Dow Jones & Co (DJ) 10-Q 2003 Q2 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

x   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2003

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 1-7564

DOW JONES & COMPANY, INC.
(Exact name of registrant as specified in its charter)

DELAWARE	13-5034940
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
200 LIBERTY STREET, NEW YORK, NEW YORK	10281
(Address of principal executive offices)	(Zip Code)
(212) 416-2000
(Registrant’s telephone number, including area code)

     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 such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yesx Noo

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

Yesx Noo

The number of shares outstanding of each of the issuer’s classes of common stock on June 30, 2003: 60,689,655 shares of Common Stock and 20,759,457 shares of Class B Common Stock.

DOW JONES & COMPANY, INC.

INDEX

		PAGE
PART I.  Financial Information
Item 1.	Financial Statements (unaudited)
	Condensed Consolidated Statements of Income - For the three months and six months ended June 30, 2003 and 2002	3
	Condensed Consolidated Statements of Cash Flows - For the six months ended June 30, 2003 and 2002	4
	Condensed Consolidated Balance Sheets - June 30, 2003 and December 31, 2002	5
	Notes to Condensed Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	12
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	23
Item 4.	Controls and Procedures	23
PART II.  Other Information
Item 1.	Legal Proceedings	24
Item 6.	Exhibits and Reports on Form 8-K	25

2

I. FINANCIAL INFORMATION

Item 1:  Financial Statements

CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Dow Jones and Company, Inc.
For the quarters and six months ended June 30, 2003 and 2002
(unaudited)

(in thousands, except per share amounts)	Quarters Ended June 30						Six Months Ended June 30
	2003			2002				2003			2002
Revenues:
Advertising	$	223,328		$	245,001		$	413,836		$	464,869
Information services		71,060			70,725			142,916			142,356
Circulation and other		99,198			101,298			195,064			202,690
Total revenues		393,586			417,024			751,816			809,915
Expenses:
News, operations and development		120,080			124,658			235,375			251,690
Selling, administrative and general		134,773			153,752			263,795			305,878
Newsprint		27,462			26,638			50,533			53,416
Print delivery costs		48,719			47,891			94,625			95,143
Depreciation and amortization		27,736			29,030			55,093			56,427
Restructuring charges and September 11 related items, net		(18,408	)		11,098			(18,408	)		11,098
Operating expenses		340,362			393,067			681,013			773,652
Operating income		53,224			23,957			70,803			36,263
Other income (deductions):
Investment income		179			106			253			196
Interest expense		(745	)		(492	)		(1,198	)		(2,081	)
Equity in earnings of associated companies		2,171			3,107			322			657
Gain on resolution of Telerate sale loss contingencies								59,821
Gain on sale of businesses					44,518						197,925
Contract guarantee		(2,459	)		(3,041	)		(5,069	)		(6,219	)
Other, net		212			(305	)		651			450
Income before income taxes and minority interests		52,582			67,850			125,583			227,191
Income taxes		22,139			16,315			28,620			48,193
Income before minority interests		30,443			51,535			96,963			178,998
Minority interests in losses of subsidiaries		395			2,465			807			4,827
Net income	$	30,838		$	54,000		$	97,770		$	183,825
Per Share:
Net income per share:
- Basic	$	.38		$	.64		$	1.20		$	2.18
- Diluted		.38			.64			1.19			2.17
Cash dividends declared		.50			.50			.75			.75
Weighted-average shares outstanding:
- Basic		81,382			84,061			81,595			84,189
- Diluted		81,674			84,550			81,860			84,698
Comprehensive income	$	34,382		$	55,878		$	101,199		$	187,341

The accompanying notes are an integral part of the financial statements.

3

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Dow Jones & Company, Inc.
For the six months ended June 30, 2003 and 2002
(unaudited)

	Six Months Ended June 30
(in thousands)	2003			2002
Operating Activities:
Net income	$	97,770		$	183,825
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		54,325			55,904
Amortization of intangibles		768			523
Equity in earnings of associated companies, net of distributions		4,972			2,196
Minority interests in losses of subsidiaries		(807	)		(4,827	)
Gain on resolution of Telerate sale loss contingency		(59,821	)
Gain on sale of businesses					(197,925	)
Contract guarantee		5,069			6,219
Changes in assets and liabilities:
Accounts receivable		18,871			(7,510	)
Other assets		3,730			3,126
Accounts payable and accrued liabilities		(40,012	)		(43,974	)
Income taxes		22,739			(19,094	)
Deferred taxes		(2,608	)		22,076
Unearned revenue		(902	)		(8,359	)
Other noncurrent liabilities		7,508			17,882
Other, net		(937	)		636
Net cash provided by operating activities		110,665			10,698
Investing Activities:
Additions to property, plant and equipment		(26,231	)		(41,073	)
Funding of equity-method investments, net		(13,434	)		(16,143	)
Proceeds from property damage insurance claim		1,271			11,220
Businesses acquired, net		(145,768	)		(4,029	)
Disposition of businesses and investments					247,911
Other, net		2,821			1,805
Net cash (used in) provided by investing activities		(181,341	)		199,691
Financing Activities:
Cash dividends		(40,808	)		(42,101	)
Increase in long-term debt		117,317
Reduction of long-term debt					(135,069	)
Purchases of treasury stock		(21,135	)		(49,947	)
Proceeds from sales under stock compensation plans		2,551			12,294
Distribution to minority partner		(1,314	)
Contribution from minority partner		7,428			5,737
Net cash provided by (used in) financing activities		64,039			(209,086	)
(Decrease) increase in cash and cash equivalents		(6,637	)		1,303
Cash and cash equivalents at beginning of year		39,346			21,026
Cash and cash equivalents at June 30	$	32,709		$	22,329

The accompanying notes are an integral part of the financial statements.

4

CONDENSED CONSOLIDATED BALANCE SHEETS
Dow Jones & Company, Inc.
(unaudited)

(dollars in thousands)	June 30 2003			December 31 2002
Assets:
Cash and cash equivalents	$	32,709		$	39,346
Accounts receivable – trade, net		131,169			146,305
Accounts receivable – other		19,000			23,779
Newsprint inventory		8,290			9,698
Prepaid expenses		19,208			16,704
Deferred income taxes		14,732			14,772
Total current assets		225,108			250,604
Investments in associated companies, at equity		90,831			83,619
Plant, property and equipment, at cost		1,694,316			1,691,537
Less, Accumulated depreciation		994,583			970,836
Plant, property and equipment, net		699,733			720,701
Goodwill		131,913			56,251
Other intangibles		64,225			6,779
Deferred income taxes		74,243			71,643
Other assets		19,617			18,062
Total assets	$	1,305,670		$	1,207,659
Liabilities:
Accounts payable and accrued liabilities	$	177,379		$	279,475
Contract guarantee obligation		137,995			111,619
Dividend payable		20,355
Income taxes		63,516			40,816
Unearned revenue		190,637			190,569
Total current liabilities		589,882			622,479
Long-term debt		210,254			92,937
Deferred compensation, principally postretirement benefit obligation		307,248			294,831
Contract guarantee obligation		111,277			132,584
Other noncurrent liabilities		26,855			33,696
Total liabilities		1,245,516			1,176,527
Minority interests in subsidiaries		5,868			561
Stockholders’ equity:
Common stock		102,181			102,181
Additional paid-in capital		120,877			120,645
Retained earnings		769,327			732,720
Accumulated other comprehensive income		(2,660	)		(6,089	)
		989,725			949,457
Less, treasury stock, at cost		935,439			918,886
Total stockholders’ equity		54,286			30,571
Total liabilities and stockholders’ equity	$	1,305,670		$	1,207,659

The accompanying notes are an integral part of the financial statements.

5

NOTES TO CONDENSED FINANCIAL STATEMENTS
Dow Jones & Company, Inc.
(unaudited)

1.  Basis of Presentation

The accompanying unaudited condensed consolidated financial statements reflect all adjustments considered necessary by management to present fairly the company’s consolidated financial position as of June 30, 2003, and the consolidated results of operations for the three and six-month periods ended June 30, 2003 and 2002 and consolidated cash flows for the six month periods then ended.  In management’s opinion, all adjustments necessary for a fair presentation in accordance with generally accepted accounting principles are reflected in the financial statements presented.  Reclassifications of certain amounts for prior years have been recorded to conform to the current year presentation.

The condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in the company’s annual report on Form 10-K for the year ended December 31, 2002 filed with the Securities and Exchange Commission.  The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year.

2.  Restructuring Charges and September 11 Items, Net:

Gain on settlement of 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.

Restructuring Charges in 2002
The second quarter of 2002 included restructuring charges of $11.1 million ($6.3 million after taxes and minority interests, or $.07 per diluted share) largely reflecting employee severance related to a workforce reduction of approximately 165 full-time employees across the print and electronic publishing and corporate segments. 

The following table displays the activity and balances of the restructuring reserve account as of June 30, 2003:

(in thousands)	December 31, 2002 Reserve		Net Cash Payments		June 30, 2003 Reserve
Employee severance	$	17,116	$	10,918	$	6,198
Other exit costs		264		47		217

As of June 30, 2003, the workforce reductions related to the 2002 restructurings were substantially complete.  The remaining reserve at June 30, 2003 relates primarily to continuing payments for employee terminations.

3.  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, Inc. (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 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.

4.  Contract Guarantee

Under the terms of the company’s 1998 sale of Telerate to 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 about Bridge’s solvency as well as other factors, the company established a reserve of $255 million representing the net present value of the total estimated payments from 2001 through October 2006, using a discount rate of 6%.

6

Earnings in 2003 and 2002 included charges related to the accretion of the discount on the reserve balance.  These charges totaled $2.5 million and $3 million in the second quarters of 2003 and 2002, respectively.  For the first six months of 2003 and 2002, charges related to the accretion of discount totaled $5.1 million and $6.2 million, respectively.

Bridge filed for bankruptcy in February 2001 but made payments for this 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.  The trial court rendered a decision in January 2003 denying the parties’ respective motions to grant their own claims and to dismiss the competing claims.  The company, Cantor and MDC have all filed appeals from the trial court’s order.  While these appeals are pending, the discovery phase is proceeding.  

While it is not possible to predict with certainty the ultimate outcome of this litigation, the company believes the likelihood of a loss exceeding the amount reserved is remote; however, it is possible that such loss could be less than the amount reserved.

5. Acquisitions and Dispositions

Acquisition of the Record of Stockton in 2003

On May 5, 2003, the company’s Ottaway Newspaper subsidiary acquired The Record of Stockton, California from Omaha World-Herald Company for $146 million ($144 million in cash, plus net working capital).

Based on preliminary estimates, the purchase resulted in the acquisition of tangible net assets of $12 million, goodwill of $75.5 million and other intangibles of $58.2 million.  The acquired goodwill and intangible assets will be deductible for tax purposes.

Acquired other intangible assets consisted of the following:

(in thousands)	Acquired Intangibles
Subject to amortization:
Advertising accounts (amortized on a straight-line basis over 12 years)	$	7,200
Subscription accounts (amortized on a straight-line basis over 14 years)		4,700
Total intangibles subject to amortization		11,900
Not subject to amortization:
Other, principally masthead		46,314
Total acquired intangibles	$	58,214

Had the acquisition been completed as of January 1, 2003 or 2002, the impact on the company’s results of operations would not have been significant.

Sale of Five Ottaway newspaper properties in 2002

On June 7, 2002, the company completed the sale of Ottaway’s Essex County newspaper properties to Eagle-Tribune Publishing Company and recognized a gain of $44.5 million ($38 million after taxes, or $.45 per diluted share).  On March 31, 2002, the company completed the sale of four of the Ottaway newspapers to Community Newspapers Holdings, Inc. and recognized a gain of $153.4 million ($126.1 million after taxes, or $1.49 per diluted share).

6.  Goodwill and Intangible Assets

Goodwill balances by reportable segment are as follows:

(in thousands)	June 30 2003		December 31 2002
Print publishing	$	16,471	$	16,471
Electronic publishing		4,473		4,473
Community newspapers		110,969		35,307
Goodwill	$	131,913	$	56,251

7

Intangible assets as of June 30, 2003, were as follows:

	June 30, 2003				December 31, 2002
(in thousands)	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Subscription accounts	$	9,562	$	1,651	$	4,862	$	1,138
Advertising accounts		10,414		414		3,214		159
Total		19,976		2,065		8,076		1,297
Unamortizable intangibles		46,314
Total intangibles	$	66,290	$	2,065	$	8,076	$	1,297

Amortization expense, based on intangibles subject to amortization held at June 30, 2003, is expected to be $1.0 million for the remaining half of 2003, $2.1 million in years 2004 and 2005, $1.9 million in 2006 and $1.2 million in 2007 and 2008.

7.  Other Guarantees and Contingencies

In addition to the litigation that is separately disclosed in Note 4 of this Form 10-Q, there are various libel actions and other legal proceedings that have arisen in the ordinary course of business that are pending against the company and its subsidiaries.  In the opinion of management, based on advice of legal counsel, the ultimate outcome to the company and its subsidiaries as a result of these other legal proceedings will not have a material effect on the company’s financial statements.  In addition, the company has insurance coverage for many of these matters.

The company’s bylaws provide for indemnification of officers and directors prosecuted in a criminal action or sued in a civil action or proceeding to the full extent permitted by the Delaware General Corporation Law. The maximum potential amount of future payments the company could be required to make under these indemnification provisions is unlimited; however, the company maintains directors’ and officers’ liability and corporation reimbursement insurance for the benefit of the company and its directors and officers. The policy provides coverage for certain amounts paid as indemnification pursuant to the provisions of Delaware law and the company’s bylaws. As a result of its insurance coverage, the company believes that the estimated fair value of these indemnification provisions is minimal.

The company enters into indemnification agreements in its ordinary course of business, typically with companies from which it is acquiring or to which it is selling businesses, partners in joint ventures, licensees and licensors, and service providers and contractors. Under these agreements the company generally indemnifies, holds harmless, and agrees to reimburse the indemnified party for losses suffered or incurred by the indemnified party, as a result of the company’s activities or its breach of the agreement in question or in connection with any intellectual property infringement claim by any third party with respect to the company’s products.  These indemnification obligations generally survive termination of the underlying agreement, either for some set number of years or perpetually.  In some cases, the maximum potential amount of future payments the company could be required to make under these indemnification obligations is unlimited. The company believes that the estimated fair value of these indemnity obligations is minimal and the company has no liabilities recorded for these obligations as of June 30, 2003.  The company has not incurred material costs to defend lawsuits or settle claims related to these indemnification provisions.

The company has guaranteed payment for office space occupied by certain of its joint ventures.  The company’s partners in these joint ventures have either directly guaranteed their share of any payments required under these guarantees or agreed to indemnify the company for 50% of any payments the company may be required to make under these guarantees.  Dow Jones’ share of obligations under these guarantees totals $7.7 million through 2010.

8

8.  Dilution and Stock Compensation Plans

Basic and diluted earnings per share have been computed as follows:

	Quarters Ended June 30				Six Months Ended June 30
(in thousands, except per share amounts)	2003 (2)		2002 (3)		2003 (2)		2002 (3)
Net income	$	30,838	$	54,000	$	97,770	$	183,825
Weighted-average shares outstanding – basic		81,382		84,061		81,595		84,189
Effect of dilutive securities:
Stock options		79		315		68		343
Other, principally contingent stock rights		213		174		197		166
Weighted-average shares outstanding – diluted (1)		81,674		84,550		81,860		84,698
Basic earnings per share	$	.38	$	.64	$	1.20	$	2.18
Diluted earnings per share		.38		.64		1.19		2.17

(1) The diluted average shares outstanding have been determined using the treasury stock method, which assumes the proceeds from the exercise of outstanding options were used to repurchase shares at the average market value of the stock during the quarter.

(2) Options to purchase 8,209,000 shares in 2003 at an average price of $40.44 have been excluded from the diluted earnings per share calculation because the options’ exercise prices were greater than the average market price during the quarter and to include such securities would be antidilutive. 

(3) Options to purchase 5,596,000 shares in 2002 at an average price of $58.54 have been excluded from the diluted earnings per share calculation because to include such securities would be antidilutive.

Fair Value Based Method
The company accounts for its stock-based compensation in accordance with Accounting Principles Board Opinion No. 25 (APB 25), “Accounting for Stock Issued to Employees,” and its related interpretations.  Had the company’s stock-based compensation been determined by the fair-value based method of SFAS 123, “Accounting for Stock-Based Compensation,” the company’s net income and earnings per share would have been as follows:

(in thousands, except per share amounts)	Quarters Ended June 30						For the Six Months Ended
	2003			2002			2003			2002
Net income, as reported	$	30,838		$	54,000		$	97,770		$	183,825
Add:  Stock-based compensation expense included in reported net income, net of taxes		1,326			1,143			2,241			2,105
Deduct:  Total stock-based compensation expense determined under fair-value based method for all awards, net of taxes		(6,407	)		(6,553	)		(10,391	)		(10,498	)
Adjusted net income	$	25,757		$	48,590		$	89,620		$	175,432
Basic earnings per share:
As reported	$	.38		$	.64		$	1.20		$	2.18
Adjusted		.32			.58			1.10			2.08
Diluted earnings per share:
As reported	$	.38		$	.64		$	1.19		$	2.17
Adjusted		.32			.57			1.09			2.07

9

The following table provides the estimated fair value under the Black-Scholes option-pricing model of each option granted in the first quarter of 2003 and 2002, and the significant weighted-average assumptions used in their determination.

	Fair Value		Risk-Free Interest Rate			Dividend Yield			Expected Life		Volatility
Stock Options
2003	$	13.13		3.0	%		2.2	%		5.0 years		28.0	%
2002	$	13.55		4.4	%		2.3	%		5.0 years		25.7	%

9.  Comprehensive Income

Comprehensive income was computed as follows:

	Quarters Ended June 30					Six Months Ended June 30
(in thousands)	2003		2002			2003		2002
Net income	$	30,838	$	54,000		$	97,770	$	183,825
Add: change in
Cumulative translation adjustment		1,994		48			1,702		(831	)
Unrealized gain on hedging		749		2,283			728		2,077
Unrealized gain (loss) on investments		801		(453	)		999		2,270
Comprehensive income	$	34,382	$	55,878		$	101,199	$	187,341

10.  Pending Transactions

In November 2002, the company and the von Holtzbrinck Group entered into a memorandum of understanding pursuant to which they agreed to exchange equity shareholdings so as to reduce the von Holtzbrinck Group’s ownership of The Wall Street Journal Europe to 10% from 49% and the company’s ownership of the von Holtzbrinck Group’s business daily, Handelsblatt, to 10% from 22%, with news and advertising relationships continuing.  The agreement also provides each party the unilateral option to unwind the strategic alliance entirely.  Assuming the transaction is consummated, the company expects to record an after-tax gain of $11 million, or $.14 per share, on the exchange of its 12% interest in Handelsblatt for 39% of The Wall Street Journal Europe.  Although the transaction has not been finalized, the company is funding Wall Street Journal Europe losses at the ninety-percent level as of January 1, 2003.

11. Accounting Pronouncements

In April 2003, the FASB issued Statement of Financial Accounting Standards No. 149 (SFAS 149), “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.”  SFAS 149 amends SFAS 133 to provide clarification on the financial accounting and reporting for derivative instruments and hedging activities.  This statement requires contracts with similar characteristics to be accounted for on a similar basis.  SFAS 149 will be effective for contracts entered into or modified after June 30, 2003.  The company will adopt the provisions of this statement on July 1, 2003.

In May 2003, the FASB issued Statement of Financial Accounting Standards No. 150 (SFAS 150) “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.”  SFAS 150 requires companies to classify certain financial instruments with characteristics of both liabilities and equity as a liability (or asset in some instances) because that financial instrument is an obligation of the company.  This statement is effective May 31, 2003 for financial instruments entered into after May 31, 2003 and is effective in the first interim period beginning after June 15, 2003 for existing financial instruments, which fall under this scope.  Existing financial instruments will be transitioned by reporting the cumulative effect of a change in an accounting principle beginning on July 1, 2003.

The adoption of both SFAS 149 and SFAS 150 is not expected to have a material effect on the company’s financial statements.

10

12.  Business Segments

The company has determined the following three reportable segments based on the manner in which it manages its business: print publishing, electronic publishing and general-interest community newspapers.  In addition, the company reports certain administrative activities under the corporate segment.  Management evaluates the performance of its segments exclusive of restructuring charges and September 11 related items.  

Print publishing includes the global operations of The Wall Street Journal and its international editions, Barron’s and other business periodicals, as well as U.S. television operations.  Electronic publishing includes the operations of Dow Jones Newswires, Consumer Electronic Publishing and Dow Jones Indexes/Ventures.  Consumer Electronic Publishing includes the results of WSJ.com and its related vertical sites as well as the company’s licensing/business development and radio/audio businesses.  Revenues in the electronic publishing segment are mainly subscription based.  Ottaway Newspapers, the community newspapers segment, publishes 15 daily newspapers, 12 Sunday papers and more than 30 weeklies and shoppers in 9 states in the U.S.

(in thousands)	Quarters Ended June 30						Six Months Ended June 30
	2003			2002			2003			2002
Revenues:
Print publishing	$	234,285		$	261,257		$	448,709		$	497,305
Electronic publishing		80,012			78,613			159,199			156,413
Community newspapers:
Comparable operations		72,141			72,046			135,776			134,023
Divested/newly-acquired operations		7,148			5,108			8,132			22,174
Consolidated revenues	$	393,586		$	417,024		$	751,816		$	809,915
Income before income taxes and minority interests:
Print publishing	$	5,578		$	5,167		$	893		$	(3,610	)
Electronic publishing		16,083			15,164			32,914			30,391
Community newspapers:
Comparable operations		19,900			21,751			32,383			34,036
Divested/newly-acquired operations		1,600			1,477			1,698			5,255
Corporate		(8,345	)		(8,504	)		(15,493	)		(18,711	)
Segment operating income		34,816			35,055			52,395			47,361
Restructuring charges and September 11 related items, net		18,408			(11,098	)		18,408			(11,098	)
Consolidated operating income		53,224			23,957			70,803			36,263
Equity in earnings of associated companies		2,171			3,107			322			657
Gain on resolution of Telerate sale loss contingency								59,821
Gain on sale of businesses					44,518						197,925
Contract guarantee		(2,459	)		(3,041	)		(5,069	)		(6,219	)
Other income/(deductions), net		(354	)		(691	)		(294	)		(1,435	)
Income before income taxes and minority interests	$	52,582		$	67,850		$	125,583		$	227,191
Depreciation and amortization (D&A):
Print publishing	$	17,708		$	19,224		$	35,388		$	36,240
Electronic publishing		6,788			6,696			13,578			13,431
Community newspapers:
Comparable operations		2,637			2,783			5,341			5,596
Divested/acquired operations		472			88			526			681
Corporate		131			239			260			479
Consolidated D&A	$	27,736		$	29,030		$	55,093		$	56,427

11

ITEM 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

Revenues in the second quarter of 2003 continued to be affected by the weak advertising and business environment, which was more pronounced in the first half of the quarter as a result of the war with Iraq.  Toward the latter half of the quarter, the company began to see intermittent signs of improvement from many ad categories, including most recently the company’s core financial and technology sectors.  Despite the challenging advertising and business environment in the quarter, the company was able to offset its advertising revenue softness with cost containment efforts, lower year-over-year costs and improved color advertising related to the 2002 launch of Today’s Journal, and modest revenue growth at Electronic Publishing.

As part of the company’s “Business Now” long range plan priority to enhance its community newspapers portfolio, on May 5, the company acquired The Record in Stockton, California.  The Record is the leading daily newspaper serving the city of Stockton and surrounding San Joaquin County in Northern California’s Central Valley, one of the fastest growing markets in California.  The Record reported 2002 revenues of $37 million and operating profits of $9.6 million.

Results of Operations

Second Quarter 2003 Compared To Second Quarter 2002

Net income for the second quarter of 2003 was $30.8 million, or $.38 per diluted share, compared with second quarter 2002 earnings of $54 million, or $.64 per share (all “per share” amounts included herein are based on reported net income and use diluted shares).  Net income in each year included certain items affecting comparisons which netted to a gain of $.11 per share in the second quarter 2003 and a gain of $.39 per share in the second quarter 2002.  These items affecting comparisons are detailed further on page 18. 

Revenues for the second quarter of 2003 fell 5.6%, to $393.6 million, largely as a result of a decline in company-wide advertising revenue.  On a “same property” basis, meaning excluding Ottaway divested and newly-acquired properties, total revenue was down 6.2%.  Same property advertising revenue declined 10%, primarily the result of lower advertising volume at the domestic Journal.  Information services revenue was up slightly as a decline in Dow Jones Newswires revenues was more than offset by growth in revenue at Consumer Electronic Publishing and other electronic businesses.  Circulation and other revenue, on a same-property basis, decreased 1.8% due to a decline in circulation revenue partially offset by increases in conference and royalty revenues.

2003 operating expenses declined 13%, to $340.4 million, reflecting cost saving initiatives (about $12 million), a decrease in year-over-year Today’s Journal costs ($14 million) and a favorable comparison ($30 million) as 2003 operating expenses included a gain on the settlement of a business interruption insurance claim, while 2002 included a restructuring charge.  These reductions in operating expenses were partially offset by an increase in expenses from the newly-acquired Stockton Record and an increase in newsprint expense.  Newsprint expense, on a same-property basis, was up 2.3%, as a result of a 13.8% increase in newsprint prices partially offset by a 10.1% decrease in consumption.  Employee compensation expense was down about 1.7% (down 2.4% on a same-property basis).  At the end of June 2003, the number of full-time employees was about 7,000, which included 291 employees from The Record.

Second quarter 2003 operating income of $53.2 million (13.5% of revenues) was more than double 2002 operating income of $24 million (5.7% of revenues) reflecting primarily the insurance gain and a favorable comparison to restructuring charges a year before.

Six Months Ended June 30, 2003 Compared To Six Months Ended June 30, 2002

Net income for the first half of 2003 was $97.8 million, or $1.19 per share, compared with first half 2002 earnings of $183.8 million, or $2.17 per share.  Included in net income were certain items affecting comparisons, which netted to a gain of $.80 per share in 2003 and a gain of $1.84 per share in 2002.  These items are detailed beginning on page 18.

Revenues for the first six months of 2003 declined 7.2%, primarily the result of the weak advertising and business environment and a net reduction in revenue as a result of divested Ottaway properties.  Information services revenues increased .4%, as strong revenue growth at Consumer Electronic Publishing and Dow Jones Indexes/Ventures were offset by declines in Newswires revenue, due to contraction in the securities industry.  Circulation and other revenue was down 3.8%.  On a same property basis, circulation and other revenues were down 1.3%, as a decline in circulation revenue and outside printing contract revenues were partially offset by increases in conference and royalty revenue.

12

Expenses for the first six months of 2003 were down 12%, to $681 million.  The reduction in expenses primarily reflected cost saving initiatives ($34 million), the previously-mentioned insurance gain ($18.4 million), lower Today’s Journal costs ($17 million), savings from divested properties net of acquired properties ($10 million), lower newsprint expenses ($2 million) and a favorable comparison to the second quarter 2002 restructuring charge ($11 million).

Segment Data

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, 12 Sunday papers and more than 30 weeklies and shoppers in 9 states in the U.S., are reported in the community newspaper segment.  In addition, the company reports certain administrative activities under the corporate segment.  Print publishing accounted for approximately 60% of second quarter 2003 revenues, with electronic publishing and community newspapers each accounting for approximately 20%.

Print Publishing

Print publishing includes the global operations of The Wall Street Journal and its international editions, Barron’s and other periodicals, as well as U.S. television operations (results of the company’s international television ventures are included in equity in earnings of associated companies). 

	Quarters Ended June 30						Six Months Ended June 30
(in thousands)	2003			2002			2003			2002
Revenues
U.S. Publications:
Advertising	$	147,098		$	167,552		$	276,955		$	315,718
Circulation and other		67,322			68,597			133,712			135,689
International Publications:
Advertising		11,141			15,736			21,134			27,447
Circulation and other		8,724			9,372			16,908			18,451
Total revenues		234,285			261,257			448,709			497,305
Expenses*		228,707			256,090			447,816			500,915
Operating income/(loss)*	$	5,578		$	5,167		$	893		$	(3,610	)
Operating margin		2.4	%		2.0	%		0.2	%		(0.7	)%
Included in expenses:
Depreciation and amortization	$	17,708		$	19,224		$	35,388		$	36,240

* Restructuring charges and the gain from the business interruption insurance claim related to September 11 are not included in segment expenses as management evaluates segment results exclusive of these items.  For information purposes, restructuring charges and the gain from the business interruption insurance claim allocable to the print publishing segment were a gain of $17,422 for the 2003 second quarter and six month periods and a charge of $8,310 for the 2002 second quarter and six month periods.

Statistical information:
Advertising volume increase/(decrease)

The Wall Street Journal linage
General	(15.4	)%	(8.3	)%	(7.4	)%	(11.0	)%
Technology	(3.2	)	(32.2	)	(15.7	)	(36.2	)
Financial	(14.5	)	(37.9	)	(26.9	)	(35.5	)
Classified	11.1		(7.2	)	13.1		(12.2	)
Total Linage	(7.9	)	(20.8	)	(9.4	)	(23.5	)
The Asian Wall Street Journal linage	(4.9	)	(37.4	)	(0.3	)	(40.7	)
The Wall Street Journal Europe linage	4.9		(34.4	)	12.6		(38.4	)
Barron’s pages	(22.9	)	(14.7	)	(20.4	)	(19.1	)

13

Second Quarter 2003 Compared To Second Quarter 2002 - Print Publishing

Second quarter 2003 revenue fell 10%, driven by advertising softness at The Wall Street Journal, where ad linage dropped 7.9%.  After the end to the formal hostilities in Iraq, Journal advertising linage on a per issue basis showed sequential improvements throughout the quarter declining 14.4% in April, 5% in May and 3.8% in June.  Revenues were down 9.2% in the U.S. and were down 21% overseas.  The decline in overseas revenue reflected relatively flat advertising linage and a reduction in rates as a result of a global ad sales program launched in the summer of 2002.

Overall Journal advertising linage declined 7.9% in the second quarter, with consumer and business-to-business advertising negatively affected by the war with Iraq.  General advertising, which represented about 40% of total linage, fell 15.4% reflecting a decline in travel and public utility advertising offset somewhat by an increase in auto advertising.  Technology advertising, which represented 21% of the total Journal linage, declined a modest 3.2% as improvements in hardware, software and communications advertising were more than offset by a decline in business-to-business e-commerce and personal computer advertising.  Financial advertising, which accounted for 17% of total Journal linage, fell 14.5%, reflecting declines in retail advertising, partially offset by a strong increase in wholesale advertising.  Financial advertising showed improvements in the latter part of the second quarter with declines in May of 5% and only 2% in June.  Classified advertising linage, which represented 22% of total Journal linage, increased 11.1% reflecting improvements in real estate and other classified advertising.  Color advertising, which is billed at a premium, increased 14%.

Second quarter 2003 circulation and other revenue for the US print publications decreased 1.9% from the second quarter of 2002.  Average circulation for the second quarter of 2003 for The Wall Street Journal was 1,890,000 compared with circulation of 1,818,000 in the second quarter of 2002.  Barron’s average circulation was 295,000 in the quarter, down from 302,000 in the second quarter 2002.  International print circulation and other revenues fell 6.9%, as a result of modest declines in circulation revenue, conference revenue and outside printing contract revenue.  Combined average circulation for the international Journals was 177,000 in the second quarter of 2003 compared with 191,000 in the second quarter of 2002.

Print publishing expenses declined 11% from second quarter 2002 levels, as a result of ongoing cost containment efforts and a decrease in Today’s Journal costs, as last year included higher promotional costs related to its launch.  Newsprint expense was up .7% as a result of a 13.8% increase in newsprint prices somewhat offset by an 11.5% decrease in consumption.  The number of employees in the print publishing segment was down 7.4% from June 30, 2002.

Print publishing second quarter 2003 operating income of $5.6 million (2.4% of revenues) improved 8% from $5.2 million (2% of revenues) in the like quarter last year, as the company’s strict cost containment initiatives and lower Today’s Journal costs more than offset advertising revenue declines.

Six Months Ended June 30, 2003 Compared To Six Months Ended June 30, 2002 - Print Publishing

Print Publishing US advertising revenues for the first six months of 2003 declined 12% from last year reflecting a 9.4% linage decline at The Wall Street Journal and a 20.4% (23.4% per issue) decline in Barron’s advertising volume.  International print advertising revenues were down 23%.  Although total combined international advertising linage was up 6%, revenues declined primarily as a result of discounts related to the global ad sales program.  Print publishing circulation and other revenues declined 2.3%.

Operating expenses for the first half of 2003 were down 11% from the like period last year.  The expense improvement was primarily the result of ongoing cost containment efforts, reduced Today’s Journal costs and lower newsprint expenses.  Newsprint expense was down 5.4%, as a 12% decline in consumption more than offset a 7.4% price increase.

Print publishing’s first half 2003 operating income was $.9 million (0.2% of revenues), compared with an operating loss of $3.6 million last year.

14

Electronic Publishing

Electronic publishing includes the operations of Dow Jones Newswires, Consumer Electronic Publishing and Dow Jones Indexes/Ventures.  Consumer Electronic Publishing includes the results of WSJ.com and its related vertical sites as well as the company’s licensing/business development and radio/audio businesses.  Revenues in the electronic publishing segment are mainly subscription-based.  Electronic publishing represented about 20% of second quarter 2003 revenues.

	Quarters Ended June 30						Six Months ended June 30
(in thousands)	2003			2002			2003			2002
Revenues
Dow Jones Newswires:
North America	$	41,867		$	44,838		$	85,232		$	90,647
International		10,640			11,060			21,251			23,035
Total Newswires		52,507			55,898			106,483			113,682
Consumer Electronic Publishing		17,582			14,404			32,953			27,196
Dow Jones Indexes/Ventures		9,923			8,311			19,763			15,535
Total revenues		80,012			78,613			159,199			156,413
Expenses*		63,929			63,449			126,285			126,022
Operating income*	$	16,083		$	15,164		$	32,914		$	30,391
Operating margin		20.1	%		19.3	%		20.7	%		19.4	%
Included in expenses:
Depreciation and amortization	$	6,788		$	6,696		$	13,578		$	13,431

* Restructuring charges and the gain from the business interruption insurance claim related to September 11 are not included in segment expenses as management evaluates segment results exclusive of these items.  For information purposes, restructuring charges and the gain from the business interruption insurance claim allocable to the electronic publishing segment were a gain of $951 for the 2003 second quarter and six month periods and a charge of $2,443 for the 2002 second quarter and six month periods.

Statistical information:	June 30 2003		June 30 2002
Dow Jones Newswires terminals		297,000		339,000
WSJ.com subscribers		671,000		646,000

Second Quarter 2003 Compared To Second Quarter 2002 - Electronic Publishing

Electronic publishing revenues increased 1.8%, as increases in Consumer Electronic Publishing and Dow Jones Indexes/Ventures revenues more than offset lower Newswires revenue.  Dow Jones Newswires revenue fell 6.1% from the second quarter of 2002, primarily reflecting a decrease in retail revenue due to contraction in the North American securities industry.  English-language terminals carrying Dow Jones Newswires at June 30, 2003 were 297,000 compared with 339,000 at June 30, 2002.  North American terminals decreased by 46,000, while International terminals increased by 4,000. 

Consumer Electronic Publishing revenue increased 22%, driven by a 32% increase in WSJ.com subscriber revenue, a 12% increase in advertising revenue and a 21% increase in licensing revenue.  At the end of June 2003, the number of WSJ.com subscribers increased 3.9% from a year earlier, to 671,000.  Dow Jones Indexes/Ventures revenues, which include Dow Jones Indexes and reprints/permissions businesses, increased 19%.

Electronic publishing expenses increased .8%, to $63.9 million, as higher marketing and facilities costs were largely offset by cost containment efforts.  The number of employees in the electronic publishing segment was down 2.3% from a year ago.

15

Electronic publishing’s operating income of $16.1 million (20.1% of revenues) was 6.1% better than second quarter 2002 operating income of $15.2 million (19.3% of revenues).  The improvement in both margins and profitability were largely driven by increases in revenues at Consumer Electronic Publishing and Dow Jones Indexes/Ventures coupled with cost containment efforts.

Six Months Ended June 30, 2003 Compared To Six Months Ended June 30, 2002 - Electronic Publishing

Electronic publishing revenues for the first six months of 2003 improved 1.8%, as a decline in Newswires revenue (6.3%) was more than offset by strong revenue growth at Consumer Electronic Publishing (21%) and Dow Jones Indexes/Ventures (27%).  Operating expenses increased .2%, to $126.3 million reflecting higher marketing and facilities costs offset by the company’s cost containment efforts.

Operating income for the first half of 2003 of $32.9 million (20.7% of revenues) was 8.3% better than operating income of $30.4 million (19.4% of revenues) for the same period last year.     

Community Newspapers

Community newspapers includes the operations of Ottaway Newspapers, which publishes 15 daily newspapers and over 30 weekly newspapers and “shoppers” in 9 states in the U.S.  Community newspapers comprised about 20% of second quarter 2003 revenues.

	Quarters Ended June 30						Six Months Ended June 30
(in thousands)	2003			2002			2003			2002
Revenues
Advertising
Comparable operations	$	52,447		$	52,149		$	97,378		$	95,492
Divested/newly-acquired operations		6,053			3,691			6,813			15,707
Total advertising		58,500			55,840			104,191			111,199
Circulation and other
Comparable operations		19,694			19,897			38,398			38,531
Divested/newly-acquired operations		1,095			1,417			1,319			6,467
Total circulation and other		20,789			21,314			39,717			44,998
Total revenues		79,289			77,154			143,908			156,197
Expenses
Comparable operations		52,241			50,295			103,393			99,987
Divested/newly-acquired operations		5,548			3,631			6,434			16,919
Total segment expenses		57,789			53,926			109,827			116,906
Operating income
Comparable operations		19,900			21,751			32,383			34,036
Divested/newly-acquired operations		1,600			1,477			1,698			5,255
Total operating income	$	21,500		$	23,228		$	34,081		$	39,291
Operating margin
Comparable operations		27.6	%		30.2	%		23.9	%		25.4	%
Divested/newly-acquired operations		22.4			28.9			20.9			23.7
Included in expenses:
Depreciation and amortization
Comparable operations	$	2,637		$	2,783		$	5,341		$	5,596
Divested/newly-acquired operations		472			88			526			681

16

	Quarters Ended June 30						Six Months Ended June 30
	2003			2002			2003			2002
Statistical information:
Advertising volume increase/(decrease)*
Dailies		(2.9	)%		(3.7	)%		(1.8	)%		(3.2	)%
Non-Dailies		0.3			(4.2	)		1.5			(1.8	)
Overall		(2.4	)		(3.8	)		(1.3	)		(3.0	)

* Percentage excludes divested/newly-acquired operations.

Second Quarter 2003 Compared To Second Quarter 2002 - Community Newspapers

During the second quarter of 2003, the company’s Ottaway Newspapers subsidiary acquired The Record of Stockton California, enhancing the company’s community newspaper portfolio.  Prior to the acquisition, The Stockton Record Group reported 2002 revenues of $37 million and operating profits of $9.6 million.  The Record has daily paid circulation of 59,271 and Sunday circulation of 72,698. 

Community newspapers second quarter revenue was up 2.8%, primarily reflecting revenue gained as a result of the acquisition of The Record.  Excluding divested and newly-acquired operations, or on a “same property” basis, revenue increased .1%, as increases in rates were somewhat offset by a 2.4% advertising linage decline.  Same property circulation and other revenue was down 1% on average daily circulation of about 381,000 in 2003 and 387,000 in 2002.

Community newspapers expenses increased 7.2%, reflecting in part the acquisition of The Record.  On a same property basis, operating expenses increased 3.9%, as a result of higher employee benefit costs and an increase in newsprint expense.  Newsprint expense, on a same property basis, increased 9.2% as a result of a 13.5% increase in newsprint prices offset somewhat by a 3.7% reduction in consumption.  The number of employees in the community newspapers segment was up 15.8%, reflecting the Stockton Record Group acquisition (on a same property basis headcount was down .7%).

Operating income was $21.5 million (27.1% of revenues), compared with income last year of $23.2 million (30.1% of revenues).  On a same property basis, operating income of $19.9 million (27.6% of revenues) decreased 8.5% from $21.8 million (30.2% of revenues) a year earlier.

Six Months Ended June 30, 2003 Compared With Six Months Ended June 30, 2002 - Community Newspapers

Community newspaper revenues for the first half of 2003 were down 7.9%, however, on a same property basis, revenues were up 1.3%, reflecting higher advertising preprint revenues and increased rates, somewhat offset by a 1.3% decline in advertising linage.  Expenses for the first six months of 2003 were down 6.1%, to $109.8 million.  On a same property basis, operating expenses increased 3.4%, as a result of higher employee salary and benefit costs as well as an increase in newsprint costs.  Newsprint expenses increased 3.7%, as a 3.1% decline in consumption was more than offset by a 7.1% increase in newsprint prices.

Community newspapers operating income for the first six months of 2003 was $34.1 million (23.7% of revenues), down 13.3% from last year’s operating income of $39.3 million (25.2% of revenues).  On a same property basis, operating income of $32.4 million (23.9% of revenues) was 4.9% below 2002 operating income of $34.0 million (25.4% of revenues).

17

Certain Items Affecting Comparisons

The following table summarizes certain items affecting comparisons for the quarters and six months ended June 30, 2003 and 2002:

	Second Quarters Ended June 30
	2003								2002
(in millions, except per share amounts)	Operating		Net			EPS			Operating			Net			EPS
Included in operating income:
Restructuring charges (a)									$	(11.1	)	$	(6.3	)	$	(.07	)
Gain from business interruption insurance claim (a)	$	18.4	$	11.1		$	.14
Included in non-operating income:
Contract guarantee  (b)				(2.5	)		(.03	)					(3.0	)		(.04	)
Sale of ONI properties  (d)													38.0			.45
CNBC International gain (e)													3.9			.05
Total	$	18.4	$	8.6		$	.11		$	(11.1	)	$	32.6		$	.39

	Six Months Ended June 30
	2003								2002
(in millions, except per share amounts)	Operating		Net			EPS			Operating			Net			EPS
Included in operating income:
Restructuring charges (a)									$	(11.1	)	$	(6.3	)	$	(.07	)
Gain from business interruption insurance claim (a)	$	18.4	$	11.1		$	.14
Included in non-operating income:
Contract guarantee (b)				(5.1	)		(.06	)					(6.2	)		(.08	)
Gain on resolution of Telerate sale loss contingencies  (c)				59.8			.73
Sale of ONI properties  (d)													164.1			1.94
CNBC International gain (e)													3.9			.05
Total	$	18.4	$	65.8		$	.80	*	$	(11.1	)	$	155.5		$	1.84

*Per share amounts for each item were calculated using the average shares outstanding during the quarter that the transaction occurred.  Therefore, the total of the individual items does not add to the total earnings per share.

(a) Restructuring charges and September 11 items, net:
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.

The second quarter of 2002 included restructuring charges of $11.1 million ($6.3 million after taxes and minority interests, or $.07 per diluted share) largely reflecting employee severance related to a workforce reduction of roughly 165 full-time employees across the print and electronic publishing and corporate segments.  See Note 2 on page 6 of this Form 10-Q for additional information on restructuring charges.

(b) Contract Guarantee:
Under the terms of the company’s 1998 sale of Telerate to 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 about Bridge’s solvency as well as other factors, the company established a reserve of $255 million representing the net present value of the total estimated payments from 2001 through October 2006, using a discount rate of 6%.

Earnings in 2003 and 2002 have included charges related to the accretion of the discount on the reserve balance.  These charges totaled $2.5 million and $3 million in the second quarters of 2003 and 2002, respectively.  For the first six months of 2003 and 2002, charges related to the accretion of discount totaled $5.1 million and $6.2 million, respectively.

18

Bridge filed for bankruptcy in February 2001 but made payments for this 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.  The trial court rendered a decision in January 2003 denying the parties’ respective motions to grant their own claims and to dismiss the competing claims.  The company, Cantor and MDC have all filed appeals from the trial court’s order. While these appeals are pending, the discovery phase is proceeding. 

While it is not possible to predict with certainty the ultimate outcome of this litigation, the company believes the likelihood of a loss exceeding the amount reserved is remote; however, it is possible that such loss could be less than the amount reserved.

(c) 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, Inc. (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 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.

(d) Gains on sale of ONI properties:
On June 7, 2002, the company completed the sale of Ottaway’s Essex County newspaper properties to Eagle-Tribune Publishing Company and recognized a gain of $44.5 million ($38 million after taxes, or $.45 per diluted share).  On March 31, 2002, the company completed the sale of four of the Ottaway newspapers to Community Newspapers Holdings, Inc. and recognized a gain of $153.4 million ($126.1 million after taxes, or $1.49 per diluted share).

(e) Gains in equity in earnings of associated companies:
The second quarter of 2002 included gains at CNBC Asia of $3.9 million ($.05 per diluted share) which consisted of a $2.5 million gain from the favorable settlement of a contractual obligation and a $1.4 million gain from the sale of an investment by CNBC Asia.

Equity in Earnings of Associated Companies
In the quarter, the company’s share of equity in earnings of associated companies was $2.2 million, compared with earnings of $3.1 million last year.  The decline reflected an unfavorable comparison to the second quarter 2002 special gain at CNBC Asia offset by increased profitability at Factiva, F.F. Soucy, Stoxx and SmartMoney.  For the first half of the year, equity in earnings of associated companies was $.3 million in 2003 compared with $.7 million in 2002.

Other Income/Deductions
Interest expense, net of investment income for the second quarter of 2003 was $.6 million compared with $.4 million for the second quarter of 2002, largely reflecting a higher debt level as a result of the Stockton Record Group acquisition.  

Income Taxes
The effective income tax rate, net of minority interests, for the second quarter of 2003 was 41.8% compared with 23.2% in the second quarter of 2002.  The effective income tax rates for the first six months of 2003 and 2002 were 22.6% and 20.8%, respectively.  The effective income tax rates were affected by certain capital loss/gain transactions that occurred during the periods.  Excluding the items identified in the table on page 18, the effective tax rate, net of minority interests, was 40% in all periods. 

19

Reconciliation of effective tax rate:

	Quarters Ended June 30
	2003								2002
(dollars in millions)	Income Taxes		Pretax Income			Effective Tax Rate			Income Taxes			Pretax Income			Effective Tax Rate
Reported (net of minority interests)	$	22.1	$	53.0			41.8	%	$	16.3		$	70.3			23.2	%
Adjusted to remove:
Restructuring charges, net of minority interests										(4.5	)		(10.8	)
Gain from business interruption insurance claim		7.3		18.4
Cantor guarantee				(2.5	)								(3.0	)
Sale of ONI properties										6.5			44.5
CNBC International gains													3.9
Adjusted	$	14.8	$	37.0	*		40.0	%	$	14.3		$	35.7			40.0	%

	Six Months Ended June 30
	2003								2002
(dollars in millions)	Income Taxes		Pretax Income			Effective Tax Rate			Income Taxes			Pretax Income			Effective Tax Rate
Reported (net of minority interests)	$	28.6	$	126.4			22.6	%	$	48.2		$	232.0			20.8	%
Adjusted to remove:
Restructuring charges, net of minority interests										(4.5	)		(10.8	)
Gain from business interruption insurance claim		7.3		18.4
Cantor guarantee				(5.1	)								(6.2	)
Gain on resolution of Telerate sale loss contingencies				59.8
Sale of ONI properties										33.8			197.9
CNBC International gains													3.9
Adjusted	$	21.3	$	53.2	*		40.0	%	$	18.9		$	47.1	*		40.0	%

* The sum of the individual amounts does not equal the total due to rounding.

In the first quarter of 2003, as a result of changes to Internal Revenue Service (IRS) guidelines in 2002, the company amended its 1998 U.S. Corporate income tax return to include an additional capital loss of $605 million on its sale of Telerate.  Factoring in the amended capital loss, the company had available approximately $1.3 billion of capital loss carryforward (a deferred tax asset of $505 million, which was fully reserved).  About $1.06 billion of this loss carryforward is recognized for tax purposes, with about $899 million expiring at the end of 2003 and $157 million expiring in 2006.  The remaining $269 million of capital loss carryforward, which primarily relates to the Cantor contract guarantee obligation, will be recognized for tax purposes only to the extent, if any, that the company is required to make payment.  If the company is required to make such payment, the resulting loss carryforward will be available for use five years from the year it is recognized. 

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As of June 30, 2003, the company could not conclude that it was more likely than not it would realize any net tax savings from capital loss carryforwards prior to their expiration and believes the full valuation allowance reserve was appropriate at June 30, 2003.

Accounting Pronouncements
In April 2003, the FASB issued Statement of Financial Accounting Standards No. 149 (SFAS 149), “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.”  SFAS 149 amends SFAS 133 to provide clarification on the financial accounting and reporting for derivative instruments and hedging activities.  This statement requires contracts with similar characteristics to be accounted for on a similar basis.  SFAS 149 will be effective for contracts entered into or modified after June 30, 2003.  The company will adopt the provisions of this statement on July 1, 2003.

In May 2003, the FASB issued Statement of Financial Accounting Standards No. 150 (SFAS 150) “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.”  SFAS 150 requires companies to classify certain financial instruments with characteristics of both liabilities and equity as a liability (or asset in some instances) because that financial instrument is an obligation of the company.  This statement is effective May 31, 2003 for financial instruments entered into after May 31, 2003 and is effective in the first interim period beginning after June 15, 2003 for existing financial instruments that fall under this scope.  Existing financial instruments will be transitioned by reporting the cumulative effect of a change in an accounting principle beginning on July 1, 2003. 

The adoption of both SFAS 149 and SFAS 150 is not expected to have a material effect on the company’s financial statements.

Liquidity and Capital Resources

Cash Flow Summary

	Six Months Ended June 30
(in millions)	2003			2002
Net cash provided by operating activities	$	110.7		$	10.7
Net cash (used in) provided by investing activities		(181.3	)		199.7
Net cash provided by (used in) financing activities		64.0			(209.1	)
(Decrease) increase in cash and cash equivalents		(6.6	)		1.3
Cash and cash equivalents at beginning of year		39.3			21.0
Cash and cash equivalents at June 30	$	32.7		$	22.3

Cash provided by operating activities for the first half of  2003 was $110.7 million, which was an improvement of $100 million from net cash provided by operations of $10.7 million in the same period last year.  The improvement was primarily the result of higher operating income, lower income tax payments and improved collection of receivables.  The company’s federal income taxes that were normally due on September 15 and December 15, 2001, were deferred to January 15, 2002, as the Internal Revenue Service offered relief of these payments for taxpayers that were affected by the September 11 terrorist attacks on the World Trade Center. 

Net cash used in investing activities was $181.3 million in the first six months of 2003 primarily reflecting the acquisition of The Stockton Record for $145.8 million, capital expenditures of  $26.2 million and the funding of equity investees.  In the first half of 2002, net cash provided by investing activities totaled $199.7 million, which included proceeds of about $248 million from the sale of the five Ottaway properties and proceeds of $11.2 million as a result of a property damage claim at the company’s World Financial Center offices as a result of the September 11 terrorist attacks offset by capital expenditures of $41.1 million and the funding of equity investees.

Net cash provided by financing activities for the first six months of 2003 was $64 million.  Sources of cash from financing activities in 2003 included an increase in debt of $117.3 million, primarily to fund the purchase of The Record, and the receipt of funding of $7.4 million from a minority shareholder of a subsidiary.   Cash outlays included the payment of $40.8 million in dividends to shareholders and the repurchase of shares of treasury stock for $21.1 million.  Net cash used in financing activities in the first half of 2002 was $209.1 million, as the company used the proceeds from the sale of the five Ottaway properties in the first half of 2002 to reduce its debt by $135.1 million and purchase shares of treasury stock for $49.9 million.  Also in 2002, the company paid $42.1 million in dividends and received $12.3 million from sales under stock compensation plans and $5.7 million from a minority shareholder in a subsidiary.

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As previously disclosed, in 2000 the company established a reserve for the present value of the total estimated payments through October 2006 in connection with Dow Jones’ guarantee of certain minimum payments for data acquired by Dow Jones’ former Telerate subsidiary from Cantor Fitzgerald Securities and Market Data Corporation (MDC).  Bridge Information Systems, Inc., which purchased Telerate in 1998, is currently in bankruptcy but made payments for this 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 allegedly due under the contract guarantee.  The company has various substantial defenses to these claims and the litigation is proceeding.

As of June 30, 2003, the balance of the reserve for the contract guarantee was $249.3 million.  The company has classified $138 million of this reserve as current based on the original due dates of the contract.  Due to the stage of the lawsuit at June 30, 2003, it is not possible to determine whether the court will find that any obligation under the guarantee may be dismissed or reduced.  Accordingly, the company believes the balance of the reserve continues to be appropriate.

The company expects its cash from operations to be sufficient to meet its normal recurring operating commitments, fund capital expenditures and pay dividends.  If necessary, the company’s liquidity requirements may be funded through the issuance of commercial paper, which is supported by a $400 million revolving credit agreement with several banks.  In June 2003, the company renewed its revolving credit agreements with a consortium of banks.  Under these agreements, the company can borrow up to $400 million, $130 million through June 21, 2004 and $270 million through June 24, 2006.  The terms are essentially the same as the prior agreement.  As of June 30, 2003, the company’s commercial paper balance was $210.3 million, which is classified as long-term as it is the company’s intent to refinance such debt on a long-term basis.  The company has temporarily suspended its share repurchase program to utilize excess cash flow to reduce its debt.

Pending Transaction

In November 2002, the company and the von Holtzbrinck Group entered into a memorandum of understanding pursuant to which they agreed to exchange equity shareholdings so as to reduce the von Holtzbrinck Group’s ownership of The Wall Street Journal Europe to 10% from 49% and the company’s ownership of the von Holtzbrinck Group’s business daily, Handelsblatt, to 10% from 22%, with news and advertising relationships continuing.  The agreement also provides each party the unilateral option to unwind the strategic alliance entirely.  Assuming the transaction is consummated, the company expects to record an after-tax gain of $11 million, or $.14 per share, on the exchange of its 12% interest in Handelsblatt for 39% of The Wall Street Journal Europe.  Although the transaction has not been finalized, the company is funding Wall Street Journal Europe losses at the ninety-percent level as of January 1, 2003.

Information Relating To Forward-Looking Statements

This document contains forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those anticipated. Such risks and uncertainties include, but are not limited to: the cyclical nature of the company’s business and the strong negative impact of economic downturns on advertising revenues; the negative impact on the company’s core advertising market-business-to-business advertising-caused by weak corporate profits, concern over possible double-dip recession, corporate scandals that have resulted in damage to business, investor and public confidence; the risk that the current weak advertising market, particularly in the financial and technology segments, will not improve or will improve very slowly or only to a limited extent; the risk that the company will not benefit from or will only benefit to a limited extent from any improvement in the advertising market in the face of competition from other national business magazines, television, trade publications and other publications and services; the company’s ability to limit and manage expense growth, especially in light of its prior cost-cutting and its planned growth initiatives, without harming its growth prospects; the extent to which the company is required to perform under the guarantee to Cantor Fitzgerald Securities and Market Data Corporation, and other uncertainties relating to liability under this guarantee; the intense competition the company’s existing products and services face in the markets for financial news and information and advertising revenues from newspapers, specialized magazines, free and paid Internet publications and services, news services, financial television programming and other new media, and the impact this will have on the company’s initiatives to expand its existing market presence as well as to extend its consumer reach; the company’s ability to expand and diversify its market segment focus beyond financial and technology and the challenge it will face in attempting to become a leading presence in new market segments, such as health care, automotive, telecom, and high-end consumer goods, where competing publications and services, such as specialty and trade magazines, have already established themselves; the competition the company will face in introducing new products and services in the business-to-business market from already existing newsletters, trade publications, research reports and services; with respect to Newswires, the challenges the company will face in promoting its NewsPlus enhancement and in launching the next stages of its “Newswire of the Future” initiative, in the face of competing resources for in-depth news analysis; with respect to Newswires and other subscription-based products and services, the negative impact of business consolidations and layoffs in the financial services industry on sales of the company’s products and services; with respect to Newswires, the challenges the company faces in striving to increase its international revenues given the competition from and subscribers’ desire for, local

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language news services; with respect to Newswires, risks concerning the financial viability of the Moneyline Telerate business, with which Newswires has entered into a bundling arrangement that is important to Newswires’ international revenues; with respect to Newswires, competition from other independent news service providers and the risk that distributors of Newswires products may elect to distribute only their own news services; the company’s ability to find strategic and financially attractive core-business acquisition opportunities; the company’s ability to leverage its brands to develop new business opportunities and to generate advertising and other revenues from these products; the company’s ability to achieve strategic alliances and to improve the growth and profitability of existing strategic alliances; with respect to the company’s community newspapers business, its ability to maintain or grow margins and to strengthen its portfolio of newspaper properties, particularly given the difficulty of finding quality newspaper properties to acquire; the degree to which the company’s Personal Journal is able to generate new advertising revenues from diversified markets, such as health care, automotive and consumer goods; the extent to which the recent enhancements to The Wall Street Journal will attract a broader base of readers, subscribers, and advertisers; in light of the weak advertising market and competition, the company’s ability to attract diverse advertisers to place color advertising; the company’s ability to increase its circulation and advertising revenues from its international print publications and to further penetrate overseas markets through print and television products, given the competition from local language publications and television networks and other international publications and television ventures; the ability of WSJ.com to continue to increase revenues through building subscriber and advertiser numbers and to limit expenses; the amount of user traffic on the company’s Internet sites and the pricing of advertising on Internet sites generally; potential increased regulation of online businesses; adverse developments relating to the company’s commitments, contingencies and equity investments; risks related to the potential or actual insolvency or bankruptcy of any of the company’s suppliers, service providers or business partners, including providers of software and software maintenance; the company’s ability to recover from any possible technical, hardware or software failure; the company’s ability to negotiate collective bargaining agreements with its labor unions without work interruptions; cost of newsprint; and such other risk factors as may have been or may be included from time to time in the company’s reports filed with the Securities and Exchange Commission.

Item 3:  Quantitative And Qualitative Disclosures about Market Risk

In December 2002, the company entered into forward foreign currency exchange contracts to exchange $24.5 million for 15.8 million British pounds and to exchange $25.3 million for 25.2 million euro.  These contracts, which expire ratably over 2003, are designated as cash flow hedges of anticipated operating expenses that are denominated in these foreign currencies.  Revenues of the company are largely collected in U.S. dollars.  The company has not entered into any new forward foreign exchange contracts since December 2002.

These contracts are entered into to protect against the risk that such expenses will be adversely affected by devaluation in the U.S. dollar relative to these currencies.  Realized gains or losses on foreign currency forward contracts are recognized currently through income and generally offset the transaction losses or gains on the foreign currency cash flows which they are intended to hedge.

The company’s commercial paper outstanding of $210.3 million at June 30, 2003 is also subject to market risk as the debt reaches maturity and is reissued at prevailing interest rates.  At June 30, 2003, interest rates outstanding ranged from .9% to 1.2%, with a weighted-average of 1.1%. 

Item 4:  Controls & Procedures

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report, under the supervision and with the participation of the company’s management, including the company’s Chief Executive Officer (CEO) and Chief Financial Officer (CFO), an evaluation of the effectiveness of the company’s disclosure controls and procedures was performed.  Based on this evaluation, the CEO and CFO have concluded that the company’s disclosure controls and procedures are effective to ensure that material information is recorded, processed, summarized and reported by management of the company on a timely basis in order to comply with the company’s disclosure obligations under the Securities Exchange Act of 1934 and the SEC rules thereunder. 

Changes in internal controls over financial reporting

There were no changes in the company’s internal controls over financial reporting that occurred during the three month period ended June 30, 2003 that have materially affected, or are reasonable likely to materially affect, the company’s internal control over financial reporting.

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PART II.  OTHER INFORMATION

Item 1:  Legal Proceedings

On February 20, 2001, Market Data Corp. (MDC) commenced a lawsuit against Dow Jones in the Supreme Court of the State of New York, seeking to compel the company to pay $11.7 million, plus interest, attorneys’ fees and costs, that MDC claimed was owed under the guarantee issued to MDC and Cantor Fitzgerald Securities (together with its affiliates, Cantor), together with unspecified consequential damages that MDC claimed result from Dow Jones’ failure to pay on the guarantee.  The guarantee relates to certain annual “minimum payments” owed by Telerate for data acquired by Telerate from Cantor Fitzgerald and MDC under contracts entered into when Telerate was a subsidiary of Dow Jones, and is described in Management’s Discussion and Analysis.   

In April 2001, Dow Jones paid $5.8 million to MDC covering the period January 1 to February 14, 2001 preceding Bridge Information System’s Chapter 11 bankruptcy filing.  Bridge made the payments for the post-petition periods through the third quarter of 2001.  After certain amendments were made to the complaint, the remaining claims in this lawsuit sought the payment of interest on the payment made in the first quarter of 2001 and for attorneys’ fees and costs in this litigation.  The parties settled these claims and this lawsuit was then withdrawn.  

In October 2001, the bankruptcy court granted Bridge’s motion to reject Telerate’s contracts with Cantor and MDC.  Telerate has indicated that it has ceased operations, is no longer receiving government securities data from Cantor and MDC and will not make further payments to Cantor and MDC.  Cantor and MDC advised the company that they would demand payment from Dow Jones of an amount they alleged was due on November 15, 2001 under the contract guarantee as well as future amounts due through October 2006.  The company has various substantial defenses to these claims. 

On November 13, 2001, the company instituted a lawsuit in the Supreme Court of the State of New York seeking a declaratory judgment with respect to the contract guarantee and the claims of Cantor and MDC.  In this lawsuit the company has asked the court to find that the company does not and will not owe any payment under the contract guarantee through October 2006.  In the alternative, the company has asked the court to find that if any amount is owed, it must be reduced by amounts that Cantor and MDC receive or should have received from other distribution of the data.  MDC has asserted counterclaims demanding payment of $10,197,416 (allegedly the balance owed by Telerate on November 15, 2001), interest, attorneys’ fees, specific performance of the guarantee, and a declaratory judgment as to the validity and interpretation of the guarantee through October 2006. 

Cantor also commenced a separate lawsuit in the Supreme Court of the State of New York (since consolidated with the company’s case) seeking payment of $10 million (allegedly the balance of the November 2001 minimum payment), payment of $250 million in breach of contract damages, specific performance of the guarantee, a declaration that the guarantee remains in full force and effect, payment of approximately $16 million allegedly owed by Telerate and guaranteed by the company in the guarantee for the distribution of certain other data, attorneys’ fees, interest, and other relief.

Arguments were heard in August 2002 on the parties’ respective motions to grant their own claims and to dismiss the competing claims.  The Court rendered a decision in January 2003 denying these motions in all material respects.  The company, Cantor, and MDC have all filed appeals from the trial court’s order.  While those appeals are pending, the discovery phase is proceeding.

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Item 6.  Exhibits and Reports on Form 8-K

Exhibit Number	Document
10.1	364 day Credit Agreement, dated June 23, 2003
10.2	First Amendment, dated as of June 23, 2003, to the 4-Year Credit Agreement, dated as of June 24, 2002
10.3	Second Amendment, dated as of June 23, 2003, to the 5-Year Credit Agreement dated as of June 25, 2001
31.1	Certifications by the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certifications by the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certifications by the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Reports on Form 8-K - The following reports were filed on Form 8-K in the second quarter of 2003.

Form 8-K, dated April 10, 2003, Dow Jones & Company First Quarter Earnings Release

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SIGNATURE

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.

		DOW JONES & COMPANY, INC.
		(Registrant)
Dated: August 11, 2003	By:	/s/ ROBERT PERRINE
		Robert Perrine Chief Accounting Officer and Controller

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