PAGE 1
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, 2000
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------------- -------------
Commission file number 1-7564
DOW JONES & COMPANY, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-5034940
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) 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.
Yes X No
--- ---
The number of shares outstanding of each of the issuer's classes of common
stock on June 30, 2000: 66,228,082 shares of Common Stock and 21,161,418 shares
of Class B Common Stock.
PAGE 2
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Dow Jones & Company, Inc.
=========================================================================================
Quarters Ended Six Months Ended
(in thousands, except June 30 June 30
per share amounts) 2000 1999 2000 1999
- -----------------------------------------------------------------------------------------
Revenues:
Advertising $408,994 $303,755 $ 777,613 $559,529
Information services 69,004 91,363 136,078 183,889
Circulation and other 115,159 115,453 230,218 229,235
- -----------------------------------------------------------------------------------------
Total revenues 593,157 510,571 1,143,909 972,653
- -----------------------------------------------------------------------------------------
Expenses:
News, operations and development 135,639 144,365 267,034 282,700
Selling, administrative and general 175,635 152,663 342,055 298,076
Newsprint 47,054 36,645 88,765 74,040
Print delivery costs 49,208 44,487 98,050 87,596
Depreciation and amortization 27,716 24,844 54,591 49,860
Restructuring charge 2,755 2,755
- -----------------------------------------------------------------------------------------
Operating expenses 435,252 405,759 850,495 795,027
- -----------------------------------------------------------------------------------------
Operating income 157,905 104,812 293,414 177,626
Other income (deductions):
Investment income 2,499 1,896 5,302 4,771
Interest expense (557) (1,242) (904) (2,823)
Equity in losses of associated
companies (485) (6,935) (9,515) (10,626)
Gain on disposition of
businesses and investments 6,423 20,192 10,618
Other, net (1,044) (66) (396) 384
- -----------------------------------------------------------------------------------------
Income before income taxes and
minority interests 164,741 98,465 308,093 179,950
Income taxes 63,870 41,193 119,869 71,156
- -----------------------------------------------------------------------------------------
Income before minority interests 100,871 57,272 188,224 108,794
Minority interests (308) (60) 1,009 (60)
- -----------------------------------------------------------------------------------------
Net income $100,563 $ 57,212 $ 189,233 $108,734
=========================================================================================
Net income per share:
- Basic $1.15 $.63 $2.14 $1.19
- Diluted 1.13 .62 2.12 1.18
Weighted-average shares outstanding:
- Basic 87,603 90,699 88,395 91,063
- Diluted 88,624 91,676 89,402 91,996
Cash dividends declared per share $.50 $.48 $.75 $.72
- -----------------------------------------------------------------------------------------
Comprehensive income $ 87,768 $ 64,084 $ 210,118 $128,929
=========================================================================================
<FN>
See notes to condensed consolidated financial statements.
PAGE 3
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
Dow Jones & Company, Inc.
=============================================================================
Six Months Ended June 30
(in thousands) 2000 1999
- -----------------------------------------------------------------------------
Operating Activities:
Net income $189,233 $108,734
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 54,591 49,860
Gain on disposition of businesses
and investments (20,192) (10,618)
Changes in assets and liabilities 22,475 (70,307)
Other, net 7,876 11,472
- -----------------------------------------------------------------------------
Net cash provided by operating activities 253,983 89,141
- -----------------------------------------------------------------------------
Investing Activities:
Additions to plant and property (96,119) (98,084)
Businesses and investments acquired,
net of cash received (37,610) (24,392)
Disposition of businesses and investments 28,760 13,250
Other, net 2,658 801
- -----------------------------------------------------------------------------
Net cash used in investing activities (102,311) (108,425)
- -----------------------------------------------------------------------------
Financing Activities:
Cash dividends (44,460) (43,839)
Repurchase of treasury stock, net of
put premiums (186,651) (66,960)
Proceeds from sales under stock
compensation plans 22,233 14,006
- -----------------------------------------------------------------------------
Net cash used in financing activities (208,878) (96,793)
- -----------------------------------------------------------------------------
Effect of exchange rate changes on cash 20 (134)
- -----------------------------------------------------------------------------
Decrease in cash and cash equivalents (57,186) (116,211)
Cash and cash equivalents at beginning of year 86,388 142,877
- -----------------------------------------------------------------------------
Cash and cash equivalents at June 30 $ 29,202 $ 26,666
=============================================================================
<FN>
See notes to condensed consolidated financial statements.
PAGE 4
CONDENSED CONSOLIDATED
BALANCE SHEETS
Dow Jones & Company, Inc.
=============================================================================
June 30 December 31
(in thousands) 2000 1999
- -----------------------------------------------------------------------------
Assets:
Cash and cash equivalents $ 29,202 $ 86,388
Accounts receivable-trade, net 272,207 314,289
Newsprint inventory 10,888 9,407
Deferred income taxes 9,739 9,885
Other current assets 39,353 36,020
- -----------------------------------------------------------------------------
Total current assets 361,389 455,989
- -----------------------------------------------------------------------------
Investments in associated companies,
at equity 79,068 50,959
Other investments 200,171 174,727
Plant and property, at cost 1,534,031 1,443,351
Less, accumulated depreciation 814,744 766,939
- -----------------------------------------------------------------------------
719,287 676,412
Goodwill, less accumulated amortization 75,801 83,099
Deferred income taxes 75,625 73,552
Other assets 18,625 15,821
- -----------------------------------------------------------------------------
Total assets $1,529,966 $1,530,559
=============================================================================
Liabilities:
Accounts payable and accrued liabilities $ 276,817 $ 309,964
Dividend payable 21,847
Income taxes 50,422 40,315
Unearned revenue 222,834 228,251
- -----------------------------------------------------------------------------
Total current liabilities 571,920 578,530
Long-term debt 149,975 149,945
Other noncurrent liabilities 267,919 248,594
- -----------------------------------------------------------------------------
Total liabilities 989,814 977,069
- -----------------------------------------------------------------------------
Stockholders' Equity:
Common stock 102,181 102,181
Additional paid-in capital 135,520 137,487
Retained earnings 932,443 809,517
Accumulated other comprehensive income (loss) 18,687 (2,198)
- -----------------------------------------------------------------------------
1,188,831 1,046,987
Less, treasury stock, at cost 648,679 493,497
- -----------------------------------------------------------------------------
Total stockholders' equity 540,152 553,490
- -----------------------------------------------------------------------------
Total liabilities and stockholders' equity $1,529,966 $1,530,559
=============================================================================
<FN>
See notes to condensed consolidated financial statements.
PAGE 5
NOTES TO FINANCIAL STATEMENTS
Dow Jones & Company, Inc.
1. 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, 2000 and December
31, 1999, and the consolidated results of operations for the three and six-
month periods ended June 30, 2000 and 1999 and the consolidated cash flows for
the six-month period then ended. All adjustments reflected in the accompanying
unaudited condensed consolidated financial statements are of a normal recurring
nature. The results of operations for the respective interim periods are not
necessarily indicative of the results to be expected for the full year.
2. The second quarter of 2000 included a net gain of $4.8 million, or $.05 per
share, from the sale of the company's minority interest in SportsTicker
Enterprises L.P., a leading supplier of real-time sports news and information.
3. The second quarter of 2000 included a reversal of a 1998 restructuring
charge of $3.2 million ($2.1 million after tax, or $.02 per share) relating to
the favorable disposition of a satellite lease in Europe. The benefit was
recorded in Equity in Losses of Associated Companies.
4. The first quarter of 2000 included a net gain of $9.5 million, or $.10 per
diluted share, from the sale of the company's subsidiary, Dow Jones Financial
Publishing Corp., which publishes Investment Advisor, Asset Management,
Property and Realty Stock Review.
5. On July 1, 1999, the company formed a 50-50 joint venture, Dow Jones
Reuters Business Interactive LLC (Factiva), with Reuters Group Plc, into which
Dow Jones contributed a significant portion of its interactive business unit.
The company's share of the joint venture's results is included in Equity in
Losses of Associated Companies.
6. The second quarter of 1999 included a restructuring charge of $2.8 million
($1.6 million after-tax or $.02 per share) for employee severance associated
with the conversion to electronic pagination of The Wall Street Journal.
7. The first quarter of 1999 included a net gain of $10.6 million, or $.12 per
diluted share, from the sale of a portion of the company's minority interest in
OptiMark Technologies, Inc.
8. On January 1, 2000, the company exchanged a 49% interest in The Wall Street
Journal Europe for a 22% interest in Handelsblatt, Germany's leading business
newspaper. In addition, Dow Jones contributed its indirect holdings in the
Czech business publisher Economia and the German financial news agency VWD.
Dow Jones' interest in Economia declined to 12% and in VWD to 17%. Minority
interests largely represent von Holtzbrinck group's 49% share of losses in the
contributed businesses.
9. In the first six months of 2000, the company repurchased 3 million shares
of its common stock at an aggregate price of $190.5 million. As of June 30,
2000, 1 million shares under puts were outstanding at strike prices (net of put
premiums received) ranging from $51.07 to $60.66 per share, with exercise dates
through February 23, 2001. As of June 30, 2000, approximately $122.3 million
remained under board authorization, after reserving for the exercise of
outstanding puts.
PAGE 6
10. Certain prior year amounts have been reclassified to conform to current
year presentation.
11. Comprehensive income was computed as follows:
=============================================================================
Quarters Ended Six Months Ended
June 30 June 30
(in thousands) 2000 1999 2000 1999
- -----------------------------------------------------------------------------
Net income $100,563 $57,212 $189,233 $108,734
Foreign currency
translation adjustments (552) (621) (2,006) (1,077)
Unrealized (loss) gain on
investments (12,243) 7,493 22,891 21,272
- -----------------------------------------------------------------------------
Comprehensive income $ 87,768 $64,084 $210,118 $128,929
=============================================================================
12. Diluted earnings per share have been computed as follows:
=============================================================================
Quarters Ended Six Months Ended
(in thousands, except June 30 June 30
per share amounts) 2000 1999 2000 1999
- -----------------------------------------------------------------------------
Weighted-average shares
outstanding - basic 87,603 90,699 88,395 91,063
Stock options 595 840 582 735
Other, principally
contingent stock rights 426 137 425 198
- -----------------------------------------------------------------------------
Weighted-average shares
outstanding - diluted 88,624 91,676 89,402 91,996
Diluted earnings per share $1.13 $.62 $2.12 $1.18
=============================================================================
13. Various libel actions and other legal proceedings that have arisen in the
ordinary course of business are pending against the company and its
subsidiaries. In the opinion of management, the ultimate outcome to the
company and its subsidiaries as a result of legal proceedings is adequately
covered by insurance or, if not covered, would not have a material effect on
the company's financial statements taken as a whole.
PAGE 7
NOTES TO FINANCIAL STATEMENTS (cont.)
Dow Jones & Company, Inc.
14. The table below compares revenues, income before income taxes and minority
interests and EBITDA by business segment for the quarters and six months ended
June 30, 2000 and 1999. EBITDA is computed by the company as operating income
excluding depreciation, amortization and restructuring charges. EBITDA is a
measure used by the company's management in determining a business unit's
performance. EBITDA may be calculated differently by other companies and
investors should not view the company's calculation of EBITDA as an alternative
to GAAP measurements such as operating income, net income and cash flows
provided by or used in operating, investing and financing activities.
SEGMENT INFORMATION
=============================================================================
Quarters Ended Six Months Ended
June 30 June 30
(in thousands) 2000 1999 2000 1999
- -----------------------------------------------------------------------------
Revenues:
Print publishing $420,861 $327,192 $ 811,878 $617,800
Electronic publishing 79,806 98,786 158,889 196,323
Community newspapers 92,490 84,593 173,142 158,530
-------- -------- ---------- --------
Consolidated revenues $593,157 $510,571 $1,143,909 $972,653
- -----------------------------------------------------------------------------
Income before income taxes
and minority interests:
Print publishing $132,576 $ 79,850 $ 251,298 $132,319
Electronic publishing 12,314 10,181 22,178 23,668
Community newspapers 26,628 23,603 44,474 37,596
Corporate (13,613) (8,822) (24,536) (15,957)
-------- -------- ---------- --------
Consolidated operating
income 157,905 104,812 293,414 177,626
Equity in losses of
associated companies (485) (6,935) (9,515) (10,626)
Gain on disposition of
businesses and investments 6,423 20,192 10,618
Other income, net 898 588 4,002 2,332
-------- -------- ---------- --------
Income before income taxes
and minority interests $164,741 $ 98,465 $ 308,093 $179,950
- -----------------------------------------------------------------------------
EBITDA:
Print publishing $150,298 $ 96,611 $ 285,709 $163,424
Electronic publishing 17,935 16,644 33,539 36,436
Community newspapers 30,910 27,978 53,086 46,338
Corporate (13,522) (8,822) (24,329) (15,957)
-------- -------- ---------- --------
Consolidated EBITDA $185,621 $132,411 $ 348,005 230,241
EBITDA Margin:
Print publishing 35.7% 29.5% 35.2% 26.5%
Electronic publishing 22.5% 16.8% 21.1% 18.6%
Community newspapers 33.4% 33.1% 30.7% 29.2%
All segments 31.3% 25.9% 30.4% 23.7%
=============================================================================
PAGE 8
ITEM 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations.
FOR THE SECOND QUARTERS AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999
Net income in the second quarter of 2000 was $100.6 million, or $1.13 per
diluted share, compared with $57.2 million, or $.62 per diluted share, a year
ago. (All references to "per share" amounts in this discussion are on a per
diluted share basis.) This year's second quarter included an after-tax gain of
$4.8 million, or $.05 per share, on the sale of the company's minority interest
in SportsTicker Enterprises L.P. In addition, the second quarter included a
reversal of a 1998 restructuring charge of $3.2 million ($2.1 million after
tax, or $.02 per share) relating to the favorable disposition of a satellite
lease in Europe. The benefit was recorded in Equity in Losses of Associated
Companies. Last year's second quarter included a restructuring charge of $2.8
million ($1.6 million after tax, or $.02 per share) for employee severance as
part of the company's conversion process to electronic pagination of The Wall
Street Journal. Excluding these special items, earnings for the second quarter
were $93.7 million, or $1.06 per share, up 66%, on an earnings per share basis,
from $58.9 million, or $.64 per share, a year ago. The growth in earnings per
share mainly was due to the Print Publishing business which contributed $.32
per share of the increase. Also contributing to the increase were a reduced
income tax rate ($.04 per share), stock repurchases which lowered average
shares outstanding ($.04 per share) and improved results at Community
Newspapers ($.02 per share).
Operating income of $157.9 million in the second quarter jumped 51% from $104.8
million earned a year ago. Excluding 1999's restructuring charge of $2.8
million, operating income grew 47%. EBITDA margin (defined as operating income
excluding depreciation, amortization and restructuring charges) was 31.3% in
the second quarter of 2000 compared with 25.9% a year ago.
Second quarter revenues were $593.2 million, up 16.2% from $510.6 million in
last year's like period. Most of the increase resulted from higher advertising
revenue, which grew 35%, mainly reflecting a 29.8% increase in advertising
linage at The Wall Street Journal. Second quarter expenses (excluding the
restructuring charge of $2.8 million in 1999) increased 8% from 1999's second
quarter. Expense increases were largely volume related, particularly newsprint
usage, print delivery costs and sales incentives. Promotional spending across
all businesses and costs associated with international expansion also
contributed to the higher expense level. Newsprint expense jumped 28% in the
second quarter as the greater demand for advertising pushed newsprint usage up
17.6%, compounded by a 9.2% increase in the average price per ton of
newsprint. There were approximately 8,300 full-time employees at June 30,
2000, down 1% from a year earlier.
For the six months ended June 30, 2000, net income was $189.2 million, or $2.12
per share, compared with $108.7 million, or $1.18 per share, earned in 1999's
first half. In 2000's first quarter, the company recorded an after-tax gain of
$9.5 million, or $.10 per share, from the sale of its subsidiary, Dow Jones
Financial Publishing Corp. Last year's first quarter included a net gain of
$10.6 million, or $.12 per share, from the sale of a portion of the company's
minority interest in OptiMark Technologies Inc. Excluding first half gains
from sales of investments and restructuring items, the company earned $172.9
million, or $1.93 per share, in the first six months of 2000 compared with
PAGE 9
$99.8 million, or $1.08 per share, a year ago, an increase of 79% on an
earnings per share basis. The rise in earnings mainly reflected significant
growth at the Print Publishing segment.
Operating income in the first half jumped 65% from a year ago (63% excluding
the 1999 restructuring charge), as revenues increased 17.6%, chiefly reflecting
strong advertising gains at The Wall Street Journal. Expenses grew 7% (7.3%
excluding the restructuring charge) in the 2000 six-month period from last
year's like period. First half 2000 EBITDA was $348.0 million, up 51% from
$230.2 million in last year's first half; the EBITDA margin increased to 30.4%
from 23.7%, respectively.
On July 1, 1999, the company formed a 50-50 joint venture, Dow Jones Reuters
Business Interactive LLC (Factiva), into which the company contributed a
significant portion of its Dow Jones Interactive business. The company's share
of Factiva's results is reported in Equity in Losses of Associated Companies.
Prior to July 1, 1999, results of the interactive business contributed to
Factiva were included in the company's information services revenues, expenses
and operating income.
If the company's one-half share of Factiva results were consolidated on a
proportional basis, second quarter revenues of $621.6 million would have
increased 22% from last year's comparable quarter, expenses of $461.9 million
would have risen 15% and operating income of $159.7 million would have been 48%
better. The EBITDA margin would have been 30.4% in the second quarter compared
with 25.9% a year earlier. For the six-month periods, revenues would have been
$1.2 billion, up 23% from 1999, expenses of $906.8 million would have increased
14% and operating income of $293.8 would have jumped 63%.
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 19
daily newspapers and 15 weekly newspapers in 11 states in the U.S., are
reported in the community newspapers segment.
Print publishing includes the 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 Losses of Associated Companies). Print
publishing accounted for approximately 71% of first half revenues.
Approximately 9% of print publishing revenues are earned by international
publications. Revenues, particularly advertising, for the print publications
are historically seasonal with the fourth quarter typically being the strongest
in terms of total volume followed by the second, the first and the third
quarters.
Electronic publishing includes the operations of Dow Jones Newswires, Dow Jones
Indexes, WSJ.com, dowjones.com (up to April 1, 2000 when it was contributed to
Work.com) and other. Prior year's results included Dow Jones Interactive, a
significant portion of which was contributed to Factiva on July 1, 1999.
PAGE 10
PRINT PUBLISHING
=============================================================================
Quarters Ended Six Months Ended
June 30 June 30
(in thousands) 2000 1999 2000 1999
- -----------------------------------------------------------------------------
U.S. Publications:
Advertising $304,765 $218,087 $586,688 $403,718
Circulation and other 75,458 79,209 153,587 157,833
International Publications:
Advertising 28,619 18,823 48,932 33,828
Circulation and other 12,019 11,073 22,671 22,421
- -----------------------------------------------------------------------------
Total revenue 420,861 327,192 811,878 617,800
Operating expenses 288,285 247,342 560,580 485,481
- -----------------------------------------------------------------------------
Operating income $132,576 $ 79,850 $251,298 $132,319
- -----------------------------------------------------------------------------
EBITDA $150,298 $ 96,611 $285,709 $163,424
EBITDA margin 35.7% 29.5% 35.2% 26.5%
=============================================================================
Print publishing operating income jumped 66% in the second quarter from the
year ago like quarter. Excluding the 1999 restructuring charge the increase
was 60%. Operating income benefited from strong advertising linage, with
double-digit gains across all major publications. EBITDA grew 56% from last
year's second quarter.
Print publishing second quarter revenue rose $93.7 million, or 29%, from last
year. Driving the increase in revenue was 40% growth in U.S. advertising
revenue, principally reflecting the second quarter 29.8% gain in Wall Street
Journal advertising linage over last year's like period. Barron's advertising
pages grew 33.5%. International publications revenue grew 36% with linage
gains of 37.1% at The Wall Street Journal Europe and 36.6% at The Asian Wall
Street Journal. The Far Eastern Economic Review also had significant
advertising page growth in the second quarter with an increase of 18.3%. U.S.
television revenue nearly doubled (up 91%) from the second quarter of 1999,
also buoyed by significant gains in advertising. In the second quarter,
circulation and other revenue declined $2.8 million, or 3%.
General linage for The Wall Street Journal, which made up 64% of total linage,
rose 39% in the second quarter. Technology, the largest advertising category
within general, rose 154% and represented 50% of total general advertising, or
32% of total linage. General linage (excluding technology) declined 4.9%.
Financial advertising linage, which comprised 24% of total Journal linage grew
16.5% in 2000's second quarter, reflecting strength in brand related
advertising, partially offset by weakness in security issuances (IPO's).
Classified and other advertising, which comprised the remaining 12% of linage,
increased 15.3%, reflecting growth in real estate advertising as well as more
modest growth in recruitment advertising. The rate of growth for advertising
linage is expected to slow in the second half of 2000 due to the strong
performance in the like 1999 period.
PAGE 11
Circulation revenue for U.S. print publications declined $3.6 million, or 5%
from the second quarter of 1999. Recent circulation growth at the Journal has
been chiefly in lower rate hotel/airline copies, offsetting a decline in
individually paid circulation. Minimal circulation revenue is generated from
hotel/airline copies but they are of value to advertisers and some are tied to
advertising sales in the Journal. The Statement of Total Circulation (STC)
provides circulation data which is reviewed by independent accountants, and
also information on the quality and character of the publication's paid
circulation, including complimentary and third party amenity copies,
subscription terms and price. The STC is issued semi-annually covering the
six-month periods ending March and September. For the six months ended March
31, 2000 Wall Street Journal average circulation under the STC was 1,924,600
compared with 1,895,900 in the six-month period ended March 31, 1999. Barron's
average paid second quarter circulation was 317,000 up from 309,000 in last
year's second quarter.
Second quarter circulation revenue for international publications was up 4.7%
from the like 1999 quarter, with gains from increased circulation largely
offset by a stronger U.S. dollar in Europe in 2000. Average combined
circulation for the international editions of The Wall Street Journal at June
30, 2000 was 169,000, up 16.6% from 145,000 in 1999's second quarter.
Print publishing expenses in the quarter rose $40.9 million, or 16.6%, from a
year earlier. Excluding the 1999 restructuring charge, expenses were up $43.7
million, or 17.9%. The increase mainly was due to compensation (part of which
was tied to advertising revenue gains), promotional spending (a portion of
which was linked to the Journal's branding campaign), and costs related to
international expansion. Newsprint expense was up 30%, driven by an increase
in usage of 19% and higher prices in the second quarter 2000 from a year ago.
At June 30, 2000, the number of full-time employees in the print publishing
segment was up 8.3% from a year earlier, primarily due to expanded news
coverage worldwide.
Operating income for the first half of 2000 increased 90%, or 86% excluding the
1999 severance charge, from last year's first half. The increase mainly was
due to strength in advertising revenue in the first six months. Revenues for
the first six months increased $194.1 million, or 31%, largely on a 35.6%
linage gain at The Wall Street Journal. International print revenues were up
27.3%, mainly driven by strong advertising growth at the international editions
of the Journal. First half year-over-year advertising linage at The Wall
Street Journal Europe increased 32.4% and at The Asian Wall Street Journal grew
33.9%.
Wall Street Journal general advertising linage climbed 43.4%, resulting from an
increase of 140.5% from the technology component. Financial linage grew 29.5%
chiefly from higher investing and trading. Classified and other linage was up
14.9%, largely from strong real estate advertising, partly through the Weekend
Journal section.
Operating expenses (excluding the 1999 severance charge) climbed $77.9 million,
or 16.1%, in the first half of 2000. The growth in expenses was principally
volume related, with higher sales incentives, newsprint and delivery costs.
The newsprint expense increase for the six-month period was totally usage
related as the average price of newsprint for the first half of 2000 was flat
with the like 1999 period.
PAGE 12
ELECTRONIC PUBLISHING
=============================================================================
Quarters Ended Six Months Ended
June 30 June 30
(in thousands) 2000 1999 2000 1999
- -----------------------------------------------------------------------------
Revenues $79,806 $98,786 $158,889 $196,323
Expenses 67,492 88,605 136,711 172,655
- -----------------------------------------------------------------------------
Operating income $12,314 $10,181 $ 22,178 $ 23,668
- -----------------------------------------------------------------------------
EBITDA $17,935 $16,644 $ 33,539 $ 36,436
EBITDA margin 22.5% 16.8% 21.1% 18.6%
=============================================================================
Operating income for electronic publishing was up $2.1 million, or 21%, from
2000's second quarter. For the first six months, operating income declined
$1.5 million, or 6.3%.
Revenues for the second quarter of 2000 were down $19 million, or 19.2%, and
for the first half declined $37.4 million, or 19.1%. The year-over-year
comparisons are distorted by the impact of the company contributing the bulk of
the Dow Jones Interactive business to the Factiva joint venture, effective July
1, 1999. Factiva's results are recorded in Equity in Losses of Associated
Companies.
The information included in the following table and related discussion includes
Dow Jones' 50% share of Factiva's results on a pro forma basis as if the
venture were formed on January 1, 1999.
=============================================================================
Quarters Ended Six Months Ended
June 30 June 30
(in thousands) 2000 1999 2000 1999
- -----------------------------------------------------------------------------
Dow Jones Newswires:
North America $ 47,127 $41,995 $ 93,453 $ 82,660
International 9,822 9,108 19,468 19,321
- -----------------------------------------------------------------------------
Total Newswires 56,949 51,103 112,921 101,981
Factiva 29,636 27,395 59,122 55,091
WSJ.com 12,149 7,225 23,653 12,607
Dow Jones Indexes 3,359 3,063 6,740 6,304
Other 6,191 10,000 13,154 20,340
- -----------------------------------------------------------------------------
Total revenue 108,284 98,786 215,590 196,323
Operating expenses 94,173 88,605 192,990 172,655
- -----------------------------------------------------------------------------
Operating income $ 14,111 $10,181 $ 22,600 $ 23,668
- -----------------------------------------------------------------------------
EBITDA $ 21,139 $16,644 $ 36,721 $ 36,436
EBITDA margin 19.5% 16.8% 17.0% 18.6%
=============================================================================
PAGE 13
Electronic publishing second quarter 2000 operating income increased $3.9
million, or 39%, from 1999's second quarter. Revenues rose $9.5 million, or
9.6%. Operating expenses increased $5.6 million, or 6.3%. EBITDA rose $4.5
million, or 27%. The expense growth largely was due to the promotion of the
company's interactive products, including Internet development costs and
expansion of the Newswires business, principally internationally. The expense
growth was partially mitigated by the impact of the sale of the company's
subsidiary (IDD Enterprises in December 1999) and the April 1, 2000
contribution of dowjones.com, a division of the company, to a joint venture,
Work.com.
Dow Jones Newswires revenue in the second quarter of 2000 grew $5.8 million, or
11.4%, from last year's second quarter, with gains of 12.2% and 7.8% in North
America and international, respectively. This was the first time since the
first quarter of 1997 that international revenues grew from the prior year
quarter. The gain in North America was partly driven by new revenue from on-
line trading sites of institutional customers. International growth reflects
new distribution channels with Reuters and Bloomberg as well as third-party
wholesale agreements in Asia. At June 30, 2000, there were 319,000 newswire
terminals compared with 304,000 a year ago.
The transition from Dow Jones Interactive to Factiva complicates year-on-year
comparisons. The Factiva revenue represents the company's 50% share as if
Factiva had existed from the beginning of 1999. The difference between the
company's pro forma half of Factiva revenue and the company's wholly-owned Dow
Jones Interactive revenues for the first half of 1999 is reflected in "other",
and in part accounts for the decline in the "other" category. The company's
share of Factiva revenue increased $2.2 million, or 8.2%.
WSJ.com revenue in the second quarter jumped $4.9 million, or 68%, from last
year's second quarter, reflecting a 71% increase in advertising revenue and a
63% increase in subscription revenue. The mix of advertising versus
subscription revenue for the quarter was 55% to 45%, respectively. The number
of subscribers at June 30, 2000 was 461,000, up 51% from the year-ago total of
306,000, and up 5.3% from the 438,000 subscribers at March 31, 2000. The rate
of WSJ.com subscriber growth slowed somewhat in the second quarter, as compared
to the first quarter, as educational subscriptions lapsed with the end of the
school year. The company expects an increased rate of growth in the third
quarter. In the second quarter of 2000, the average number of unique visitors
who accessed at least one page of WSJ.com subscriber-only content over the
course of a 24-hour business day was 93,000, slightly below the first quarter
average of 97,000, reflecting some seasonality.
Effective April 1, 2000, Dow Jones and Excite At Home Corp., an Internet-access
and content provider, formed a new company, Work.com, which is developing a
business portal, primarily designed to target small and midsize business
Internet users. Work.com is expected to be launched at the end of the summer.
The results for Work.com, as of the effective date, are included in Equity in
Losses of Associated Companies.
In the first half of 2000, operating income for electronic publishing
(including 50% of Factiva's results in 2000) declined $1.1 million, or 4.5%,
from last year's like period. Increased promotional and development spending
was somewhat offset by lower expenses at Factiva and a favorable comparison as
IDD Enterprises costs were included in 1999. IDD Enterprises was sold in
PAGE 14
December 1999. Revenue for the first half grew $19.3 million, or 9.8%, from a
year ago. Dow Jones Newswires revenue grew $10.9 million, or 10.7%, reflecting
particular strength in North America with a 13.1% increase. Factiva's revenue
rose $4 million, or 7.3%. WSJ.com's revenue grew $11 million, or 88%, with
advertising revenue more than double last year's first half and subscription
revenue up 64%. Dow Jones Indexes revenue was up 6.9%. Other electronic
publishing revenue declined $7.2 million, or 35%, mainly due to the sale of IDD
Enterprises.
COMMUNITY NEWSPAPERS
=============================================================================
Quarters Ended Six Months Ended
June 30 June 30
(in thousands) 2000 1999 2000 1999
- -----------------------------------------------------------------------------
Advertising $67,369 $61,120 $124,366 $112,609
Circulation and other 25,121 23,473 48,776 45,921
- -----------------------------------------------------------------------------
Total revenue 92,490 84,593 173,142 158,530
Operating expenses 65,862 60,990 128,668 120,934
- -----------------------------------------------------------------------------
Operating income $26,628 $23,603 $ 44,474 $ 37,596
- -----------------------------------------------------------------------------
EBITDA $30,910 $27,978 $ 53,086 $ 46,338
EBITDA margin 33.4% 33.1% 30.7% 29.2%
=============================================================================
Operating income at community newspapers grew $3 million, or 12.8%, from 1999's
second quarter; EBITDA increased 10.5%.
Revenue for the second quarter climbed $7.9 million, or 9.3%. Advertising
revenue increased $6.2 million, or 10.2%, from last year's second quarter.
Advertising linage for the daily papers in the second quarter rose 5.6% from
the year ago quarter, largely from a 7.7% increase in classified advertising.
Linage for the non-daily papers climbed 3.6%. Circulation and other revenue
was $1.6 million, or 7%, higher than the second quarter of 1999, reflecting
higher subscription rates. Average circulation in 2000 for the 19 dailies was
549,000, down 1.4% from the second quarter of 1999. Second quarter expenses
increased $4.9 million, or 8%, reflecting volume-related growth due to
increased revenues. Newsprint and print delivery costs rose 21% and 31%,
respectively. Employee compensation expense, which is a major cost component
of community newspapers, was up 4% from 1999's second quarter.
For the six months ended June 30, 2000, operating income increased $6.9
million, or 18.3%, from last year's first half. EBITDA grew $6.7 million, or
14.6%. The growth in operating income reflected a $14.6 million, or 9.2%,
increase in revenues as expenses grew $7.7 million, or 6.4%. The revenue
growth chiefly resulted from an $11.8 million, or 10.4%, increase in
advertising revenue. Community newspapers overall advertising linage increased
6% in the six-month period, with linage at the daily papers up 6.6% (classified
linage was up 9.9%) and at the non-dailies papers up 2.4%.
PAGE 15
OTHER INCOME/DEDUCTIONS
Net investment income in the second quarter was $1.9 million in 2000, up from
$0.7 million in 1999. Year-to-date net investment income in 2000 was $4.4
million versus $1.9 million in 1999. Long-term debt was $150 million at June
30, 2000, the same as a year ago.
The company's share of losses from equity investments was $0.5 million in the
second quarter of 2000 compared with losses of $6.9 million a year ago.
Included in the second quarter of 2000 was a reversal of a 1998 restructuring
charge of $3.2 million relating to the favorable disposition of a satellite
lease in Europe. Excluding this benefit, second quarter 2000 equity losses
were $3.7 million. The improvement in equity losses largely reflected the
company's 50% share of Factiva profits (formed on July 1, 1999), higher
earnings at the company's newsprint mill affiliate, reduced losses at the
international television joint ventures and the inclusion of Dow Jones' 22%
interest in the earnings of Handelsblatt (a German business newspaper) which
was acquired on January 1, 2000. Partly offsetting these gains were increased
losses at SmartMoney (from development costs of SmartMoney.com) and Work.com
(from costs to establish a new business portal for the Internet). Prior to
April 1, 2000, Dow Jones' costs for this business portal were included in
consolidated operating expenses.
For the first half of 2000, equity in losses of associated companies was $9.5
million. Excluding the reversal of restructuring charge, equity losses were
$12.7 million compared with losses of $10.6 million in 1999. The wider equity
losses mainly reflected the company's share of losses from SmartMoney.com and
Work.com (both of which are incurring high development costs). Improved
results from international television and the inclusion of Handelsblatt in 2000
partially offset the equity losses.
The second quarter of 2000 included a net gain of $4.8 million, or $.05 per
share, from the sale of its minority interest in SportsTicker Enterprises L.P.,
a leading supplier of real-time sports news and information.
In the first quarter of 2000, the company reported a net gain of $9.5 million,
or $.10 per diluted share, from the sale of the company's subsidiary, Dow Jones
Financial Publishing Corp., which publishes Investment Advisor, Asset
Management, Property and Realty Stock Review. In 1999's first quarter,
earnings included a net gain of $10.6 million, or $.12 per diluted share, from
the sale of a portion of the company's minority interest in OptiMark
Technologies, Inc.
TELEVISION
Television includes income from U.S. television operations reported in the
print publishing segment and losses from international television reported in
equity results. Total pretax earnings were $6.2 million (excluding the
reversal of the restructuring charge) in 2000's second quarter versus losses of
$1.4 million a year ago. For the first half, pretax earnings were $6.6 million
(excluding the restructuring reversal) compared with losses of $4.6 million in
last year's six-month period.
PAGE 16
INCOME TAXES
The effective income tax rate (including minority interest) for the second
quarter and first half of 2000 was 38.8%, compared with 41.9% in the second
quarter and 39.6% in the first half of 1999. Excluding the impact of
investment gains from all periods, the effective tax rates for the second
quarter were 39.5% in 2000 and 41.8% in 1999; and for the first half were 39.5%
in 2000 and 42% in 1999.
At June 30, 2000 the company had available approximately $488 million of
capital loss carryforward (a deferred tax asset of $184 million), which was
fully reserved through a valuation allowance. The company may utilize the
carryforward through 2003.
FINANCIAL POSITION
During the first six months of 2000, the company repurchased 3 million shares
of its common stock at an aggregate price of $190.5 million. As of June 30,
2000, 1 million shares under puts were outstanding at strike prices (net of put
premiums received) ranging from $51.07 to $60.66 per share, with exercise dates
through February 23, 2001. These shares can be settled on a net share basis.
In 1998, the company's board of directors authorized the repurchase of up to
$800 million of the company's common stock over a three-year period. (Since
initial approval in June 1998, the company has repurchased 12.3 million
shares.) As of June 30, 2000, approximately $122.3 million remained under
board authorization, after reserving for the exercise of outstanding puts.
Cash provided by operations in the first half of 2000 was up $164.8 million, or
185%, from the like 1999 period due to enhanced earnings, faster collections of
accounts receivable and timing of income tax payments. Trade accounts
receivable provided $43.3 million of cash, reflecting improved collections
compared with last year's first half.
In addition to the repurchase of the company's stock in the first half of 2000,
the company funded capital expenditures of $96.1 million (including $34.3
million for the print expansion project), paid dividends of $44.5 million, and
invested $37.6 million in various affiliated companies. Sales of investments
and businesses provided $28.8 million of cash.
The company has guaranteed payment under certain circumstances of certain
annual minimum payments for data acquired by Telerate (now wholly-owned by
Bridge Information Systems, Inc.) from Cantor Fitzgerald Securities and Market
Data Corporation under contracts entered into during the period when Telerate
was a subsidiary of the company. The annual minimum payments average
approximately $50 million per year through October 2006. Bridge has agreed to
indemnify the company if the company is required to make any payments under the
guarantee.
At June 30, 2000, the company had long-term notes of $150 million, which are
due December 1, 2000 and are not redeemable prior to maturity. Upon maturity,
the outstanding debt will be repaid through borrowings from either the issuance
of commercial paper or the company's revolving credit facility, or through
issuance of long-term debt. As such these notes are classified as long term.
PAGE 17
In June 2000, the company renewed its revolving credit agreement with a
consortium of banks under which it can borrow up to $400 million through June
25, 2001. The terms are essentially the same as the prior agreement.
During the second quarter of 2000, the company decided to postpone its
consideration of the issuance of a tracking stock for some or all of its
Internet assets.
INFORMATION RELATING TO FORWARD-LOOKING STATEMENTS
Management's Discussion and Analysis and other sections of this Quarterly
Report include forward-looking statements that reflect the company's current
expectations or beliefs concerning future results and events. In addition, the
company may from time to time make additional forward-looking statements,
either orally or in writing. The company cautions readers that the company's
targets and objectives, and the results expected or anticipated by forward-
looking statements, including, without limitation, statements relating to the
company's future business prospects, revenues, income, working capital,
liquidity, capital needs and interest costs and similar items, are subject to
certain risks and uncertainties which could cause actual results and events to
differ materially from those anticipated in the forward-looking statements.
Factors that might cause such a difference include, but are not limited to,
global economic, business and stock market conditions, and the strong tendency
of economic downturns to negatively impact advertising sales, in particular,
and sales of the company's products and services; the intense competition faced
by the company's products and services in the markets for financial news and
information, and related advertising revenues, from newspapers, specialized
business and financial magazines, technology publications, Internet-based
publications and services (including both free and paid competitive Internet
services that feature or include business and financial news and information),
financial television programming and other new media that may develop; the
extent to which the company is able to increase its circulation and
advertising revenues from its international print publications, in the face of
competition from local publications and from other international publications;
the extent to which the company is able to achieve its revenues and earnings
targets for distribution of its newswires, taking into account in particular
the rate of addition of new subscribers outside the U.S. and cancellations of
Telerate-related terminals; the extent to which the company is able to achieve
and maintain a diversified advertising base for its print publications; any
delays that could occur in expanding the company's newspaper page and color
printing capacity, which could result in insufficient capacity to carry
advertisements; the company's ability to expand production and service capacity
for electronic publishing products on a timely basis to support growth of
operations and user traffic; business conditions (growth or consolidation) in
the financial services industry, and the tendency of consolidation to
negatively impact the market for the company's products and services and
advertising; increased competition in the market for electronic business
information and research services and Factiva's ability to develop competitive
country-specific interfaces and increase its market share and revenues on a
global basis; WSJ.com's ability to increase its subscriber base in light of its
paid subscription model; with respect to the company's Internet services that
rely partly or entirely on advertising revenues, the amount of user traffic on
those services and the pricing of advertising on Internet sites generally;
risks associated with the development of television channels in competitive
foreign markets, including the ability to produce or obtain desired
programming, to sell advertising time at desired rates, to achieve sufficient
PAGE 18
distribution and to attract audiences; risks associated with the ability to
sell advertising time at desired rates in the U.S. television market; rapid
technological changes and frequent new product introductions prevalent in
electronic publishing, and the extent to which the company is able to leverage
its brands and develop new and enhanced services and products for consumer
markets to meet shifts in market demand; potential increased regulation of on-
line businesses; any damage to or technical failure of the company's computer
infrastructure systems or software that causes interruptions of operations;
cost of newsprint; the company's ability to attract and retain qualified
personnel in the tight labor market that exists; the company's ability to
negotiate collective bargaining agreements with its labor unions without work
interruptions; adverse verdicts in legal proceedings, including libel actions;
adverse developments relating to commitments and contingencies and/or
investments held by the company; risks associated with foreign operations,
including currency and political risks; 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.
PAGE 19
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits filed:
Exhibit
Number Document
- ------- --------
* 10 Amended and Restated Credit Agreement, dated as of June 27, 2000
* 27 Financial Data Schedule
* Securities and Exchange Commission and New York Stock Exchange copies
only.
(b) Reports on Form 8-K:
No reports on Form 8-K have been filed during the period for which this report
is filed.
PAGE 20
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)
Date: August 9, 2000 By: /s/ Raymond Baumkirchner
-------------------------
Raymond Baumkrchner
Vice President of Finance