Investor Contact:
Dow Jones & Company
Mark Donohue
200 Liberty Street
Director, Investor Relations
New York, NY 10281
(609) 520-5660
Media Contact:
Nicole Pyhel
Senior Manager, Corporate Communications
(609) 520-4057
DOW JONES REPORTS IMPROVED
REVENUE AND PROFIT FOR SECOND QUARTER 2004
Provides 3rdQuarter Outlook
NEW YORK (July 15, 2004)¾Dow Jones & Company (NYSE: DJ) today reported that it earned 41 cents per diluted share during the second quarter of 2004, compared with 38 cents per diluted share in the second quarter of 2003. Excluding the special items explained herein, the Company earned 41 cents per diluted share during the second quarter of 2004, up 52% over the 27 cents per diluted share earned in the second quarter of 2003.
Revenue rose 11.2% in the second quarter of 2004 to $437.8 million compared to second quarter of 2003 and operating income was up 5.8% over last year to $56.3 million. Excluding special items, operating income increased 61.7% and operating margins were 12.9% in 2004, up from 8.8% in 2003. Results were driven by improved revenue, profit and margin in nearly all of the company’s major businesses.
Special Items: In the second quarter of 2004, the Company recorded special items which net to zero cents per share as a special gain of two cents per share related to the disposition of an investment was offset by a loss of two cents per share for accretion of discount on a contract-guarantee obligation. In the second quarter of 2003, special items netted to a gain of 11 cents per share and included a gain from the settlement of a business-interruption insurance claim with respect to loss of operating income suffered as a result of the terrorist attacks on the World Trade Center on Sept. 11, 2001, net of a charge for accretion of discount on a contract-guarantee obligation.
“We’re encouraged once again by improvements in revenue and profit in each of our business segments during the quarter,” said Peter R. Kann, chairman and chief executive officer of Dow Jones & Company. “Our continued focus on product quality, effective sales efforts, sensible investments, operating efficiencies and cost controls is paying off as evidenced by year over year earnings growth in each quarter since the beginning of 2003.”
Mr. Kann continued: “Nonetheless, we still see inconsistent trends in monthly Wall Street Journal advertising and ad levels, and results remain well below what we consider normal levels. We’ll continue to control all we can to maximize financial results in any advertising environment.”
Dow Jones also said that it expects earnings per share before special items in the third quarter of 2004, to be about 20 cents per share, compared with 14 cents per share in the third quarter of 2003. This assumes third-quarter 2004 linage at the U.S. Wall Street Journal will be up in the low single digit percentage range over the third quarter of 2003. The third quarter, including the summer months, is historically the Company’s lightest quarter for advertising at The Wall Street Journal. Based on currently anticipated special items in the third quarter of 2004, the Company expects reported earnings per share to be in the upper-teens cents per share range, compared with 35 cents per share in the third quarter of 2003. Please refer to the attached table for a reconciliation of the Company’s third quarter earnings before and after special items.
Segment Results
Print Publishing revenue increased $19.5 million, or 8.3%, in the second quarter of 2004 over the same period a year ago. Operating income rose 210% to $17.3 million and operating margin was 6.8% in the second quarter of 2004¾an improvement from the prior year’s operating margin of 2.4%. U.S. Wall Street Journal advertising linage increased 3.3% (up 1.1% in June, with one extra issue) while linage at the international editions of the Journal increased 6.9% (flat in the month of June, with two extra issues in the European edition and one extra issue in the Asian edition). Barron’s advertising pages increased 21.1% in the quarter (down 25.4% in June with one less issue).
Electronic Publishing revenue in the second quarter of 2004 increased 20.2% and operating income rose 42.7% from the same period a year ago, driven by the acquisitions of Alternative Investor Group in March 2004 and vwd, a German business wire, in April 2004, together with improved performance in all business segments. Operating margin of 23.8% was up over the previous year’s 20.1%. Terminal counts at Newswires were down 2.0% to last year, but up 0.7% on a sequential basis. Paid subscribers to The Wall Street Journal Online grew to 684,000 as of June 30, 2004, up 1.9% from the prior year period.
Ottaway Community Newspapers’ revenue in the second quarter of 2004 increased 10.8% from the same period a year ago to $87.8 million with operating income up 17.0% to $25.2 million. Operating margin of 28.7% was up over last year’s 27.1%. Excluding the May 2003 acquisition of The Record of Stockton, same property revenue was up 6.4% and operating income was up 13.1%. Same-property advertising linage increased 5.5% in the second quarter (linage was up 4.7% in June even with one fewer Sunday).
The Company ended the second quarter with $215 million in debt, compared with $258 million at the end of the first quarter of 2004.
As previously announced, the Company will host an earnings conference call at 10 a.m. ET today. The call can be accessed via a live Web cast through the Investor Relations section of the Company’s Web site,www.dowjones.com, or through a listen-only, dial-in conference line, by dialing 877-407-3140. A replay of the conference call and the full text of the prepared remarks will be available on the Company’s Web site in the Investor Relations section shortly after the call concludes.
Dow Jones & Company (NYSE: DJ; dowjones.com) publishes The Wall Street Journal and its international and online editions, Barron's and the Far Eastern Economic Review, Dow Jones Newswires, Dow Jones Indexes and the Ottaway group of community newspapers. Dow Jones is co-owner with Reuters Group of Factiva, with Hearst of SmartMoney and with NBC Universal of CNBC television operations in Asia and Europe. Dow Jones also provides news content to CNBC and radio stations in the U.S.
Information Relating To Forward-Looking Statements:
This press release contains forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those anticipated, including the cyclical nature of the Company's business and the strong, negative impact of economic downturns on advertising revenues, particularly in the Company’s core advertising market—B2B advertising; the risk that inconsistent trends across major advertising categories, such as technology and finance, will continue; the risk that advertising levels will not return to the pre-boom, pre-bust levels that the Company considers normal levels; the Company’s ability to limit and manage expense growth, especially in light of its prior cost cutting and its planned growth initiatives; the uncertainties relating to the Company’s guarantee to Cantor Fitzgerald Securities and Market Data Corporation; the intense competition the Company’s existing products and services face; the risk that the Company’s initiatives to attract more consumer advertising, and other diversified advertising, to The Wall Street Journal will not succeed; with respect to Newswires, the negative impact of consolidations and layoffs in the financial services industry on sales; and such other risk factors as may be included from time to time in the Company's reports filed with the Securities and Exchange Commission and posted in the Investor Relations section of the Company’s web site (www.dowjones.com). This press release includes certain non-GAAP financial measures as defined under SEC rules. As required by SEC rules, we have attached to this press release a reconciliation of those measures to the most directly comparable GAAP measures. This reconciliation is also available on the Investor Relations page of our web site (www.dowjones.com)
Dow Jones & Company
Earnings Summary
5
(Unaudited)
(in thousands, except
per share amounts)
Quarters Ended June 30
Six Months Ended June 30
2004
2003
2004
2003
Reported results:
Revenues
$437,790
$393,586
$839,411
$751,816
Operating income
56,290
53,224
90,049
70,803
Net income
34,041
30,838
51,857
97,770
Effective tax rate*
42.3%
41.8%
42.0%
22.6%
Diluted EPS
$.41
$.38
$.63
$1.19
Excluding items described in Note 2:
Operating income
$ 56,290
$ 34,816
$ 87,288
$ 52,395
Net income
34,019
22,217
52,158
31,938
Effective tax rate*
40.9%
40.0%
40.1%
40.0%
Diluted EPS
$.41
$.27
$.63
$.39
EPS percentage change
51.9%
8.0%
61.5%
18.2%
*The effective income tax rate is net of minority interests.
See notes to financial information on page 10.
Reconciliation of Third Quarter Earnings Outlook
Quarters Ended September 30,
2004 Guidance
2003 Actual
Reported earnings per share
upper-teens cents
$.35
per share range**
Adjusted to remove:
Contract guarantee
(.02)
(.03)
Special income tax matters
____________
.24
EPS before special items
about $0.20
$.14
centsper share
**Based on special items currently anticipated.
Condensed Consolidated Statements of Income
6
(Unaudited)
(in thousands, except
per share amounts)
Quarters Ended June 30
Six Months Ended June 30
2004
2003
2004
2003
Revenues:
Advertising
$255,836
$223,328
$482,535
$413,836
Information services
81,518
71,060
157,345
142,916
Circulation and other
100,436
99,198
199,531
195,064
Total revenues
437,790
393,586
839,411
751,816
Expenses:
News, production and technology
130,052
120,080
252,609
235,375
Selling, administrative and general
148,779
134,773
294,014
263,795
Newsprint
28,947
27,462
56,578
50,533
Print delivery costs
47,024
48,719
94,869
94,625
Depreciation and amortization
26,698
27,736
54,053
55,093
Restructuring charges and
September 11 related items, net
_______
(18,408)
(2,761)
(18,408)
Operating expenses
381,500
340,362
749,362
681,013
Operating income
56,290
53,224
90,049
70,803
Other income (deductions):
Investment income
165
179
256
253
Interest expense
(800)
(745)
(1,448)
(1,198)
Equity in earnings of
associated companies
2,139
2,171
1,399
322
Gain on disposition of investment
3,260
3,260
Gain on resolution of Telerate sale
loss contingencies
59,821
Contract guarantee
(1,819)
(2,459)
(3,804)
(5,069)
Other, net
(499)
212
(1,265)
651
Income before income taxes and
minority interests
58,736
52,582
88,447
125,583
Income taxes
25,004
22,139
37,485
28,620
Income before minority interests
33,732
30,443
50,962
96,963
Minority interests
309
395
895
807
Net income
$ 34,041
$ 30,838
$ 51,857
$ 97,770
Net income per share:
- Basic
$.42
$.38
$.63
$1.20
- Diluted
.41
.38
.63
1.19
Weighted-average shares outstanding:
- Basic
81,799
81,382
81,779
81,595
- Diluted
82,211
81,674
82,211
81,860
See notes to financial information on page 10.
Dow Jones & Company
Segment Information
7
(Unaudited)
(dollars in thousands)
Quarters Ended June 30
Six Months Ended June 30
2004
2003
2004
2003
Revenues:
Print publishing
$253,761
$234,285
$491,336
$448,709
Electronic publishing
96,214
80,012
182,583
159,199
Community newspapers:
Comparable operations
81,118
76,256
149,531
140,875
Newly-acquired operations
6,697
3,033
15,961
3,033
Consolidated revenues
$437,790
$393,586
$839,411
$751,816
Percentage change in revenues excluding
newly-acquired operations
7.6%
(6.2)%
8.3%
(5.6)%
Operating income:
Print publishing
$ 17,289
$ 5,578
$ 21,913
$ 893
Electronic publishing
22,947
16,083
41,460
32,914
Community newspapers:
Comparable operations
23,340
20,643
38,335
33,224
Newly-acquired operations
1,821
857
3,798
857
Corporate
(9,107)
(8,345)
(18,218)
(15,493)
Segment operating income
56,290
34,816
87,288
52,395
Restructuring charges and
September 11 related items, net
_______
18,408
2,761
18,408
Consolidated operating income
$ 56,290
$ 53,224
$ 90,049
$ 70,803
Operating margin:
Print publishing
6.8%
2.4%
4.5%
0.2%
Electronic publishing
23.8
20.1
22.7
20.7
Community newspapers:
Comparable operations
28.8
27.1
25.6
23.6
Newly-acquired operations
27.2
28.3
23.8
28.3
Segment operating margin
12.9
8.8
10.4
7.0
Depreciation and amortization (D&A):
Print publishing
$ 16,866
$ 17,708
$ 34,542
$ 35,388
Electronic publishing
6,950
6,788
13,610
13,578
Community newspapers:
Comparable operations
2,548
3,034
5,032
5,792
Newly-acquired operations
291
75
786
75
Corporate
43
131
83
260
Consolidated D&A
$ 26,698
$ 27,736
$ 54,053
$ 55,093
See notes to financial information on page 10.
Dow Jones & Company
Supplemental Segment Revenue Information
8
(Unaudited)
(in thousands)
Quarters Ended June 30
Six Months Ended June 30
2004
2003
2004
2003
Print Publishing:
U.S. Publications:
Advertising
$165,535
$147,098
$316,717
$276,955
Circulation and other
66,104
67,322
132,057
133,712
International Publications:
Advertising
13,996
11,141
25,916
21,134
Circulation and other
8,126
8,724
16,646
16,908
Total
253,761
234,285
491,336
448,709
Electronic Publishing:
Dow Jones Newswires:
Domestic
48,945
41,867
93,348
85,232
International
14,616
10,640
25,413
21,251
Total Newswires(*)
63,561
52,507
118,761
106,483
Consumer Electronic Publishing(**)
19,893
17,582
38,062
32,953
Dow Jones Indexes/Ventures
12,760
9,923
25,760
19,763
Total
96,214
80,012
182,583
159,199
Community Newspapers:
Advertising
Comparable operations
60,577
55,884
109,668
101,575
Newly-acquired operations
5,740
2,616
13,517
2,616
Total advertising
66,317
58,500
123,185
104,191
Circulation and other
Comparable operations
20,541
20,372
39,863
39,300
Newly-acquired operations
957
417
2,444
417
Total circulation and other
21,498
20,789
42,307
39,717
Total
87,815
79,289
165,492
143,908
Total segment revenues
$437,790
$393,586
$839,411
$751,816
(*) The increase in Dow Jones Newswires revenue in the second quarter of 2004 was largely due to
acquisitions.
(**) Includes WSJ.com, related vertical sites, licensing/business development and radio/audio.
See notes to financial information on page 10.
Dow Jones & Company
Statistical Information
9
(Unaudited)
Quarters Ended June 30
Six Months Ended June 30
2004
2003
2004
2003
Advertising Volume
Year-Over-Year Percentage Change:
The Wall Street Journal
General
15.2%
(15.4)%
3.9%
(7.4)%
Technology
(27.9)
(3.2)
(16.3)
(15.7)
Financial
5.3
(14.5)
24.5
(26.9)
Classified
10.5
11.1
9.2
13.1
Total
3.3
(7.9)
4.7
(9.4)
The Asian Wall Street Journal
5.0
(4.9)
6.3
(0.3)
The Wall Street Journal Europe
8.6
4.9
10.9
12.6
Barron’s
21.1
(22.9)
21.5
(20.4)
Ottaway Newspapers (*)
Daily
3.8
(2.9)
3.2
(1.8)
Non-daily
13.2
0.3
13.2
1.5
Total
5.5
(2.4)
4.9
(1.3)
Wall Street Journal advertising as a
percentage of total Journal linage:
General
44.0%
39.4%
40.9%
41.2%
Technology
14.8
21.2
15.3
19.2
Financial
17.6
17.3
20.0
16.8
Classified
23.6
22.1
23.8
22.8
Other statistics:
June 30
June 30
2004
2003
Dow Jones Newswires terminals
291,000
297,000
WSJ.com subscribers
684,000
671,000
WSJ.com unique visitors/business day
143,000
127,000
Average monthly unique visitors to the Journal Network (**)
4,172,000
n/a
Average monthly page views to the Journal Network (**)
66,438,000
n/a
(*) Percentage excludes divested/newly-acquired operations.
(**) Beginning in the second quarter of 2004, page views and unique visitors statistics for the Journal Network have been calculated using a new measurement technology. Prior year figures are not available on a comparable basis. The Journal Network consists of WSJ.com and related vertical sites.
Dow Jones & Company
Notes to Financial Information
10
1. The Company’s calculation of net income, operating income and earnings per share excluding special items may not be comparable to similarly titled measures reported by other companies, since companies and investors may differ as to what type of events warrant adjustment. Net income, operating income and earnings per share excluding special items are not measures of performance under generally accepted accounting principles and should not be construed as substitutes for consolidated net income, operating income and earnings per share as a measure of performance. However, management uses these measures in comparing the Company’s historical performance and believes that they provide meaningful and comparable information to investors to assist in their analysis of the Company’s performance relative to prior periods and its competitors.
2. The following table reconciles reported results to income adjusted for special items for the second quarter and the six months ended June 30, 2004 and 2003.
Quarters Ended June 30
(in millions, except
2004
2003
per share amounts)
Operating
Net
EPS
Operating
Net
EPS
Reported income
$56.3
$34.0
$.41
$53.2
$30.8
$.38
Adjusted to remove:
Included in operating income:
Gain from business interruption
insurance claim (a)
18.4
11.1
.14
Included in non-operating income:
Contract guarantee (b)
(1.8)
(.02)
(2.5)
(.03)
Gain on disposition of investment (c)
_____
1.8
.02
____
____
___
Adjusted
$56.3
$34.0
$.41
$34.8
$22.2
$.27
Six Months Ended June 30
(in millions, except
2004
2003
per share amounts)
Operating
Net
EPS
Operating
Net
EPS
Reported
$90.0
$51.9
$.63
$70.8
$97.8
$1.19
Adjusted to remove:
Included in operating income:
Reversal of lease obligation
reserve – WFC (a)
2.8
1.7
.02
Gain from business interruption
insurance claim (a)
18.4
11.1
.14
Included in non-operating income:
Contract guarantee (b)
(3.8)
(.04)
(5.1)
(.06)
Gain on disposition of investment (c)
1.8
.02
Gain on resolution of Telerate sale
loss contingencies (d)
____
_____
____
____
59.8
.73
Adjusted
$87.3*
$52.2
$.63
$52.4
$31.9*
$ .39*
* The sum of the individual amounts does not equal the total due to rounding.
Dow Jones & Company
Notes to Financial Information
11
(a) Restructuring charges and September 11 related items, net:
Reversal of lease obligation reserve – World Financial Center (WFC):
In the fourth quarter 2001, the Company recorded a charge of $32.2 million as a result of its decision to permanently re-deploy certain personnel and abandon four of seven floors that were leased at its World Financial Center headquarters. This charge primarily reflected the Company’s rent obligation through 2005 on this vacated space.
In the first quarter 2004, the Company decided to extend the term of its lease for one of the floors that was previously abandoned. The Company will re-occupy this floor with personnel from another New York location, whose lease term was expiring. As a result, the Company reversed $2.8 million ($1.7 million, net of taxes, or $.02 per diluted share) of the remaining lease obligation reserve of the previously abandoned floor at WFC.
Gain from business interruption insurance claim
In the second quarter of 2003, the Company recorded a gain of $18.4 million ($11.1 million after taxes, or $.14 per diluted share) reflecting the settlement of its business interruption insurance claim for loss of operating income suffered as a result of the terrorist attacks on the World Trade Center on September 11, 2001.
(b) Contract guarantee:
Under the terms of the Company's 1998 sale of Telerate to Bridge Information Systems (Bridge), Dow Jones retained its guarantee of payments under certain circumstances of certain minimum payments for data acquired by Telerate from Cantor Fitzgerald Securities (Cantor) and Market Data Corporation (MDC). The annual minimum payments average approximately $50 million per year through October 2006 under certain conditions. Bridge agreed to indemnify Dow Jones for any liability Dow Jones incurred under the contract guarantee with respect to periods subsequent to Bridge's purchase of Telerate. In 2000, based in part on uncertainty with Bridge's solvency as well as other factors, the Company established a reserve of $255 million representing the net present value of the total minimum payments of about $300 million from 2001 through October 2006, using a discount rate of 6%. Bridge filed for bankruptcy in February 2001 but made payments for th is data for the post-petition periods through October 2001, when Telerate ceased operations, went out of business, sold certain assets and rejected its contracts with Cantor and MDC. The Company is now in litigation with Cantor and MDC with respect to their claims for amounts due under the contract guarantee. The Company has various substantial defenses to these claims and the litigation is proceeding.
Earnings in 2004 and 2003 have included charges related to the accretion of the discount on the reserve balance. These charges totaled $1.8 million and $2.5 million in the second quarters of 2004 and 2003, respectively. For the first six months of 2004 and 2003, charges related to the accretion of discount totaled $3.8 million and $5.1 million, respectively.
(c) Gain on disposition of investment:
On April 2, 2004, simultaneous with the Company’s acquisition of the remaining interest in the news operations of Vereinigte Wirtschaftsdienste GmbH (“VWD”), VWD sold its non-news assets to a third party, resulting in cash proceeds to Dow Jones of $6.7 million. Dow Jones was a minority shareholder in VWD.
As a result of this sale, the Company recorded an after-tax gain of $1.8 million, or $.02 cents per diluted share, in the second quarter of 2004.
(d) Gain on resolution of Telerate sale loss contingencies:
In the first quarter of 2003, the Company recorded a gain of $59.8 million ($.73 per diluted share) on the resolution of certain loss contingencies resulting from the sale of its former Telerate subsidiary to Bridge Information Systems (Bridge). The reserve for loss contingencies was established as part of the loss on sale of Telerate in 1998 and related to various claims that arose out of the Stock Purchase Agreement, including a purchase price adjustment related to working capital, an indemnification undertaking and other actual and potential claims and counter-claims
Dow Jones & Company
Notes to Financial Information
12
between the Company and Bridge. In February 2001, Bridge declared bankruptcy. In March 2003, these matters were resolved by the bankruptcy court, and the Company’s contingent liabilities were thereby extinguished.
3. The Company made the following acquisitions during the first half of 2004 and 2003.
Acquisition of Remaining Interest in VWD news operations in 2004
On April 2, 2004, the Company acquired the remaining interest in the news operations of Vereinigte Wirtschaftsdienste GmbH (“VWD”), a German newswires business, for $12.1 million. The acquired business consists of financial newswires and business newsletters, which have been combined into the Company’s Dow Jones Newswires business, under the brand name Dow Jones-VWD News. Dow Jones was a minority shareholder in VWD.
Acquisition of Alternative Investor in 2004
On March 19, 2004, the Company completed its acquisition of Alternative Investor from Wicks Business Information for $85 million plus net working capital. The $85 million purchase price could be increased by $5 million, payable in 2008, based on the performance of the acquired business. The acquisition was funded by the issuance of debt under the Company’s commercial paper program.
Alternative Investor is a provider of newsletters, databases and industry conferences for the venture-capital and private-equity markets, and has been combined into the Company’s Dow Jones Newswires business.
Acquisition of The Record of Stockton, California in 2003
On May 5, 2003, the Company's Ottaway Newspaper subsidiary acquired The Record of Stockton, California from Omaha World-Herald Company for $144 million in cash, plus net working capital. The Record has daily paid circulation of 59,271 and Sunday circulation of 72,698.
4. Restructuring charges and September 11 related items, net are not included in segment expenses, as management evaluates segment results exclusive of these items. For information purposes, the reversal of the lease obligation reserve in 2004 and the gain from insurance claim in 2003 allocable to each segment for the quarters and six months ended June 30, 2004 and 2003 were as follows:
(in thousands)
Quarters Ended June 30
Six Months Ended June 30
2004
2003
2004
2003
Print Publishing
$17,422
$2,631
$17,422
Electronic Publishing
951
125
951
Community newspapers
Corporate
_______
35
5
35
Total income
-
$18,408
$2,761
$18,408
5. The Company's business and financial news and information operations are reported in two segments: print publishing and electronic publishing. The results of the Company's Ottaway Newspapers subsidiary, which publishes 15 daily newspapers and more than 30 weeklies and shoppers in nine states in the U.S., are reported in the community newspaper segment. Print publishing includes the global operations of The Wall Street Journal and its international editions, as well as Barron's and U.S. television operations (results of the Company's international television ventures are included in equity in earnings of associated companies). Electronic publishing includes the operations of Dow Jones Newswires, Consumer Electronic Publishing and Dow Jones Indexes/Ventures.
Dow Jones & Company
Notes to Financial Information
13
6. Summarized financial information for 50% held equity-basis investments in associated companies is as follows (amounts are at 100% levels):
(in thousands)
Quarters Ended June 30
Six Months Ended June 30
2004
2003
2004
2003
Factiva
Revenues
$66,637
$61,804
$130,171
$123,957
Operating income
8,709
2,608
12,969
4,892
Depreciation and amortization
3,340
3,213
6,442
6,415
SmartMoney
Revenues
$12,904
$12,251
$25,074
$ 24,344
Operating loss
(88)
(1,116)
(586)
(1,028)
Depreciation and amortization
211
455
422
895
CNBC International(*)
Revenues
$11,629
$ 9,851
$20,486
$ 18,152
Operating loss
(6,429)
(5,295)
(14,995)
(12,926)
Depreciation and amortization
785
968
1,741
1,966
(*) Includes the results of CNBC Europe and CNBC Asia.
