tax receivable from tax year 2001. This amount has been recognized based on the progressing status of the Internal Revenue Service audit of that year and the related refund claim.

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements

NOTE 7—CONTINGENT LIABILITY

On June 20, 2005, William Block Sr., a significant shareholder of the Company, died. Under an agreement with the Company, the estate of the deceased shareholder (the Estate) may require the Company to redeem shares of non-voting common stock to the extent necessary to provide the Estate with funds to pay estate taxes and administrative expenses. The Estate holds 224,354 shares of non-voting common stock.

The portion of shares that the Estate may redeem is limited to the amount of the estate tax liability and administrative expenses, which have not yet been estimated. In addition, 100% of the common stock of the Company is held by the Block family and is not publicly traded; therefore, fair values of the stock are not readily available. Due to these circumstances, the Company is unable at this time to quantify the number and value of shares of common stock that may be redeemable by the Estate. In accordance with the guidance of SFAS No. 5,Accounting for Contigenciesand EITF D-98,Classification and Measurement of Redeemable Securities, all shares will be classified as permanent equity until such estimates are available. When these values are estimable, the reclassification to recognize the stock redemption liability will have a negative impact on our recorded shareholders’ deficit.

In anticipation of this obligation, the Company held a substantial amount of life insurance on the deceased. During the nine months ended September 30, 2005 the Company received $21.2 million of life insurance proceeds and recorded a non-operating gain of $2.9 million to recognize the amount of expected proceeds in excess of the recorded cash surrender value of the life insurance policies. During the first six months of 2005, the Company recognized an operating gain of $691,000 for the increase in cash surrender value in excess of the premiums paid on these policies. The Company believes that the proceeds from these policies will be sufficient to meet the cash requirements of the redemption obligation.

NOTE 8—BUSINESS SEGMENT INFORMATION

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

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements

NOTE 8—BUSINESS SEGMENT INFORMATION (Continued)


	Three months ended September 30,						Nine months ended September 30,
	2005			2004			2005			2004

Revenues:
Publishing	$	62,525,852		$	63,939,713		$	187,175,218		$	191,211,040
Intersegment		(648,527	)		(1,415,484	)		(2,532,031	)		(3,382,220	)

External Publishing		61,877,325			62,524,229			184,643,187			187,828,820

Cable		32,242,726			30,134,126			95,446,717			90,241,104
Intersegment		(174,127	)		(65,389	)		(320,366	)		(137,509	)

External Cable		32,068,599			30,068,737			95,126,351			90,103,595

Broadcasting		8,725,241			9,067,468			27,335,879			28,568,341
Other		5,142,103			4,980,553			15,286,139			15,149,522

	$	107,813,268		$	106,640,987		$	322,391,556		$	321,650,278


Operating income (loss):
Publishing	$	(4,391,724	)	$	(2,139,445	)	$	(8,233,522	)	$	(2,642,069	)
Intersegment		(462,309	)		(1,345,033	)		(2,184,526	)		(3,182,746	)

Net Publishing		(4,854,033	)		(3,484,478	)		(10,418,048	)		(5,824,815	)

Cable		1,252,747			(314,494	)		4,084,931			3,086,659
Intersegment		560,279			1,344,232			2,389,383			3,246,801

Net Cable		1,813,026			1,029,738			6,474,314			6,333,460

Broadcasting		(138,571	)		284,097			665,993			1,991,425
Corporate expenses		(1,054,374	)		(866,821	)		(2,491,865	)		(3,938,273	)
Other		480,334			550,458			1,711,135			1,934,932

		(3,753,618	)		(2,487,006	)		(4,058,471	)		496,729

Non-operating expense, net		(5,343,221	)		(6,826,491	)		(11,723,017	)		(10,955,529	)

Loss before income taxes and minority interest	$	(9,096,839	)	$	(9,313,497	)	$	(15,781,488	)	$	(10,458,800	)

NOTE 9—SUPPLEMENTAL GUARANTOR INFORMATION

The Company’s senior credit facilities and senior subordinated notes 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
Item 1. Financial Statements

NOTE 9—SUPPLEMENTAL GUARANTOR INFORMATION (continued)

CONSOLIDATING CONDENSED BALANCE SHEET

September 30, 2005


	Unconsolidated
	Parent			Guarantor		Non-Guarantor
	Company			Subsidiaries		Subsidiary		Eliminations			Consolidated

Assets:
Current assets	$	17,238,931		$	55,127,237	$	3,427,979	$	1,412,506		$	77,206,653
Property, plant and equipment, net		21,699,299			212,522,250		4,057,038		(828,712	)		237,449,875
Intangibles, net		3,867,752			55,924,924		19,690,900		198,489			79,682,065
Cash value of life insurance		14,245,423			—		—		—			14,245,423
Prepaid pension costs		—			2,902,022		—		—			2,902,022
Pension intangibles		1,675,480			7,797,146		—		—			9,472,626
Investments in subsidiaries		148,428,025			—		—		(148,428,025	)		—
Other		(11,317,098	)		22,774,824		803,527		—			12,261,253

	$	195,837,812		$	357,048,403	$	27,979,444	$	(147,645,742	)	$	433,219,917


Liabilities and stockholders’ equity (deficit):
Current liabilities	$	19,454,715		$	48,025,453	$	1,066,329	$	1,409,582		$	69,956,079
Long-term debt		250,629,012			—		—		—			250,629,012
Other long-term obligations		220,274			230,996,815		803,507		(75,595,894	)		156,424,702
Minority interest		—			—		—		8,860,806			8,860,806
Stockholders’ equity (deficit)		(74,466,189	)		78,026,135		26,109,608		(82,320,236	)		(52,650,682	)

	$	195,837,812		$	357,048,403	$	27,979,444	$	(147,645,742	)	$	433,219,917

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements

NOTE 9—SUPPLEMENTAL GUARANTOR INFORMATION (continued)

CONSOLIDATING CONDENSED BALANCE SHEET

December 31, 2004


	Unconsolidated
	Parent			Guarantor		Non-Guarantor
	Company			Subsidiaries		Subsidiary		Eliminations			Consolidated

Assets:
Current assets	$	13,408,705		$	59,438,154	$	3,317,023	$	1,218,351		$	77,382,233
Property, plant and equipment, net		22,577,843			225,992,152		4,559,607		(1,352,913	)		251,776,689
Intangibles, net		3,889,430			56,525,553		19,690,900		198,489			80,304,372
Cash value of life insurance, net		29,955,235			—		—		—			29,955,235
Prepaid pension costs		—			2,902,022		—		—			2,902,022
Pension intangibles		1,675,480			7,797,146		—		—			9,472,626
Investments in subsidiaries		162,723,208			—		—		(162,723,208	)		—
Other		(9,837,772	)		20,766,777		32,933		—			10,961,938

	$	224,392,129		$	373,421,804	$	27,600,463	$	(162,659,281	)	$	462,755,115


Liabilities and stockholders’ equity (deficit):
Current liabilities	$	15,703,721		$	55,297,926	$	916,645	$	1,216,415		$	73,134,707
Long-term debt		264,084,074			—		—		—			264,084,074
Other long-term obligations		4,040,814			238,731,323		32,067		(89,892,065	)		152,912,139
Minority interest		—			—		—		9,039,713			9,039,713
Stockholders’ equity (deficit)		(59,436,480	)		79,392,555		26,651,751		(83,023,344	)		(36,415,518	)

	$	224,392,129		$	373,421,804	$	27,600,463	$	(162,659,281	)	$	462,755,115

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements

NOTE 9—SUPPLEMENTAL GUARANTOR INFORMATION (continued)

CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS

Three Months Ended September 30, 2005


	Unconsolidated
	Parent			Guarantor			Non-Guarantor
	Company			Subsidiaries			Subsidiary			Eliminations			Consolidated

Revenue	$	20,738,102		$	87,623,100		$	1,612,375		$	(2,160,309	)	$	107,813,268
Expenses		22,084,864			89,729,907			2,058,454			(2,306,339	)		111,566,886

Operating income (loss)		(1,346,762	)		(2,106,807	)		(446,079	)		146,030			(3,753,618	)
Nonoperating income (expense)		(5,356,198	)		(1,447	)		14,424			—			(5,343,221	)

Income (loss) before income taxes and minority interest		(6,702,960	)		(2,108,254	)		(431,655	)		146,030			(9,096,839	)
Provision for income taxes		—			12,467			—			—			12,467

Income (loss) before minority interest		(6,702,960	)		(2,120,721	)		(431,655	)		146,030			(9,109,306	)
Minority interest		—			—			—			142,446			142,446

Net income (loss)	$	(6,702,960	)	$	(2,120,721	)	$	(431,655	)	$	288,476		$	(8,966,860	)

CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS

Three Months Ended September 30, 2004


	Unconsolidated
	Parent			Guarantor			Non-Guarantor
	Company			Subsidiaries			Subsidiary			Eliminations			Consolidated

Revenue	$	21,724,833		$	86,868,628		$	1,440,075		$	(3,392,549	)	$	106,640,987
Expenses		21,689,830			89,124,153			1,687,181			(3,373,171	)		109,127,993

Operating income (loss)		35,003			(2,255,525	)		(247,106	)		(19,378	)		(2,487,006	)
Nonoperating expense		(6,822,863	)		(5,657	)		(2,029	)		—			(6,826,491	)

Loss from continuing operations before income tax and minority interest		(6,787,860	)		(1,261,182	)		(245,077	)		(19,378	)		(9,313,497	)
Provision (credit) for income taxes		(9,475	)		247,462			—			—			237,987

Loss from continuing operations before minority interest		(6,778,835	)		(2,508,644	)		(245,077	)		(19,378	)		(9,551,484	)
Minority interest		—			—			—			80,876			80,876

Net income (loss)	$	(6,778,835	)	$	(2,508,644	)	$	(245,077	)	$	61,498		$	(9,470,608	)

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements

NOTE 9—SUPPLEMENTAL GUARANTOR INFORMATION (continued)

CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS

Nine Months Ended September 30, 2005


		Unconsolidated
		Parent			Guarantor			Non-Guarantor
		Company			Subsidiaries			Subsidiary			Eliminations			Consolidated

Revenue		$	62,389,994		$	261,921,400		$	4,757,234		$	(6,677,072	)	$	322,391,556
Expenses			65,116,386			263,204,118			5,330,796			(7,201,273	)		326,450,027

Operating income (loss)			(2,726,392	)		(1,282,718	)		(573,562	)		524,201			(4,058,471	)
Nonoperating income (expense)			(11,755,283	)		847			31,419			—			(11,723,017	)

Income (loss) before income taxes and minority interest			(14,481,675	)		(1,281,871	)		(542,143	)		524,201			(15,781,488	)
Provision for income taxes			—			84,549			—			—			84,549
	��
Income (loss) before minority interest			(14,481,675	)		(1,366,420	)		(542,143	)		524,201			(15,866,037	)
Minority interest			—			—			—			178,709			178,907

Net income (loss)		$	(14,481,675	)	$	(1,366,420	)	$	(542,143	)	$	703,108		$	(15,687,130	)

CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS

Nine Months Ended September 30, 2004


	Unconsolidated
	Parent			Guarantor			Non-Guarantor
	Company			Subsidiaries			Subsidiary			Eliminations			Consolidated

Revenue	$	63,451,078		$	266,630,360		$	4,737,053		$	(13,168,213	)	$	321,650,278
Expenses		65,810,828			262,864,679			5,087,564			(12,609,522	)		321,650,278

Operating income (loss)		(2,359,750	)		3,765,681			(350,511	)		(558,691	)		496,729
Nonoperating income (expense)		(10,927,947	)		(31,348	)		3,766			—			(10,955,529	)

Income (loss) from continuing operations before income tax and minority interest		(13,287,697	)		3,734,333			(346,745	)		(558,691	)		(10,458,800	)
Provision (credit) for income taxes		(28,425	)		438,467			—			—			410,042

Income (loss) from continuing operations before minority interest		(13,259,272	)		3,295,866			(346,745	)		(558,691	)		(10,868,842	)
Minority interest		—			—			—			(114,426	)		(114,426	)

Net income (loss)	$	(13,259,272	)	$	3,295,866		$	(346,745	)	$	(444,265	)	$	(10,754,416	)

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements

NOTE 9—SUPPLEMENTAL GUARANTOR INFORMATION (continued)

CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS

Nine Months Ended September 30, 2005


	Unconsolidated
	Parent			Guarantor			Non-Guarantor
	Company			Subsidiaries			Subsidiary			Eliminations			Consolidated

Net cash provided by (used in) operating activities	$	(13,493,156	)	$	35,688,103		$	425,609		$	523,213		$	23,143,769

Additions to property, plant and equipment		(2,237,937	)		(23,676,498	)		(400,380	)		(524,201	)		(26,839,016	)
Life insurance proceeds received		21,161,833			—			—			—			21,161,833
Other investing activities		(1,091,232	)		122,247			6,413			—			(962,572	)

Net cash provide by (used in) investing activities		17,832,664			(23,554,251	)		(393,967	)		(524,201	)		(6,639,755	)

Payments on term loans		(10,631,350	)		—			—			—			(10,631,350	)
Net payments on revolver		(782,743	)		—			—			—			(782,743	)
Other financing activity		11,394,416			(12,333,395	)		—			988			(937,991	)

Net cash provided by (used in) financing Activities		(19,677	)		(12,333,395	)		—			988			(12,352,084	)


Increase (decrease) in cash and equivalents		4,319,831			(199,543	)		31,642			—			4,151,930
Cash and equivalents at beginning of period		2,020,814			(320,631	)		1,848,441			—			3,548,624

Cash and equivalents at end of period	$	6,340,645		$	(520,174	)	$	1,880,083		$	—		$	7,700,554

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements

NOTE 9—SUPPLEMENTAL GUARANTOR INFORMATION (continued)

CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS

Nine months ended September 30, 2004


	Unconsolidated
	Parent			Guarantor			Non-Guarantor
	Company			Subsidiaries			Subsidiary			Eliminations			Consolidated

Net cash provided by (used in) operating activities	$	(6,204,537	)	$	42,738,317		$	896,585		$	(570,495	)	$	36,859,870

Additions to property, plant and equipment		(1,746,338	)		(35,222,314	)		(131,000	)		558,691			(36,540,961	)
Other investing activities		1,063,405			309,661			—			—			1,373,066

Net cash provided by (used in) investing activities		(682,933	)		(34,912,653	)		(131,000	)		558,691			(35,167,895	)

Payments on term loans		(5,762,500	)		—			—			—			(5,762,500	)
Other financing activity		7,701,111			(8,553,044	)		—			11,804			(840,129	)

Net cash provided by (used in) financing activities		1,938,611			(8,553,044	)		—			11,804			(6,602,629	)


Increase (decrease) in cash and equivalents		(4,948,859	)		(727,380	)		765,585			—			4,910,654
Cash and equivalents at beginning of period		10,828,912			89,752			542,619			—			11,461,283

Cash and equivalents at end of period	$	5,880,053		$	(637,628	)	$	1,308,204		$	—		$	6,550,629

PART I. FINANCIAL INFORMATION

Item 2. Management’s Discussion and Analysis of Financial Condition 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, 2004.

Overview

We are a privately held diversified media company with our primary operations in cable television, newspaper publishing and television broadcasting. Our Buckeye CableSystem provide cable television service to the greater Toledo, Ohio metropolitan area, including Michigan suburbs, and the Sandusky, Ohio area (Erie County). At December 31, 2004, we had approximately 146,000 subscribers. We publish two daily metropolitan newspapers, thePittsburgh Post-Gazettein Pittsburgh, Pennsylvania, andThe Bladein Toledo, Ohio, each of which is the leading publication in its market. The combined average daily and Sunday paid circulation of our two newspapers is approximately 383,200 and 590,200, respectively, as of December 31, 2004. 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 commercial telecom business and a home security business.

Since our diversified media operations include several advertising dependent companies, our financial performance is significantly impacted by advertising revenues. In general, advertising revenue is 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 growth continues to be soft due in part to the lagging response to the economic rebound by the Midwest markets in which we operate.

Critical Accounting Policies and Estimates

We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America and reflect practices appropriate to our businesses. 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 about the carrying values of certain assets and liabilities that are not readily apparent from other sources on historical experience and various other assumptions that we believe to be reasonable under the circumstances. We evaluate these estimates and judgments on a continual basis. Actual results may differ from these estimates and judgments. Management has discussed with our Executive Committee and Board of Directors the development, selection and disclosure of the critical accounting policies and estimates and the application of these policies and estimates.

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 certain 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 self-insurance liabilities and 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. We also make estimates and judgments in determining certain tax liabilities and in the determination of the recoverability of certain of the deferred tax assets, which arise from temporary differences between the tax and financial statement recognition of revenue and expense. Our other critical accounting policies include accounting for broadcast rights, goodwill and other intangible assets, stock-based compensation, and our revenue recognition policies. Please refer to our 2004 Form 10-K filed March 24, 2005, for a more detailed discussion of our critical accounting policies and estimates. In addition, there are other items within the financial statements that require estimation, but are not deemed to be critical accounting policies and estimates. Changes in the estimates used in these and other items could have a material impact on our financial statements.

PART I. FINANCIAL INFORMATION
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

General

For the nine months ended September 30, 2005, we had revenues, operating loss, and a net loss of $322.4 million, $4.1 million, and $15.7 million, respectively. This represents an increase in revenues of $741,000 and a decrease in operating income of $4.6 million as compared to the nine months ended September 30, 2004. Advertising revenues continue to be soft due primarily to the economic conditions faced by our publishing and broadcasting companies.

Set forth below are the operating results and a reconciliation of net income loss to adjusted EBITDA for the three- and nine-month periods ended September 30, 2005 and 2004.

PART I. FINANCIAL INFORMATION
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Block Communications, Inc. and Subsidiaries

Results of Operations (unaudited)


	Three months ended September 30,
	2005					2004

Revenue:
Publishing	$	61,877,325		57.4	%	$	62,524,229		58.6	%
Cable		32,068,599		29.7			30,068,737		28.2
Broadcasting		8,725,241		8.1			9,067,468		8.5
Other communications		5,142,103		4.8			4,980,553		4.7

		107,813,268		100.0			106,640,987		100.0
Expense:
Cost of revenue:
Publishing		47,736,454		44.3			46,938,902		44.0
Cable		23,587,776		21.9			21,469,225		20.1
Broadcasting		5,656,297		5.2			5,423,152		5.1
Other communications		2,282,415		2.1			2,371,076		2.2

		79,262,942		73.5			76,202,355		71.5

Selling, general & administrative expense:
Publishing		18,994,904		17.6			19,069,805		17.9
Cable		6,667,797		6.2			7,569,774		7.1
Broadcasting		3,207,515		3.0			3,360,219		3.2
Other communications		2,379,354		2.2			2,059,019		1.9
Corporate expenses		1,054,374		1.0			866,821		0.8

		32,303,944		30.0			32,925,638		30.9


		111,566,886		103.5			109,127,993		102.3


Operating loss		(3,753,618	)	-3.5			(2,487,006	)	-2.3

Nonoperating income (expense):
Interest expense		(5,856,428	)				(5,009,451	)
Change in fair value of interest rate swaps		55,479					(1,904,609	)
Investment income		457,728					87,569

		(5,343,221	)				(6,826,491	)


Loss before income taxes and minority interest		(9,096,839	)				(9,313,497	)
Provision for income taxes		12,467					237,987
Minority interest		142,446					80,876

Net loss		(8,966,860	)				(9,470,608	)

Add:
Interest expense		5,856,428					5,009,451
Provision for income taxes		12,467					237,987
Depreciation		13,413,341					11,743,661
Amortization of intangibles and deferred charges	437,852						669,103
Amortization of broadcast rights		1,547,668					1,640,092
Loss on disposal of property and equipment		228,957					1,644,008
Change in fair value of interest rate swaps		(55,479	)				1,904,609

Less:
Payments on broadcast rights		(1,568,875	)				(1,603,902	)


Adjusted EBITDA	$	10,905,499				$	11,774,401

PART I. FINANCIAL INFORMATION
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Block Communications, Inc. and Subsidiaries

Results of Operations (unaudited)


	Nine months ended September 30,
	2005					2004

Revenue:
Publishing	$	184,643,187		57.3	%	$	187,828,820		58.4	%
Cable		95,126,351		29.5			90,103,595		28.0
Broadcasting		27,335,879		8.5			28,568,341		8.9
Other communications		15,286,139		4.7			15,149,522		4.7

		322,391,556		100.0			321,650,278		100.0

Expense:
Cost of revenue:
Publishing		140,097,311		43.5			137,643,950		42.8
Cable		69,084,312		21.4			64,485,536		20.0
Broadcasting		16,666,795		5.2			16,750,255		5.2
Other communications		7,285,018		2.3			7,086,912		2.2

		233,133,436		72.3			225,966,653		70.3

Selling, general & administrative expense:
Publishing		54,963,924		17.0			56,009,685		17.4
Cable		19,567,725		6.1			19,284,599		6.0
Broadcasting		10,003,091		3.1			9,826,661		3.1
Other communications		6,289,986		2.0			6,127,678		1.9
Corporate expenses		2,491,865		0.8			3,938,273		1.2

		93,316,591		28.9			95,186,896		29.6


		326,450,027		101.3			321,153,549		99.8


Operating income (loss)		(4,058,471	)	-1.3			496,729		0.2

Nonoperating income (expense):
Interest expense		(17,925,609	)				(14,518,860	)
Change in fair value of interest rate swaps		2,199,442					3,313,418

Gain on life insurance proceeds		2,857,959					—
Investment income		1,145,191					249,913

		(11,723,017	)				(10,955,529	)


Loss before income taxes and minority interest		(15,781,488	)				(10,458,800	)
Provision for income taxes		84,549					410,042
Minority interest		178,907					114,426

Net loss		(15,687,130	)				(10,754,416	)

Add:
Interest expense		17,925,609					14,518,860
Provision for income taxes		84,549					410,042
Depreciation		39,995,545					36,788,149
Amortization of intangibles and deferred charges		1,776,062					2,158,868
Amortization of broadcast rights		4,554,086					4,724,655
Loss on disposal of property and equipment		973,795					1,908,151
Change in fair value of interest rate swaps		(2,199,442	)				(3,313,418	)
Less:
Gain on life insurance proceeds		(2,857,959	)				—
Payments on broadcast rights		(4,930,969	)				(4,810,313	)


Adjusted EBITDA	$	39,634,146				$	41,630,578

PART I. FINANCIAL INFORMATION
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Set forth below is a reconciliation of net income (loss) to adjusted EBITDA by operating segment for the three- and nine-month periods ended September 30, 2005 and 2004.

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


	Publishing			Cable			Broadcasting			Other			Corporate			Consolidated

	Three months ended September 30, 2005

Net income (loss)	$	(4,891,526	)	$	1,813,334		$	18,299		$	467,867		$	(6,374,834	)	$	(8,966,860	)
Adjustments to net income (loss):
Interest expense		37,507			—			—			—			5,818,921			5,856,428
Provision for income taxes		—			—			—			12,467			—			12,467
Depreciation		2,619,817			8,876,448			762,562			1,154,514			—			13,413,341
Amortization of intangibles and deferred charges		(142,108	)		184,890			4,234			—			390,836			437,852
Amortization of broadcast rights		—			73,668			1,474,000			—			—			1,547,668
Film payments		—			(69,420	)		(1,499,455	)		—			—			(1,568,875	)
(Gain) loss on disposal of assets		60,049			167,301			(69	)		1,676			—			228,957
Change in fair value of derivatives		—			—			—			—			(55,479	)		(55,479	)

Adjusted EBITDA	$	(2,316,261	)	$	11,046,221		$	759,571		$	1,636,524		$	(220,556	)	$	10,905,499


	Three months ended September 30, 2004

Net income (loss)	$	(3,728,166	)	$	1,030,256		$	369,711		$	497,095		$	(7,639,504	)	$	(9,470,608	)
Adjustments to net income (loss):
Interest expense		49,604			—			—			—			4,959,847			5,009,451
Provision (credit) for income taxes		194,099			—			—			53,363			(9,475	)		237,987
Depreciation		2,514,750			7,648,904			560,593			1,019,414			—			11,743,661
Amortization of intangibles and deferred charges		89,143			184,890			4,234			—			390,836			669,103
Amortization of broadcast rights		—			60,913			1,579,179			—			—			1,640,092
Film payments		—			(58,791	)		(1,545,111	)		—			—			(1,603,902	)
(Gain) loss on disposal of assets		(125	)		1,566,209			83,275			(5,351	)		—			1,644,008
Change in fair value of derivatives		—			—			—			—			1,904,609			1,904,609

Adjusted EBITDA	$	(880,695	)	$	10,432,381		$	1,051,881		$	1,564,521		$	(393,687	)	$	11,774,401

PART I. FINANCIAL INFORMATION
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations


	Publishing			Cable			Broadcasting			Other			Corporate			Consolidated

	Nine months ended September 30, 2005
Net income (loss)	$	(10,535,245	)	$	6,480,356		$	834,354		$	1,668,551		$	(14,135,146	)	$	(15,687,130	)
Adjustments to net income (loss):
Interest expense		117,226			—			—			—			17,808,383			17,925,609
Provision for income taxes		—			—			41,965			42,584			—			84,549
Depreciation		8,078,589			26,371,420			2,010,443			3,535,093			—			39,995,545
Amortization of intangibles and deferred charges		36,178			554,672			12,704			—			1,172,508			1,776,062
Amortization of broadcast rights		—			202,788			4,351,298			—			—			4,554,086
Film payments		—			(203,158	)		(4,727,811	)		—			—			(4,930,969	)
(Gain) loss on disposal of assets		43,489			922,300			(7,332	)		15,338			—			973,795
Gain on life insurance proceeds		—			—			—			—			(2,857,959	)		(2,857,959	)
Change in fair value of derivatives		—			—			—			—			(2,199,442	)		(2,199,442	)

Adjusted EBITDA	$	(2,259,763	)	$	34,328,378		$	2,515,621		$	5,261,566		$	(211,656	)	$	39,634,146


	Nine months ended September 30, 2004

Net income (loss)	$	(6,372,426	)	$	6,335,520		$	2,110,326		$	1,881,569		$	(14,709,405	)	$	(10,754,416	)
Adjustments to net income (loss):
Interest expense		164,805			—			—			—			14,354,055			14,518,860
Provision (credit) for income taxes		383,104			—			2,000			53,363			(28,425	)		410,042
Depreciation		7,332,645			24,378,313			1,928,218			3,148,973			—			36,788,149
Amortization of intangibles and deferred charges		267,429			554,672			12,704			—			1,324,063			2,158,868
Amortization of broadcast rights		—			180,773			4,543,882			—			—			4,724,655
Film payments		—			(173,162	)		(4,637,151	)		—			—			(4,810,313	)
(Gain) loss on disposal of assets		(9,625	)		1,837,508			86,438			(6,170	)		—			1,908,151
Change in fair value of derivatives		—			—			—			—			(3,313,418	)		(3,313,418	)

Adjusted EBITDA	$	1,765,932		$	33,113,624		$	4,046,417		$	5,077,735		$	(2,373,130	)	$	41,630,578

We define adjusted EBITDA as net income (loss) before provision (credit) for income taxes, interest expense, depreciation and amortization (including amortization of broadcast rights), and other non-cash charges, gains or losses on disposition of assets, and extraordinary items and after payments for broadcast rights. We calculate adjusted EBITDA in accordance with the definition set forth in our senior debt agreements. Accordingly, we have excluded the change in fair value of derivatives from adjusted EBITDA because our derivatives consist of interest rate swap contracts. Since interest expense is a recurring charge excluded from adjusted EBITDA, we also exclude the changes in value of swap contracts, as these are put in place in order to manage our cost of debt. Furthermore, we have excluded gains or losses on the disposition of assets, since the losses typically represent the undepreciated cost of disposed assets and their exclusion is a logical extension of excluding depreciation from adjusted EBITDA. In the interest of consistency, gains are also excluded.

When we present adjusted EBITDA for our business segments, we exclude certain expenses consisting primarily of corporate general and administrative expenses that have not been allocated to individual segments. Corporate general and administrative expenses were $1.1 million and $867,000 for the three-month periods ending September 30, 2005 and 2004, respectively, and $2.5 million and $3.9 million for the nine-month periods ending September 30, 2005 and 2004, respectively.

Other media companies may measure adjusted EBITDA in a different manner. We have included adjusted 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. Furthermore, management uses adjusted EBITDA as a key performance measure upon which budgets are established at the subsidiary level and upon which incentive compensation is awarded. Adjusted EBITDA is used as one method of measuring growth and trends in the financial performance of our business units and is the financial measure used by our Board of Directors to determine the amount of quarterly dividends paid to our shareholders. Adjusted EBITDA is also a significant component of the financial covenants contained in our senior debt agreement.

PART I. FINANCIAL INFORMATION
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

As stated above, we have calculated adjusted EBITDA in accordance with the definition set forth in the senior debt agreement dated May 15, 2002, as amended. This agreement governs all of our senior credit facilities, which represent 29% of our debt outstanding at September 30, 2005, and includes certain key financial covenants. The covenants provide, among other things, restrictions on total and senior leverage, minimum required amounts of adjusted EBITDA, and limits on capital expenditures. Specific covenants include consolidated total and senior leverage ratios which are defined as the ratio of consolidated total or senior funded indebtedness to consolidated adjusted EBITDA. As of September 30, 2005, the maximum allowable consolidated total and senior leverage ratios were 5.00 to 1.00 and 2.25 to 1.00, respectively. The maximum allowable consolidated total leverage ratio decreases to 4.75 to 1.00 at March 31, 2006, and the maximum allowable consolidated senior leverage ratio decreases to 2.00 to 1.00 at September 30, 2006. Other material covenants include interest coverage ratio and consolidated coverage ratio. Interest coverage ratio is defined as the ratio of consolidated adjusted EBITDA to consolidated interest charges. As of September 30, 2005, the minimum allowable interest coverage ratio was 2.25 to 1.00, increasing to 2.50 to 1.00 at December 31, 2005. Consolidated coverage ratio is defined as the ratio of consolidated adjusted EBITDA to consolidated debt service. Consolidated debt service includes interest payments and scheduled principal payments. The minimum allowable consolidated coverage ratio is 2.25 to 1.00, remaining at that level through September 30, 2007.

We are currently in compliance with all of our debt covenants. At September 30, 2005, our total leverage ratio is 4.24 to 1.00, senior leverage ratio is 1.44 to 1.00, interest coverage is 2.67 to 1.00, and our consolidated coverage ratio is 2.54 to 1.00. However, absent a rebound in advertising revenues or progress in labor negotiations in the publishing segment, the Company will likely not be able to maintain compliance with these covenants in 2006.

Non-compliance with any of these covenants could have a significant impact on our liquidity. We would be required to either amend our existing senior debt agreement or refinance all or a portion of our senior credit facilities. The actual impact of non-compliance can not be predicted with certainty, as it would be dependent upon our financial condition as well as the condition of financial markets at that time. We are currently negotiating a refinancing of our senior and subordinated debt.

We understand the material limitations associated with the use of a non-GAAP measure. Accordingly, adjusted 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 of America, 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 of America. Refer to our financial statements, including our statement of cash flows, which appear elsewhere in this report. The preceding calculations of adjusted EBITDA are not necessarily comparable to similarly titled amounts of other companies.

Three Months Ended September 30, 2005 Compared to Three Months Ended September 30, 2004

Revenues

Total revenue for the three-month period ended September 30, 2005 was $107.8 million, an increase of $1.2 million or 1.1%, as compared to the same period of the prior year. This increase was attributable to revenue growth in the cable and other communications segments, partially offset by declines in the publishing and broadcasting operations. Our advertising based companies continue to be challenged by lagging economic conditions in our Great Lakes/ Midwest markets.

PART I. FINANCIAL INFORMATION
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Cable Television.Cable revenue for the quarter was $32.1 million, an increase of $2.0 million, or 6.7%, as compared to the same period of 2004. The increase in cable revenue was principally the result of an increase of $5.79, to $73.60, 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 $38.81 decreased $4.16 as compared to the third quarter of 2004. The decrease in high-speed data average revenues resulted from growth in the lower-speed, lower-priced tier due to a promotion bundling this service with video service and our new residential telephone service. For the quarter ended September 30, 2005, average monthly digital revenue per home was $18.53, an increase of $3.75 as compared to the same period of the prior year. The increase in average digital revenue per home resulted from an increase in the monthly digital cable service charge, increases in Video on Demand (VOD) purchases due to greater market awareness, and a greater number of high-definition converters and DVR converters deployed during the third quarter of 2005, partially offset by packaging discounts and promotional offers. Paid VOD purchases grew over 130% as compared to the third quarter of 2004. The increasingly competitive environment, primarily in the Toledo market, drove the continuation of discounts and promotional offers throughout the third quarter of 2005.

Buckeye TEL, our residential telephone service, was launched during the first quarter of 2005. During the three months ending September 30, 2005, our residential telephone service provided $496,000 of additional cable revenue.

Revenue generating units increased in the high-speed data, digital and voice categories during the three month period ended September 30, 2005. The net increase in high-speed data subscribers totaled 5,818 and the net increase in digital homes totaled 1,661 during the quarter. This resulted in 48,387 high-speed data customers and 54,965 digital homes as of September 30, 2005. Growth in these categories was driven by the package discounts available on these services when combined with our Buckeye TEL residential service. Basic subscribers at the end of the period totaled 144,910, a decrease of 668, or 0.5%, in basic subscribers in the third quarter of 2005. This is attributable to an increasing number of disconnects due to economic conditions, and continuing competition. As of September 30, 2005, we had 6,956 Buckeye TEL subscribers, an increase of 4,061 for the quarter.

Newspaper Publishing.Publishing revenue for the quarter was $61.9 million, a decrease of $647,000, or 1.0%, as compared to the third quarter of 2004. The decrease consisted of a $815,000, or 1.6%, decrease in advertising revenue due primarily to a decrease in national advertising of $1.4 million, or 20.0%, partially offset by growth in retail, classified and internet advertising of $155,000, $20,000, and $308,000, respectively. Other advertising, net of trade expense, increased $111,000. Circulation revenue decreased $371,000, or 3.1%, as compared to the same period of 2004, primarily due to a decrease in both daily and Sunday circulation compounded by declining average earned rates per copy. The variance in circulation rates is the result of increased discounting during the third quarter of 2005 as compared to the third quarter of 2004. Other revenue, which includes third party and total market delivery, increased $539,000 compared to the same period of 2004 due to $603,000 in sales of commemorative Pittsburgh Steelers medallions for the 2005-2006 football season.

Television Broadcasting.Broadcasting revenue for the quarter was $8.7 million, a decrease of $342,000, or 3.8%, as compared to the three months ended September 30, 2004. The decrease in broadcasting revenue was due to decreases in national and political advertising of $153,000, or 4.9%, and $591,000, or 97.0%, respectively, partially offset by an increase in combined local and regional advertising revenue of 350,000, or 5.4%, and a decrease in agency commissions of $103,000. Other income decreased $50,000 as compared to the third quarter of 2004 due to decreases in production revenue and barter sales, partially offset by growth in satellite retransmission fees.

Other Communications.Other communications revenue for the quarter was $5.1 million, an increase of $162,000, or 3.2%, as compared to the same period of the prior year. Telecom revenue for the quarter was $4.5 million, an increase of $100,000, due primarily to an increase in competitive access and local exchange/switched service revenue of $166,000, attributable to the net addition of 188 commercial telecom customers, representing a 24.6% increase in the customer base since the third quarter of 2004. Carrier access billings increased $36,000, or 34.7%. These increases were partially offset by a decrease in long-distance revenue of $99,000. Revenue from the home security business grew $59,000, or 9.9%, due to an increase in system sales as compared to the third quarter of 2004, as well as an increase in monitoring rates.

PART I. FINANCIAL INFORMATION
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Operating Expenses

Operating expenses for the quarter were $111.6 million, an increase of $2.4 million, or 2.2%, as compared to the third quarter of 2004. The increase in operating expense was attributable to increased expenses in all operating segments.

Cable Television. Cable cost of revenue was $23.6 million, an increase of $2.1 million, or 9.9%, as compared to the same period of the prior year. The increase was due to a $1.2 million, or 16.1% increase in depreciation expense driven by continued rollout of advanced services, the 2004 completion of the rebuild of the Erie County portion of our cable system, and capital investments supporting the launch of Buckeye TEL, our residential phone service. Basic programming expenses increased $334,000, or 4.2%. Cable modem associated expenses increased $89,000, or 11.3% and programming expenses for the digital tier increased $254,000, or 36.9%. Also, video on demand expense increased $90,000 due to the increases in VOD purchases. These increases were partially offset by decreases in pay and pay-per-view programming expense of $236,000, or 20.1%, partially due to the shift to VOD. Programming and trade expense related to our WB affiliate increased $89,000. Technical and network operation and third-party expenses increased $188,000 and $138,000, respectively, primarily due to the launch of Buckeye TEL during the first quarter of 2005.

Basic cable programming expenses increased due to price increases from programming suppliers. Cable modem expenses increased as a result of additional customer service representatives and network and product improvements implemented in response to subscriber growth. Programming expense for the digital tier increased due to increases in digital carriage fees and an increase in the number of digital subscribers as compared to the same quarter of the prior year.

Selling, general & administrative expense was $6.7 million, a decrease of $902,000, or 11.9%. General and administrative expenses decreased $1.2 million or 21.4%, due to a decrease in the recognized loss on disposal of assets of $1.4 million reflecting a prior year retirement and disposal of analog converters, as well as savings in personal property tax resulting from a change in the Ohio tax law. Partially offsetting these savings were increased administrative expenses due to the launch of residential telephone service totaling $97,000. Marketing and advertising expense increased $160,000, or 16.7%, also partly due to the launch of residential telephone service during the first quarter of 2005. Furthermore, customer service expense increased $125,000 because of Buckeye TEL.

Newspaper Publishing.Publishing cost of revenue was $47.7 million, an increase of $798,000, or 1.7%, as compared to the three months ended September 30, 2004. The increase was partially due to a $402,000, or 4.8%, increase in the cost of newsprint and ink, resulting from a weighted-average price per ton increase of $52.78, or 9.9%, partially offset by an 8.4% decrease in consumption from the same period of the prior year. Cost of revenue further increased due to increases in circulation and advertising sales expense of $332,000 and $322,000, respectively. Circulation expenses increased due to improved customer service, increased solicitation efforts, and a general focus on reducing churn through improving the quality of subscription orders and increased reselling efforts. Also included in cost of revenue is $502,000 of product cost for commemorative Pittsburgh Steelers medallions. These increases were partially offset by a decrease in production costs of $617,000, largely due to savings realized from the plant improvement project at the Post-Gazette. Depreciation and amortization expense decreased $126,000 due to the reduction in amortization expense for certain fully-amortized intangibles.

Selling, general and administrative expense was $19.0 million, a decrease of $75,000, or 0.4%, primarily due to savings in the Post-Gazette’s workers’ compensation costs of $1.5 million, as compared to the third quarter of 2004. Workers’ compensation expense decreased as compared to the same period of the prior year due to improvements in overall claim management and a decrease in the average dollar value associated with outstanding claims. This savings was offset by increases in the Post-Gazette’s health insurance, other post-employment benefits, administrative payroll and other benefit costs, and bad debt expense of $564,000, $427,000, $356,000, and $71,000, respectively. Other administrative cost increases include a $58,000 increase in software license and maintenance costs and a $75,000 increase in consulting and outside services. The Blade’s general and administrative costs decreased primarily due to savings in workers’ compensation costs of $248,000, partially offset by increases in other employee benefit costs totaling $97,000.

Television Broadcasting.Broadcasting cost of revenue was $5.7 million, an increase of $233,000, or 4.3%, from the same period of the prior year, primarily due to increases in engineering, news department and depreciation expense of $221,000, $83,000, and $202,000, respectively. These increases were partially offset by savings in programming, production, and broadcasting film amortization expense of $136,000, $52,000, and $105,000, respectively.

PART I. FINANCIAL INFORMATION
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Selling, general and administrative expense was $3.2 million, a decrease of $153,000, or 4.5%, due to a $288,000, or 13.1% decrease in general administrative expenses attributable to savings in employee benefit costs. These cost savings were partially offset by an increase in selling and promotion expenses of $135,000, or 11.7% primarily due to compensation costs and outside production services.

Other Communications.Other communications cost of revenue was $2.3 million, a decrease of $89,000, or 3.7%, from the same period of 2004. Telecom cost of revenue decreased $58,000, or 3.1%, primarily due to savings in technical expense and long distance product costs of $82,000 and $72,000, respectively, partially offset by an increase of $87,000 in depreciation expense as compared to the same period of 2004. Home security alarm system sales and monitoring cost of revenue decreased $59,000 due to inventory write-downs in the third quarter of 2004. Metro Fiber & Cable Construction Inc., which typically performs services solely for our cable companies, incurred external expenses during the third quarter of 2005 totaling $29,000.

Selling, general and administrative expense was $2.4 million, an increase of $320,000, or 15.6%. Telecom selling, general and administrative expense increased $326,000, or 18.9%, primarily due to an additional Universal Service Fund surcharge generated by the revocation of a previously granted credit. Selling, general and administrative expenses for our residential security business decreased $6,000, or 1.9%.

Operating Loss

Operating loss increased $1.3 million, to $3.8 million, as compared to the three months ended September 30, 2004.

Cable operating income increased $783,000, or 76.1%, due to revenue growth generated from rate increases and rollout of new services and a decrease in the loss recognized on disposal of assets, partially offset by increases in depreciation expense, programming expenses, and technical and administrative expenses related to the launch of residential telephone service.

Publishing operating loss increased $1.4 million, or 39.3%, primarily due to continued decreases in advertising and circulation revenues. The increase in operating loss is also attributable to increased newsprint and certain departmental expenses.

Broadcasting operating loss increased $423,000, or 148.8%, due to decreases in advertising revenue, primarily national and political advertising, combined with engineering and depreciation expense increases.

Other communications operating income decreased $70,000, or 12.7%, due to a non-recurring credit reversal of Universal Service Fund charges, partially offset by revenue growth.

Operating loss attributable to corporate expenses increased $188,000, or 21.6%, due to increases in legal and professional fees as well as employee benefit costs.

Non-operating Income or Expense

Our non-operating income and expense consist of interest expense, investment income, change in fair value of interest rate swaps, and any non-recurring items that are not directly related to our primary operations. Net non-operating expense decreased $1.5 million, or 21.7%, as compared to the three months ended September 30, 2004. Interest expense increased $847,000, or 16.9%, due primarily to an increase in the effective interest rate. The expense attributable to the change in the fair value of our non-hedge interest rate swaps decreased $2.0 million as compared to 2004 due to the specific swaps in effect during the two periods and changes in the interest rate environment. Investment income increased $370,000 due primarily to interest earned on cash held during the quarter, appreciation recognized on trading securities, and $134,000 of interest income recorded relating to a federal income tax receivable. This amount has been recognized based on the progressing status of the Internal Revenue Service audit of the 2001 tax year and the related refund claim.

PART I. FINANCIAL INFORMATION
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Net Loss

For the three months ended September 30, 2005, the company reported a net loss of $9.0 million, compared to a net loss of $9.5 million reported for the same period of the prior year. This decrease in net loss is primarily due a favorable variance of $2.0 million on the change in fair value of interest-rate swaps, and an increase in investment income of $370,000. The provision for income taxes also decreased $226,000 compared to the same quarter of the previous year. These savings were partially offset by an increase in our operating loss of $1.3 million and an increase of $847,000 in interest expense.

Depreciation and Amortization

Depreciation and amortization increased $1.4 million, or 11.6%, as compared to the same period of the prior year. The increase was primarily due to an increase in cable operations depreciation expense of $1.2 million resulting from the continued rollout of advanced services, the 2004 completion of the rebuild of the Erie County portion of our cable system, and capital investments supporting the launch of Buckeye TEL. Depreciation expense of our broadcasting operations increased $202,000, primarily due to additional expenditures to convert the stations to digital format. Other communications depreciation increased $135,000. These increases were partially offset by a decrease in publishing depreciation and amortization of $126,000.

Adjusted EBITDA

Adjusted EBITDA decreased $869,000, or 7.4%, as compared to the third quarter of 2004. A reconciliation of adjusted EBITDA to net loss is provided above. Adjusted EBITDA as a percentage of revenue for the quarter ended September 30, 2005 decreased to 10.1% from 11.0% for the three months ended September 30, 2004. The decrease in adjusted EBITDA as a percentage of revenue was primarily due to the decrease in advertising revenue and the increase in operating expenses for all segments, partially offset by the continued rollout of high margin advanced cable products and the increase in cable service charges . Net loss as a percentage of revenue was 8.3% for the quarter ended September 30, 2005, as compared to 8.9% for the quarter ended September 30, 2004. This is primarily due to the favorable variance on the change in fair value of interest rate swaps discussed above.

Nine Months Ended September 30, 2005 Compared to Nine Months Ended September 30, 2004

Revenues

Total revenues for the nine-month period ended September 30, 2005 were $322.4 million, an increase of $741,000, or 0.2%, as compared to the same period of the prior year. This increase was attributable to growth in cable and other communications revenue, partially offset by declines in publishing and broadcasting.

Cable Television.Cable revenue was $95.1 million, an increase of $5.0 million, or 5.6%, as compared to the same period of 2004. The increase in cable revenue was principally the result of an increase of $5.17, to $72.59, 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 of $40.46 decreased $3.16, as compared to the first nine months of 2004. The decrease in high-speed data average revenues resulted from growth in the lower-speed, lower-priced tier due to a promotion bundling this service with video service and our new residential phone service For the nine months ended September 30, 2005, average monthly digital revenue per home of $18.15 increased $3.44 as compared to the same period of the prior year. The increase in average digital revenue per home resulted from an increase in the monthly digital cable service charge, increases in VOD purchases due to greater market awareness, and a greater number of high-definition converters and DVR converters deployed during the current period, partially offset by packaging discounts and promotional offers. Buckeye TEL, our residential telephone service, was launched during the first quarter of 2005. As of September 30, 2005, our residential telephone service provided $682,000 of additional cable revenue.

PART I. FINANCIAL INFORMATION
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Revenue generating units increased in the digital and high-speed data categories during the nine months ended September 30, 2005. Net high-speed data additions totaled 10,685 for the period, resulting in 48,387 high-speed data customers. Net digital additions totaled 4,240 for the period, resulting in 54,965 digital homes as of September 30, 2005. Basic subscribers at the end of the period totaled 144,910, a decrease of 1,041 basic subscribers in the nine months ended September 30, 2005 due to an increase in the number of disconnects resulting from economic conditions, and increasing competition in our markets.

Newspaper Publishing.Publishing revenue was $184.6 million, a decrease of $3.2 million, or 1.7%, as compared to the same period of 2004. The decrease consisted of a $2.2 million, or 1.5%, decrease in advertising revenue due primarily to a decrease in national advertising of $4.4 million, or 19.3%, partially offset by growth in retail, classified, and internet advertising of $410,000, or 0.6%, $340,000, or 0.6%, and $960,000, or 40.6%, respectively. The favorable variance in classified advertising is solely attributable to our Pittsburgh market, with the Toledo Blade reporting a decline of $204,000 in classified advertising. Both markets recognized equivalent decreases in national advertising. Other advertising revenue increased $488,000, primarily due to fluctuations in trade. For the first nine months of 2005, circulation revenue decreased $1.5 million, or 4.1%, due to a decrease in both daily and Sunday circulation compounded by declining average earned rates per copy. Other revenue, which includes third party and total market delivery, increased $526,000 compared to the nine months ended September 30, 2004, due to $603,000 in sales of commemorative Pittsburgh Steelers medallions for the 2005-2006 football season.

Television Broadcasting.Broadcasting revenue was $27.3 million, a decrease of $1.2 million, or 4.3%, as compared to the nine months ended September 30, 2004. The decrease in broadcasting revenue was due to decreases in national and political advertising of $733,000, or 7.4%, and $1.3 million, or 96.3%, respectively, partially offset by an increase in combined local and regional revenue of $386,000, or 1.8%, and a decrease in agency commissions of $217,000, or 4.2%. Other income increased $181,000 as compared to the first nine months of 2004 primarily due to satellite retransmission fees recognized during the first half of 2005.

Other Communications.Other communications revenue was $15.3 million, an increase of $137,000, or 0.9%, as compared to same period of the prior year. Telecom revenue for the first nine months of 2005 was $13.2 million, a decrease of $125,000, due primarily to decreases in carrier access billings, long-distance revenue, and reciprocal compensation of $256,000, $294,000, and $64,000, respectively. These decreases were partially offset by an increase in competitive access and local exchange/switched service revenue of $508,000, due to the net addition of 149 commercial telecom customers, representing an 18.6% increase in the customer base during the nine months ended September 30, 2005. Revenue from the home security business grew $142,000, or 7.8%, due primarily to an increase in system sales as compared to the same period of 2004. Metro Fiber & Cable Construction Inc., which typically performs services solely for our cable companies, had external sales during the first nine months of 2005 totaling $119,000.

Operating Expenses

Operating expenses for the first nine months were $326.5 million, an increase of $5.3 million, or 1.7%, as compared to the first nine months of 2004. The increase in operating expense was attributable to increased expenses in all operating segments, partially offset by decreased corporate general and administrative expenses.

Cable Television. Cable cost of revenue was $69.1 million, an increase of $4.6 million, or 7.1%, as compared to the same period of the prior year. The increase was primarily due to a $2.0 million increase in depreciation expense due to the capital expenditures associated with the continued rollout of advanced services. Also reflected is a $657,000, or 2.8%, increase in basic programming expenses, a $331,000, or 15.7%, increase in cable modem associated expenses, and a $762,000, or 39.2%, increase in programming expenses for the digital tier. Also, VOD expense increased $295,000 due to increases in VOD purchases. These increases were partially offset by decreases in pay and pay-per-view programming expense of $490,000, or 13.9%. Programming and advertising sales expense related to our WB affiliate increased $472,000. Technical expenses increased $529,000 primarily due to the launch of our residential telephone service during the first quarter of 2005. Basic cable programming expenses increased due to price increases from programming suppliers and a slight increase in production expenses related to Buckeye Cable Sports Network. Cable modem expenses increased as a result of additional customer service representatives and network and product improvements implemented in response to subscriber growth. Programming expense for the digital tier increased due to increases in digital carriage fees and an increase in the number of digital subscribers as compared to the same period of the prior year.

PART I. FINANCIAL INFORMATION
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Selling, general & administrative expense was $19.6 million, an increase of $283,000, or 1.5%. General and administrative expenses decreased $372,000, or 2.6%, due to a decrease in the recorded loss on disposal of assets of $915,000 and additional savings in personal property tax resulting from a change in the Ohio tax law. These savings were partially offset by additional administrative expenses due to the launch of residential telephone service totaling $552,000, and an increase of $382,000 in bad debt expense. Combined marketing and advertising expense increased $268,000, or 11.4%, and management information systems expense increased $77,000, or 9.4%, due to the launch of residential telephone service during the first quarter of 2005. Furthermore, customer service expense related to the residential telephony product increased $240,000.

Newspaper Publishing.Publishing cost of revenue was $140.1 million, an increase of $2.5 million, or 1.8%, as compared to the nine months ended September 30, 2004. The increase was partially due to a $653,000, or 2.7%, increase in the cost of newsprint and ink, resulting from a weighted-average price per ton increase of $48.58, or 9.4%, partially offset by a 6.3% decrease in consumption from the same period of the prior year. Cost of revenue further increased due to increases in editorial, circulation, and advertising sales expense of $212,000, $967,000, and $663,000, respectively. Also reflected is an increase of $515,000 in depreciation and amortization expense and $502,000 in product cost for the sale of commemorative Pittsburgh Steelers medallions for the 2005-2006 football season. These were partially offset by a reduction in production expense of $1.0 million, primarily due to cost savings resulting from the Post-Gazette’s plant improvement project. Circulation expenses increased due to improved customer service, increased solicitation expense, and a general focus on reducing churn through improving the quality of subscription orders and increased reselling efforts. Depreciation expense increased due to the capital improvement projects at the Post-Gazette.

Selling, general and administrative expense was $55.0 million, a decrease of $1.0 million, or 1.9%, primarily due to decreases in the Post-Gazette’s workers’ compensation costs of $4.5 million, as compared to the first nine months of 2004. This savings was offset by increases in the Post-Gazette’s other post-employment benefits, medical costs, administrative payroll and other benefit costs, and third party telemarketing and bank service charges of $1.2 million, $638,000, $1.4 million, and $241,000, respectively. The increase in the Post-Gazette’s administrative payroll reflects union concessions recognized during 2004, which are not applicable to 2005, and additional severance. Workers’ compensation expense decreased as compared to the same period of the prior year due to improvements in overall claim management and a decrease in the average dollar value associated with outstanding claims. The Blade’s general and administrative costs, inclusive of employee benefits, increased primarily due to increases in union pension and welfare benefits of $542,000, partially offset by savings in workers’ compensation and payroll taxes of $211,000 and $138,000, respectively. Year to date, the Blade has recognized $1.0 million in net periodic non-pension post-retirement benefit expense for retiree medical benefits. Due to a plan amendment subsequent to September 30, 2005 affecting certain non-union employees, the Blade will likely recognize a curtailment gain in the fourth quarter of 2005 and a significant reduction in net periodic non-pension post-retirement benefit expense for 2006. The impact of this amendment has not yet been valued, however we estimate that the reduction in our annual net periodic non-pension post-retirement benefit expense will be in excess of $1.0 million.

Television Broadcasting.Broadcasting cost of revenue was $16.7 million, a decrease of $83,000, or 0.5%, from the same period of the prior year, primarily due to decreases in programming, production, and broadcasting film amortization expense of $152,000, $123,000, and $193,000, respectively. Operating expenses associated with our UPN affiliate decreased $84,000. These decreases were partially offset by increases in engineering, news department and depreciation expense of $189,000, $196,000, and $82,000, respectively, as compared to the nine months ended September 30, 2004.

Selling, general and administrative expense was $10.0 million, an increase of $176,000, or 1.8%, due to a $75,000, or 1.3%, increase in general administrative expenses combined with a $101,000, or 3.1% increase in selling and promotional expenses.

Other Communications.Other communications cost of revenue was $7.3 million, an increase of $198,000, or 2.8%, from the same period of 2004. Telecom cost of revenue increased $172,000, or 3.0%, due primarily to increases in depreciation, internet, and information systems expenses of $343,000, $60,000, and 94,000, respectively. These increases were partially offset by decrease in long-distance expense of $231,000 and a $94,000 decrease in technical and network operation center expenses. Home security alarm system sales and monitoring cost of revenue decreased $109,000 due to a write-down of inventory in the prior year. Metro Fiber & Cable Construction Inc., which typically performs services solely for our cable companies, incurred external expenses during the nine months ending September 30, 2005 totaling $135,000.

PART I. FINANCIAL INFORMATION
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Selling, general and administrative expense was $6.3 million, an increase of $162,000, or 2.7%. Telecom selling, general and administrative expense increased $121,000, or 2.3%, primarily due to an additional Universal Service Fund surcharge generated by the reversal of a previously granted credit, partially offset by a favorable variance in bad debt expense. Selling, general and administrative expenses for our residential security business increased $42,000, or 4.2%, primarily due to increases in sales expense of $35,000.

Operating Loss

Operating loss increased $4.6 million, to $4.1 million, as compared to operating income of $497,000 for the nine months ended September 30, 2004.

Cable operating income increased $141,000, or 2.2%, due to revenue growth generated from rate increases and rollout of new services, partially offset by increases in programming expenses, technical and administrative expenses related to the launch of residential telephone service, and expenses associated with the continued growth in cable modems and digital products, including VOD, and increased depreciation.

Publishing operating loss increased $4.6 million, or 78.9%, primarily due to continued decreases in advertising and circulation revenues. The increase in operating loss is also attributable to increased newsprint and certain departmental expenses.

Broadcasting operating income decreased $1.3 million, or 66.6%, due to decreases in advertising revenue, primarily national and political advertising.

Other communications operating income decreased $224,000, or 11.6%, due to a revenue decline in telecom operations and increased operating expenses, partially offset by revenue growth in our home security business.

Operating loss attributable to corporate expenses decreased $1.4 million, or 36.7%, due to overall decreases in employee costs and legal and professional fees of $131,000 and $302,000 and a decrease in amortization expense of $152,000 due to the expiration of various non-compete agreements and general cost controls. Legal and professional fees decreased due to the difference in fees paid for an amendment to our senior credit facilities during the first half of 2005 as compared to amendment fees paid during the same period of the prior year. Other departmental expenses reported favorable variances due to general cost controls. Additionally, during the second quarter of 2005, we recognized an increase of $691,000 in the cash surrender value of company owned life insurance policies insuring the life of William Block, Sr., a significant shareholder who died in June 2005.

Non-operating Income or Expense

Our non-operating income and expense consist of interest expense, investment income, change in fair value of interest rate swaps, and any non-recurring items that are not directly related to our primary operations. Net non-operating expense increased $767,000, or 7.0%, as compared to the nine months ended September 30, 2004. Interest expense increased $3.4 million, or 23.5%, due primarily to an increase in the effective interest rate. The income attributable to the change in the fair value of our non-hedge interest rate swaps decreased $1.1 million as compared to 2004 due to the specific swaps in effect during the two periods and changes in the interest rate environment. Investment income increased $895,000 due to $734,000 of interest income recorded relating to a federal income tax receivable. This amount has been recognized based on the progressing status of the Internal Revenue Service audit of the 2001 tax year and the related refund claim. As mentioned in the notes to the financial statements, due to the death of William Block Sr., we recognized income of $2.9 million, which represents the additional amount of death benefit in excess of the cash surrender value of the policies at the time of death.

PART I. FINANCIAL INFORMATION
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Net Loss

For the nine months ended September 30, 2005, the company reported a net loss of $15.7 million, compared to a net loss of $10.8 million reported for the same period of the prior year. This increase in net loss is primarily due to an increase in operating loss of $4.6 million, combined with a $3.4 million increase in interest expense and a $1.1 unfavorable variance on the change in fair value of interest-rate swaps. These losses were partially offset by the increase in investment income of $895,000 and $2.9 million of income related to the net death benefit discussed above. The provision for income taxes was $85,000 for the nine months ended September 30, 2005 compared to a provision for income taxes of $410,000 for the same period of the previous year due to changing levels of income in our state and local taxing jurisdictions.

Depreciation and Amortization

Depreciation and amortization increased $2.8 million, or 7.3%, as compared to the same period of the prior year. The increase was due to an increase in cable operations depreciation expense of $2.0 million due to capital expenditures related to the continued rollout of advanced services. Publishing operations depreciation expense increased $746,000 resulting from the capital improvement projects primarily at the Post-Gazette. Depreciation expense of our other communications operations increased $386,000, primarily due to telecom capital expenditures. Broadcasting depreciation expense increased $82,000 from the same period of the prior year. These increases were partially offset by a decrease in amortization expense, including a decrease of $152,000 at the parent company due to the expiration of certain non-compete agreements and a decrease of $231,000 at the Post-Gazette, as certain intangibles became fully amortized.

Adjusted EBITDA

Adjusted EBITDA decreased $2.0 million, or 4.8%, as compared to the nine months ended September 30, 2004. A reconciliation of adjusted EBITDA to net loss is provided above. Adjusted EBITDA as a percentage of revenue decreased to 12.3% in the nine months ended September 30, 2005, from 12.9% in the same period of the prior year. The decrease in adjusted EBITDA as a percentage of revenue was primarily due to the decrease in advertising generated revenue, and increased operating expenses in all operating segments, partially offset by the continued rollout of high margin advanced cable products, the increase in cable service charges and the decrease in corporate general and administrative expenses . Net loss as a percentage of revenue was 4.9% for the nine months ended September 30, 2005, as compared to net loss as a percentage of revenue at September 30, 2004 of 3.3%. This is primarily due to the increase in operating loss for the nine months ended September 30, 2005 as compared to the prior year and increased interest expense, partially offset by the gain recorded on the life insurance of William Block, Sr., as discussed above.

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 $23.1 million and $36.9 million for the nine months ended September 30, 2005 and September 30, 2004, respectively. The net cash provided by operating activities is determined by adding back depreciation and amortization, and adjusting for other non-cash items. Net cash provided by operating activities for the nine months ended September 30, 2005 reflects the above discussed increase in net loss as compared to the prior year as well as other changes to working capital, such as an increase in publishing newsprint inventory to rebuild abnormally low balances at the end of 2004 and a decrease in the workers’ compensation liability at the Post-Gazette due to improvements in claim management and a decrease in the average dollar value associated with outstanding claims. Cash used in investing activities was $6.6 million and $35.2 million for the nine months ended September 30, 2005 and September 30, 2004, respectively. The decrease in 2005 investing activities reflects life insurance proceeds received of $21.2 million due to the death of William Block, Sr. and the decrease in capital expenditures discussed below.

PART I. FINANCIAL INFORMATION
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Our capital expenditures have historically been financed with cash flow from operations and borrowings under our senior credit facility. We made capital expenditures of $26.8 million and $36.5 million, including capital leases, for the nine months ended September 30, 2005 and 2004, respectively. Capital expenditures in 2005 were used primarily for the continued rollout of advanced cable services, the final stages of the Pittsburgh Post-Gazette facility upgrade, and expenditures necessary for full digital conversions of our broadcasting stations. Capital expenditures in 2004 were used primarily in the rebuild of the Erie County portion of our cable system, the Pittsburgh Post-Gazette facility upgrade, and the maintenance of other operating assets. We expect to make capital expenditures of $10.1 million in the last quarter of 2005. These include the continued rollout of advanced cable services and various other improvements to our operations.

Cash used in financing activities for the nine months ended September 30, 2005 was $12.4 million compared to $6.6 million for the same period of the prior year. The financing activities in the first nine months of 2005 include a $10.0 million voluntary principal payment under our senior term loan, as compared to a $5.0 million prepayment during the same period of the prior year. At September 30, 2005, the balances outstanding and available under our senior credit facilities and subordinated notes were $248.5 million and $63.2 million, respectively, and the average interest rate on the balance outstanding was 8.73%. At September 30, 2005, our covenants on our senior credit facilities would allow additional borrowing of $47.5 million based on our twelve month trailing EBITDA of $62.5 million. At September 30, 2004, the balances outstanding and available under our senior credit facility and senior notes were $259.5 million and $70.9 million, respectively, and the average interest rate on the balance outstanding was 6.95%. The increase in the effective interest rate, partially offset by the decrease in the amount outstanding, generated an overall increase in interest expense of $3.4 million, or 23.5%.

Notwithstanding our substantial debt, we believe that funds generated from operations and the borrowing availability under our senior credit facilities will be sufficient to finance our current operations, our cash obligations in connection with planned capital expenditures, and our financial obligations for the next twelve months. However, absent a rebound in advertising revenues or progress in labor negotiations in the publishing segment, the Company will likely not be able to maintain in 2006 compliance with the financial covenants in our senior debt agreement. Non-compliance with any of these covenants could have a significant impact on our liquidity. We would be required to either amend our existing senior debt agreement or refinance all or a portion of our senior credit facilities. The actual impact of non-compliance can not be predicted with certainty, as it would be dependent upon our financial condition as well as the condition of financial markets at that time. We are currently negotiating a refinancing of our senior and subordinated debt.

Quantitative and Qualitative Disclosure About Market Risk

Our senior credit facilities 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, 2005, our interest rate swap agreements expire in varying amounts through January 2009.

The fair value of $73.5 million of our long-term debt approximates its carrying value as it bears interest at floating rates. As of September 30, 2005, the estimated fair value of our interest rate swap agreements was a liability of $1.5 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 long-term obligations. 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 September 30, 2005, we had $175.0 million outstanding on our 9¹/4% senior subordinated notes, with a carrying value of $176.2 million, as adjusted for terminated fair value hedges.

As of September 30, 2005, we had entered into variable-to-fixed interest-rate swaps consisting of $135.0 million relating to our revolving credit and term loan agreements. In addition, we had entered into interest rate swap agreements that have the economic effect of substantially offsetting $85.0 million. During the first quarter of 2005, we terminated several swap contracts related to the $175 million in senior subordinated notes and received a cash payment of $1.5 million. The terminated swaps include two contracts that had previously been accounted for as fair value hedges. In accordance with the guidance of SFAS No. 133,Accounting for Derivative Instruments and Hedging Activities,the adjustments to the fair value of the hedge were recorded with an offset to the fair value of the underlying debt. Upon termination of these contracts, the remaining fair value adjustment of the subordinated notes will be amortized as interest expense using the effective interest rate method over the remaining life of the notes. 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 September 30, 2005, a hypothetical 100 basis point increase in interest rates along the entire interest rate yield curve would increase our interest expense for the following twelve month period by approximately $735,000.

PART I. FINANCIAL INFORMATION
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Recent Accounting Pronouncements

PART I. FINANCIAL INFORMATION
Item 2. Management’s Discussion and Analysis of Financial Condition 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. All statements other than statements of historical fact, including statements regarding industry prospects and future results of operations or financial position, made in this report are forward looking. We use words such as anticipates, believe, expects, future, intends and similar expressions to identify forward-looking statements. Forward-looking statements reflect management’s current expectations and are inherently uncertain. Our actual results may differ significantly from management’s expectations.

Factors that may cause actual results to differ from management’s expectations include economic and market conditions and many other factors beyond our control. For an additional discussion of risks and uncertainties 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 24, 2005.

PART I. FINANCIAL INFORMATION

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Information relating to market risk is included in Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations, under the caption “Liquidity and Capital Resources”.

PART I. FINANCIAL INFORMATION

Item 4. Controls and procedures

The Chairman 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 the end of the period covered by 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 Chairman and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

There was no change in the Company’s internal control over financial reporting that occurred during the quarter ended September 30, 2005 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 6. Exhibits


Exhibit 31.1		Certification of the Chairman pursuant to Rule 15d-14(a)

Exhibit 31.2		Certification of the Chief Financial Officer pursuant to Rule 15d-14(a)

Exhibit 32.1		Certification of the Chairman pursuant to 18 U.S.C. Sec. 1350

Exhibit 32.2		Certification of the Chief Financial Officer pursuant to 18 U.S.C. Sec. 1350

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 9, 2005	By:	/s/ Allan Block

		Allan Block
		Chairman

Date: November 9, 2005	By:	/s/ Gary J. Blair

		Gary J. Blair
		Executive Vice President / Chief Financial Officer

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Block Communications Inactive 10-Q2005 Q3 Quarterly report

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