EXHIBIT 99.1
BLOCK COMMUNICATIONS, INC. REPORTS THIRD QUARTER 2003 RESULTS
Toledo, OH- Tuesday, November 11, 2003 Block Communications, Inc. (the
"Company") today announced its results for the quarter ended September 30, 2003.
The Company is a privately held diversified media company with primary
operations in cable television, newspaper publishing and television
broadcasting. The Company had approximately 151,250 basic cable subscribers at
September 30, 2003, with cable systems based in Toledo and Sandusky, Ohio. The
primary cable system is located in the greater Toledo, Ohio metropolitan area
and serves approximately 132,300 subscribers. This system has been 100% rebuilt
to 870 MHz, excluding approximately 775 of the subscribers acquired in the
like-kind exchange of Monroe Cablevision. The Company publishes two daily
metropolitan newspapers, the Pittsburgh Post-Gazette in Pittsburgh, Pennsylvania
and The Blade in Toledo, Ohio, with combined daily and Sunday average paid
circulation of approximately 383,400 and 593,300, respectively as of September
30, 2003. The Company owns and operates four television stations- two in
Louisville, Kentucky, and one each in Boise, Idaho and Lima, Ohio- and is a
two-thirds owner of a television station in Decatur, Illinois. The Company also
owns other communication operations including a telecom business serving Toledo,
Northwest Ohio and parts of Southeast Michigan and a commercial and residential
security business.
Total revenue for the three month period ended September 30, 2003 was $101.9
million, a decrease of $1.4 million, or 1.3%, as compared to the same period of
the prior year. This decrease was attributable to reductions in publishing,
broadcasting and other communications revenue, partially offset by cable revenue
growth as discussed below.
Cable revenue for the quarter was $27.4 million, an increase of $2.2 million, or
8.9%, as compared to the same period of 2002. The increase in cable revenue was
principally the result of an increase of $5.73, to $60.46, in the average
monthly revenue per basic subscriber, based on the average number of subscribers
throughout the quarter. An increase in the monthly basic cable service charge
and continued rollout of new services drove the increase in average monthly
revenue per subscriber. Average monthly high-speed data revenue per customer of
$45.43 decreased $.53 as compared to the third quarter of 2002. This decrease is
primarily due to digital packaging discounts offered as part of the aggressive
digital tiers marketing campaign launched during the last half of the third
quarter of 2002. For the quarter ended September 30, 2003, average monthly
digital revenue per home was $14.12, a decrease of $.39 as compared to the same
period of the prior year. This decrease is due to a change in the composition of
the digital subscriber base. At the start of the digital launch, the subscriber
base consisted primarily of early adopters who, on average, purchased higher
tiers of digital service, whereas, later subscribers opted, on average, for
lower tiers of service, thereby reducing per-subscriber revenue. This shift in
the subscriber base is the result of the aggressive marketing campaign mentioned
above.
Revenue generating units increased in the digital and high-speed data categories
during the quarter ended September 30, 2003. Net digital additions totaled 2,708
during the quarter, resulting in 35,686 digital homes as of September 30, 2003.
Net high-speed data additions totaled 1,930 during the quarter, resulting in
27,551 high-speed data customers as of September 30, 2003. Basic subscribers at
the end of the period totaled 151,243, a decrease of 110 basic subscribers in
the third quarter of 2003 due to a slight increase in the Toledo system
resulting from a fall campaign promoting a bundled package, offset by seasonal
decline in the Erie County system.
Publishing revenue for the quarter was $60.0 million, a decrease of $2.1
million, or 3.3%, as compared to the third quarter of 2002. The decrease
consisted of a $1.8 million, or 3.7%, decrease in advertising revenue due
primarily to decreases in retail and classified advertising of $1.4 million, or
5.7%, and $1.6 million, or 8.4%, respectively, resulting from continued economic
softness, offset by an increase in national advertising of $87,000, or 1.4%.
Other advertising, net of trade expense, increased $1.0 million as compared to
the three months ended September 30, 2002. For the third quarter of 2003,
circulation revenue decreased $211,000, or 1.7%, primarily due to a decrease in
home-delivery revenue resulting from an increase in subscription stops
attributable to economic conditions and a decrease in the average earned rate
per copy. Other revenue, which consists of third party and total market
delivery, was consistent with the same quarter of the previous year.
Broadcasting revenue for the quarter was $8.9 million, a decrease of $512,000,
or 5.4%, as compared to the three months ended September 30, 2002. The decrease
in broadcasting revenue was due to decreases in national and political
advertising of $395,000 and $369,000, respectively, partially offset by an
increase in local advertising of $194,000.
Other communications revenue for the quarter was $5.5 million, a decrease of
$1.0 million, or 15.6%, as compared to same period of the prior year. This is
partially due to a decrease in our security system sales revenue of $792,000,
resulting from a planned reduction in the growth of our security business with
the intent of improving operating margins and controlling capital investments.
Telecom revenue for the quarter was $4.3 million, a decrease of $225,000, due to
a planned decrease in long-distance revenue of $163,000 and a $62,000 decrease
in switched services revenue. Effective June 14, 2003, an incumbent LEC invoked
the FCC order on reciprocal compensation rate reduction. As a result, our
telecom operation recognized a net reduction in reciprocal compensation revenue
specifically attributable to the FCC order of approximately $65,000 per month
from recent historical levels. This reduction in reciprocal compensation revenue
was partially offset by revenue growth resulting from a 2.5% increase in the
customer base during the third quarter of 2003, caused by the net addition of 16
new telecom customers.
Operating expenses for the quarter were $104.2 million, an increase of $4.9
million, or 4.9%, as compared to the third quarter of 2002. The increase in
operating expense was attributable to increased publishing, cable, and
broadcasting expenses, offset by decreased expenses within the other
communications segment.
Cable operating expenses were $25.4 million, an increase of $2.9 million, or
13.0%, as compared to the same period of the prior year. The increase was
primarily due to a $1.4 million, or 66.8%, increase in general and
administrative expenses and a $965,000, or 13.6%, increase in depreciation.
General and administrative expenses increased due to increases in personal
property tax, worker's compensation expense, expense related to employee pension
benefits, a gain recognized on the disposal of assets during the third quarter
of 2002, and an overall increase in property and casualty insurance rates. The
increase in depreciation is attributable to the capital expenditures associated
with the rebuild of our Toledo cable system and continued rollout of cable
modems and digital cable service, as well as, acceleration of depreciation
expense for the Erie County system in anticipation of a first quarter 2004
rebuild completion date. Basic cable programming expenses increased $551,000, or
10.2%, to $6.0 million, due to price increases from programming suppliers.
Programming expense for the digital tier increased $246,000, due to an increase
in the number of digital subscribers as compared to the same quarter of the
prior year.
Publishing operating expenses were $62.9 million, an increase of $2.0 million,
or 3.3%, from the three months ended September 30, 2002. The increase was
partially due to a $424,000, or 5.9%, increase in the cost of newsprint and ink,
resulting from a weighted-average price per ton increase of $50.63, or 12.0%,
partially offset by a 5.6% decrease in consumption from the same period of the
prior year. Departmental operating costs increased primarily due to contractual
wage increases and general and administrative expenses increased due to
additional expense related to employee pension benefits.
Broadcasting operating expenses were $9.0 million, an increase of $432,000, or
5.0%, from the same period of the prior year. The increase results primarily
from increases in general and administrative, broadcast film amortization, and
depreciation expense of $147,000, $186,000, and $103,000, respectively.
Other communications operating expenses were $5.4 million, a decrease of
$512,000, or 8.7%, from the same period of 2002. This variance is primarily due
to a decrease of $532,000, or 26.1%, in operating expenses related to security
alarm system sales and monitoring caused by a planned decrease in sales volumes,
as well as by cost control initiatives. Telecom operating expenses increased
$43,000, or 1.1%, due to inflationary increases in departmental expenses
partially offset by a decrease of $155,000 in long-distance expense.
Operating income decreased $6.2 million as compared to the three months ended
September 30, 2002. Cable operating income decreased $687,000 due to overall
increases in general and administrative expenses, depreciation and cable
programming expenses, partially offset by revenue growth generated from rate
increases and rollout of new services. Publishing operating income decreased
$4.1 million, primarily due to decreases in advertising revenue and increased
operating expenses as discussed above. Broadcasting operating income decreased
$944,000 due to decreases in advertising revenue, primarily national and
political, and increased operating expenses. Other communications operating
income decreased $504,000 due to decreased security system sales partially
offset by decreased operating expenses. Corporate general and administrative
expenses were consistent with the three months ended September 30, 2002.
For the three months ended September 30, 2003, the company reported a loss from
continuing operations of $1.5 million, compared to a loss from continuing
operations of $3.3 million reported for the same period of the prior year. This
decrease in the loss from continuing operations is primarily due to a decrease
in interest expense of $1.2 million and a favorable variance of $6.5 million on
the change in fair value of interest-rate swaps. The change in fair value of
interest-rate swaps for the three months ended September 30, 2003 includes a
$2.6 million derivative valuation gain related to an interest-rate swap contract
that was liquidated in the third quarter. These favorable variances from prior
year were partially offset by the decrease in operating income of $6.2 million.
Effective May 31, 2003, the Company suspended operations of Community
Communication Services, Inc. (CCS), an alternative advertising distribution
company. Results of CCS are reported separately from results of continuing
operations for all periods presented. Loss from discontinued operations net of
tax decreased $110,000 from the prior year due to the discontinuation of
operations in May. The Toledo Blade will fulfill the advertising needs of
approximately 60% of CCS customers through the publishing group's direct mail or
total market delivery products.
As a result of the foregoing, the company reported a net loss of $1.5 million
for the three months ended September 30, 2003, as compared to a net loss of $3.4
million for the same period of the prior year.
Depreciation and amortization increased $970,000, or 8.0%, as compared to the
same period of the prior year. The increase was primarily due to asset additions
resulting from the rebuild of our cable system in Toledo, accelerated
depreciation expense on the Erie County system and other capital expenditures to
maintain operations.
EBITDA decreased $3.8 million, or 25.7%, as compared to the three months ended
September 30, 2002. A reconciliation of EBITDA to net income is provided below.
EBITDA as a percentage of revenue for the quarter ended September 30, 2003
decreased to 10.9% from 14.5% for the three months ended September 30, 2002. The
decrease in EBITDA as a percentage of revenue was primarily due to the increase
in publishing and cable operating expenses and a decrease in publishing revenue,
partially offset by the continued rollout of high margin advanced cable
products. Net loss as a percentage of revenue was 1.4% as of September 30, 2003,
as compared to net loss as a percentage of revenue at September 30, 2002 of
3.3%.
We define EBITDA as net income before interest expense, provision for income
taxes, depreciation and amortization (including amortization of broadcast
rights), other non-cash charges, gains or losses on disposition of assets, other
non-recurring items, and extraordinary items and after payments for broadcast
rights. We have included EBITDA data because such data is commonly used as a
measure of performance for media companies and is also used by investors to
measure a company's ability to service debt. EBITDA is also a significant
component of the financial covenants contained in our senior debt agreements.
EBITDA is not, and should not be used as, an indicator of or alternative to
operating income (loss), net income (loss) or cash flow as reflected in our
consolidated financial statements, is not intended to represent funds available
for debt service, dividends or other discretionary uses, is not a measure of
financial performance under accounting principles generally accepted in the
United States, and should not be considered in isolation or as a substitute for
measures of performance prepared in accordance with accounting principles
generally accepted in the United States.
Capital expenditures totaled $12.0 million for the third quarter of 2003, as
compared to $7.4 million, including capital leases, for the third quarter of
2002. Capital expenditures for the nine months ended September 30, 2003 and
September 30, 2002 totaled $35.5 million and $21.0 million, including capital
leases, respectively. Capital expenditures were used primarily to begin the
rebuild of the Erie County Cable system, continue the rebuild of the Bedford, MI
system acquired from Comcast in the like-kind exchange, begin the first stages
of the Pittsburgh Post-Gazette facility upgrade and maintain other operating
assets.
As of September 30, 2003, the Company had $9.3 million in cash and cash
equivalents and long-term funded debt of $258.5 million, excluding letters of
credit and the $7.5 million adjustment to the carrying value of underlying debt
recorded in accordance with SFAS No. 133. The ratio of long-term funded debt to
EBITDA for the twelve months trailing September 30, 2003 was 4.2 to 1.0. Please
refer to the reconciliation of EBITDA to net income provided below. The ratio of
long-term funded debt to net loss for the twelve months trailing September 30,
2003 was 38.7 to 1.0.
For additional information on third quarter 2003 financial position, please
contact Jodi Miehls, Treasurer, Block Communications, Inc. at 419-724-6257 or
jmiehls@toledoblade.com.
Conference Call Information
The Company will host a conference call to discuss its third quarter 2003
results on Wednesday, November 12, 2003 beginning at 10:00 a.m. Eastern Time
Zone. Interested participants may access the call by dialing into our conference
operator at 800-362-0574, conference ID: Block. A replay of the call will be
available at 888-566-0149 beginning November 12, 2003 at 6:00 p.m. Eastern Time
Zone until November 19, 2003 at midnight Eastern Time Zone.
Forward-Looking Statements
Certain statements contained herein may constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995.
These forward-looking statements involve a number of risks, uncertainties and
other factors that could cause actual results to differ materially from
expectations contained in such statements.
Factors that may materially affect our future financial condition and results of
operations, as well as any forward-looking statements, include economic and
market conditions and many other factors beyond our control. For an additional
discussion of risk factors relating to our future financial condition and
results of operations, see the reports and documents the Company files with the
Securities and Exchange Commission.
Results of Operations
Set forth below are the operating results for the quarters ended September 30,
2003 and 2002. A reconciliation of net income (loss) to EBITDA is provided for
the three- and nine- month periods ended September 30, 2003 and September 30,
2002 and the year ended December 31, 2002.
BLOCK COMMUNICATIONS, INC., AND SUBSIDIARIES
RESULTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED SEPTEMBER 30,
------------------------------------------------------------
2003 2002
----------------------------- ---------------------------
Revenue:
Publishing $ 60,028,762 58.9% $ 62,100,899 60.1%
Cable 27,441,732 26.9 25,204,115 24.4
Broadcasting 8,927,978 8.8 9,439,506 9.1
Other Communications 5,483,234 5.4 6,499,480 6.3
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101,881,706 100.0 103,244,000 100.0
Expense:
Publishing 62,916,865 61.8 60,888,697 59.0
Cable 25,350,966 24.9 22,425,860 21.7
Broadcasting 9,021,176 8.9 8,589,109 8.3
Other Communications 5,359,794 5.3 5,872,134 5.7
Corporate general and administrative 1,511,632 1.5 1,512,473 1.5
------------------------------------------------------------
104,160,433 102.2 99,288,273 96.2
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Operating income (2,278,727) -2.2% 3,955,727 3.8%
Nonoperating income (expense):
Interest expense (4,795,664) (6,037,895)
Gain on disposition of Monroe Cablevision - (459,360)
Loss on early extinguishment of debt - -
Change in fair value of interest rate swaps 4,007,138 (2,472,043)
Interest income 86,785 115,573
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(701,741) (8,853,725)
-------------------------------------------------
Loss from continuing operations before
income taxes and minority interest (2,980,468) (4,897,998)
Credit for income taxes (1,447,189) (1,769,633)
Minority interest 78,646 (134,934)
-------------------------------------------------
Loss from continuing operations (1,454,633) (3,263,299)
Loss from discontinued operations, net - (109,932)
-------------------------------------------------
Net loss (1,454,633) (3,373,231)
Add:
Interest expense 4,795,664 6,037,895
Provision for income taxes (1,447,189) (1,846,026)
Depreciation 12,284,170 11,459,351
Amortization of intangibles and deferred charges 771,577 626,042
Amortization of broadcast rights 1,828,665 1,655,247
Loss on disposal of property and equipment 93,278 (974,034)
Change in fair value of interest rate swaps (4,007,138) 2,472,043
Loss on early extinguishment of debt - 459,360
Less:
Payments on broadcast rights (1,769,823) (1,590,320)
-------------------------------------------------
EBITDA $ 11,094,571 $ 14,926,327
=================================================
BLOCK COMMUNICATIONS, INC., AND SUBSIDIARIES
RECONCILIATION OF NET INCOME TO EBITDA BY SEGMENT
PUBLISHING CABLE BROADCASTING OTHER CORPORATE CONSOLIDATED
---------------------------------------------------------------------------------------
THREE MONTHS ENDED SEPTEMBER 30, 2003
Net Income (loss) $ (1,949,271) $ 1,403,788 $ (93,661) $ 203,255 $ (1,018,744) $ (1,454,633)
Adjustments to Net Income (loss):
Interest expense 49,102 -- -- -- 4,746,562 4,795,664
Provision (credit) for income taxes (987,199) 687,966 87,766 (79,815) (1,155,907) (1,447,189)
Depreciation 2,485,218 8,049,246 720,625 1,029,081 -- 12,284,170
Amortization of intangibles and
deferred charges 88,283 184,890 4,234 -- 494,170 771,577
Amortization of broadcast rights -- 72,770 1,755,895 -- -- 1,828,665
Film payments -- (68,219) (1,701,604) -- -- (1,769,823)
(Gain) loss on disposal of assets (27,875) 21,248 66,247 33,658 -- 93,278
Change in fair value of derivative -- -- -- -- (4,007,138) (4,007,138)
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EBITDA $ (341,742) $ 10,351,689 $ 839,502 $ 1,186,179 $ (941,057) $ 11,094,571
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THREE MONTHS ENDED SEPTEMBER 30, 2002
Net Income (loss) $ 250,556 $ 1,830,047 $ 537,403 $ 456,072 $ (6,447,309) $ (3,373,231)
Adjustments to Net Income (loss):
Interest expense 42,720 -- -- -- 5,995,175 6,037,895
Provision (credit) for income taxes 919,145 949,647 183,072 (15,051) (3,882,839) (1,846,026)
Depreciation 2,754,000 7,083,867 617,972 1,003,512 -- 11,459,351
Amortization of intangibles and
deferred charges 88,167 28,731 9,785 -- 499,359 626,042
Amortization of broadcast rights -- 85,512 1,569,735 -- -- 1,655,247
Film payments -- (43,107) (1,547,213) -- -- (1,590,320)
(Gain) loss on disposal of assets 531 (986,303) -- 11,738 -- (974,034)
Change in fair value of derivative -- -- -- -- 2,472,043 2,472,043
Loss on early extinguishment of debt -- -- -- -- 459,360 459,360
--------------------------------------------------------------------------------------
EBITDA $ 4,055,119 $ 8,948,394 $ 1,370,754 $ 1,456,271 $ (904,211) $ 14,926,327
======================================================================================
PUBLISHING CABLE BROADCASTING OTHER CORPORATE CONSOLIDATED
---------------------------------------------------------------------------------------
NINE MONTHS ENDED SEPTEMBER 30, 2003
Net Income (loss) $ (2,309,203) $ 4,905,605 $ 549,870 $ 1,231,480 $(10,918,794) $ (6,541,042)
Adjustments to Net Income (loss):
Interest expense 147,821 -- -- -- 14,868,373 15,016,194
Provision (credit) for income taxes (184,994) 2,221,035 467,672 (307,737) (5,345,724) (3,149,748)
Depreciation 8,217,216 23,622,521 2,160,332 3,169,887 -- 37,169,956
Amortization of intangibles and
deferred charges 264,617 554,672 12,704 -- 1,480,120 2,312,113
Amortization of broadcast rights -- 226,696 4,997,842 -- -- 5,224,538
Film payments -- (240,105) (4,927,484) -- -- (5,167,589)
(Gain) loss on disposal of assets (37,375) 66,750 73,115 33,474 -- 135,964
Change in fair value of derivative -- -- -- -- (1,776,801) (1,776,801)
Loss on disposal of discontinued
operations -- -- -- 235,591 -- 235,591
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EBITDA $ 6,098,082 $ 31,357,174 $ 3,334,051 $ 4,362,695 $ (1,692,826) $ 43,459,176
=======================================================================================
NINE MONTHS ENDED SEPTEMBER 30, 2002
Net Income (loss) $ 1,620,249 $ 4,897,917 $ 963,827 $ 1,118,081 $ (5,919,102) $ 2,680,972
Adjustments to Net Income (loss):
Interest expense 129,694 -- -- -- 16,550,428 16,680,122
Provision (credit) for income taxes 2,924,843 3,016,022 356,483 (551,182) (3,515,779) 2,230,387
Depreciation 8,410,000 20,366,572 1,910,608 3,050,000 -- 33,737,180
Amortization of intangibles and
deferred charges 264,501 28,731 25,204 446,138 1,154,920 1,919,494
Amortization of broadcast rights -- 233,951 4,743,985 -- -- 4,977,936
Film payments -- (150,387) (3,971,477) -- -- (4,121,864)
(Gain) loss on disposal of assets (6,713) (583,914) -- 19,407 -- (571,220)
Change in fair value of derivative -- -- -- -- 2,193,986 2,193,986
Loss on early extinguishment of debt -- -- -- -- 8,989,786 8,989,786
Gain on sale of Monroe Cablevision -- -- -- -- (21,140,829) (21,140,829)
---------------------------------------------------------------------------------------
EBITDA $ 13,342,574 $ 27,808,892 $ 4,028,630 $ 4,082,444 $ (1,686,590) $ 47,575,950
=======================================================================================
YEAR ENDED DECEMBER 31, 2002
Net Income $ 2,344,897 $ 7,003,335 $ 2,410,338 $ 1,633,023 $(10,751,147) $ 2,640,446
Adjustments to Net Income:
Interest expense 1,814,250 -- -- -- 21,138,122 22,952,372
Income tax expense 3,910,500 3,072,100 784,300 (225,050) (4,914,350) 2,627,500
Depreciation 11,299,600 26,681,076 2,659,875 4,112,575 -- 44,753,126
Amortization 352,668 559,597 16,940 446,138 1,636,006 3,011,349
Film Amortization -- 323,961 6,814,141 -- -- 7,138,102
Film payments -- (223,346) (5,521,115) -- -- (5,744,461)
(Gain) loss on disposal of assets (163,612) (138,479) -- 1,823 -- (300,268)
Change in fair value of derivative -- -- -- -- 732,748 732,748
Loss on early extinguishment of debt -- -- -- -- 8,989,786 8,989,786
Gain on sale of Monroe Cablevision -- -- -- -- (21,140,829) (21,140,829)
---------------------------------------------------------------------------------------
EBITDA $ 19,558,303 $ 37,278,244 $ 7,164,479 $ 5,968,509 $ (4,309,664) $ 65,659,871
=======================================================================================