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 March 31, 2001
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 March 31, 2001: 65,428,197 shares of Common Stock and
20,927,632 shares of Class B Common Stock
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Dow Jones & Company, Inc.
=========================================================================
(in thousands, except Quarters Ended March 31
per share amounts) 2001 2000
- -------------------------------------------------------------------------
Revenues:
Advertising $276,189 $368,619
Information services 73,177 67,074
Circulation and other 110,502 115,059
- -------------------------------------------------------------------------
Total revenues 459,868 550,752
- -------------------------------------------------------------------------
Expenses:
News, operations and development 138,136 131,395
Selling, administrative and general 170,145 166,420
Newsprint 43,114 41,711
Print delivery costs 49,319 48,842
Depreciation and amortization 28,613 26,875
Restructuring 14,885
- -------------------------------------------------------------------------
Operating expenses 444,212 415,243
- -------------------------------------------------------------------------
Operating income 15,656 135,509
Other income (deductions):
Investment income 554 2,803
Interest expense (69) (347)
Equity in losses of associated companies (10,777) (9,030)
Gain on disposition of
businesses and investments 13,769
Contract guarantee 2,156
Other, net 295 648
- -------------------------------------------------------------------------
Income before income taxes and
minority interests 7,815 143,352
Income taxes 3,171 55,999
- -------------------------------------------------------------------------
Income before minority interests 4,644 87,353
Minority interests 1,535 1,317
- -------------------------------------------------------------------------
Net income $ 6,179 $ 88,670
=========================================================================
Per share:
Net income per share:
- Basic $.07 $.99
- Diluted .07 .98
Weighted-average shares outstanding:
- Basic 86,762 89,206
- Diluted 87,408 90,198
Cash dividends declared $.25 $.25
- -------------------------------------------------------------------------
Comprehensive income $ 838 $122,350
=========================================================================
<FN>
See notes to condensed consolidated financial statements.
-2-
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS (Unaudited)
Dow Jones & Company, Inc.
=========================================================================
Three Months Ended March 31
(in thousands) 2001 2000
- -------------------------------------------------------------------------
Operating Activities:
Net income $ 6,179 $ 88,670
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 28,613 26,875
Gain on disposition of businesses
and investments (13,769)
Changes in assets and liabilities 11,555 41,071
Other, net 8,560 7,055
- -------------------------------------------------------------------------
Net cash provided by operating activities 54,907 149,902
- -------------------------------------------------------------------------
Investing Activities:
Additions to plant and property (42,079) (48,964)
Businesses and investments acquired (13,356) (10,232)
Disposition of businesses and investments 335 20,260
Other, net 1,034 1,367
- -------------------------------------------------------------------------
Net cash used in investing activities (54,066) (37,569)
- -------------------------------------------------------------------------
Financing Activities:
Cash dividends (21,719) (22,468)
Increase in long-term debt 37,444
Repurchase of treasury stock, net of
put premiums (41,839) (89,497)
Proceeds from sales under stock
compensation plans 6,101 11,089
- -------------------------------------------------------------------------
Net cash used in financing activities (20,013) (100,876)
- -------------------------------------------------------------------------
(Decrease) increase in cash and cash equivalents (19,172) 11,457
Cash and cash equivalents at beginning of year 49,347 86,388
- -------------------------------------------------------------------------
Cash and cash equivalents at March 31 $ 30,175 $ 97,845
=========================================================================
<FN>
See notes to condensed consolidated financial statements.
-3-
CONDENSED CONSOLIDATED
BALANCE SHEETS (Unaudited)
Dow Jones & Company, Inc.
=========================================================================
March 31 December 31
(in thousands) 2001 2000
- -------------------------------------------------------------------------
Assets:
Cash and cash equivalents $ 30,175 $ 49,347
Accounts receivable-trade, net 206,420 236,284
Newsprint inventory 12,384 13,109
Deferred income taxes 7,723 7,749
Other current assets 50,465 61,754
- -------------------------------------------------------------------------
Total current assets 307,167 368,243
- -------------------------------------------------------------------------
Investments in associated companies,
at equity 66,365 65,871
Other investments 8,508 11,219
Plant and property, at cost 1,662,563 1,625,479
Less, accumulated depreciation 892,064 864,616
- -------------------------------------------------------------------------
770,499 760,863
Goodwill, less accumulated amortization 73,140 73,840
Deferred income taxes 75,017 71,316
Other assets 11,814 10,704
- -------------------------------------------------------------------------
Total assets $1,312,510 $1,362,056
=========================================================================
Liabilities:
Accounts payable and accrued liabilities $ 306,790 $ 346,289
Income taxes 27,703 27,658
Unearned revenue 218,387 213,277
- -------------------------------------------------------------------------
Total current liabilities 552,880 587,224
Long-term debt 188,309 150,865
Other noncurrent liabilities 458,418 456,606
- -------------------------------------------------------------------------
Total liabilities 1,199,607 1,194,695
- -------------------------------------------------------------------------
Minority Interests in Subsidiaries 7,058 8,593
Stockholders' Equity:
Common stock 102,181 102,181
Additional paid-in capital 131,797 137,481
Retained earnings 586,892 602,432
Accumulated other comprehensive loss (9,896) (4,555)
- -------------------------------------------------------------------------
810,974 837,539
Less, treasury stock, at cost 705,129 678,771
- -------------------------------------------------------------------------
Total stockholders' equity 105,845 158,768
- -------------------------------------------------------------------------
Total liabilities and stockholders' equity $1,312,510 $1,362,056
=========================================================================
<FN>
See notes to condensed consolidated financial statements.
-4-
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 March 31, 2001,
and December 31, 2000, and the consolidated results of operations for the
three-month periods ended March 31, 2001 and 2000 and the consolidated cash
flows for the three-month periods then ended. In management's opinion, all
adjustments necessary for a fair presentation are reflected in the interim
periods presented. 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 first quarter of 2001 included a restructuring charge of $12.7
million ($7.8 million after tax, or $.09 per diluted share) for employee
severance related to a general workforce reduction in all segments.
Approximately 250 employees will be severed, through either layoffs or
voluntary retirement. Most of the severance charge will be paid in the
second quarter of 2001. In addition, the company took a restructuring
charge of $2.2 million ($1.3 million after tax, or $.01 per diluted share)
for asset write-downs associated with the company's online businesses which
were made obsolete or redundant and abandoned as a result of the
restructuring plan. These charges were included in first quarter operating
expenses. Also in the first quarter, the company recorded a charge of $2.4
million ($1.6 million after tax, or $.02 per diluted share) to Equity in
Losses of Associated Companies for costs related to the shut-down of
Work.com, a joint venture with Excite@Home.
3. The first quarter of 2001 included a net gain of $2.2 million, or $.02
per diluted share, related to a reserve of a contract guarantee. In 2000,
the company established a reserve for payments that the company may have to
make on behalf of Bridge Information Systems in connection with Dow Jones'
guarantee of certain minimum annual payments for data acquired by Dow
Jones' former Telerate subsidiary from Cantor Fitzgerald Securities and
Market Data Corporation. Dow Jones sold Telerate to Bridge Information
Systems in 1998. Bridge is currently in bankruptcy, but made a portion of
the payment due in the first quarter, which was partly offset by the
amortization of the present value discount on the contract guarantee.
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.
5. Comprehensive income was computed as follows:
=========================================================================
Quarters Ended March 31
(in thousands) 2001 2000
- -------------------------------------------------------------------------
Net income $ 6,179 $ 88,670
Foreign currency translation
adjustments (2,778) (1,454)
Unrealized (loss) gain on investments (2,563) 35,134
- -------------------------------------------------------------------------
Comprehensive income $ 838 $122,350
=========================================================================
-5-
6. Diluted earnings per share have been computed as follows:
==========================================================================
(in thousands, except Quarters Ended March 31
per share amounts) 2001 2000
- --------------------------------------------------------------------------
Net income $ 6,179 $88,670
Weighted-average shares
outstanding - basic 86,762 89,206
Stock options 332 569
Other, principally
contingent stock rights 314 423
- --------------------------------------------------------------------------
Weighted-average shares
outstanding - diluted 87,408 90,198
Diluted earnings per share $.07 $.98
==========================================================================
7. 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.
8. The following table compares revenues, income before income taxes and
minority interests and EBITDA by business segment for the quarters ended
March 31, 2001 and 2000. 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 is not a measure of performance under
generally accepted accounting principles and should not be construed as a
substitute for consolidated net income as a measure of performance, nor as
a substitute for cash flow as a measure of liquidity. EBITDA is not a
measure of funds available for management's use. EBITDA is a component of
a covenant of the company's credit agreement that limits the company's
ability to incur certain additional future indebtedness. Management
believes that EBITDA is a standard measure of operating performance that is
commonly used by investors and analysts to analyze and compare other
communication companies. EBITDA may be calculated differently by other
companies and investors should not view the company's calculation of EBITDA
as an alternative to GAAP measures such as operating income, net income and
cash flows provided by or used in operating, investing and financing
activities.
-6-
SEGMENT INFORMATION
=========================================================================
Quarters Ended March 31
(in thousands) 2001 2000
- -------------------------------------------------------------------------
Revenues:
Print publishing $298,573 $391,017
Electronic publishing 81,398 79,083
Community newspapers 79,897 80,652
-------- --------
Consolidated revenues $459,868 $550,752
- -------------------------------------------------------------------------
Income before income taxes and
minority interests:
Print publishing $ 11,854 $118,722
Electronic publishing 2,884 9,864
Community newspapers 14,198 17,846
Corporate (13,280) (10,923)
-------- --------
Consolidated operating income 15,656 135,509
Equity in losses of associated companies (10,777) (9,030)
Gain on disposition
of businesses and investments 13,769
Contract guarantee 2,156
Other income, net 295 3,104
-------- --------
Income before income taxes and
minority interests $ 7,815 $143,352
- -------------------------------------------------------------------------
EBITDA:
Print publishing $ 37,981 $135,411
Electronic publishing 14,439 15,604
Community newspapers 18,682 22,176
Corporate (11,948) (10,807)
-------- --------
Consolidated EBITDA $ 59,154 $162,384
EBITDA Margin:
Print publishing 12.7% 34.6%
Electronic publishing 17.7 19.7
Community newspapers 23.4 27.5
All segments 12.9 29.5
=========================================================================
Restructuring charges were included in 2001's operating income as follows:
print publishing - $8,567,000; electronic publishing - $4,949,000;
community newspapers - $321,000; and corporate - $1,048,000.
Excluding restructuring charges, segment operating income was as follows:
=========================================================================
Quarters Ended March 31
(in thousands) 2001 2000
- -------------------------------------------------------------------------
Print publishing $ 20,421 $118,722
Electronic publishing 7,833 9,864
Community newspapers 14,519 17,846
Corporate (12,232) (10,923)
-------- --------
Consolidated operating income $ 30,541 $135,509
=========================================================================
-7-
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
FOR THE QUARTERS ENDED MARCH 31, 2001 AND 2000
Net income for the first quarter of 2001 was $6.2 million, or $.07 per
diluted share, a decline of $82.5 million, or 93%, from $88.7 million, or
$.98 per diluted share, earned a year ago. The company recorded a net loss
of $8.5 million, or $.10 per diluted share, for special items in 2001's
first quarter versus a net gain of $9.5 million, or $.10 per diluted share
in like 2000 period. Excluding special items in both years, earnings per
share of $.17 were down $.71, or 81%, from $.88 last year.
The company's advertising-supported businesses experienced a significant
slowdown in the first quarter of 2001. The lower advertising revenues have
resulted in significantly reduced operating income. Consequently, the
company had to move aggressively to reduce expenses and better align them
with the new revenue environment. The company took a first quarter of 2001
restructuring charge of $12.7 million ($7.8 million after tax, or $.09 per
diluted share) for employee severance related to a general workforce
reduction in all segments. Approximately 250 employees will be severed,
through either layoffs or voluntary retirement. Most of the severance
charge will be paid in the second quarter of 2001. The company expects
annualized cost savings of approximately $20.7 million as a result of these
transactions. In addition, the company took a restructuring charge of $2.2
million ($1.3 million after tax, or $.01 per diluted share) for asset
write-downs associated with the company's online businesses which were made
obsolete or redundant and abandoned as a result of the restructuring plan.
These charges were included in first quarter operating expenses. The
company also recorded a charge of $2.4 million ($1.6 million after taxes,
or $.02 per diluted share) to Equity in Losses of Associated Companies for
costs related to the shut-down of Work.com, a joint venture with
Excite@Home and a net gain of $2.2 million, or $.02 per diluted share,
related to a reserve of a contract guarantee. In 2000, the company
established a reserve for the present value of payments that the company
may have to make on behalf of Bridge Information Systems, in connection
with Dow Jones' guarantee of certain minimum annual payments for data
acquired by Dow Jones' former Telerate subsidiary from Cantor Fitzgerald
Securities and Market Data Corporation. Dow Jones sold Telerate to Bridge
Information Systems in 1998. Bridge is currently in bankruptcy, but made a
portion of the payment due in the first quarter, which was partly offset by
the amortization of the present value discount on the contract guarantee.
The first quarter 2000 gain resulted from the sale of the company's
subsidiary, Dow Jones Financial Publishing Corp.
First quarter operating income was $15.7 million, down $119.9 million, or
88%, from $135.5 million earned last year. The operating margin declined
to 3.4% from 24.6%. Excluding restructuring charges in 2001, operating
income of $30.5 million (operating margin of 6.6%) decreased $105 million,
or 77%, largely reflecting a decline in revenues in the print publishing
segment. Revenues in the first three months fell $90.9 million, or 17%, to
$459.9 million, primarily due to a 25% drop in advertising revenue (Wall
Street Journal advertising revenue was down 32%). Operating expenses grew
$29 million, or 7%, from a year ago. Excluding restructuring charges,
operating expenses increased $14.1 million, or 3.4%. Higher staffing
costs, newsprint prices, overseas printing charges and costs associated
with color expansion testing, as well as depreciation and facilities
expenses were partially tempered by lower volume related costs and reduced
promotional spending. Newsprint expense rose 3.4% as a 19% price increase
-8-
outpaced a 13% usage decline. The average newsprint price per ton consumed
was $600 in 2001 versus $503 in 2000. As of March 31, 2001 the company
employed approximately 8,500 employees, up 3.8%, from a year ago. The
majority of staff reductions mentioned above will occur in the second
quarter of 2001.
SEGMENT DATA
The company's business and financial news 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 65% of 2001's first quarter
revenues, of which approximately 10% were earned by international
publications.
Electronic publishing includes the operations of Dow Jones Newswires,
WSJ.com, Dow Jones Indexes and other.
PRINT PUBLISHING
==========================================================================
Quarters Ended March 31
(in thousands) 2001 2000
- --------------------------------------------------------------------------
U.S. Publications:
Advertising $195,581 $281,923
Circulation and other 72,871 78,129
International Publications:
Advertising 19,633 20,313
Circulation and other 10,488 10,652
- --------------------------------------------------------------------------
Total revenues 298,573 391,017
Operating expenses 286,719 272,295
- --------------------------------------------------------------------------
Operating income $ 11,854 $118,722
Operating margin 4.0% 30.4%
- --------------------------------------------------------------------------
EBITDA * $ 37,981 $135,411
EBITDA margin 12.7% 34.6%
==========================================================================
<FN>
* See footnote 8 to financial statements.
In the first quarter, print publishing operating income fell $106.9
million, or 90%. Excluding restructuring charges of $8.6 million,
operating income of $20.4 million (operating margin of 6.8%) in 2001
declined $98.3 million, or 83%. EBITDA (defined as operating income
excluding depreciation, amortization and restructuring charges) was $38
million in the first three months of 2001 versus $135.4 million a year ago.
Revenues in the first quarter dropped $92.4 million, or 24%, from 2000
after rising $100.4 million, or 35%, in the prior year. U.S. revenue
-9-
declined 25%, as Wall Street Journal linage dropped 31.9% (30.9% on a per
issue basis) after rising 42.7% last year. Barron's advertising pages fell
25.9% in the first quarter of 2001. International publications also
experienced softness in advertising with Wall Street Journal Europe linage
down 9.5% (8.1% on a per issue basis) and Asian Wall Street Journal linage
off 4.8% (3.2% on a per issue basis). However, U.S. television revenue was
up 7.9% from last year. In the first quarter of 2001, circulation and
other revenues declined $5.4 million, or 6.1%.
The company experienced extraordinary linage growth during the first half
of 2000 when advertising by financial, technology and dot-com businesses
thrived. Advertising in 2001 has not achieved those levels. General
linage for The Wall Street Journal, which made up 58% of total linage, was
down 35.6% in the first three months of 2001. The technology component of
general advertising declined 42.8%. A 71% curtailment of business to
business e-commerce advertising was somewhat offset by a twofold increase
in PC advertising and a 29% rise in software advertising. General linage,
excluding technology, fell 30.8%, largely due to lower linage from
corporate, publishing/media and medical/health categories. Financial
advertising linage, which comprised 26% of total Journal linage, dropped
32.9% in the first quarter of 2001, driven by a nearly 50% reduction in
tombstone/initial public offerings (IPOs) linage, and a 40% decline in
investment and trading linage, reflecting a slowdown in capital market
transactions. Classified and other advertising, which comprised the
remaining 16% of linage, decreased 11.8% as employment and real estate
advertising softened. The company raised advertising rates an average
5.5%, effective January 2, 2001.
Circulation revenue for U.S. print publications was down $5.1 million, or
7.3%, from the first quarter of 2000. The U.S. Wall Street Journal's six-
month ABC paid circulation as of March 31 averaged 1,820,000, up slightly
from a year ago. The company's Statement of Total Circulation (STC)
provides circulation data, including complimentary and third party amenity
copies, which periodically is reviewed by independent accountants, and also
information on the quality and character of the publication's paid
circulation, subscription terms and price. The STC is issued semi-
annually, covering the six-month periods ending March and September. Its
March 2001 circulation for The Wall Street Journal was 1,960,000, compared
with 1,883,000 for September 30, 2000 and 1,957,000 for March 31, 2000.
The company increased The Wall Street Journal single copy price from $.75
to $1.00, effective April 2, 2001. Barron's average paid first quarter
circulation was 308,000 versus 310,000 last year.
International publications circulation revenue declined 5.6% in the first
three months from the like 2000 period. Average combined circulation
during the first quarter of 2001 for the international editions of The Wall
Street Journal rose 21% to 187,000 from 154,000 a year ago. However,
circulation gains were offset by a stronger U.S. dollar in 2001.
Print publishing expenses in the quarter were up $14.4 million, or 5.3%,
($5.9 million, or 2.2%, excluding restructuring) from a year earlier.
Increased staffing costs, subscription procurement expense and production
expense were mostly tempered by reduced advertising promotion and
incentives. Newsprint expense in 2001 was flat, as a price increase was
mitigated by a consumption decrease.
-10-
ELECTRONIC PUBLISHING
==========================================================================
Quarters Ended March 31
(in thousands) 2001 2000
- --------------------------------------------------------------------------
Dow Jones Newswires:
North America $49,112 $46,326
International 10,480 9,646
- --------------------------------------------------------------------------
Total Newswires 59,592 55,972
WSJ.com 9,125 11,504
Dow Jones Indexes 3,771 3,381
Other 8,910 8,226
- --------------------------------------------------------------------------
Total revenues 81,398 79,083
Operating expenses 78,514 69,219
- --------------------------------------------------------------------------
Operating income $ 2,884 $ 9,864
Operating margin 3.5% 12.5%
- --------------------------------------------------------------------------
EBITDA * $14,439 $15,604
EBITDA margin 17.7% 19.7%
==========================================================================
<FN>
* See footnote 8 to financial statements.
First quarter operating income in electronic publishing dropped $7 million,
or 71%, from 2000. Excluding restructuring charges, operating income of
$7.8 million (operating margin of 9.6%) declined $2 million, or 21%, as
revenues advanced $2.3 million, or 2.9%. Excluding restructuring charges,
operating expenses increased $4.3 million, or 6.3%, largely from higher
compensation and facility charges, partially offset by reduced promotion
spending. EBITDA fell $1.2 million, or 7.5%.
Dow Jones Newswires revenue grew $3.6 million, or 6.5%, in the quarter,
with an 8.6% revenue gain in international and a 6% gain in North America.
At March 31, 2001, there were 346,000 newswires terminals, compared with
317,000 terminals a year ago. The improvement was driven by growth in the
Reuters and Bloomberg distribution channels in international as well as
non-traditional distribution channels, such as on-line brokerages and e-
commerce sites. In addition, the local language wires, which were
introduced in 2000, have broadened the international distribution channels.
In early 2001, the company introduced an Italian language service covering
hi-tech companies. The gain in North America reflected new financial firm
web sites that carry Newswires content and increases in wholesale
distribution. Newswires deferred nearly $1 million of revenue in the first
quarter related to various licensing agreements with Bridge Information
Systems, pending the resolution of the Bridge bankruptcy.
WSJ.com revenue declined $2.4 million, or 21%, from last year's first
quarter. A 43% drop in advertising revenue, reflecting a softer
advertising market, was partly offset by a 13% increase in subscription
revenue. At March 31, 2001, the number of subscribers reached 574,000, up
31% from 438,000 a year ago, representing growth largely from academic
subscriptions and non-print subscribers. The mix of advertising versus
subscription revenue was 43% to 57%, respectively, compared with 60% to 40%
in last year's first quarter.
Dow Jones Indexes first quarter revenue was $3.8 million, up 12%, from the
like 2000 period, reflecting the addition of new licensees.
-11-
COMMUNITY NEWSPAPERS
==========================================================================
Quarters Ended March 31
(in thousands) 2001 2000
- --------------------------------------------------------------------------
Advertising $55,684 $56,997
Circulation and other 24,213 23,655
- --------------------------------------------------------------------------
Total revenues 79,897 80,652
Operating expenses 65,699 62,806
- --------------------------------------------------------------------------
Operating income $14,198 $17,846
Operating margin 17.8% 22.1%
- --------------------------------------------------------------------------
EBITDA * $18,682 $22,176
EBITDA margin 23.4% 27.5%
==========================================================================
<FN>
* See footnote 8 to financial statements.
Community newspapers operating income declined $3.6 million, or 20%, from
the first quarter of 2000. Excluding restructuring charges, operating
income of $14.5 million (operating margin of 18.2%) was down $3.3 million,
or 19%. EBITDA declined $3.5 million, or 16%.
Revenue in the quarter decreased $.8 million, or .9%. Advertising rate
increases, additional commercial printing and Internet advertising revenue
largely mitigated a 2.9% decline in advertising linage. Advertising linage
for the daily papers was down 3.5%, but linage for the non-dailies was up
1% in the first quarter of 2001 from a year earlier. Advertising rates
increased about 4% in 2001. Circulation revenue of $21.5 million was down
slightly from 2000. First quarter average circulation for the 19 dailies
was 531,000 in 2001 versus 540,000 in 2000. Expenses during the first
three months were up $2.9 million, or 4.6% ($2.6 million, or 4.1%,
excluding restructuring charge), largely resulting from higher newsprint
expense and compensation. Newsprint expense was up 22%, entirely due to a
price increase. Employee compensation expense, which is a major cost
component of the segment, was up 4.4% from 2000's first quarter.
OTHER INCOME/DEDUCTIONS
Net investment income in 2001's first quarter of $.5 million dropped from
$2.5 million in 2000 because a quarterly dividend on the Bridge preferred
stock is no longer being accrued. Long-term debt outstanding at March 31,
2001 was $188 million, an increase of $37 million from a year ago.
The company's first quarter share of equity in losses from associated
companies increased to $10.8 million from $9 million in 2000. The company
incurred a first quarter 2001 shut-down cost of $2.4 million for Work.com.
Excluding the shut-down cost, equity losses declined $.7 million. Improved
results from Factiva, SmartMoney and F.F. Soucy were mostly offset by
operating losses from Work.com and the company's European publishing
investments.
In the first quarter of 2001, the company recorded a net gain of $2.2
million related to a reserve of a contract guarantee. A $5.8 million
pretax gain resulting from Bridge's partial first quarter payment to MDC
was partly offset by the amortization of the present value discount on the
contract reserve of $3.6 million.
In the first quarter of 2000, the company sold its subsidiary, Dow Jones
Financial Publishing Corp. for a pretax gain of $13.8 million.
-12-
TELEVISION
Television includes income from U.S. television operations reported in the
print publishing segment and losses from international television reported
in equity results. The total pretax earnings were $1.5 million in 2001's
first quarter versus $.4 million a year ago, reflecting improvement in U.S.
television coupled with a reduced loss in Asia. Since 1998, television
results have benefited from the company's worldwide alliance with CNBC,
particularly enhancing U.S. television revenues.
INCOME TAXES
The effective income tax rate for the first quarter of 2001 was 40.6%,
compared with 39.1% a year ago. Excluding the impact of the contract
guarantee in 2001 and the gain on sale of subsidiary in 2000, the effective
tax rates were 56% and 39.9%, respectively. The increase in the effective
rate was due to the relative percentage of foreign versus domestic sourced
pretax income. At March 31, 2001, the company had available approximately
$480 million of capital loss carryforward (a deferred tax asset of $182
million). The company may utilize the carryforward through 2003. In
addition, the company has recorded an unrecognized capital loss
carryforward of $432 million (a deferred tax asset of $164 million) that
will be available for use for five years from the year it is recognized for
tax purposes. Both loss carryforwards are fully reserved.
FINANCIAL POSITION
Cash provided by operations in the first quarter of 2001 of $55 million
declined $95 million, or 63%, from 2000's first quarter, primarily due to
lower earnings and the timing of income tax payments.
During the first quarter of 2001, the company repurchased 695,000 shares of
its common stock for an aggregate price of $38.6 million, with an average
price per share of $55.58. As of March 31, 2001, approximately $525
million remained under board authorization for share repurchases after
reserving for the possible exercise of outstanding puts. The company holds
1.3 million shares subject to put options which may require the company to
repurchase up to $72.4 million of its common stock at strike prices (net of
put premiums received) ranging from $50.70 to $55.91 per share through
April 2002. The company has the option of net share settlement on these
contracts.
In addition to the repurchase of the company's stock, the company made
capital expenditures of $42.1 million (including $9.3 million for The Wall
Street Journal color print expansion project and $8 million for the WSJ.com
redesign), paid dividends of $21.7 million and funded various investments
in affiliated companies of $8 million.
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 (MDC) 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.
In 2000, the company established a reserve in the amount of $255 million
representing the present value of the total estimated annual minimum
payments over the remainder of the contract term using a discount rate of
approximately 6%.
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In the first quarter of 2001, Bridge paid, as an administrative expense in
bankruptcy, the portion of the quarterly payment owed to MDC for the period
subsequent to Bridge's February 15, 2001 Chapter 11 bankruptcy filing. In
April 2001, Dow Jones paid $5.8 million to MDC covering the period January
1 to February 14, 2001 preceding Bridge's Chapter 11 bankruptcy filing.
After conducting an auction, the bankruptcy court approved the sale of a
substantial portion of Bridge's assets, but excluding the Telerate
business, to Reuters. The Bridge bankruptcy continues and the Telerate
business remains available for sale.
As noted in Item 3 of this Form 10-Q, MDC has amended its complaint to seek
a declaratory judgment that the remainder of the annual minimum payments
through October 2006 will be payable by the company under the guarantee.
The company has asked the court to dismiss the claim on the grounds that it
is premature to consider it because the company expects to have various
defenses with respect to the remaining payments.
As of March 31, 2001, the company had borrowings of $188 million through
the issuance of commercial paper, which is classified as long-term, as it
is the company's intent to refinance such obligations on a long-term basis.
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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 business, economic and stock market conditions, and the negative
impact of economic downturns on sales of the company's products and
services;
- economic conditions that are influencing the rate and volume of
advertising linage, in particular IPO, dot-com and technology
advertising, and the resulting impact on the company's advertising
revenues;
- 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;
- the extent to which the company is called upon to perform under the
guarantee to Cantor Fitzgerald Securities and Market Data Corporation,
and the other uncertainties relating to liability under this guarantee
described above in Management's Discussion and Analysis;
- the difficult comparisons the company will face in 2001 in light of the
high level of advertising sales revenue achieved at The Wall Street
Journal in the past year;
- the intense competition the company's 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, financial television programming and other new media;
- the company's ability to manage expense growth;
- with respect to Newswires, the extent and impact of delays and
difficulties that would be encountered in a migration process if Bridge
and/or Telerate were unable to serve their customers;
- with respect to Newswires, the rate of addition of new subscribers,
particularly, outside the U.S., and the cancellations of Telerate and
Bridge terminals;
- increased competition in the market for electronic business information
and research services and Factiva's ability to increase its market share
and revenues in the face of competition from local providers with more
local content and from other international providers;
- WSJ.com's ability to increase its revenues in light of its paid
subscription model;
-15-
- the company's ability to leverage its brands and develop new and
enhanced "vertical" Internet sites and to generate advertising and other
revenues from these sites;
- rapid technological changes and frequent new product introductions
prevalent in electronic publishing;
- 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;
- the amount of user traffic on the company's Internet sites and the
pricing of advertising on Internet sites generally;
- potential increased regulation of on-line businesses;
- the company's ability to increase its circulation and advertising
revenues from its international print publications, given competition
from local publications and from other international publications;
- the company's ability 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;
- adverse developments relating to the company's commitments,
contingencies and equity investments;
- 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 distribution and to attract audiences;
- risks associated with the ability to sell advertising time at desired
rates in the U.S. television market;
- cost of newsprint;
- the extent to which the company is able to maintain favorable
arrangements with respect to the licensing of its content;
- any damage to or technical failure of the company's computer
infrastructure systems or software that causes interruptions of
operations;
- the company's ability to attract and retain qualified personnel;
- the company's ability to negotiate collective bargaining agreements with
its labor unions without work interruptions;
- adverse verdicts in legal proceedings, including libel actions;
- 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.
-16-
PART II. OTHER INFORMATION
ITEM 3. 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 Corp., 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 above in Management's Discussion and Analysis.
In the first quarter of 2001, Bridge paid, as an administrative expense in
bankruptcy, the portion of the quarterly payment owed to MDC for the period
subsequent to Bridge's February 15, 2001 Chapter 11 bankruptcy filing. In
April 2001, Dow Jones paid $5.8 million to MDC covering the period January
1 to February 14, 2001 preceding Bridge's Chapter 11 bankruptcy filing.
MDC has amended its complaint to drop its claim for consequential damages
and to seek a declaratory judgment that the remainder of the annual minimum
payments through October 2006 will be payable under the guarantee. The
company has asked the court to dismiss the claim on the grounds that it is
premature to consider it because the company expects to have various
defenses with respect to the remaining payments.
ITEM 4. Submission of Matters to a Vote of Security Holders.
At the Annual Meeting of Stockholders on April 18, 2001, there were
represented in person or by proxy 57,421,710 shares of Common Stock
(carrying one vote per share) and 19,248,601 shares of Class B Common Stock
(carrying ten votes per share). At the Annual Meeting:
1) the holders of the Common Stock, voting separately as a class,
elected as directors:
FOR VOTES WITHHELD
Rand V. Araskog 56,689,376 732,334
Vernon E. Jordan, Jr. 55,200,552 2,221,158
2) the holders of the Common Stock and the Class B Common Stock,
voting together, elected as directors:
FOR VOTES WITHHELD
Irvine O. Hockaday, Jr. 249,350,598 557,122
Elizabeth Steele 249,234,721 672,999
Dieter von Holtzbrinck 249,323,607 584,113
3) the holders of the Common Stock and the Class B Common Stock,
voting together, approved the appointment of PricewaterhouseCoopers LLP,
independent certified public accountants, as auditors for 2001 by a vote of
248,347,280 votes in favor; 1,311,096 votes against and 249,344
abstentions.
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4) the holders of the Common Stock and the Class B Common Stock,
voting together, approved the adoption of the Dow Jones 2001 Long-Term
Incentive Plan by a vote of 225,114,565 votes in favor; 14,718,628 votes
against; 2,827,475 abstentions and 7,247,052 broker non-votes.
In addition, the following directors continued in office after the
meeting: Christopher Bancroft, Harvey Golub, Roy Hammer, Leslie Hill, Peter
R. Kann, David K. P. Li, M. Peter McPherson, Frank N. Newman, James H.
Ottaway, Jr. and William C. Steere, Jr.
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits filed:
Exhibit
Number Document
- ------- --------
(b) Reports on Form 8-K:
Form 8-K, dated January 25, 2001
Form 8-K, dated March 7, 2001
-18-
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: May 15, 2001 By: /s/ Christopher W. Vieth
------------------------
Christopher W. Vieth
Vice President, Finance
and Corporate Controller
(Chief Accounting Officer)
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