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, 2002
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, 2002: 63,338,243 shares of Common Stock and
20,887,516 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) 2002 2001
- -------------------------------------------------------------------------
Revenues:
Advertising $219,868 $276,189
Information services 71,631 73,177
Circulation and other 101,392 110,502
- -------------------------------------------------------------------------
Total revenues 392,891 459,868
- -------------------------------------------------------------------------
Expenses:
News, operations and development 127,032 138,136
Selling, administrative and general 152,126 170,145
Newsprint 26,778 43,114
Print delivery costs 47,252 49,319
Depreciation and amortization 27,397 28,613
Restructuring 14,885
- -------------------------------------------------------------------------
Operating expenses 380,585 444,212
- -------------------------------------------------------------------------
Operating income 12,306 15,656
Other income (deductions):
Investment income 90 554
Interest expense (1,589) (69)
Equity in losses of associated companies (2,450) (10,777)
Gain on sale of businesses 153,407
Contract guarantee, net (3,178) 2,156
Other, net 755 295
- -------------------------------------------------------------------------
Income before income taxes and
minority interests 159,341 7,815
Income taxes 31,878 3,171
- -------------------------------------------------------------------------
Income before minority interests 127,463 4,644
Minority interests 2,362 1,535
- -------------------------------------------------------------------------
NET INCOME $129,825 $ 6,179
=========================================================================
Per share:
Net income per share:
- Basic $1.54 $.07
- Diluted 1.53 .07
Weighted-average shares outstanding:
- Basic 84,319 86,762
- Diluted 84,849 87,408
Cash dividends declared $.25 $.25
- -------------------------------------------------------------------------
Comprehensive income $131,463 $ 838
=========================================================================
<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) 2002 2001
- -------------------------------------------------------------------------
Operating Activities:
Consolidated net income $129,825 $ 6,179
Adjustments to reconcile net income to
net cash (used in) provided
by operating activities:
Depreciation and amortization 27,397 28,613
Gain on sale of businesses (153,407)
Changes in assets and liabilities (27,816) 11,555
Other, net 2,988 8,560
- -------------------------------------------------------------------------
Net cash (used in) provided
by operating activities (21,013) 54,907
- -------------------------------------------------------------------------
Investing Activities:
Additions to plant and property (18,855) (42,079)
Funding of equity investees (5,751) (13,356)
Disposition of businesses and investments 177,913 335
Other, net (1,515) 1,034
- -------------------------------------------------------------------------
Net cash provided by (used in)
investing activities 151,792 (54,066)
- -------------------------------------------------------------------------
Financing Activities:
Cash dividends (21,088) (21,719)
Increase in long-term debt 37,444
Reduction of long-term debt (81,059)
Purchase of treasury stock, net of
put premiums (33,340) (41,839)
Proceeds from sales under stock
compensation plans 7,199 6,101
Contribution from minority partner 5,737
- -------------------------------------------------------------------------
Net cash used in financing activities (122,551) (20,013)
- -------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 8,228 (19,172)
Cash and cash equivalents at beginning of year 21,026 49,347
- -------------------------------------------------------------------------
Cash and cash equivalents at March 31 $ 29,254 $30,175
=========================================================================
<FN>
See notes to condensed consolidated financial statements.
-3-
CONDENSED CONSOLIDATED
BALANCE SHEETS (Unaudited)
Dow Jones & Company, Inc.
=========================================================================
March 31 December 31
(in thousands) 2002 2001
- -------------------------------------------------------------------------
Assets:
Cash and cash equivalents $ 29,254 $ 21,026
Accounts receivable-trade, net 153,818 162,559
Newsprint inventory 11,454 10,810
Deferred income taxes 10,529 10,648
Other current assets 37,800 40,916
- -------------------------------------------------------------------------
Total current assets 242,855 245,959
- -------------------------------------------------------------------------
Investments in associated companies,
at equity 81,107 78,985
Other investments 8,622 6,700
Plant and property, at cost 1,654,812 1,673,193
Less, accumulated depreciation 911,072 911,844
- -------------------------------------------------------------------------
743,740 761,349
Intangible assets, principally goodwill 73,267 81,583
Deferred income taxes 79,146 99,919
Other assets 23,404 23,845
- -------------------------------------------------------------------------
Total assets $1,252,141 $1,298,340
=========================================================================
Liabilities:
Accounts payable and accrued liabilities $ 295,178 $ 330,645
Income taxes 37,754 66,260
Unearned revenue 206,448 204,988
- -------------------------------------------------------------------------
Total current liabilities 539,380 601,893
Long-term debt 92,899 173,958
Other noncurrent liabilities 485,948 476,843
- -------------------------------------------------------------------------
Total liabilities 1,118,227 1,252,694
- -------------------------------------------------------------------------
Minority Interests in Subsidiaries 7,244 3,869
Stockholders' Equity:
Common stock 102,181 102,181
Additional paid-in capital 124,261 127,846
Retained earnings 723,600 614,863
Accumulated other comprehensive income (loss) 339 (1,299)
- -------------------------------------------------------------------------
950,381 843,591
Less, treasury stock, at cost 823,711 801,814
- -------------------------------------------------------------------------
Total stockholders' equity 126,670 41,777
- -------------------------------------------------------------------------
Total liabilities and stockholders' equity $1,252,141 $1,298,340
=========================================================================
<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, 2002,
and December 31, 2001, and the consolidated results of operations and
consolidated cash flows for the three-month periods ended March 31, 2002
and 2001. 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.
The condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and related notes
included in the company's annual report on Form 10-K for the year ended
December 31, 2001 filed with the Securities and Exchange Commission.
2. Effective January 1, 2002, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 142 (SFAS 142) "Goodwill
and Other Intangible Assets". SFAS 142 requires that an intangible asset
acquired either individually or with a group of other assets be initially
recognized and measured based on fair value. An intangible with a finite
life is amortized over its useful life, while an intangible asset with an
infinite life, including goodwill, is not amortized. During the first
quarter of 2001, the company recorded $1 million of goodwill amortization
expense, net of taxes.
3. The first quarter of 2002 included a gain of $153.4 million ($126.1
million after taxes, or $1.49 per diluted share) resulting from the sale of
four of the company's Ottaway newspapers to Community Newspapers Holdings,
Inc.
4. On April 11, 2002, the company announced that it had entered into an
agreement to sell Ottaway Newspaper's Essex County Newspapers to Eagle-
Tribune Publishing Company for approximately $70 million, in cash. The
transaction is subject to regulatory approval and customary closing
conditions and is expected to be finalized by the end of the second quarter
of 2002. While tax implications of the sale have not yet been finalized,
the company expects a gain on the sale of the Essex County Newspapers of
about $44 million ($34 million after taxes, or $.40 per share).
5. The first quarter of 2002 included a charge of $3.2 million, or $.04 per
diluted share, relating to the amortization of the discount on a contract
guarantee. In 2000, the company established a reserve for the present
value of the total estimated payments through October 2006 in connection
with Dow Jones' guarantee of certain minimum payments for data acquired by
Dow Jones' former Telerate subsidiary from Cantor Fitzgerald Securities and
Market Data Corporation (MDC). Bridge Information Systems, Inc., which
purchased Telerate in 1998, is currently in bankruptcy but made payments
for this data for the post-petition periods through October 2001, when
Telerate ceased operations, went out of business, sold certain assets and
rejected its contracts with Cantor and MDC. The company is now in
litigation with Cantor and MDC with respect to their claims for amounts due
-5-
under the contract guarantee. The company has various substantial defenses
to these claims and the litigation is proceeding.
6. As of March 31, 2002, 96% of the roughly 550 employees that were
part of the 2001 workforce reduction were terminated. The remaining
separations are expected to be completed by the end of the second quarter
of 2002.
The following table displays the activity and balances of the restructuring
reserve account for the quarter ended March 31, 2002:
==========================================================================
December 31, March 31,
2001 Net Cash Non Cash 2002
(in thousands) Reserve Payments Adjustments Reserve
- --------------------------------------------------------------------------
Employee severance $12,541 $ 8,249 $4,292
Other exit costs 336 9 327
==========================================================================
7. Comprehensive income was computed as follows:
==========================================================================
Quarters Ended March 31
(in thousands) 2002 2001
- --------------------------------------------------------------------------
Net income $129,825 $6,179
Foreign currency translation
adjustments (1,085) (2,778)
Unrealized gain (loss) on investments 2,723 (2,563)
- --------------------------------------------------------------------------
Comprehensive income $131,463 $ 838
==========================================================================
8. Diluted earnings per share have been computed as follows:
==========================================================================
(in thousands, except Quarters Ended March 31
per share amounts) 2002 2001
- --------------------------------------------------------------------------
Net income $129,825 $6,179
Weighted-average shares
outstanding - basic 84,319 86,762
Stock options 371 489
Other, principally
contingent stock rights 159 157
- --------------------------------------------------------------------------
Weighted-average shares
outstanding - diluted 84,849 87,408
Diluted earnings per share $1.53 $.07
==========================================================================
9. 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 will not have
a material effect on the company's financial statements. In addition, the
company has insurance coverage for many of these matters.
-6-
10. The company's operations by business segment were as follows:
SEGMENT INFORMATION
==========================================================================
Quarters Ended March 31
(in thousands) 2002 2001
- --------------------------------------------------------------------------
Revenues:
Print publishing $236,048 $298,573
Electronic publishing 77,800 81,398
Community newspapers 79,043 79,897
-------- --------
Consolidated revenues $392,891 $459,868
- --------------------------------------------------------------------------
Income (loss) before income taxes
and minority interests:
Print publishing $ (8,777) $ 11,854
Electronic publishing 15,227 2,884
Community newspapers 16,063 14,198
Corporate (10,207) (13,280)
-------- --------
Consolidated operating income 12,306 15,656
Equity in losses of associated companies (2,450) (10,777)
Gain on sale of businesses 153,407
Contract guarantee, net (3,178) 2,156
Other income, net (744) 780
-------- --------
Income before income taxes and
minority interests $159,341 $ 7,815
- --------------------------------------------------------------------------
Depreciation and amortization (D&A):
Print publishing $ 17,016 $ 17,560
Electronic publishing 6,735 6,606
Community newspapers 3,406 4,163
Corporate 240 284
-------- --------
Consolidated D&A $ 27,397 $ 28,613
Restructuring charges:
Print publishing $ 8,567
Electronic publishing 4,949
Community newspapers 321
Corporate 1,048
--------
All segments $ 14,885
==========================================================================
Excluding restructuring charges, segment operating income (loss) was as
follows:
==========================================================================
Quarters Ended March 31
(in thousands) 2002 2001
- --------------------------------------------------------------------------
Print publishing $(8,777) $20,421
Electronic publishing 15,227 7,833
Community newspapers 16,063 14,519
Corporate (10,207) (12,232)
-------- --------
Consolidated operating income $12,306 $30,541
==========================================================================
-7-
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Results in the first quarter of 2002 reflected continued softness in global
advertising spending. The effect of the adverse advertising environment
has been somewhat mitigated by the company's continued expense control and
relatively strong performances at the company's non-advertising dependent
businesses. Advertising linage at The Wall Street Journal was down for the
quarter; however, linage declines versus the prior year lessened during
each successive month of the quarter.
So far this year, the company has made significant progress on a number of
the ten strategic priorities outlined in its long-range plan. In April
2002, the company successfully completed the final phase of its $226
million four-year color print expansion project with the debut of Today's
Journal, which is the cornerstone of the company's long-range plan. Its
improved navigation and readability along with richer content will open its
pages to new readers. Today's Journal provides advertisers access to more
color advertising pages and increased flexibility to use the pages (for
example, color partial pages, gutter bleeds, multi-page spreads and back-
to-back color pages to name a few). In January, the company also
successfully re-launched its Online Journal at WSJ.com, reinforcing
WSJ.com's position as the largest paid site for online business news and
information. Finally, the company completed the sale of four Ottaway
newspaper properties in the first quarter and executed an agreement in
April 2002 to sell one more. The company intends to enhance the long-term
growth of the Ottaway portfolio of papers, by divesting properties in non-
strategic areas and re-investing in more strategically-located areas.
RESULTS FOR THE QUARTERS ENDED MARCH 31, 2002 COMPARED TO MARCH 31, 2001
Net income for the first quarter of 2002 was $129.8 million, or $1.53 per
diluted share, compared with earnings of $6.2 million, or $.07 per diluted
share, a year ago. Included in earnings per share were special items
netting to a gain of $1.45 per share for the first quarter 2002 and a loss
of $.10 per share for the comparable 2001 quarter. These special items are
detailed on page 13.
Revenues for the first quarter of 2002 fell $67 million, or 15%, to $392.9
million. Company-wide advertising revenue declined $56.3 million, or 20%,
primarily due to a continued depressed global advertising environment.
Information services revenue decreased $1.5 million, or 2.1%, reflecting a
modest decline in Newswires revenue in North America as a result of
retrenchments in the securities industry. Circulation and other revenues
declined $9.1 million, or 8.2%, in part due to a 6% decline in circulation
revenue reflecting an increase in lower revenue producing copies.
First quarter 2002 operating expenses of $380.6 million were lower by $63.6
million, or 14%, from the first quarter of 2001. Excluding restructuring
charges in 2001 of $14.9 million, operating expenses were down $48.7
million, or 11%, due to lower newsprint expense, employee-related costs and
continued company-wide cost cutting efforts. Newsprint expense was
down 38% as a result of a 24% drop in prices coupled with an 18% reduction
in newsprint consumption. Employee compensation expense for the first
quarter of 2002 was down approximately 5%. The number of full-time
employees at March 31, 2002 was down 670, or 7.9%, from the comparable
period last year, excluding the reduction in headcount of about 370 full-
time employees from the sale of four Ottaway properties at the end of
March.
-8-
First quarter operating income was $12.3 million (3.1% of revenues), down
$3.4 million, or 21%, from $15.7 million (3.4% of revenues) last year.
Excluding restructuring charges in 2001, operating income decreased $18.2
million, or 60%, from $30.5 million (6.6% of revenues) in the like quarter
of 2001. On a segment basis, increased profitability and margins at
electronic publishing and community newspapers tempered a sharp drop-off in
print publishing results.
SEGMENT DATA
The company reports its operations in three segments: business and
financial news operations are reported in the print publishing and
electronic publishing segments and results of the company's Ottaway
Newspapers subsidiary 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 60% of 2002's first quarter
revenues, of which approximately 9% were earned by international
publications.
Electronic publishing includes the operations of Dow Jones Newswires,
Consumer Electronic Publishing and Dow Jones Indexes/Ventures. Consumer
Electronic Publishing includes the results of WSJ.com and its related
vertical sites as well as the company's licensing/business development
businesses. Electronic publishing comprised 20% of 2002's first quarter
revenues.
Community newspapers includes the operations of Ottaway Newspapers, which
publishes 16 daily newspapers and 13 weekly newspapers in 9 states in the
U.S. Community newspapers comprised 20% of 2002's first quarter revenues.
PRINT PUBLISHING
==========================================================================
Quarters Ended March 31
(in thousands) 2002 2001
- --------------------------------------------------------------------------
U.S. Publications:
Advertising $148,166 $195,581
Circulation and other 67,092 72,871
International Publications:
Advertising 11,711 19,633
Circulation and other 9,079 10,488
- --------------------------------------------------------------------------
Total revenues 236,048 298,573
Operating expenses 244,825 286,719
- --------------------------------------------------------------------------
Operating (loss) income $ (8,777) $ 11,854
Operating margin (3.7)% 4.0%
- --------------------------------------------------------------------------
Included in operating expenses:
Special charges $ 8,567
Depreciation and amortization $ 17,016 17,560
==========================================================================
-9-
Print Publishing's first quarter 2002 revenues fell $62.5 million, or 21%,
from the like period a year ago. Advertising revenue for U.S. publications
decreased $47.4 million, or 24%, reflecting a 26.2% (25% on a per-issue
basis) decline in The Wall Street Journal advertising linage as well as a
23.8% (17.5% per-issue basis) drop in Barron's national ad pages. U.S.
television advertising license revenue decreased 70%.
Advertising volume declines continued to be driven by depressed global
advertising spending, particularly in technology and financial advertising,
which comprised about 40% of total U.S. Journal advertising linage (linage)
in the first quarter of 2002. By category, general linage, which comprised
58.5% of total linage fell 25.5% in the quarter, as technology linage
decreased 41.9% and other general linage fell 16.5% due to lower
professional service, communications and travel advertising, partially
offset by increases in auto and healthcare linage. Financial linage, which
comprised 23.3% of total linage, declined 33.3% in the quarter. Financial
advertising remains cyclically depressed, as declines across most
categories were slightly offset by an increase in tender/rebuttal
advertising. Classified and other linage, which accounted for the
remaining 18.2% of total linage, decreased 17.1% in the quarter due to
declines in commercial real estate and recruitment advertising.
First quarter 2002 circulation and other revenues for U.S. print
publications declined $5.8 million, or 7.9%, from the first quarter of
2001. Average circulation for The Wall Street Journal was 1,845,000 for
the first three months of 2002, up from 1,831,000 in the like period last
year. Barron's first quarter average circulation was 299,000 in 2002, down
from 313,000 in the 2001 quarter. Although average circulation for The
Wall Street Journal increased, circulation revenues were down 7.5%,
primarily as a result of lower rate copies.
International print advertising revenues fell $7.9 million, or 40%, as
advertising linage at The Wall Street Journal Europe and The Asian Wall
Street Journal fell 39.3% and 39.9%, respectively. Advertising pages at
The Far Eastern Economic Review declined 33.9%.
Circulation and other revenues for international print publications were
down $1.4 million, or 13%, from 2001. Average combined circulation for the
first quarter 2002 for the international editions of The Wall Street
Journal was 174,000, down 7% from 187,000 for the same period a year ago,
reflecting a reduction in low margin bulk copies and sponsored
subscriptions.
Print publishing first quarter 2002 expenses were reduced $41.9 million, or
15%, below first quarter 2001 levels. Excluding 2001 restructuring
charges, expenses were lower by $33.3 million, or 12%, largely as a result
of lower newsprint expense, continued cost controls, decreased compensation
and facilities expenses. Newsprint expense decreased 40% as a result of a
19% decrease in consumption coupled with a 24% decline in newsprint prices.
Print publishing operating loss for the first three months of 2002 was $8.8
million, down $20.6 million from last year's first quarter operating income
of $11.9 million (4% of revenues). Profits at The Wall Street Journal and
in U.S. television were more than offset by losses internationally.
Excluding the restructuring charges in 2001, operating results for the
first quarter of 2002 were down $29.2 million from 2001 operating income of
$20.4 million (6.8% of revenues).
-10-
ELECTRONIC PUBLISHING
==========================================================================
Quarters Ended March 31
(in thousands) 2002 2001
- --------------------------------------------------------------------------
Dow Jones Newswires:
North America $45,809 $49,112
International 11,975 10,480
- --------------------------------------------------------------------------
Total Newswires 57,784 59,592
Consumer Electronic Publishing 11,468 12,684
Dow Jones Indexes/Ventures 8,548 9,122
- --------------------------------------------------------------------------
Total revenues 77,800 81,398
Operating expenses 62,573 78,514
- --------------------------------------------------------------------------
Operating income $15,227 $ 2,884
Operating margin 19.6% 3.5%
- --------------------------------------------------------------------------
Included in operating expenses:
Special charges $ 4,949
Depreciation and amortization $ 6,735 6,606
==========================================================================
Electronic publishing revenue in the first quarter of 2002 of $77.8 million
fell $3.6 million, or 4.4%, from $81.4 million in the first quarter last
year. This lower revenue was more than offset by cost containment efforts
driving greater profitability and margins.
Dow Jones Newswires revenue decreased $1.8 million, or 3%, from the like
quarter in 2001, reflecting a decline of 6.7% in North America somewhat
offset by 14% growth overseas. Newswires revenue in North America was down
due to a decline in retail revenue resulting from continued retrenchment in
the U.S. securities industry, partially offset by revenue generated by a
wholesale agreement to deliver a selection of Dow Jones news bundled into
all Moneyline Telerate terminals worldwide. International newswires
revenue increased as a result of the new Moneyline terminal bundling
agreement. At the end of the first quarter 2002, there were 348,000
newswire terminals compared with 346,000 for the like period a year ago.
North American terminals decreased 29,000, which was more than offset by an
increase in international newswire terminals of 31,000.
Consumer electronic publishing revenues fell $1.2 million, or 10%, from
last year's first quarter due to a decline in licensing revenue and a 16%
decline in advertising revenue, partially offset by higher subscription
revenue. The number of Online Journal users at the end of the first
quarter 2002 increased to 640,000 compared with 574,000 at the end of the
first quarter 2001. At the end of March 2002, the average number of unique
individuals who accessed at least one page of The Online Journal
subscriber-only content over the course of a 24-hour day was 112,000
compared with 108,000 at the end of March 2001.
First quarter 2002 Dow Jones Indexes/Ventures revenues, which includes Dow
Jones Indexes, reprints/permissions and radio businesses, was down $0.6
million, or 6.3%.
-11-
Electronic publishing expenses were reduced $15.9 million, or 20%, from the
first quarter of 2001. Excluding restructuring charges in 2001, operating
expenses decreased $11 million, or 15%, primarily as a result of continued
cost savings in consumer electronic publishing as well as across all other
areas of electronic publishing.
Operating income of $15.2 million (19.6% of revenues) for the first quarter
2002 was $12.3 million higher than 2001 operating income of $2.9 million
(3.5% of revenues). Excluding restructuring charges in 2001, electronic
publishing operating income increased $7.4 million, or 94%, from profits of
$7.8 million (9.6% of revenues) in the first quarter of 2001.
COMMUNITY NEWSPAPERS
==========================================================================
Quarters Ended March 31
(in thousands) 2002 2001
- --------------------------------------------------------------------------
Advertising $55,359 $55,684
Circulation and other 23,684 24,213
- --------------------------------------------------------------------------
Total revenues 79,043 79,897
Operating expenses 62,980 65,699
- --------------------------------------------------------------------------
Operating income $16,063 $14,198
Operating margin 20.3% 17.8%
- --------------------------------------------------------------------------
Included in operating expenses:
Special charges $ 321
Depreciation and amortization $ 3,406 4,163
==========================================================================
Community newspapers first quarter 2002 revenues declined 1.1% from the
first quarter 2001. Advertising revenue showed a slight decline of 0.6%
when compared to the first quarter of 2001 on an overall advertising linage
decline of 1.8%. Circulation and other revenue was 2.2% below the first
quarter of 2001, with circulation revenue up 2.5%, primarily due to rate
increases, more than offset by a decrease in commercial printing revenue.
Average circulation for the dailies was 532,000 for the first quarter of
2002 versus 531,000 for the same period last year.
Operating expenses for the first quarter of 2002 improved $2.7 million, or
4.1%, over last year's level. Operating expenses excluding 2001's
restructuring charges were lower by $2.4 million, or 3.7%, primarily due to
a 29% decline in newsprint expense on a 23% drop in average newsprint
prices coupled with a 7.6% reduction in consumption.
Operating income of $16.1 million (20.3% of revenues) improved $1.9
million, or 13.1%, from income of $14.2 million (17.8% of revenues) for the
first quarter of 2001. Excluding 2001's restructuring charges, operating
income was $1.5 million better than 2001's first quarter operating income
of $14.5 million (18.2% of revenues).
-12-
The company completed the sale of four Ottaway properties at the end of
March 2002, and another property, Essex County Newspapers, is expected to
be sold in the second quarter of 2002, subject to regulatory approval.
Excluding the gains from these sales, the divestiture of these businesses
will dilute earnings per share by about $.08 in 2002. The 2001 combined
full year revenues and operating income of these five properties were $75
million and $18.8 million, respectively.
SPECIAL ITEMS
The following table summarizes special items for the first quarter of 2002
and 2001. The term "special items," as used throughout management's
discussion and analysis, refers to those items within the table.
Summary of Special Items
(in millions, except per share amounts)
Quarters Ended March 31
2002 2001
------------------------ --------------------------
Pre-tax Net EPS Pre-tax Net EPS
------- --- --- ------- --- ---
Included in
operating income:
Restructuring charges ($14.9) ($9.1) ($.10)
Included in other income:
Reserve for contract
guarantee ($3.2) ($3.2) ($.04) 2.2 2.2 .02
Shut-down of Work.com (2.4) (1.6) (.02)
Gains on sale of businesses:
Sale of ONI properties 153.4 126.1 1.49
------ ------ ----- ----- ---- ----
TOTAL $150.2 $122.9 $1.45 ($15.1) ($8.5) ($.10)
2002 SPECIAL ITEMS
First quarter 2002 pre-tax income included a net gain of $150.2 million.
After taxes, special items netted to a gain of $122.9 million, or $1.45 per
share, as follows:
Sale of Four Ottaway Newspapers
During the first quarter of 2002 the company sold four of its Ottaway
newspapers to Community Newspaper Holdings, Inc., resulting in a gain of
$153.4 million ($126.1 million after taxes, or $1.49 per diluted share).
Contract Guarantee
The first quarter of 2002 included a charge of $3.2 million, or $.04 per
diluted share, relating to the amortization of the discount on a contract
guarantee. In 2000, the company established a reserve for the present
value of the total estimated payments through October 2006 in connection
with Dow Jones' guarantee of certain minimum payments for data acquired by
Dow Jones' former Telerate subsidiary from Cantor Fitzgerald Securities and
Market Data Corporation (MDC). Bridge Information Systems, Inc., which
purchased Telerate in 1998, is currently in bankruptcy but made payments
for this data for the post-petition periods through October 2001, when
Telerate ceased operations, went out of business, sold certain assets and
rejected its contracts with Cantor and MDC. The company is now in
litigation with Cantor and MDC with respect to their claims for amounts due
under the contract guarantee. The company has various substantial defenses
to these claims and the litigation is proceeding.
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2001 SPECIAL ITEMS
The first quarter of 2001 included special items totaling a loss of $15.1
million ($8.5 million after taxes and minority interest, or $.10 per
share), as follows:
Restructuring charges
In the first quarter of 2001 the company initiated a workforce reduction.
Severance and other exit costs related to these reductions, which occurred
in every business segment, amounted to $12.7 million. Also included in the
first quarter 2001 restructuring charges, were $2.2 million of asset write-
downs associated with online businesses that were made obsolete or
redundant. See Note 6 on page 6 of this Form 10-Q for additional
information on 2001 restructuring charges.
Contract Guarantee
The first quarter of 2001, included a net gain of $2.2 million reflecting
payments made by Bridge net of amortization of the discount on the contract
guarantee (see further explanation above in 2002 special items).
Special Items in Equity Investments
The first quarter of 2001 included a $2.4 million charge in equity in
losses of associated companies for costs related to the shut-down of
Work.com, a joint venture with Excite@Home.
OTHER INCOME/DEDUCTIONS
Interest expense, net was $1.5 million compared with investment income of
$.5 million a year prior. The negative swing largely reflected a reduction
in capitalized interest as a result of the completion of the color
expansion and WSJ.com redesign projects. Long-term debt outstanding at
March 31, 2002 of $92.9 million decreased $95.4 million from the like
period a year ago.
The company's share of equity in losses of associated companies was $2.5
million, an improvement of $8.3 million from the $10.8 million loss in the
first three months of 2001. Excluding Work.com shut-down costs, equity
losses declined $5.9 million, reflecting improved results from SmartMoney,
CNBC International and Factiva, as well as a favorable comparison as the
first quarter of 2001 included $2.7 million of losses from Work.com
operations. These gains were partially offset by lower income at F.F.
Soucy, the company's newsprint venture.
INCOME TAXES
The following table presents the effective income tax rates:
==========================================================================
Quarters Ended
March 31
2002 2001
- --------------------------------------------------------------------------
Effective income tax rate
(net of minority interests) 19.7% 33.9%
Effective income tax rate (net of minority
interests), excluding special items 40.0% 40.0%
==========================================================================
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The effective income tax rate inclusive of special items was distorted in
part by the utilization of capital loss carryforwards in the Ottaway paper
sales. As of March 31, 2002, the company had available approximately $344
million of capital loss carryforward (a deferred tax asset of $130 million,
of which $125 million was fully reserved through a valuation allowance).
The company may utilize the carryforwards through 2003. In addition, the
company has recorded an unrecognized capital loss carryforward of $406
million (a deferred tax asset of $154 million which is fully reserved) that
will be available for use for five years from the year it is recognized for
tax purposes.
FINANCIAL POSITION
During the first quarter of 2002, the company repurchased 615,000 shares of
its common stock for $33.3 million. As of March 31, 2002, approximately
$455 million remained under board authorization for share repurchases.
Cash used in operations in the first quarter of 2002 was $21 million
compared to cash provided by operations of $54.9 million from 2001's first
quarter. The company's federal income taxes that were normally due on
September 15, and December 15, 2001 were deferred to January 15, 2002 as
the Internal Revenue Service offered relief of these payments for taxpayers
that were affected by the September 11 terrorist attacks on the World Trade
Center. Excluding these payments from the first quarter of 2002, cash
provided by operations was about $11 million.
The first quarter of 2002 included proceeds of about $178 million from the
sale of the four Ottaway properties. In addition to the repurchase of the
company's stock in the first quarter 2002, the company paid down debt by
$81.1 million, paid dividends of $21.1 million and made capital
expenditures of $18.9 million.
In 2000, the company established a reserve for the present value of the
total estimated payments through October 2006 in connection with Dow Jones'
guarantee of certain minimum payments for data acquired by Dow Jones'
former Telerate subsidiary from Cantor Fitzgerald Securities and Market
Data Corporation (MDC). Bridge Information Systems, Inc., which purchased
Telerate in 1998, is currently in bankruptcy but made payments for this
data for the post-petition periods through October 2001, when Telerate
ceased operations, went out of business, sold certain assets and rejected
its contracts with Cantor and MDC. The company is now in litigation with
Cantor and MDC with respect to their claims for amounts due under the
contract guarantee. The company has various substantial defenses to these
claims and the litigation is proceeding.
As of March 31, 2002, the balance of the reserve for the contract guarantee
was $236 million. Due to the stage of the lawsuit at March 31, 2002, it is
not possible to determine whether the court will find that any obligation
under the guarantee may be dismissed or reduced. Accordingly, the company
believes the balance of the reserve continues to be appropriate. Also
included in accounts payable and accrued liabilities are other reserves
related to the sale of Telerate to Bridge in 1998. The company expects
the latter to be resolved in bankruptcy court proceedings this year.
-15-
MARKET RISK
In January 2002, the company entered into forward foreign currency exchange
contracts to exchange $22.4 million for 15.6 million British pounds and to
exchange $20.7 million for 23.4 million euro. These contracts, which
expire ratably over 2002, are designated as cash flow hedges of anticipated
operating expenses that are denominated in these foreign currencies.
These contracts are entered into to protect against the risk that such
expenses will be adversely affected by changes in exchange rates. Such
losses could be significant if a major devaluation were to occur. By using
these derivative instruments the company is exposed to the adverse effect
that a change in currency has on the value of a financial instrument. The
company manages this market risk by establishing and monitoring limits as
to the degree of risk that may be undertaken. The company's derivative
activities are monitored by its treasury and finance functions. Realized
gains or losses on foreign currency forward contracts are recognized
currently through income and generally offset the transaction losses or
gains on the foreign currency cash flows which they are intended to hedge.
-16-
INFORMATION RELATING TO FORWARD-LOOKING STATEMENTS
This document contains forward-looking statements that involve risks and
uncertainties that could cause actual results to differ materially from
those anticipated. Such risks and uncertainties include, but are not
limited to: the cyclical nature of the company's business and the strong
negative impact of economic downturns on advertising revenues; the
possibility that the current weak advertising market, particularly in the
financial and technology segments, will not improve or will improve more
slowly than anticipated, and if it does improve, the possibility that the
company will be unable to capitalize on the improvement in the face of
competition for the advertising revenues from other publications and
services; the company's ability to limit and manage expense growth,
especially in light of its new planned growth initiatives, without harming
its growth prospects; the extent to which the company is required to
perform under the guarantee to Cantor Fitzgerald Securities and Market Data
Corporation, and other uncertainties relating to liability under this
guarantee; the intense competition the company's existing products and
services face in the markets for financial news and information and
advertising revenues from newspapers, specialized magazines, free and paid
Internet publications and services, financial television programming and
other new media, and the impact this will have on the company's initiatives
to expand its existing market presence as well as to extend its consumer
reach; the company's ability to expand and diversify its market segment
focus beyond financial and technology and the challenge it will face in
attempting to become a leading presence in new market segments, such as
health care, automotive, telecom, and high-end consumer goods, where
competing publications and services, such as specialty and trade magazines,
have already established themselves; the competition the company will face
in introducing new products and services in the business-to-business market
from already existing newsletters, trade publications, research reports and
services; with respect to Newswires, the challenges the company will face
in attempting to expand its coverage to the investment market, in the face
of competing resources for in-depth news analysis; with respect to
Newswires and other subscription-based products and services, the negative
impact of economic downturns and consolidation on sales of the company's
products and services; the company's ability to find strategic and
financially attractive core-business acquisition opportunities; the
company's ability to leverage its brands to develop new business
opportunities and to generate advertising and other revenues from these
products; the company's ability to achieve strategic alliances and to
improve the growth and profitability of existing strategic alliances; with
respect to the company's community newspapers business, its ability to
maintain or grow margins and to strengthen its portfolio of newspaper
properties, particularly given the difficulty of finding quality newspaper
properties to acquire; the degree to which the company's new Personal
Journal is able to generate new advertising revenues from diversified
markets, such as health care and consumer goods; the extent to which the
new enhancements to The Wall Street Journal will attract a broader base of
readers, subscribers, and advertisers; in light of the weak advertising
market and competition, the company's ability to attract advertisers to its
new color printing capacity; the company's ability to increase its
circulation and advertising revenues from its international print
publications and to further penetrate overseas markets through print and
television products, given the competition from local language publications
and television networks and other international publications and television
ventures; WSJ.com's ability to continue to increase revenues through
building subscriber and advertiser numbers and to limit expenses; the
amount of user traffic on the company's Internet sites and the pricing of
advertising on Internet sites generally; potential increased regulation of
on-line businesses; adverse developments relating to the company's
commitments, contingencies and equity investments; cost of newsprint; and
such other risk factors as may have been or may be included from time to
time in the company's reports filed with the Securities and Exchange
Commission.
-17-
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 (together with its affiliates, "Cantor"), together
with unspecified consequential damages that MDC claimed result from Dow
Jones' failure to pay on the guarantee. The guarantee relates to certain
annual "minimum payments" owed by Telerate for data acquired by Telerate
from Cantor Fitzgerald and MDC under contracts entered into when Telerate
was a subsidiary of Dow Jones, and is described 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. After certain amendments were made to the
complaint, the remaining claims in this lawsuit sought the payment of
interest on the payment made in the first quarter of 2001 and for attorneys
fees and costs in this litigation. The parties settled these claims and
this lawsuit was then withdrawn.
In October 2001, the bankruptcy court granted Bridge's motion to reject
Telerate's contracts with Cantor and MDC. Telerate has indicated that it
has ceased operations, is no longer receiving government securities data
from Cantor and MDC and will not make further payments to Cantor and MDC.
Cantor and MDC advised the company that they would demand payment from Dow
Jones of an amount they alleged was due on November 15 under the contract
guarantee as well as future amounts due through October 2006. The company
has various substantial defenses to these claims.
On November 13, 2001, the company instituted a lawsuit in the Supreme Court
of the State of New York seeking a declaratory judgment with respect to the
contract guarantee and the claims of Cantor and MDC. In this lawsuit the
company has asked the court to find that the company does not and will not
owe any payment under the contract guarantee through October 2006. In the
alternative, the company has asked the court to find that if any amount is
owed, it must be reduced by amounts that Cantor and MDC receive or should
have received from other distribution of the data. MDC and Cantor have
moved to dismiss the company's complaint. MDC has asserted counterclaims
demanding payment of $10,197,416 (allegedly the balance owed by Telerate on
November 15, 2001), interest, attorneys' fees, specific performance of the
Guaranty, and a declaratory judgment as to the validity and interpretation
of the guarantee through October 2006.
Cantor also commenced a separate lawsuit in the Supreme Court of the State
of New York seeking payment of $10 million (allegedly the balance of the
November 2001 minimum payment), payment of $250 million in breach of
contract damages, specific performance of the guarantee, a declaration that
the guarantee remains in full force and effect, payment of approximately
$16 million allegedly owed by Telerate and guaranteed by the company in the
Guaranty for the distribution of certain other data, attorneys' fees,
interest, and other relief.
The Company has moved to oppose MDC's and Cantor's motions, claims, and
counterclaims.
-18-
ITEM 4. Submission of Matters to a Vote of Security Holders.
At the Annual Meeting of Stockholders on April 17, 2002, there were
represented in person or by proxy 59,299,940 shares of Common Stock
(carrying one vote per share) and 19,567,264 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
M. Peter McPherson 58,595,902 704,038
William C. Steere, Jr. 58,872,334 427,606
2) the holders of the Common Stock and the Class B Common Stock,
voting together, elected as directors:
FOR VOTES WITHHELD
Christopher Bancroft 253,751,746 1,220,834
Peter R. Kann 254,464,591 507,989
Leslie Hill 253,751,445 1,221,135
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 2002 by a vote of
253,223,685 votes in favor; 1,247,106 votes against and 501,789
abstentions.
In addition, the following directors continued in office after the
meeting: Harvey Golub, Roy A. Hammer, Irvine O. Hockaday, Jr., Dieter von
Holtzbrinck, Vernon E. Jordan, Jr., David K. P. Li, Frank N. Newman, James
H. Ottaway, Jr. and Elizabeth Steele.
ITEM 6. Exhibits and Reports on Form 8-K.
(a) No Exhibits filed.
(b) Reports on Form 8-K:
No reports on Form 8-K have been filed during the period for which this
report is filed.
-19-
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: April 29, 2002 By: /s/Christopher W. Vieth
------------------------
Christopher W. Vieth
Vice President, Finance
and Corporate Controller
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