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 September 30, 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 September 30, 2001: 64,019,904 shares of Common Stock and
20,906,237 shares of Class B Common Stock.
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) (Unaudited)
Dow Jones & Company, Inc.
=========================================================================================
Quarters Ended Nine Months Ended
(in thousands, except September 30 September 30
per share amounts) 2001 2000 2001 2000
- -----------------------------------------------------------------------------------------
Revenues:
Advertising $220,450 $319,307 $ 797,542 $1,096,920
Information services 72,270 71,257 218,048 207,335
Circulation and other 104,840 109,726 325,964 339,944
- -----------------------------------------------------------------------------------------
Total revenues 397,560 500,290 1,341,554 1,644,199
- -----------------------------------------------------------------------------------------
Expenses:
News, operations and development 127,337 137,306 399,085 404,340
Selling, administrative and general 136,020 159,817 463,035 501,872
Newsprint 32,234 44,828 119,442 133,593
Print delivery costs 45,600 47,135 144,942 145,185
Depreciation and amortization 25,982 27,937 81,196 82,528
Restructuring and other special charges 1,720 33,772
- -----------------------------------------------------------------------------------------
Operating expenses 368,893 417,023 1,241,472 1,267,518
- -----------------------------------------------------------------------------------------
Operating income 28,667 83,267 100,082 376,681
Other income (deductions):
Investment income 233 844 1,286 6,146
Interest expense (60) (199) (904)
Equity in losses of
associated companies (1,983) (4,653) (12,040) (14,168)
Gain on disposition of
businesses and investments 20,192
Write-down of investments (8,827) (82,295) (8,827) (82,295)
Contract guarantee, net 8,435 18,720
Other, net (1,088) (544) (255) (940)
- -----------------------------------------------------------------------------------------
Income (loss) before income taxes and
minority interests 25,377 (3,381) 98,767 304,712
Income taxes 11,376 31,601 38,091 151,470
- -----------------------------------------------------------------------------------------
Income (loss) before minority interests 14,001 (34,982) 60,676 153,242
Minority interests 2,667 1,086 5,415 2,095
- -----------------------------------------------------------------------------------------
Net income (loss) $ 16,668 $(33,896) $ 66,091 $ 155,337
=========================================================================================
Net income (loss) per share:
- Basic $.20 $(.39) $.77 $1.76
- Diluted .19 (.39) .76 1.74
Weighted-average shares outstanding:
- Basic 85,213 87,476 86,044 88,099
- Diluted 85,777 87,476 86,646 89,063
Cash dividends declared per share $.75 $.75
- -----------------------------------------------------------------------------------------
Comprehensive income (loss) $ 26,662 $(38,642) $ 68,706 $ 171,476
=========================================================================================
<FN>
See notes to condensed consolidated financial statements.
-2-
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS (Unaudited)
Dow Jones & Company, Inc.
=============================================================================
Nine Months Ended September 30
(in thousands) 2001 2000
- -----------------------------------------------------------------------------
Operating Activities:
Net income $ 66,091 $ 155,337
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 81,699 82,528
Gain on disposition of businesses
and investments (20,192)
Write-down of assets 12,473 82,295
Changes in assets and liabilities 58,001 22,300
Other, net (4,209) 12,071
- -----------------------------------------------------------------------------
Net cash provided by operating activities 214,055 334,339
- -----------------------------------------------------------------------------
Investing Activities:
Additions to plant and property (96,441) (141,385)
Businesses and investments acquired,
net of cash received (42,313) (49,209)
Disposition of businesses and investments 1,176 28,760
Other, net 5,828 3,645
- -----------------------------------------------------------------------------
Net cash used in investing activities (131,750) (158,189)
- -----------------------------------------------------------------------------
Financing Activities:
Cash dividends (64,641) (66,334)
Increase in long-term debt 82,556
Repurchase of treasury stock, net of
put premiums (134,222) (186,651)
Proceeds from sales under stock
compensation plans 13,878 33,725
Contributions from minority partner 3,930
- -----------------------------------------------------------------------------
Net cash used in financing activities (98,499) (219,260)
- -----------------------------------------------------------------------------
Decrease in cash and cash equivalents (16,194) (43,110)
Cash and cash equivalents at beginning of year 49,347 86,388
- -----------------------------------------------------------------------------
Cash and cash equivalents at September 30 $ 33,153 $ 43,278
=============================================================================
<FN>
See notes to condensed consolidated financial statements.
-3-
CONDENSED CONSOLIDATED
BALANCE SHEETS (Unaudited)
Dow Jones & Company, Inc.
=========================================================================
September 30 December 31
(in thousands) 2001 2000
- -------------------------------------------------------------------------
Assets:
Cash and cash equivalents $ 33,153 $ 49,347
Accounts receivable-trade, net 179,459 236,284
Newsprint inventory 15,884 13,109
Deferred income taxes 7,582 7,749
Other current assets 37,775 61,754
- -------------------------------------------------------------------------
Total current assets 273,853 368,243
- -------------------------------------------------------------------------
Investments in associated companies,
at equity 75,165 65,871
Other investments 7,001 11,219
Plant and property, at cost 1,706,499 1,625,479
Less, accumulated depreciation 935,578 864,616
- -------------------------------------------------------------------------
770,921 760,863
Intangibles, principally goodwill,
less accumulated amortization 82,484 73,840
Deferred income taxes 79,888 71,316
Other assets 8,667 10,704
- -------------------------------------------------------------------------
Total assets $1,297,979 $1,362,056
=========================================================================
Liabilities:
Accounts payable and accrued liabilities $ 311,508 $ 346,289
Income taxes 50,963 27,658
Unearned revenue 199,701 213,277
- -------------------------------------------------------------------------
Total current liabilities 562,172 587,224
Long-term debt 233,421 150,865
Other noncurrent liabilities 447,281 456,606
- -------------------------------------------------------------------------
Total liabilities 1,242,874 1,194,695
- -------------------------------------------------------------------------
Minority Interests in Subsidiaries 7,152 8,593
Stockholders' Equity:
Common stock 102,181 102,181
Additional paid-in capital 129,214 137,481
Retained earnings 603,882 602,432
Accumulated other comprehensive loss (1,940) (4,555)
- -------------------------------------------------------------------------
833,337 837,539
Less, treasury stock, at cost 785,384 678,771
- -------------------------------------------------------------------------
Total stockholders' equity 47,953 158,768
- -------------------------------------------------------------------------
Total liabilities and stockholders' equity $1,297,979 $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 September 30,
2001, and December 31, 2000, and the consolidated results of operations for
the three and nine-month periods ended September 30, 2001 and 2000 and the
consolidated cash flows for the nine-month periods then ended. 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 third quarter of 2001 included charges to operating income of $1.7
million ($1 million after taxes, or $.01 per diluted share) related to the
September 11 World Trade Center Disaster. The charge included temporary
relocation related costs and a charitable donation of $1 million to the
September 11 Fund, which were partly offset by savings from World Financial
Center rent abatement. The company has insurance policies that cover
property damage, extra expenses and business interruption related to the
September 11 disaster. The company is currently in discussions with its
insurance providers in assessing the amount of the claim.
3. The company announced in October 2001 that it intended to permanently
reduce the number of personnel housed at the World Financial Center and
relocate them to other available office space in the surrounding area,
including owned facilities in South Brunswick, New Jersey. Dow Jones will
permanently vacate and attempt to sublet 165,000 sq ft of its over 300,000
sq ft leased office space at World Financial Center. The lease is due to
expire in 2005. The staff that will remain at World Financial Center will
return once it is determined the space is suitable for occupancy. As a
result of its decision to permanently re-deploy its personnel at this
location, Dow Jones will likely record a significant charge in the fourth
quarter primarily reflecting its obligation to the landlord on the vacated
space. Looking ahead long-term, this re-deployment will lower the
company's rental expenses.
4. The third quarter of 2001 included a net gain of $8.4 million, or $.10
per diluted share, related to a partial reversal of a reserve for a
contract guarantee. For the nine months ended September 2001, the company
recorded net gains of $18.7 million, or $.21 per diluted share, relating to
this matter. 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 payments for data
acquired by Dow Jones' former Telerate subsidiary from Cantor Fitzgerald
Securities and Market Data Corporation. Dow Jones sold Telerate to Bridge
in 1998. Bridge is currently in bankruptcy but made payments for the post-
petition periods through the third quarter of 2001, which were partly
offset by the amortization of the discount on the contract guarantee. In
October 2001, the bankruptcy court granted Bridge's motion to reject
Telerate's contracts with Cantor and MDC. As a result of that rejection,
Bridge and Telerate will likely no longer be making payments to Cantor and
MDC. Cantor and MDC have advised the company that they will be seeking
payment from Dow Jones of an amount they allege is due on November 15 under
the contract guarantee. The company has various substantial defenses to
these claims. Accordingly, the company has instituted a legal action
seeking a declaratory judgment with respect to these claims, as described
in Legal Proceedings.
-5-
5. The third quarter of 2001 included a write-down of $8.8 million, or
$.11 per diluted share, from the impairment in the value of the company's
investments in Nation Multimedia Group Public Co.($4.8 million, or $.06 per
share), a multimedia company in Thailand, and iBEAM Broadcasting Corp.($4
million, or $.05 per share), a provider of streaming video services.
6. The third quarter of 2001 included a $1.2 million ($.7 million after
taxes, or $.01 per diluted share) gain relating to the early extinguishment
of debt for CNBC Europe. This gain was recorded in equity in losses of
associated companies.
7. Second quarter 2001 operating expenses included restructuring charges
of $14.7 million ($8.9 million after taxes, or $.10 per diluted share) for
employee severance related to a general workforce reduction. Through June
2001, the company reduced its full-time workforce by 429 employees, or 5%,
including a reduction of approximately 160 employees in the second quarter.
About half of the second quarter severance was paid during the third
quarter of 2001. In addition to the workforce reduction in the second
quarter, the company recorded an asset write-down of $2.4 million ($1.5
million after taxes, or $.02 per diluted share) related to WSJ.com assets
which were made obsolete or were redundant and abandoned as a result of the
restructuring plan.
8. The first quarter of 2001 included a restructuring charge of $12.7
million ($7.8 million after taxes, or $.09 per diluted share) for employee
severance related to a general workforce reduction in all segments. Three-
quarters of the first quarter severance charge was paid over the second and
third quarters of 2001. In addition, the company posted a restructuring
charge of $2.2 million ($1.3 million after taxes, or $.01 per diluted
share) for asset write-downs associated with the company's online
businesses which were made obsolete or were 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 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.
9. The third quarter of 2000 included a write-down of $82.3 million, or
$.94 per share, from the impairment in the value of the company's
investment in Bridge Information Systems, Inc.
10. The second quarter of 2000 included a net gain of $4.8 million, or
$.05 per diluted share, from the sale of its minority interest in
SportsTicker Enterprises L.P.
11. The second quarter of 2000 included a reversal of a 1998 restructuring
charge of $3.2 million ($2.1 million after taxes, or $.02 per diluted
share) relating to a favorable disposition of a satellite contract for CNBC
Europe. The benefit was recorded in equity in losses of associated
companies.
12. 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.
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.
-6-
14. Comprehensive income (loss) was computed as follows:
=============================================================================
Quarters Ended Nine Months Ended
September 30 September 30
(in thousands) 2001 2000 2001 2000
- -----------------------------------------------------------------------------
Net income (loss) $16,668 $(33,896) $66,091 $155,337
Foreign currency
translation adjustments 2,045 (168) (2,345) (2,174)
Adjustments for realized loss
included in net income 7,949 6,206
Unrealized gain (loss) on
investments (4,578) (1,246) 18,313
- -----------------------------------------------------------------------------
Comprehensive income (loss) $26,662 $(38,642) $68,706 $171,476
=============================================================================
15. Diluted earnings (loss) per share have been computed as follows:
=============================================================================
Quarters Ended Nine Months Ended
(in thousands, except September 30 September 30
per share amounts) 2001 2000 2001 2000
- -----------------------------------------------------------------------------
Weighted-average shares
outstanding - basic 85,213 87,476 86,044 88,099
Stock options 367 422 815
Other, principally
contingent stock rights 197 180 149
- -----------------------------------------------------------------------------
Weighted-average shares
outstanding - diluted 85,777 87,476 86,646 89,063
Diluted earnings (loss) per share $.19 $(.39) $.76 $1.74
=============================================================================
Options and contingent stock rights outstanding at September 30, 2000 were
excluded from the diluted loss per share in the third quarter of 2000 because
to include such securities would be antidilutive. Including the dilution from
these securities would have resulted in weighted-average diluted shares
outstanding of 88,354,000 in the third quarter 2000.
16. The following table compares revenues, income before income taxes and
minority interests and EBITDA by business segment for the quarters and nine
months ended September 30, 2001 and 2000. EBITDA is computed by the company
as operating income excluding depreciation, amortization and restructuring and
other special 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.
-7-
SEGMENT INFORMATION
==================================================================================
Quarters Ended Nine Months Ended
September 30 September 30
(in thousands) 2001 2000 2001 2000
- ----------------------------------------------------------------------------------
Revenues:
Print publishing $229,280 $327,624 $ 840,699 $1,139,502
Electronic publishing 78,235 82,245 239,895 241,134
Community newspapers 90,045 90,421 260,960 263,563
-------- -------- ---------- ----------
Consolidated revenues $397,560 $500,290 $1,341,554 $1,644,199
- ----------------------------------------------------------------------------------
Income (loss) before income taxes
and minority interests:
Print publishing $ (981) $ 54,785 $ 45,822 $ 306,083
Electronic publishing 12,978 11,055 22,960 33,233
Community newspapers 24,572 24,202 64,109 68,676
Corporate (7,902) (6,775) (32,809) (31,311)
-------- -------- ---------- ----------
Consolidated operating income $ 28,667 $ 83,267 $ 100,082 $ 376,681
Equity in losses
of associated companies (1,983) (4,653) (12,040) (14,168)
Other non-operating (losses) income (1,307) (81,995) 10,725 (57,801)
-------- -------- ---------- ----------
Income (loss) before income taxes
and minority interests $ 25,377 $ (3,381) $ 98,767 $ 304,712
- ----------------------------------------------------------------------------------
EBITDA:
Print publishing $ 15,719 $ 72,743 $ 114,556 $ 358,452
Electronic publishing 18,600 16,622 51,846 50,161
Community newspapers 28,664 28,512 76,829 81,598
Corporate (6,614) (6,673) (28,181) (31,002)
-------- -------- ---------- ----------
Consolidated EBITDA $ 56,369 $111,204 $ 215,050 $ 459,209
EBITDA Margin:
Print publishing 6.9% 22.2% 13.6% 31.5%
Electronic publishing 23.8 20.2 21.6 20.8
Community newspapers 31.8 31.5 29.4 31.0
All segments 14.2 22.2 16.0 27.9
==================================================================================
Restructuring and other special charges were included in operating income in 2001 as
follows:
(in thousands) 3rd Quarter Nine Months
----------- -----------
Print publishing $ 618 $17,497
Electronic publishing 102 12,186
Community newspapers 321
Corporate 1,000 3,768
------ -------
$1,720 $33,772
Excluding restructuring and other special charges, segment operating income was as
follows:
(in thousands) Quarters Ended Nine Months Ended
September 30 September 30
2001 2000 2001 2000
--------------- -----------------
Print publishing $ (363) $54,785 $ 63,319 $306,083
Electronic publishing 13,080 11,055 35,146 33,233
Community newspapers 24,572 24,202 64,430 68,676
Corporate (6,902) (6,775) (29,041) (31,311)
------- ------- -------- --------
Consolidated operating income $30,387 $83,267 $133,854 $376,681
-8-
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
FOR THE THIRD QUARTERS AND NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
The company reported third quarter 2001 net income of $16.7 million, or
$.19 per diluted share, compared with a loss last year of $33.9 million,
or $.39 per diluted share. (All references to "per share" amounts in this
discussion are on a per diluted share basis.) Special charges in the
third quarter 2001 totaled $0.7 million, after taxes. These consisted of
a charge to operating income of $1.7 million ($1 million after taxes)
related to the September 11 terrorist attacks offset by a net gain on non-
operating items. The non-operating items consisted of an $8.8 million
write-down of certain marketable equity securities, a gain of $8.4 million
from a reversal of a contract guarantee and a gain of an investee of $1.2
million ($0.7 million after taxes) on the early extinguishment of debt.
The third quarter of 2000 included a non-operating charge of $82.3
million, or $.94 per share, from the write-down of the carrying value of
Bridge Information Systems preferred stock. Excluding these special items
in both years, net income was $17.4 million, or $.20 per share, compared
with net income of $48.4 million, or $.55 per share, in the third quarter
of 2000. A sharp drop-off in profits at the print publishing segment more
than offset improved results in the electronic publishing segment.
For the nine months ended September 30, net income was $66.1 million in
2001, or $.76 per share, versus $155.3 million in 2000, or $1.74 per
share. In addition to the special items affecting the quarter, the first
nine months of 2001 also included restructuring charges to operating
income of $32.1 million ($19.5 million after taxes) as well as special
non-operating gains totaling $7.9 million ($8.7 million after taxes). In
addition to the third quarter 2000 write-down of Bridge, the first nine
months of 2000 included non-operating investment gains of $23.4 million
($16.4 million after taxes). Excluding special items in both years, net
income was $77.6 million, or $.90 per share in 2001, compared with net
income of $221.3 million, or $2.48 per share, in 2000.
Results in the first nine months of 2001 reflect a sustained economic
softness, which has affected the company's advertising-supported
businesses. Additionally, the exceptional results in 2000 presented a
difficult comparison due to the company's extraordinary advertising volume
generated from thriving financial, technology and dot.com businesses.
The adverse advertising environment was further exacerbated by the
September 11 terrorist attacks. In September, the company experienced
cancellations by advertisers as well as other lost revenue at its
electronic businesses in the New York downtown area following the attacks.
The company estimates lost revenues were roughly $15 million in September,
or about $.09 cents per share. These lost revenues are management's
estimate based on actual cancellations and advertising trends. These
estimated lost revenues have not been included in the year-over-year
comparisons. The company has recorded additional operating costs related
to the September 11 attack of $1.7 million ($1 million after taxes),
reflecting the temporary relocation of its New York headquarters as well
as a $1 million charitable donation to the September 11 funds offset by a
credit relating to abatement of rent at the company's World Financial
Center headquarters.
The World Financial Center was adjacent to the World Trade Center. While
the building was determined to be structurally sound, our office space
sustained some damage from debris and dust. The company has had limited
access to this leased facility and has not been able to determine the full
extent of the damage. The company believes, however, damage to the
property will be recoverable through insurance as the company's policy
-9-
provides for current replacement value of these depreciated assets. The
insurance policies provide coverage for property damage, extra expenses
and business interruption (lost revenues) related to this disaster. The
company has not provided for any insurance recovery in the third quarter
2001 on its incremental expenses or its estimated lost revenues. The
company is currently in discussions with its insurance providers in
determining the amount of the claim.
The company announced in October 2001 that it intended to permanently
reduce the number of personnel housed at the World Financial Center and
relocate them to other available office space in the surrounding area,
including owned facilities in South Brunswick, New Jersey. Dow Jones will
permanently vacate and attempt to sublet 165,000 sq ft of its over 300,000
sq ft leased office space at World Financial Center. The lease is due to
expire in 2005. The staff that will remain at World Financial Center will
return once it is determined the space is suitable for occupancy. As a
result of its decision to permanently re-deploy its personnel at this
location, Dow Jones will likely record a significant charge in the fourth
quarter primarily reflecting its obligation to the landlord on the vacated
space. Looking ahead long-term, this re-deployment will lower the
company's rental expenses.
As previously reported, in light of the sustained economic softness seen
this year in advertising the company took steps to better align its costs
with its revenues by initiating restructuring efforts in its first and
second quarters. In the first half of 2001, the company initiated a
general workforce reduction of 429 full-time employees, or 5%.
Restructuring charges related to these workforce reductions amounted to
$27.4 million ($16.7 million after taxes) through the first six months of
2001. These reductions were across all business segments. In addition to
the workforce reduction, the company wrote down assets of $4.7 million
($2.8 million after taxes) of online businesses to operating income that
were made obsolete, or were redundant and abandoned. The annualized cost
savings associated with the workforce reduction is expected to be $37.7
million. In addition to cost savings from staff reductions, the company
has also significantly reduced costs in other, non-staff areas. Most of
the severance charge for the first quarter and about half of the severance
for the second quarter was paid by the end of the third quarter of 2001.
The third quarter 2001 included a net gain of $8.4 million, or $.10 per
diluted share, related to a partial reversal of a reserve for a contract
guarantee. For the nine months ended September 2001, the company recorded
net gains of $18.7 million, or $.21 per diluted share, relating to this
matter. 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 payments for data
acquired by Dow Jones' former Telerate subsidiary from Cantor Fitzgerald
Securities and Market Data Corporation. Dow Jones sold Telerate to Bridge
in 1998. Bridge is currently in bankruptcy but made payments for the
post-petition periods through the third quarter of 2001, which were partly
offset by the amortization of the discount on the contract guarantee. In
October 2001, the bankruptcy court granted Bridge's motion to reject
Telerate's contracts with Cantor and MDC. As a result of that rejection,
Bridge and Telerate will likely no longer be making payments to Cantor and
MDC. Cantor and MDC have advised the company that they will be seeking
payment from Dow Jones of an amount they allege is due on November 15
under the contract guarantee. The company has various substantial
defenses to these claims. Accordingly, the company has instituted a legal
action seeking a declaratory judgment with respect to these claims, as
described in Legal Proceedings.
-10-
The following table reconciles the company's reported results to income
excluding special items. The term "special items," as used within the
remainder of management's discussion and analysis, refers to those items
within the table.
(in millions, except Special Items
per share amounts) -------------
Quarters Ended September 30 Nine Months Ended September 30
2001 2000 2001 2000
-------------------- ---------------------- --------------------- -----------------------
Operating Net EPS Operating Net EPS Operating Net EPS Operating Net EPS
--------- --- --- --------- --- --- --------- --- --- --------- --- ---
REPORTED INCOME $28.7 $16.7 $ .19 $83.3 $(33.9)$(.39) $100.1 $ 66.1 $ .76 $376.7 $155.3 $1.74
Adjusted to remove
Restructuring and
other special charges
Employee
severance (27.4) (16.7) (.19)
Asset Write-down (4.7) (2.8) (.03)
WTC Disaster
Related expenses (1.7) (1.0) (.01) (1.7) (1.0) (.01)
Included in non-
operating income
Reversal of
contract guarantee 8.4 .10 18.7 .21
Write-down of
investments:
iBeam (4.0) (.05) (4.0) (.05)
Nation Multimedia (4.8) (.06) (4.8) (.06)
Bridge Information
Systems (82.3) (.94) (82.3) (.94)
CNBC Europe special
gain (exting. debt) .7 .01 .7 .01
Work.com shutdown (1.6) (.02)
Gains on sales:
DJ Financial
Publishing 9.5 .10
SportsTicker 4.8 .05
Reverse Int'l TV
restructuring 2.1 .02
INCOME EXCLUDING
SPECIAL ITEMS $30.4 $17.4 $ .20 $83.3 $ 48.4 $ .55 $133.9 $ 77.6 $ .90 $376.7 $221.3* $2.48*
<FN>
*The total of the individual items does not add due to rounding.
Operating income in the third quarter of 2001 of $28.7 million dropped $54.6
million, or 66%, from 2000's $83.3 million. The operating margin was 7.2%,
down from 2000's 16.6%. Excluding the special charges, operating income of
$30.4 million (operating margin of 7.6%) decreased $52.9 million, or 64%.
The third quarter EBITDA margin (defined as operating income excluding
depreciation, amortization and restructuring and other special charges) was
14.2% in 2001 versus 22.2% in 2000. Revenues were down $102.7 million, or
21%, due to a company-wide decline in advertising revenue. Operating
expenses, excluding special charges of $1.7 million, were down $49.9
million, or 12%, reflecting a decline in volume-related expenses and overall
cost-cutting efforts.
Operating income in the first nine months of 2001 was $100.1 million, down
$276.6 million, or 73%, from $376.7 million in 2000. The operating margin
was 7.5% in 2001 versus 22.9% in 2000. Excluding special items, operating
income was $133.9 million (operating margin of 10%), a decline of $242.8
million, or 64%. Revenues fell $302.6 million, or 18%, to $1.3 billion in
the first nine months of 2001 primarily as a result of a decline in
advertising revenue, driven by a 36.6% linage decrease at The Wall Street
Journal. Operating expenses decreased $26 million, or 2.1%, from the like
period a year earlier. Excluding restructuring and other special charges in
2001, the operating expenses were down $59.8 million, or 4.7%, largely
reflecting lower volume-related expenses and cost-cutting efforts.
-11-
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 17
weekly newspapers in 12 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 63% of revenues for the first nine
months of 2001, of which approximately 11% were 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 quarter,
then first and finally the third quarter. This year, however, advertising
volume is not expected to be at its highest level in the fourth quarter.
Electronic publishing includes the operations of Dow Jones Newswires,
WSJ.com, Dow Jones Indexes and other.
PRINT PUBLISHING
==========================================================================
Quarters Ended Nine Months Ended
September 30 September 30
(in thousands) 2001 2000 2001 2000
- --------------------------------------------------------------------------
U.S. Publications:
Advertising $136,604 $222,685 $539,171 $ 809,373
Circulation and other 67,209 70,569 210,966 224,156
International Publications:
Advertising 16,197 23,300 58,814 72,232
Circulation and other 9,270 11,070 31,748 33,741
- --------------------------------------------------------------------------
Total revenue 229,280 327,624 840,699 1,139,502
Operating expenses 230,261 272,839 794,877 833,419
- --------------------------------------------------------------------------
Operating (loss) income $ (981) $ 54,785 $ 45,822 $ 306,083
Operating margin (.4)% 16.7% 5.5% 26.9%
- --------------------------------------------------------------------------
EBITDA* $ 15,719 $ 72,743 $114,556 $ 358,452
EBITDA margin 6.9% 22.2% 13.6% 31.5%
==========================================================================
<FN>
* See footnote 16 to financial statements.
In the third quarter, the print publishing segment reported an operating
loss of $0.4 million, excluding special charges of $0.6 million, compared
with operating income of $54.8 million in 2000. For the third quarter of
2001, profits at The Wall Street Journal and CNBC US TV operations were
offset by losses at international publications. The decline in profits
reflected a significant drop-off in advertising volume somewhat offset by
lower expenses resulting from lower volume as well as cost rationalization.
EBITDA was $15.7 million in the third quarter of 2001, versus $72.7 million
in the like period a year ago.
-12-
Revenues fell $98.3 million, or 30%, from the comparable quarter in 2000,
after rising $17.6 million, or 5.7%, in 2000 from 1999. The steep drop in
revenue was largely due to a decline in advertising volume at The Wall
Street Journal. U.S. revenue decreased $89.4 million, or 30%, as Wall
Street Journal linage declined 41.2%, following a gain of 4.5% last year.
Barron's advertising pages were down 30.2% in the third quarter of 2001.
Advertising revenue for international publications fell 30%, as Wall Street
Journal Europe linage declined 32.5% and Asian Wall Street Journal linage
fell 43.9%. U.S. television revenue was down 69%, also reflecting a soft
advertising environment.
General linage for The Wall Street Journal, which made up 59% of total
linage, was down 43.6% in the third quarter of 2001. The technology
component of general advertising dropped 62.5%, driven by a sharp
curtailment of business to business e-commerce advertising and declines in
computer hardware and software advertising. General linage, excluding
technology, was down 30.6%, largely due to declines in communications,
professional services, travel and other. Financial advertising linage,
which comprised 21% of total Journal linage, fell 48.7% in the third quarter
of 2001, reflecting across-the-board declines in wholesale and retail
advertising as a result of retrenchments in the financial markets.
Classified and other advertising, which comprised the remaining 20% of
linage, decreased 19.1%, as employment and real estate advertising softened.
Circulation and other revenue for U.S. print publications was down 4.8%,
from the third quarter of 2000, reflecting a decline in paid orders slightly
offset by increased single copy sales revenue. Although single sales copies
declined, the decline was more than offset by rate increases. The U.S. Wall
Street Journal's six-month ABC paid circulation as of September 30, 2001
averaged 1,781,000 up from 1,763,000 for the six months ended September 30,
2000. Barron's average paid circulation was 273,000 versus last year's
296,000.
International publications circulation and other revenue in the third
quarter of 2001 declined $1.8 million, or 16%, from the like 2000 period.
Average combined circulation during the third quarter for the international
editions of The Wall Street Journal rose 2.9% to 176,000 from 171,000 a year
ago. However, the increase in volume at the international Journals in Asia
and Europe was more than offset by a stronger US dollar compared to last
year's quarter, volume declines at the Far Eastern Economic Review as well
as an increase in lower rate copies.
Excluding special items of $0.6 million, print publishing expenses were down
$43.2 million, or 16%, from a year earlier, resulting from lower volume-
related costs (newsprint and sales incentives), a reduction in direct mail
promotional spending and lower technology costs as a part of the company's
cost-cutting efforts. Newsprint expense in the third quarter of 2001 was
down 35% on a 33% decline in newsprint consumption along with a 2.6%
decrease in prices. At September 30, 2001, the number of full-time
employees in the print publishing segment was down 6.4% from the comparable
period in 2000.
Operating income for the first nine months of 2001 declined $260.3 million,
or 85%, ($242.8 million, or 79%, excluding restructuring) from the like
period a year ago, mainly reflecting the soft advertising environment.
Operating margin, excluding restructuring, was 7.5% compared to 26.9% in
2000.
For the first nine months of 2001, revenue in the U.S. publications declined
$283.4 million, or 27%, driven by a Wall Street Journal linage drop of
36.6%. General, financial and classified and other linage fell 39.7%, 39.2%
and 16.4%, respectively. International print revenues were down $15.4
million, or 15%. Advertising linage at The Wall Street Journal Europe was
down 24%, while The Asian Wall Street Journal linage fell 21.5%.
-13-
Operating expenses in the first nine months of 2001 decreased $38.5 million,
or 4.6%. Excluding restructuring charges, expenses decreased $56 million,
or 6.7%, mainly due to lower volume-related costs, lower advertising
promotional expenses and other cost reduction efforts. Newsprint expense
was down 15%, as a result of a 23% decline in consumption offset by an 11%
rise in prices.
ELECTRONIC PUBLISHING
===========================================================================
Quarters Ended Nine Months Ended
September 30 September 30
(in thousands) 2001 2000 2001 2000
- ---------------------------------------------------------------------------
Dow Jones Newswires:
North America $48,397 $48,745 $146,394 $142,198
International 10,379 10,174 31,395 29,642
- ---------------------------------------------------------------------------
Total Newswires 58,776 58,919 177,789 171,840
WSJ.com 8,795 12,696 27,236 36,349
Dow Jones Indexes 4,130 3,571 11,763 10,311
Other 6,534 7,059 23,107 22,634
- ---------------------------------------------------------------------------
Total revenue 78,235 82,245 239,895 241,134
Operating expenses 65,257 71,190 216,935 207,901
- ---------------------------------------------------------------------------
Operating income $12,978 $11,055 $ 22,960 $ 33,233
Operating margin 16.6% 13.4% 9.6% 13.8%
- ---------------------------------------------------------------------------
EBITDA* $18,600 $16,622 $ 51,846 $ 50,161
EBITDA margin 23.8% 20.2% 21.6% 20.8%
===========================================================================
<FN>
* See footnote 16 to financial statements.
Third quarter operating income from electronic publishing increased $1.9
million, or 17%, from 2000, due to improved profitability at Newswires and
narrower losses at WSJ.com. The operating margin was 16.6%. Revenues
decreased $4 million, or 4.9%, while operating expenses, excluding special
items of $0.1 million, decreased $6 million, or 8.5%. The decrease in
spending resulted from lower advertising and promotional costs, lower
technology spending and other cost-cutting efforts. EBITDA improved $2
million, or 12%.
Dow Jones Newswires revenue for the quarter remained flat when compared with
a year ago. Revenue from non-traditional distribution channels, such as
online brokerages and other e-commerce sites as well as wholesale
arrangements, both domestic and internationally, continued to show
significant growth, while revenue from larger customers, in particular from
the securities industry, has softened due to the economic slowdown and
consolidation. As of September 30, 2001, there were 326,000 newswires
terminals compared with 337,000 terminals a year ago, a decrease of 3.3%.
This decrease largely resulted from cut backs in the securities industry.
Bridge Information Systems was current with all of its post-petition
obligations to Newswires in the third quarter of 2001.
WSJ.com revenue declined $3.9 million, or 31%, from last year's third
quarter. Advertising revenue dropped 55%, due to a weak advertising market
across all customer categories, while subscription revenue increased 2.9%.
At September 30, 2001, the number of subscribers to WSJ.com reached 609,000
versus 506,000 a year ago, a gain of 20%. The mix of advertising versus
subscription revenue was 37% to 63%, respectively, compared with 58% to 42%
in last year's third quarter.
-14-
Dow Jones Indexes third quarter revenue was $4.1 million, up 16% from the
like 2000 period. The increase was driven by license fees for exchange
traded funds, structured products, custom indexes and funds based on Global
Titans.
Electronic publishing's operating income for the first nine months of 2001
declined $10.3 million, or 31%. Excluding special items, operating income
of $35.1 million increased $1.9 million, or 5.8%, when compared to the first
nine months of 2000. The operating margin, excluding special items, was
14.7% compared with 13.8% a year ago. Revenue declined $1.2 million, or
0.5%. Operating expenses, excluding restructuring and other special charges
of $12.2 million, were down $3.2 million, or 1.5%. The lower expenses were
caused by a reduction in marketing and technology spending, as a result of
ongoing cost-cutting efforts, offset by higher royalty and facility costs.
COMMUNITY NEWSPAPERS
===========================================================================
Quarters Ended Nine Months Ended
September 30 September 30
(in thousands) 2001 2000 2001 2000
- ---------------------------------------------------------------------------
Advertising $63,453 $64,541 $184,725 $188,907
Circulation and other 26,592 25,880 76,235 74,656
- ---------------------------------------------------------------------------
Total revenue 90,045 90,421 260,960 263,563
Operating expenses 65,473 66,219 196,851 194,887
- ---------------------------------------------------------------------------
Operating income $24,572 $24,202 $ 64,109 $ 68,676
Operating margin 27.3% 26.8% 24.6% 26.1%
- ---------------------------------------------------------------------------
EBITDA* $28,664 $28,512 $ 76,829 $ 81,598
EBITDA margin 31.8% 31.5% 29.4% 31.0%
===========================================================================
<FN>
* See footnote 16 to financial statements.
Community newspapers operating income increased $0.4 million, or 1.5%, from
the third quarter of 2000. EBITDA margin of 31.8% improved slightly from
last year.
Revenue was relatively flat compared with the third quarter last year.
Advertising revenue declined $1.1 million, or 1.7%, on a 1.7% decline in
linage. Advertising linage for the daily papers was down 3.5%, but linage
for the non-dailies was up 9.1% from a year earlier. Circulation and other
revenues were up 2.8%, due to an increase in commercial printing revenue.
Third quarter average circulation for the 19 dailies was 549,000 in 2001,
versus 551,000 in 2000. Expenses in this quarter were 1.1% lower than last
year's third quarter levels. Employee compensation expense, which is a
major cost component of the segment, was down 3.2% from 2000's third
quarter. Newsprint expense was down 1.8%, largely due to a decline in
consumption.
For the first nine months in 2001, operating income was down $4.6 million,
or 6.7%. EBITDA declined $4.8 million, or 5.8%. Advertising revenue fell
$4.2 million, or 2.2%, as overall linage was down 2.2%. Operating expenses
were up $2 million, or 1%, largely due to an 11% increase in newsprint
prices.
-15-
OTHER NON-OPERATING INCOME/DEDUCTIONS
Non-operating income/deductions in the third quarter of 2001 included a $8.8
million write-down through earnings of the company's investments in Nation
Multimedia Group, a media company in Thailand, and iBeam Broadcasting Corp.,
a provider of streaming video services. The decline in their market value
was previously recorded as unrealized losses through other stockholders'
equity. Based on certain negative factors regarding these investments
including economic uncertainty and going concern considerations as to iBeam
the company could not conclude the devaluation of these investments was
temporary and recognized the accumulated losses through earnings.
Net investment income in the third quarter was $0.2 million in 2001 compared
with $0.8 million in 2000, mainly due to lower cash balances this quarter.
Year-to-date net investment income in 2001 was $1.1 million, versus $5.2
million in 2000. Investment income in 2000 included $3 million of accrued
dividends from Bridge, which the company ceased recording after the end of
the second quarter 2000. Long-term debt outstanding at September 30, 2001
was $233 million, an increase of $83 million from a year ago.
The company's third-quarter share of equity in losses from associated
companies was $2 million, an improvement of $2.7 million from losses of $4.7
million in the like 2000 period. The third quarter 2001 equity results
included a $1.2 million gain from the early extinguishment of debt of CNBC
Europe. Excluding this benefit, equity results improved $1.5 million from
2000's like period. This improvement was largely driven by elimination of
Work.com losses, as a result of shuttering its operation in the first
quarter of 2001, offset by lower income at Factiva and Handelsblatt.
The first nine months of 2001 equity in losses from associated companies was
$12 million compared to last year's losses of $14.2 million. In addition to
the third quarter special gain, the company recorded a shutdown cost of $2.4
million for Work.com in the first quarter of 2001. The second quarter of
2000's equity results included a reversal of a 1998 restructuring charge of
$3.2 million relating to the favorable disposition of a satellite lease in
Europe. Excluding special items in both years, equity losses improved 38%,
as improved results from Factiva, SmartMoney and the newsprint mill
affiliate, as well as the elimination of Work.com losses were partly offset
by higher losses from the company's European publishing investments.
The third quarter of 2000 included a charge of $82.3 million, or $.94 per
share, as a result of a write-down from the impairment in the value of the
company's investment in Bridge Information Systems, Inc. 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. In the first
quarter of 2000, the company sold its subsidiary, Dow Jones Financial
Publishing Corp. for a pretax gain of $13.8 million.
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 losses in the third quarter of $1.8
million were down from last year's earnings of $5.7 million. Excluding the
special gain at CNBC Europe, pretax losses would have been $3 million in the
third quarter 2001.
For the first nine months, total pretax earnings were $8.8 million ($7.6
million excluding special items) in 2001, compared with $15.4 million ($12.2
million excluding special items) in 2000. Since 1998, television results
have benefited from the company's worldwide alliance with CNBC, particularly
enhancing U.S. television revenues. However the current dismal advertising
market has negatively affected television results.
-16-
INCOME TAXES
The following table presents the effective income tax rates.
===========================================================================
Quarters Ended Nine Months Ended
September 30 September 30
2001 2000 2001 2000
- ---------------------------------------------------------------------------
Effective income tax rate
(net of minority interests) 40.6% - 36.6% 49.4%
- ---------------------------------------------------------------------------
Effective income tax rate
(net of minority interests),
excluding special items 40.0% 39.5% 40.0% 39.5%
===========================================================================
The year-to-date rate excluding special items was higher than the effective
tax rate due to the non-taxable special gains in excess of non-deductible
capital losses. As of September 30, 2001, the company had available
approximately $485 million of capital loss carryforward (a deferred tax
asset of $184 million). The company may utilize the bulk of carryforward
through 2003. In addition, the company has recorded an unrecognized capital
loss carryforward of $403 million (a deferred tax asset of $153 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 nine months of 2001 of $214.1
million declined $120.3 million, or 36%, from 2000's like period, primarily
due to lower earnings.
During the first nine months of 2001, the company repurchased 2.3 million
shares of its common stock for an aggregate price of $129.7 million. As of
September 30, 2001, approximately $453 million remained under board
authorization for share repurchases after reserving for the possible
exercise of outstanding puts. The company has outstanding puts covering up
to 1 million shares which, if exercised, will require the company to
repurchase up to $53.8 million of its common stock at strike prices (net of
put premiums received) ranging from $50.70 to $55.78 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 $96.4 million in the first nine months of 2001
(including $22.5 million for The Wall Street Journal color print expansion
project and $14.9 million for the WSJ.com redesign), paid dividends of $64.6
million and funded $42.3 million for various investments.
The company has guaranteed payment under certain circumstances of certain
"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. If required to be paid in full,
the Minimum Payments would 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
Minimum Payments over the remainder of the contract term using a discount
rate of approximately 6%.
-17-
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. Bridge made the payments for the post-petition periods through the
third quarter of 2001, as administrative expenses in bankruptcy. In October
2001, the bankruptcy court granted Bridge's motion to reject Telerate's
contracts with Cantor and MDC. As a result of that rejection, Bridge and
Telerate will likely no longer be making payments to Cantor and MDC. Cantor
and MDC have advised the company that they will be seeking payment from Dow
Jones of an amount they allege is due on November 15 under the contract
guarantee. The company has various substantial defenses to these claims.
Accordingly, the company has instituted a legal action seeking a declaratory
judgment with respect to these claims, as described in Legal Proceedings.
As of September 30, 2001, the company had borrowings of $233 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. In
June 2001, the company renewed its revolving credit agreements with a
consortium of banks. Under these agreements, the company can borrow up to
$430 million, $290 million through June 24, 2002 and $140 million through
June 24, 2006. The terms are essentially the same as the prior agreement.
ACCOUNTING PRONOUNCEMENTS
In June 2001, Statement of Financial Accounting Standards No. 141 (SFAS 141)
"Business Combination" was issued. This Statement requires that all
business combinations be accounted for by a single method -- the purchase
method. This Statement also requires disclosure of the primary reasons for
a business combination and the allocation of the purchase price paid to the
assets acquired and liabilities assumed by major balance sheet caption.
When the amounts of goodwill and intangible assets acquired are significant
in relation to the purchase price paid, disclosure of other information
about those assets is required, such as the amount of goodwill by reportable
segment and the amount of the purchase price assigned to each major
intangible asset class. The effective date for the provisions of this
Statement is all business combinations initiated after June 30, 2001.
In addition, the FASB issued Statement of Financial Accounting Standards No.
142 (SFAS 142) "Goodwill and Other Intangible Assets." According to this
Statement, goodwill shall not be amortized but be tested for impairment at
least annually or between annual tests if an event occurs or circumstances
change indicating that goodwill of a reporting unit might be impaired. The
aggregate amount of goodwill impairment losses shall be presented as a
separate line item in the operating section of the income statement. This
Statement applies fiscal years beginning after December 15, 2001. The
company is in the process of evaluating the standards and determining their
effect on financial results upon implementation.
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:
-18-
- the impact of the worsening economy and the events of September 11th on
an already weak advertising market, particularly in the financial and
technology segments;
- world political, global business, economic and stock market
conditions, and the negative impact of economic downturns and
consolidation in the financial services industry on sales of the
company's products and services and advertising;
- the company's ability to limit and manage expense growth without
harming its growth prospects;
- the extent to which the company is required to perform under the
guarantee to Cantor Fitzgerald Securities and Market Data Corporation,
and the other uncertainties relating to liability under this guarantee
described above in Management's Discussion and Analysis;
- 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;
- with respect to Newswires, the impact of consolidations and weakening
business conditions in the financial services industry and the decline
in equities markets;
- with respect to Newswires, the extent and impact of delays and
difficulties that would be encountered in a migration process resulting
from the sale of Bridge and Telerate;
- WSJ.com's ability to increase its revenues in light of its paid
subscription model;
- 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 future 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;
-19-
- 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.
-20-
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 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. Bridge made the payments for the post-petition periods through the
third quarter of 2001, as administrative expenses in bankruptcy.
After certain amendments were made to the complaint, the remaining claims in
this lawsuit sought the payment of interest on the payment made in the first
quarter of 2001 and for attorneys fees and costs in this litigation. The
parties settled these claims and this lawsuit was then withdrawn.
In October 2001, the bankruptcy court granted Bridge's motion to reject
Telerate's contracts with Cantor and MDC. As a result of that rejection,
Bridge and Telerate will likely no longer be making payments to Cantor and
MDC. Cantor and MDC have advised the company that they will be seeking
payment from Dow Jones of an amount they allege is due on November 15 under
the contract guarantee. The company has various substantial defenses to
these claims.
On November 13, 2001, the company instituted a lawsuit in the Supreme Court
of the State of New York seeking a declaratory judgment with respect to the
contract guarantee and the claims of Cantor and MDC. In this lawsuit the
company has asked the court to find that the company does not and will not
owe any payment under the contract guarantee through October 2006. In the
alternative, the company has asked the court to find that if any amount is
owed, it must be reduced by amounts that Cantor and MDC receive or should
have received from other distribution of the data.
ITEM 6. Exhibits and Reports on Form 8-K.
(a) No exhibits filed.
(b) Reports on Form 8-K:
Form 8-K, dated September 17, 2001, under Item 7. Financial
Statements and Exhibits, Dow Jones filed a copy of a press release that
the company had issued on September 17, 2001.
Form 8-K, dated July 12, 2001, under Item 7. Financial Statements
and Exhibits, Dow Jones filed a copy of the script of prepared remarks for
the Dow Jones Second Quarter 2001 Earnings Conference Call on July 12, 2001.
-21-
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: November 13, 2001 By: /s/ Christopher W. Vieth
-----------------------
Christopher W. Vieth
Vice President, Finance
and Corporate Controller
-22-