PAGE 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________
Commission file number 1-7564
DOW JONES & COMPANY, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-5034940
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
200 LIBERTY STREET, NEW YORK, NEW YORK 10281
(Address of principal executive offices) (Zip Code)
(212) 416-2000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
--- ---
The number of shares outstanding of each of the issuer's classes of
common stock on June 30, 1998: 72,381,137 shares of Common Stock and
21,347,558 shares of Class B Common Stock.
PAGE 2
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
CONDENSED CONSOLIDATED
STATEMENTS OF (LOSS) INCOME
Dow Jones & Company, Inc.
Quarters Ended Six Months Ended
June 30 June 30
================================================================================
(in thousands except
per share amounts) 1998 1997 1998 1997
- --------------------------------------------------------------------------------
REVENUES:
Advertising $277,043 $256,626 $ 521,709 $ 485,098
Information services 209,782 269,162 477,165 535,139
Circulation and other 114,317 114,956 223,749 226,470
- --------------------------------------------------------------------------------
Total revenues 601,142 640,744 1,222,623 1,246,707
- --------------------------------------------------------------------------------
EXPENSES:
News, operations and development 186,575 213,942 404,083 424,605
Selling, administrative
and general 211,790 221,601 437,549 434,546
Newsprint 43,028 38,041 82,883 71,660
Second class postage and
carrier delivery 29,639 28,426 57,907 56,069
Depreciation and amortization 44,246 60,707 98,859 119,638
- --------------------------------------------------------------------------------
Operating expenses 515,278 562,717 1,081,281 1,106,518
- --------------------------------------------------------------------------------
Operating income 85,864 78,027 141,342 140,189
OTHER INCOME (DEDUCTIONS):
Investment income 2,125 954 3,032 1,760
Interest expense (1,838) (5,151) (4,520) (9,952)
Equity in losses
of associated companies (3,618) (4,794) (9,505) (17,487)
(Loss) gain on disposition of
businesses and investments (136,387) (120,997) 6,179
Other, net (2,978) (1,866) (3,272) (2,111)
- --------------------------------------------------------------------------------
(Loss) income before income taxes (56,832) 67,170 6,080 118,578
Income tax (benefit) (5,135) 32,264 23,079 58,273
- --------------------------------------------------------------------------------
Net (loss) income $(51,697) $ 34,906 $ (16,999) $ 60,305
================================================================================
PER SHARE:
Net (loss) income per share:
- Basic $(.54) $.36 $(.18) $.63
- Diluted (.54) .36 (.18) .63
Weighted-average shares outstanding:
- Basic 96,476 95,821 96,610 95,688
- Diluted 96,476 96,585 96,610 96,416
Cash dividends declared $.48 $.48 $.72 $.72
================================================================================
Comprehensive (loss) income $(46,175) $28,158 $(7,291) $53,452
================================================================================
See notes to condensed consolidated financial statements.
PAGE 3
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
Dow Jones & Company, Inc.
Six Months Ended June 30
===========================================================================
(in thousands) 1998 1997
- ---------------------------------------------------------------------------
OPERATING ACTIVITIES:
Net (loss) income $(16,999) $ 60,305
Adjustments to reconcile net (loss) income to
net cash provided by operating activities:
Depreciation and amortization 98,859 119,638
Loss (gain) on disposition of businesses
and investments 120,997 (6,179)
Changes in assets and liabilities (101,892) 22,068
Other, net 18,003 22,180
- ---------------------------------------------------------------------------
Net cash provided by operating activities 118,968 218,012
- ---------------------------------------------------------------------------
INVESTING ACTIVITIES:
Additions to plant and property (131,954) (144,818)
Businesses and investments acquired,
net of cash received (46,323) (39,263)
Disposition of businesses and investments 465,964 18,284
Other, net 2,402 3,686
- ---------------------------------------------------------------------------
Net cash provided by (used in)
investing activities 290,089 (162,111)
- ---------------------------------------------------------------------------
FINANCING ACTIVITIES:
Cash dividends (46,630) (45,914)
Increase in long-term debt 32,310
Reduction of long-term debt (63,015) (32,900)
Purchase of treasury stock (189,891)
Other, net 36,209 16,101
- ---------------------------------------------------------------------------
Net cash used in financing activities (263,327) (30,403)
- ---------------------------------------------------------------------------
Effect of exchange rate changes on cash (658) (322)
- ---------------------------------------------------------------------------
Increase in cash and cash equivalents 145,072 25,176
Cash and cash equivalents at beginning of year 23,763 6,769
- ---------------------------------------------------------------------------
Cash and cash equivalents at June 30 $168,835 $ 31,945
===========================================================================
See notes to condensed consolidated financial statements.
PAGE 4
CONDENSED CONSOLIDATED
BALANCE SHEETS
Dow Jones & Company, Inc.
===========================================================================
June 30 December 31
(in thousands) 1998 1997
- ---------------------------------------------------------------------------
ASSETS:
Cash and cash equivalents $ 168,835 $ 23,763
Accounts receivable--trade, net 231,451 295,250
Inventories 10,379 13,104
Income taxes 6,418
Investment in associated company,
held for disposal 102,789
Other current assets 42,363 71,647
- ---------------------------------------------------------------------------
Total current assets 459,446 506,553
- ---------------------------------------------------------------------------
Investments in associated companies,
at equity 43,917 46,064
Other investments 215,862 85,290
Plant and property, at cost 1,494,853 2,451,589
Less, accumulated depreciation 921,736 1,667,552
- ---------------------------------------------------------------------------
573,117 784,037
Excess of cost over net assets of
businesses acquired, less amortization 89,642 387,787
Deferred taxes 48,470 93,045
Other assets 11,418 16,958
- ---------------------------------------------------------------------------
Total assets $1,441,872 $1,919,734
===========================================================================
LIABILITIES:
Accounts payable and accrued liabilities $ 238,226 $ 360,350
Income taxes 53,895
Unearned revenue 235,289 252,832
Current maturities of long-term debt 5,318
- ---------------------------------------------------------------------------
Total current liabilities 473,515 672,395
Long-term debt 149,862 228,806
Other noncurrent liabilities 253,298 237,711
- ---------------------------------------------------------------------------
Total liabilities 876,675 1,138,912
- ---------------------------------------------------------------------------
STOCKHOLDERS' EQUITY:
Common stocks 102,181 102,181
Additional paid-in capital 138,110 136,398
Retained earnings 621,410 707,539
Accumulated other comprehensive income 12,587 (6,144)
- ---------------------------------------------------------------------------
874,288 939,974
Less, treasury stock, at cost 309,091 159,152
- ---------------------------------------------------------------------------
Total stockholders' equity 565,197 780,822
- ---------------------------------------------------------------------------
Total liabilities and stockholders' equity $1,441,872 $1,919,734
===========================================================================
See notes to condensed consolidated financial statements.
PAGE 5
NOTES TO FINANCIAL STATEMENTS
Dow Jones & Company, Inc.
1. The accompanying unaudited condensed consolidated financial statements
reflect all adjustments considered necessary by management to present fairly
the company's consolidated financial position as of June 30, 1998, and
December 31, 1997, and the consolidated results of operations for the three-
month and six-month periods ended June 30, 1998 and 1997, and the consolidated
cash flows for the six-month periods then ended. All adjustments reflected in
the accompanying unaudited condensed consolidated financial statements are of
a normal recurring nature. The results of operations for the respective
interim periods are not necessarily indicative of the results to be expected
for the full year.
2. On May 29, 1998, the company completed the sale of Telerate (formerly, Dow
Jones Markets) to Bridge Information Systems, Inc. ("Bridge"). The purchase
price consisted of $360 million in cash and $150 million of 5 year, 4%
preferred stock of Bridge. In the second quarter of 1998, the company
recorded a loss on the sale of Telerate of $136.4 million ($98 million after
tax).
3. On June 4, 1998, the company repurchased four million shares of its common
stock, or roughly 4.1% of the basic shares outstanding. The shares were
purchased pursuant to a privately negotiated stock repurchase agreement with a
financial institution, which borrowed the shares. The initial purchase price
was $192.1 million, subject to a future market price adjustment.
Additionally, the company sold puts, which expire in three to nine months,
covering an aggregate of one million shares of common stock. This transaction
could obligate the company to repurchase up to $47.8 million of its common
stock.
4. The first quarter of 1998 included a gain of 11 cents a share from the
sales of the company's interests in WBIS+ TV (eight cents a share) and
Mediatex Communications Corp., publisher of Texas Monthly magazine (three
cents a share).
5. Comprehensive (loss) income was computed as follows:
==============================================================================
Quarters ended Six months ended
(in thousands, except June 30 June 30
per share amounts) 1998 1997 1998 1997
- ------------------------------------------------------------------------------
Net (loss) income $(51,697) $34,906 $(16,999) $60,305
Foreign currency translation
adjustments 8,643 549 8,461 (1,095)
Less: realized foreign currency
translation adjustments
included in net loss (9,023) (9,023)
Unrealized gain (loss) on
investments 5,902 (7,297) 10,270 (5,758)
- ------------------------------------------------------------------------------
Comprehensive (loss) income $(46,175) $28,158 $ (7,291) $53,452
==============================================================================
PAGE 6
NOTES TO FINANCIAL STATEMENTS (cont.)
Dow Jones & Company, Inc.
6. Diluted earnings per share have been computed as follows:
==============================================================================
(in thousands, except Quarters ended June 30 Six months ended June 30
per share amounts) 1998 1997 1998 1997
- ------------------------------------------------------------------------------
Net (loss) income $(51,697) $34,906 $(16,999) $60,305
Weighted-average shares
outstanding - basic 96,476 95,821 96,610 95,688
Stock options 0 632 0 598
Other, principally
contingent stock rights 0 132 0 130
- ------------------------------------------------------------------------------
Weighted-average shares
outstanding - diluted 96,476 96,585 96,610 96,416
Diluted (loss) earnings
per share $(.54) $.36 $(.18) $.63
==============================================================================
Options and contingent stock rights outstanding during 1998 have been excluded
from the above computation of 1998 diluted loss per share because the effect
of including such securities would be antidilutive. Including the dilution in
1998 from outstanding options and contingent stock rights would have resulted
in weighted-average diluted shares outstanding of 97,677,000 for the 1998
second quarter and 97,920,000 for the first six months of 1998.
7. Certain of the 1997 amounts have been reclassified for comparative
purposes.
PAGE 7
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
FOR THE SECOND QUARTER AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997
On May 29, 1998, Dow Jones completed the sale of its Telerate subsidiary
to Bridge Information Systems, Inc. The company recorded a loss on the sale
of $136.4 million ($98 million after tax). Including the loss on sale of
Telerate, the company posted a consolidated net loss of $51.7 million, or 54
cents a diluted share, for the quarter, compared with earnings of $34.9
million, or 36 cents a share, a year earlier. (Excluding the loss, second
quarter 1998 net income of $46.3 million advanced 33% from 1997's second
quarter.) Consolidated operating income rose 10% to $85.9 million. Revenues
and expenses for the quarter, which included two months of Telerate operations
in the second quarter of 1998 versus three months in the second quarter of
1997, fell 6.2% and 8.4%, respectively.
For the first six months of 1998, the company posted a consolidated net
loss of $17 million, or 18 cents a diluted share. The first quarter of 1998
included a gain of $15.4 million ($10.1 million after tax) from the sale of
the company's interests in WBIS+ TV and Mediatex Communications Corp.,
publisher of Texas Monthly magazine. The first quarter of 1997 included a
gain of $6.2 million ($3.5 million after tax) from the sale of the company's
American Demographics subsidiary, a publisher of information products serving
the marketing industry. For the six months of 1998, consolidated revenues of
$1.22 billion were down 1.9%, while consolidated expenses dropped 2.3% to
$1.08 billion.
Dow Jones' results of operations exclusive of Telerate operations and
the loss on sale ("pro forma") have been presented on page 17 of this Form
10-Q. Pro forma second quarter 1998 net income of $54.7 million, or 56 cents
per diluted share, was up 10.6% from comparable 1997 earnings. Pro forma
results in 1998 benefited from a decline in television losses; improvements at
Dow Jones Interactive Publishing, largely due to restructuring IDD
Enterprises; discontinuing DJA Partners in the latter half of 1997 and lower
interest costs. Higher newsprint costs and softness in advertising in Asian
markets somewhat offset these improvements.
Pro forma second quarter 1998 operating income of $98.1 million
increased $3.4 million, or 3.6%, from the like 1997 period. Pro forma EBITDA
in the second quarter was $120.6 million versus EBITDA of $115.5 million in
the 1997 second quarter. Revenues grew $30.9 million, or 6.8%, to $486.7
million, mainly as a result of revenue gains for U.S. print publications,
principally The Wall Street Journal. Advertising volume for The Wall Street
Journal grew 6.5% in the quarter.
PAGE 8
Pro forma 1998 second quarter expenses of $388.7 million rose $27.5
million, or 7.6%. The increase was chiefly due to a rise in newsprint
expense, expanded selling efforts and higher staffing levels. Total newsprint
expense was up 13.1%, reflecting an increase in consumption of approximately
8% and a 5% increase in prices, on average. At June 30, 1998, the company
employed 8,705 full-time employees, which was up 2.1% from the 8,529 full-time
employees at December 31, 1997 excluding Telerate and 4.4% over June 1997
staffing, excluding Telerate, of 8,335 employees. The higher staffing levels
were mainly due to expanded staffs for The Wall Street Journal and Dow Jones
Newswires. Pro forma second quarter 1998 selling expenses, which were up
10.9%, reflect increased sales efforts throughout most of the company.
Pro forma net income for the first half of 1998 was $104.3 million, or
$1.07 per diluted share, an increase of 26.7% from pro forma earnings of $82.3
million for the first half of 1997. Excluding gains from asset sales, first
half 1998 earnings of $94.2 million rose 19.6% from the comparable 1997
period.
First half 1998 pro forma operating income of $174.6 million was up 7.1%
as gains from Dow Jones Interactive Publishing and a favorable comparison for
television operations more than offset a 4.9% decline in print publishing
profits. Operating income in 1997 included losses for the company's European
television operation, which merged with CNBC's European operation at 1997's
year-end and whose 1998 results are now included as part of Equity in Losses
of Associated Companies.
SEGMENT DATA
The company realigned its operating segments in the 1998 second quarter.
The company's business and financial news and information operations will
hereafter be reported in the following 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
communities throughout the U.S., will continue to be 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 accounts for roughly 63% of second quarter 1998 pro forma revenues.
Approximately 10% of print publishing revenues are earned by international
publications.
Electronic publishing includes the operations of Dow Jones Newswires,
Dow Jones Indexes and Dow Jones Interactive Publishing. Electronic publishing
comprised 20% of second quarter 1998 pro forma revenues. The community
newspapers segment accounted for 17% of second quarter 1998 pro forma
revenues.
The tables on the following two pages show the company's operations by
business segment for the quarters and six months ended June 30, 1998 and 1997.
PAGE 9
SEGMENT INFORMATION
FOR THE QUARTERS ENDED JUNE 30, 1998 AND 1997
============================================================================
% Increase
(in thousands) 1998 1997 (Decrease)
- ----------------------------------------------------------------------------
REVENUES:
Print publishing $307,885 $288,651 6.7
Electronic publishing 97,464 85,258 14.3
Community newspapers 81,390 76,995 5.7
------- -------
Segment revenues 486,739 450,904 7.9
Divested/Joint Ventured Operations:
Print and television operations (1) 4,904 -
------- -------
Pro forma revenues 486,739 455,808 6.8
Telerate 114,403 184,936 (38.1)
------- -------
Consolidated revenues $601,142 $640,744 (6.2)
- ----------------------------------------------------------------------------
OPERATING INCOME:
Print publishing $ 69,749 $73,700 (5.4)
Electronic publishing 18,377 16,107 14.1
Community newspapers 16,067 15,351 4.7
Corporate operating expenses (6,118) (5,627) 8.7
------- -------
Segment operating income 98,075 99,531 (1.5)
Divested/Joint Ventured Operations:
Print and television operations (4,856) -
------- -------
Pro forma operating income 98,075 94,675 3.6
Telerate (12,211) (16,648) (26.7)
------- -------
Consolidated operating income $85,864 $78,027 10.0
- ----------------------------------------------------------------------------
EBITDA: (2)
Print publishing $ 82,255 $84,753 (2.9)
Electronic publishing 24,034 21,244 13.1
Community newspapers 20,439 19,329 5.7
Corporate operating expenses (6,118) (5,627) 8.7
------- -------
Segment EBITDA 120,610 119,699 0.8
Divested/Joint Ventured Operations:
Print and television operations (4,194) -
------- -------
Pro forma EBITDA 120,610 115,505 4.4
Telerate 9,500 23,229 (59.1)
------- -------
Consolidated EBITDA $130,110 $138,734 (6.2)
============================================================================
(1) Divested/Joint Ventured print and television operations includes the
results of European Business News, a television operation which merged with
CNBC Europe 12/97; Dow Jones Investor Network, a multimedia product which was
discontinued 1/97; American Demographics, Inc., (sold 3/97); and IDD
Enterprises' print publishing unit (sold 11/97).
(2) EBITDA is computed as operating income excluding depreciation and
amortization and restructuring costs.
PAGE 10
SEGMENT INFORMATION
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
============================================================================
% Increase
(in thousands) 1998 1997 (Decrease)
- ----------------------------------------------------------------------------
REVENUES:
Print publishing $ 589,389 $ 553,428 6.5
Electronic publishing 195,045 167,408 16.5
Community newspapers 152,287 145,030 5.0
--------- ---------
Segment revenues 936,721 865,866 8.2
Divested/Joint Ventured Operations:
Print and television operations (1) 10,678 -
--------- ---------
Pro forma revenues 936,721 876,544 6.9
Telerate 285,902 370,163 (22.8)
--------- ---------
Consolidated revenues $1,222,623 $1,246,707 (1.9)
- ----------------------------------------------------------------------------
OPERATING INCOME:
Print publishing $122,972 $129,286 (4.9)
Electronic publishing 39,658 30,362 30.6
Community newspapers 24,222 23,724 2.1
Corporate operating expenses (12,283) (9,753) 25.9
------- -------
Segment operating income 174,569 173,619 0.5
Divested/Joint Ventured Operations:
Print and television operations (10,651) -
------- -------
Pro forma operating income 174,569 162,968 7.1
Telerate (33,227) (22,779) 45.9
------- -------
Consolidated operating income $141,342 $140,189 0.8
- ----------------------------------------------------------------------------
EBITDA: (2)
Print publishing $148,057 $151,317 (2.2)
Electronic publishing 50,866 40,709 25.0
Community newspapers 32,890 31,688 3.8
Corporate operating expenses (12,283) (9,753) 25.9
------- -------
Segment EBITDA 219,530 213,961 2.6
Divested/Joint Ventured Operations:
Print and television operations (9,292) -
------- -------
Pro forma EBITDA 219,530 204,669 7.3
Telerate 20,671 55,158 (62.5)
------- -------
Consolidated EBITDA $240,201 $259,827 (7.6)
============================================================================
(1) Divested/Joint Ventured print and television operations includes the
results of European Business News, a television operation which merged with
CNBC Europe 12/97; Dow Jones Investor Network, a multimedia product which was
discontinued 1/97; American Demographics, Inc., (sold 3/97); and IDD
Enterprises' print publishing unit (sold 11/97).
(2) EBITDA is computed as operating income excluding depreciation and
amortization and restructuring costs.
PAGE 11
PRINT PUBLISHING
Second-quarter 1998 operating income of $69.7 million declined $4
million, or 5.4%, from the comparable 1997 quarter. Revenues of $307.9
million grew $19.2 million, or 6.7%, largely driven by advertising volume
gains at The Wall Street Journal. Segment operating expenses, however,
climbed $23.2 million, or 10.8%. The segment's EBITDA margin fell to 26.7%
from 29.4% a year earlier.
Advertising revenue for U.S. publications of $198.7 million advanced
$17.5 million, or 9.7%, from the second quarter of 1997. Total advertising
linage for The Wall Street Journal increased 6.5% in the quarter. General
advertising linage, which comprised about 60% of total Journal linage, grew
5.4%. Financial advertising linage, approximating 27% of Journal linage, grew
5.5%. Classified and other Journal linage was up 12.9%. Barron's national
advertising pages jumped 12.1%. Advertising revenue of $17.8 million for
international publications, which include the Asian and European Journals and
the Far Eastern Economic Review, fell 3.5%, largely reflecting softness in the
Asian market.
Second-quarter 1998 print publishing operating expenses of $238.1 rose
$23.2 million, or 10.8%, the result of higher newsprint costs, additional
staffing and a rise in circulation marketing expenditures. Newsprint expense
was up 15%, reflecting a 10% increase in consumption and a 5% rise in prices.
The number of full-time employees in the print publishing segment increased
about 6% from June 30, 1997, mainly due to the expansion of news, technology
and sales staffs.
Print publishing six-month operating income of $123 million was down
$6.3 million, or 4.9%, from the like 1997 period. Revenues were up $36
million, or 6.5%, while expenses climbed $42.3 million, or 10%. The EBITDA
margin for the first six months of 1998 slipped to 25.1% from 27.3% last year.
U.S. publications advertising revenue of $379.7 million grew $32.3
million, or 9.3%, in the first half of 1998, with Wall Street Journal linage
up 5.7% and Barron's national advertising pages increasing 12.6%. Advertising
revenue of $31.1 million for the international publications was essentially
flat with the year before. In light of difficult comparisons for the U.S.
Journal in the second half of the year and a 3% decline in linage in July, the
company does not expect the 5.7% advertising linage increase posted in the
first half of 1998 to repeat in the second half of the year. Journal linage
in the third and fourth quarters of 1997 increased 18% and 9%, respectively,
from the like 1996 periods.
Circulation revenue for U.S. print publications was up roughly 1% versus
the first half of 1997, mainly the result of 1998 benefiting from the full
effect of 1997 rate increases. Average circulation for The Wall Street
Journal declined about 1%, to 1,786,000. Barron's average circulation gained
about 1%, to 301,000. International circulation revenue slipped about 6%
largely the result of a stronger U.S. dollar versus Asian currencies. Average
combined circulation for the Asian and European Journals rose roughly 4%, to
125,000.
PAGE 12
Print Publishing expenses were up 10%, reflecting higher newsprint
costs, increased circulation marketing and higher staffing levels. Print
publishing newsprint expense was up 18% for the first six months of 1998, as a
result of approximately 9% rise in newsprint prices, on average, and an 8%
increase in tons consumed.
ELECTRONIC PUBLISHING
Electronic publishing second-quarter 1998 operating income rose $2.3
million, or 14.1%, to $18.4 million, largely due to gains at Dow Jones
Interactive Publishing. Segment revenue of $97.5 million advanced $12.2
million, or 14.3%, while expenses of $79.1 million increased $9.9 million, or
14.4%. Electronic publishing's EBITDA margin was in line with a year ago at
24.7%.
The over-14% rise in both segment revenues and expenses was due in part
to a restructured agreement with the Associated Press (AP), which was extended
through the end of 2004. As part of the agreement the company obtained sole
sales, marketing and product development control of the joint AP/Dow Jones
overseas newswires, while the Associated Press gained a royalty stream through
2004. In 1998 and through the end of the contract period, Dow Jones will
record 100% of revenues and expenses for these newswires. Prior to 1998, the
company recorded its 50% share of both revenues and expenses from the joint
newswires.
Combined Dow Jones Newswires and Dow Jones Indexes revenues of $54.5
million rose 14.8% in the second quarter. Excluding the effect of the
restructured AP agreement and $5 million in one-time index-licensing revenues
in 1997's second quarter, combined newswires and index revenues rose 12.5%.
Dow Jones Interactive Publishing, which includes the results of Dow Jones
Interactive, The Wall Street Journal Interactive Edition and IDD Enterprises'
electronic business unit (IDD), achieved a revenue gain of 13.7%, to $42.9
million. The 13.7% increase was led by strong corporate enterprise sales for
Dow Jones Interactive, and both subscription and advertising gains for The
Wall Street Journal Interactive Edition. At the end of June 1998, subscribers
to the Interactive Journal totaled over 200,000, roughly double the number of
subscribers a year earlier. Second quarter expenses for the segment climbed
14.4%, as the additional expenses from the restructured agreement with the AP,
a higher staffing level and increased selling expenses outweighed savings from
restructuring IDD Enterprises in the latter part of 1997.
For the first six months of 1998, electronic publishing operating income
of $39.7 million grew $9.3 million, or 30.6%, from the first half of 1997,
largely due to improvements at Dow Jones Interactive Publishing, which
benefited in part to restructuring IDD in the latter half of 1997. Revenues
added $27.6 million, or 16.5%, while expenses rose $18.3 million, or 13.4%.
The first half 1998 EBITDA margin was 26.1% up from 24.3% in the first half of
1997.
PAGE 13
COMMUNITY NEWSPAPERS
In the second quarter of 1998, the community newspapers segment's
operating income of $16.1 million increased $0.7 million, or 4.7%, compared
with the like 1997 quarter. Community newspapers revenue of $81.4 million was
up $4.4 million, or 5.7%. Advertising revenue advanced 6.3% mainly due to a
linage increase of 4.7%. Circulation revenue gained 3.6%, as a result of rate
increases. Operating expenses rose $3.7 million, or 6%, to $65.3 million
reflecting a 6.4% rise in newsprint costs and expanded selling efforts. The
segment's EBITDA margin was flat with a year earlier at 25.1%.
On June 29, 1998, as part of a plan to increase this segment's margins,
the company's Ottaway Newspapers subsidiary initiated a voluntary retirement
plan for its employees. The plan was expected to reduce Ottaway's full-time
staff by about 125, or roughly 5%. Actual employee acceptances of the early
retirement were nearly double the targeted reduction. The company expects to
record an after-tax charge of approximately $9.5 million, or 10 cents per
diluted share, in the third quarter of 1998 for severance and related costs.
Community newspapers operating income for the first half of 1998 was
$24.2 million, compared with $23.7 million earned in 1997's first half.
Revenues were up $7.3 million, or 5%, while operating expenses rose $6.8
million, or 5.6%. The EBITDA margin for the first six months of 1998 was
21.6%, versus 21.8% in 1997.
OTHER INCOME / DEDUCTIONS
Net interest income of $0.4 million was $4.5 million better than net
interest expense of $4.1 million in 1997's second quarter. The positive swing
reflected a reduced debt level and an increase in interest income resulting
from proceeds from asset sales. Long-term debt outstanding at June 30, 1998
was $149.9 million, compared with $337.1 million a year earlier and $228.8 at
December 31, 1997. Net interest expense for the first half of 1998 was $6.7
million better than net interest expense of $8.2 million in the first half of
1997.
The company's share of losses from associated companies in the 1998
second quarter was $3.6 million, compared with a loss of $4.8 million in the
1997's second quarter. For the first six months of 1998, the company's share
of losses from associated companies totaled $9.5 million, compared with a loss
of $17.5 million in the first half of 1997. The reduction in losses in 1998
versus 1997 was largely due to stronger results from the company's newsprint
mill partnership in Canada, as well as a favorable comparison as 1997 included
losses from WBIS+ TV and DJA Partners. The company's share of losses from its
European business television partnership with CNBC partially offset these
improvements.
PAGE 14
TELEVISION
Total pretax losses from television ventures, which include income from
U.S. television operations reported in the print publishing segment and losses
from international television reported in equity results, was $5 million in
the second quarter of 1998 compared with $12.2 million in 1997's second
quarter. For the first six months of 1998, pretax television losses of $15
million were $16.1 million less than the comparable 1997 period. The first
half of 1998 benefited from the company's worldwide alliance with CNBC, while
the first half of 1997 was negatively affected by start-up losses from WBIS+
TV.
INCOME TAXES
Including the loss on sale of Telerate and its operations, the company
recorded an income tax benefit of $5.1 million in the second quarter of 1998
on pretax losses of $56.8 million. For the first six months of 1998, the
company recorded income tax expense of $23.1 million on pretax income of $6.1
million. As a result of the sale of Telerate, the company may utilize up to
$600 million of capital loss tax carryforwards over the next five years.
These income tax carryforwards are not reflected in the company's financial
statements.
The effective income tax rate on a pro forma basis for the second
quarter of 1998 was 42% versus 41.9% in 1997's second quarter. The pro forma
first half 1998 effective tax rate was 41.4%, compared with 42.6% in the like
1997 period.
FINANCIAL POSITION
As previously mentioned, the company completed the sale of Telerate
during 1998's second quarter. The purchase price consisted of $150 million of
5 year, 4% preferred stock of Bridge, which is included in other noncurrent
investments, and $360 million in cash. Under the terms of the sales
agreement, the purchase price is subject to possible post-closing adjustments,
including working capital changes and indemnification, which at this time the
company believes will be immaterial.
The company's board of directors has authorized the repurchase of shares
of the company's outstanding stock for up to $300 million. On June 4, 1998,
the company repurchased four million shares of its common stock, or roughly
4.1% of basic shares outstanding. The shares were purchased pursuant to a
privately negotiated stock repurchase agreement with a financial institution,
which borrowed the shares. The initial purchase price was $192.1 million,
subject to a future market price adjustment. Additionally, the company sold
puts, which expire in three to nine months, covering an aggregate of one
million shares of common stock. This transaction could obligate the company
to repurchase up to $47.8 million of its common stock.
PAGE 15
In June 1998, the company launched a three-year program to expand color
and page capacity for the U.S. print Wall Street Journal. The company expects
capital expenditure funding for the program to total $232 million over this
period, which will expand the Journal's page capacity from 80 pages to 96
pages and color page capacity from eight pages to 24 pages. Consolidated
capital expenditures in 1998, including roughly $45 million for the Journal
expansion project and about $55 million for Telerate prior to the sale, are
expected to total $240 million.
Funds provided by operations for the first half of 1998 was $119
million, compared with $218 million in the first half of 1997. The decline in
cash provided by operations, relative to a year ago, was primarily due to
changes in working capital, principally due to the timing of collections of
trade accounts receivable of Telerate and payments of accounts payable and
accrued liabilities, which included the payment of restructuring charges
accrued at year-end 1997. In 1998, in addition to cash provided by operations
the company received a total $466 million in cash from the disposition of
Telerate, WBIS+ and Mediatex Communications Corp. During 1998's first half,
the company funded capital expenditures of $132 million, repurchased 4 million
shares of its stock, paid down debt by $63 million and invested $46.3 million
in various business ventures. Cash and cash equivalents, which include
highly-liquid investments with a maturity of three months or less, was $168.8
million at June 30, 1998, versus $23.8 million at the end of 1997.
ACCOUNTING PRONOUNCEMENT
In June 1998, Statement of Financial Accounting Standards No. 133 (SFAS
133), "Accounting for Derivative Instruments and Hedging Activities" was
issued and is effective for all fiscal quarters of fiscal years beginning
after June 15, 1999. SFAS 133 establishes accounting and disclosure
requirements for derivative instruments and hedging activities. It requires
the company to record all derivatives as either assets or liabilities and
measure those instruments at fair value. The company currently does not hold
any significant derivative instruments and does not expect the adoption of
SFAS 133 to have a material effect on the company's financial statements taken
as a whole.
PAGE 16
INFORMATION RELATING TO FORWARD-LOOKING STATEMENTS
Management's Discussion and Analysis and other sections of this Form 10-
Q include forward-looking statements that reflect the company's current
expectations or beliefs concerning future results and events. The words
"expects," "intends," "plans," "believes," "anticipates," "likely," "will,"
and similar expressions identify forward-looking statements. These forward-
looking statements are subject to certain risks and uncertainties that could
cause actual results and events to differ materially from those anticipated in
the forward-looking statements. Some important factors that might cause such
a difference include, but are not limited to, economic and stock market
conditions, particularly in the U.S., Europe and Asia, and their impact on
advertising sales and sales of the company's products and services; the
inability to expand newspaper page capacity and/or server capacity for
electronic publishing products on a timely basis to satisfy customer demands;
cost of newsprint; rapid technological changes and frequent new product
introductions prevalent in electronic publishing; product obsolescence due to
advances in technology and shifts in market demand; any damage to or technical
failure of the company's computer infrastructure or software that causes
interruptions of operations; competition from increased availability of
financial information, including through the Internet, and resulting price
pressures; business conditions (growth or consolidation) in the financial
services industry; adverse verdicts in legal proceedings, including libel
actions; risks associated with the development of television channels in
competitive foreign markets, including the ability to produce or obtain
desired programming, to sell advertising time at desired rates, to achieve
sufficient distribution and to attract audiences; risks associated with
foreign operations, including currency and political risks; the cost of
resolving the company's Year 2000 software issues or untimely resolution of
its Year 2000 issues; and such other risk factors as may have been or may be
included from time to time in the company's reports filed with the Securities
and Exchange Commission.
PAGE 17
PART II. OTHER INFORMATION
ITEM 5.
PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF INCOME
Dow Jones & Company, Inc.
Quarters Ended Six Months Ended
June 30 June 30
================================================================================
(in thousands except
per share amounts) 1998 1997 1998 1997
- --------------------------------------------------------------------------------
REVENUES:
Advertising $277,043 $256,626 $521,709 $485,098
Information services 95,379 84,226 191,263 164,976
Circulation and other 114,317 114,956 223,749 226,470
- --------------------------------------------------------------------------------
Total revenues 486,739 455,808 936,721 876,544
- --------------------------------------------------------------------------------
EXPENSES:
News, operations and development 129,589 122,862 252,241 245,043
Selling, administrative
and general 163,873 150,974 324,160 299,103
Newsprint 43,028 38,041 82,883 71,660
Second class postage and
carrier delivery 29,639 28,426 57,907 56,069
Depreciation and amortization 22,535 20,830 44,961 41,701
- --------------------------------------------------------------------------------
Operating expenses 388,664 361,133 762,152 713,576
- --------------------------------------------------------------------------------
Operating income 98,075 94,675 174,569 162,968
OTHER INCOME (DEDUCTIONS):
Investment income 1,795 224 2,096 346
Interest expense (1,351) (4,342) (3,597) (8,602)
Equity in losses
of associated companies (3,618) (4,794) (9,505) (17,487)
Gain on disposition of businesses
and investments 15,390 6,179
Other, net (469) (600) (918) (83)
- --------------------------------------------------------------------------------
Income before income taxes 94,432 85,163 178,035 143,321
Income taxes 39,686 35,681 73,687 61,063
- --------------------------------------------------------------------------------
Net income $ 54,746 $ 49,482 $104,348 $ 82,258
================================================================================
PER SHARE:
Net income per share:
- Basic $ .57 $.52 $1.08 $.86
- Diluted .56 .51 1.07 .85
Weighted-average shares outstanding:
- Basic 96,476 95,821 96,610 95,688
- Diluted 97,677 96,585 97,920 96,416
================================================================================
PAGE 18
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits filed:
Financial Data Schedule (Exhibit 27) *
* Securities and Exchange Commission and New York Stock Exchange copies
only.
(b) Reports on Form 8-K:
On a Form 8-K, dated May 29, 1998, under Item 2. Acquisition or
Disposition of Assets and Item 7. Financial Statements, Pro Forma
Financial Information and Exhibits, Dow Jones filed, pursuant to the
consummation of the sale of Telerate, a pro forma balance sheet as of
March 31, 1998, a pro forma income statement for the year ended December
31, 1997 and a pro forma income statement for the three months ended
March 31, 1998.
On a Form 8-K, filed July 17, 1998, under Item 5. Other Events and
Item 7. Financial Statements, Pro Forma Financial Information and
Exhibits, Dow Jones filed a copy of a press release that the company had
issued on July 9, 1998.
PAGE 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)
Date: August 12, 1998 By /s/ Thomas G. Hetzel
------------------------
Thomas G. Hetzel
Vice President/Finance and Comptroller
(Chief Accounting Officer)