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 March 31, 1999
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, 1999: 69,310,465 shares of Common Stock and
21,272,296 shares of Class B Common Stock.
PAGE 2
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
CONDENSED CONSOLIDATED
STATEMENTS OF INCOME
Dow Jones & Company, Inc.
==========================================================================
(in thousands except Quarters Ended March 31
per share amounts) 1999 1998
- --------------------------------------------------------------------------
Revenues:
Advertising $254,727 $244,666
Information services 94,907 267,383
Circulation and other 112,448 109,432
- --------------------------------------------------------------------------
Total revenues 462,082 621,481
- --------------------------------------------------------------------------
Expenses:
News, operations and development 128,181 217,508
Selling, administrative and general 169,661 225,759
Newsprint 37,395 39,855
Second class postage and carrier delivery 29,015 28,268
Depreciation and amortization 25,016 54,613
- --------------------------------------------------------------------------
Operating expenses 389,268 566,003
- --------------------------------------------------------------------------
Operating income 72,814 55,478
Other Income (Deductions):
Investment income 2,875 907
Interest expense (1,581) (2,682)
Equity in losses of associated companies (3,691) (6,007)
Gain on disposition of businesses and investments 10,618 15,390
Other, net 450 (174)
- --------------------------------------------------------------------------
Income before income taxes 81,485 62,912
Income taxes 29,963 28,214
- --------------------------------------------------------------------------
Net Income $ 51,522 $ 34,698
==========================================================================
Per Share:
Net income per share:
- Basic $.56 $.36
- Diluted .56 .35
Weighted-average shares outstanding:
- Basic 91,394 96,878
- Diluted 92,164 98,248
Cash dividends $.24 $.24
- --------------------------------------------------------------------------
Comprehensive income $ 64,845 $ 38,884
==========================================================================
See notes to condensed consolidated financial statements.
PAGE 3
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
Dow Jones & Company, Inc.
==========================================================================
Three Months Ended March 31
(in thousands) 1999 1998
- --------------------------------------------------------------------------
Operating Activities:
Net income $ 51,522 $ 34,698
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 25,016 54,613
Changes in assets and liabilities (32,685) (16,246)
Other, net (4,243) (6,152)
- --------------------------------------------------------------------------
Net cash provided by operating activities 39,610 66,913
- --------------------------------------------------------------------------
Investing Activities:
Additions to plant and property (54,556) (64,674)
Businesses and investments acquired,
net of cash received (9,836) (36,190)
Disposition of businesses and investments 13,250 127,629
Other, net 239 1,802
- --------------------------------------------------------------------------
Net cash (used in) provided by
investing activities (50,903) 28,567
- --------------------------------------------------------------------------
Financing Activities:
Cash dividends (22,077) (23,227)
Reduction of long-term debt (63,016)
Repurchase of treasury stock, net of put premiums (70,500)
Other, net 3,999 16,444
- --------------------------------------------------------------------------
Net cash used in financing activities (88,578) (69,799)
- --------------------------------------------------------------------------
Effect of exchange rate changes on cash (204) 938
- --------------------------------------------------------------------------
(Decrease) increase in cash and cash equivalents (100,075) 26,619
Cash and cash equivalents at beginning of year 142,877 23,763
- --------------------------------------------------------------------------
Cash and cash equivalents at March 31 $ 42,802 $ 50,382
==========================================================================
See notes to condensed consolidated financial statements.
PAGE 4
CONDENSED CONSOLIDATED
BALANCE SHEETS
Dow Jones & Company, Inc.
==========================================================================
March 31 December 31
(in thousands) 1999 1998
- --------------------------------------------------------------------------
Assets:
Cash and cash equivalents $ 42,802 $ 142,877
Accounts receivable-trade, net 226,563 236,928
Accounts receivable-other 22,224 19,038
Inventories 11,140 11,386
Deferred income taxes 13,594 13,992
Prepaid expenses 18,782 18,068
- --------------------------------------------------------------------------
Total current assets 335,105 442,289
- --------------------------------------------------------------------------
Investments in associated companies,
at equity 40,768 41,406
Other investments 235,354 222,858
Plant and property, at cost 1,626,210 1,575,781
Less, accumulated depreciation 997,122 973,664
- --------------------------------------------------------------------------
629,088 602,117
Goodwill, less accumulated amortization 85,653 86,554
Deferred income taxes 69,019 67,171
Other assets 29,525 28,927
- --------------------------------------------------------------------------
Total assets $1,424,512 $1,491,322
==========================================================================
Liabilities:
Accounts payable and accrued liabilities $ 260,212 $ 324,190
Income taxes 53,777 37,198
Unearned revenue 242,911 238,409
- --------------------------------------------------------------------------
Total current liabilities 556,900 599,797
Long-term debt 149,903 149,889
Other noncurrent liabilities 231,062 232,296
- --------------------------------------------------------------------------
Total liabilities 937,865 981,982
- --------------------------------------------------------------------------
Stockholders' Equity:
Common stock 102,181 102,181
Additional paid-in capital 135,598 137,479
Retained earnings 653,684 624,239
Accumulated other comprehensive income 49,136 35,813
- --------------------------------------------------------------------------
940,599 899,712
Less, treasury stock, at cost 453,952 390,372
- --------------------------------------------------------------------------
Total stockholders' equity 486,647 509,340
- --------------------------------------------------------------------------
Total liabilities and stockholders' equity $1,424,512 $1,491,322
==========================================================================
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 March 31, 1999,
and December 31, 1998, and the consolidated results of operations and the
consolidated cash flows for the three-month periods ended March 31, 1999
and 1998. All adjustments reflected in the accompanying unaudited
condensed consolidated financial statements are of a normal recurring
nature. The results of operations for the respective interim periods are
not necessarily indicative of the results to be expected for the full year.
2. The first quarter of 1999 included a net gain of $10.6 million, or 12
cents per share, from the sale of a portion of the company's minority
interest in OptiMark Technologies, Inc.
3. The first quarter of 1998 included a net gain of $10.1 million, or 11
cents per share, from the sales of the company's interests in WBIS+ TV
(eight cents per share) and Mediatex Communications Corp. (Mediatex),
publisher of Texas Monthly magazine (three cents per share).
4. The first quarter of 1998 included the operating results of the
company's former Telerate subsidiary (formerly, Dow Jones Markets). On May
29, 1998, the company completed the sale of Telerate to Bridge Information
Systems, Inc. Pro forma statements of income that exclude Telerate
operating results are presented as supplemental data in the Other
Information section on pages 19 through 21 of this Form 10-Q. Certain
liabilities included in the accrued liabilities as of March 31, 1999 and
December 31, 1998 are principally related to long-term contracts the
company had entered into when Telerate was a wholly-owned subsidiary.
5. The company has guaranteed payment under certain circumstances of
certain annual minimum payments for data acquired by Telerate from Cantor
Fitzgerald Securities and Market Data Corporation under contracts entered
into during the period when Telerate was a subsidiary of the company. The
annual minimum payments average approximately $50 million per year through
October 2006. Bridge has agreed to indemnify the company if the company is
required to make any payments under the guarantee.
6. In the first quarter of 1999, the company repurchased 1.54 million
shares of its common stock at an aggregate price of $70.5 million.
Additionally, the company sold put options (puts) on approximately 333,000
shares bringing to 1 million the number of shares subject to puts at March
31, 1999. Outstanding puts could obligate the company to repurchase up to
$43.5 million of its common stock (net of premiums received on outstanding
puts ) over the next eight months.
PAGE 6
NOTES TO FINANCIAL STATEMENTS (cont.)
Dow Jones & Company, Inc.
7. In March 1998, Statement of Position No. 98-1 (SOP 98-1) "Accounting
for the Cost of Computer Software Developed or Obtained for Internal Use"
was issued by the AICPA Accounting Standards Executive Committee (AcSEC) to
address whether and under what conditions the costs of internal-use
software should be capitalized. The company has adopted SOP 98-1 as of the
beginning of its fiscal year, January 1999. In first quarter of 1999, the
company capitalized internal-use software costs of approximately $1.2
million. The effect on earnings due to capitalization of the internal-use
software was an earnings enhancement of approximately $0.01 per diluted
share ($0.7 million net of tax).
8. In January 1999, the company adopted the Statement of Financial
Accounting Standards No. 133 "Accounting for Derivative Instruments and
Hedging Activities". The company purchases foreign-exchange contracts
that are designated as cash flow hedges of anticipated operating expenses
that are denominated in 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 unanticipated devaluation were to occur. In the first quarter of
1999, $0.5 million of net losses related to these derivatives were included
in the cumulative foreign currency translation adjustment. At March 31,
1999, the company has outstanding foreign-exchange contracts that expire
monthly through December 15, 1999. (See note 9).
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 derivatives activities are monitored by its treasury and finance
functions.
9. Comprehensive income was computed as follows:
==========================================================================
Three Months Ended March 31
(in thousands) 1999 1998
- --------------------------------------------------------------------------
Net income $51,522 $34,698
Foreign currency translation
adjustments (See note 8) (456) (182)
Unrealized gain on investments 13,779 4,368
- --------------------------------------------------------------------------
Comprehensive income $64,845 $38,884
==========================================================================
PAGE 7
10. Diluted earnings per share have been computed as follows:
==========================================================================
(in thousands, except Three Months Ended March 31
share amounts) 1999 1998
- --------------------------------------------------------------------------
Net income $51,522 $34,698
Weighted-average shares
outstanding - basic 91,394 96,878
Stock options 660 1,209
Other, principally
contingent stock rights 110 161
- --------------------------------------------------------------------------
Weighted-average shares
outstanding - diluted 92,164 98,248
Diluted earnings per share $.56 $.35
==========================================================================
Certain employee stock options and put options have been excluded from
diluted earnings per share in 1999 because to include such securities would
be antidilutive.
11. Certain of the 1998 amounts have been reclassified for comparative
purposes.
12. The table on the following page compares revenues, income before income
taxes and EBITDA by business segment for the 1999 and 1998 quarters ended
March 31:
PAGE 8
SEGMENT INFORMATION
FOR THE QUARTERS ENDED MARCH 31, 1999 AND 1998
==============================================================================
Quarters Ended March 31 % Increase
(in thousands) 1999 1998 (Decrease)
- ------------------------------------------------------------------------------
REVENUES:
Print publishing $290,608 $281,504 3.2
Electronic publishing 97,537 97,581 -
Community newspapers 73,937 70,897 4.3
------- -------
Segment pro forma revenues 462,082 449,982 2.7
Telerate 171,499
------- -------
Consolidated revenues $462,082 $621,481 (25.6)
- ------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES:
Print publishing $ 52,469 $ 53,223 (1.4)
Electronic publishing 13,487 21,281 (36.6)
Community newspapers 13,993 8,155 71.6
Corporate (7,135) (6,165) 15.7
------- -------
Segment pro forma operating income 72,814 76,494 (4.8)
Telerate (21,016)
------- -------
Consolidated operating income 72,814 55,478 31.2
Equity in losses of associated
companies (3,691) (6,007) (38.6)
Gain on disposition of businesses
and investments 10,618 15,390 (31.0)
Other income (deductions),net 1,744 (1,949) -
-------- --------
Income before income taxes $ 81,485 $ 62,912 29.5
- ------------------------------------------------------------------------------
EBITDA: (1)
Print publishing $ 66,813 $ 65,802 1.5
Electronic publishing 19,792 26,832 (26.2)
Community newspapers 18,360 12,451 47.5
Corporate (7,135) (6,165) 15.7
------- -------
Segment pro forma EBITDA 97,830 98,920 (1.1)
Telerate 11,171
------- -------
Consolidated EBITDA $ 97,830 $110,091 (11.1)
EBITDA Margin:
Print publishing 23.0% 23.4%
Electronic publishing 20.3% 27.5%
Community newspapers 24.8% 17.6%
All segments (2) 21.2% 22.0%
==============================================================================
(1) EBITDA is computed as operating income excluding depreciation and
amortization.
(2) Excludes Telerate
PAGE 9
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
FOR THE FIRST QUARTERS ENDED MARCH 31, 1999 AND 1998
On May 29, 1998, the company completed the sale of its former
subsidiary, Telerate, to Bridge Information Systems, Inc. The purchase
price consisted of $360 million in cash and $150 million of 5 year,
convertible, 4% preferred stock of Bridge. The term "pro forma" as used
in this Form 10-Q excludes the operating results of Telerate. Pro forma
statements of income are presented as supplemental data in the Other
Information section on pages 19 through 21 of this Form 10-Q.
First quarter 1999 net income was $51.5 million, or $.56 per diluted
share, an increase of $16.8 million, or 48%, compared with the first
quarter of 1998, which included Telerate operating losses. Net income in
1999 included a net gain of $10.6 million, or $.12 per diluted share, from
the sale of a portion of company's holdings in OptiMark Technologies, Inc.
Earnings in the first quarter of 1998 included a combined gain of $10.1
million, or $.11 per diluted share, from the sale of the company's
interests in WBIS+ TV and Mediatex. Excluding the gains in both years and
Telerate losses in 1998, earnings per share in 1999's and 1998's first
quarters were $.44 and $.40 per diluted share, respectively.
Earnings per share increased $.04 per diluted share chiefly due to
reduced worldwide television losses (+$.04 per diluted share), community
newspapers (+$.03 excluding newsprint benefits), share repurchase (+$.02),
lower newsprint expense (+$.02), improvement in net interest income
(+$.02), and $.01 per share related to the adoption of SOP 98-1. These
increases were partially offset by reduced earnings in the print publishing
(-$.05 excluding U.S. TV gains and newsprint benefit) and electronic
publishing (-$.05) segments.
First quarter 1999 operating income was $72.8 million, an increase of
$17.3 million, or 31.2%, compared with 1998's first quarter. Excluding
Telerate operating losses in 1998, operating income decreased $3.7 million,
or 4.8%, compared with 1998's first quarter. Operating income declined in
part due to a falloff in financial advertising at the U.S. Journal, initial
investments made for the development of products (such as the recently
announced business portal dowjones.com) and marketing endorsements.
Additional expenditures were incurred in 1999 as efforts were made to
increase customer value from higher value content in financial information
and earlier delivery of the company's products.
Revenues in the first quarter of 1999 were $462.1 million, a decrease
of $159 million, or 25.6%, compared with the first quarter of 1998.
Excluding Telerate from 1998, first quarter 1999 revenues increased $12.1
million, or 2.7%. The increase in revenue resulted primarily from an
overall 1.4% increase in advertising linage at The Wall Street Journal and
advertising rate increases at community newspapers.
PAGE 10
Consolidated operating expenses decreased $177 million, or 31.2%, to
$389 million in the first quarter of 1999. On a pro forma basis, operating
expenses increased $15.8 million, or 4.2%, compared with the first quarter
of 1998. Print publishing expenses, excluding newsprint, rose 6% due to
higher compensation and selling efforts associated with The Wall Street
Journal and the expansion efforts for international print circulation.
Electronic publishing expenses grew 10.2% from sales and marketing expenses
related to international expansion efforts and from product development
costs. Consolidated newsprint expense decreased 6.2%, reflecting an average
8.7% decline in newsprint prices and a 2.7% increase in consumption. The
company employed approximately 8,300 full-time employees at March 31, 1999,
down 4% from the 8,600 employees a year earlier (excluding Telerate), and
flat with December 31, 1998.
SEGMENT DATA
The company's business and financial news and information operations
are 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 15 weekly newspapers in communities
throughout the United States, 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, and 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 close to 63% of the first quarter 1999 revenues.
Approximately 9% of print publishing revenues were earned by international
publications. Revenues, particularly advertising, for the print
publications are historically seasonal with the fourth quarter typically
being the strongest in terms of total volume followed by the second
quarter, then first and finally the third quarter.
Electronic publishing includes the operations of Dow Jones Newswires,
Dow Jones Indexes and Dow Jones Interactive Publishing. Electronic
publishing and community newspapers comprised 21% and 16%, respectively, of
first quarter 1999 revenues.
PAGE 11
PRINT PUBLISHING
Operating income in the first quarter of 1999 was $52.5 million, down
$0.8 million, or 1.4%, from the $53.2 million earned a year earlier. The
operating margin fell to 18.1% from 18.9% in 1998's first quarter. The
EBITDA margin was 23%, compared to 23.4% a year earlier.
Revenues for the first quarter increased 3.2% in 1999. Advertising
revenue grew 3.3%, in part on the strength of a 1.4% advertising linage
gain at The Wall Street Journal. The first quarter improvement resulted
from strong linage performance, up 11.8%, in March 1999, following declines
of 6.3% and 2.8% in January and February.
First quarter 1999 general advertising linage, which comprised roughly
60% of total Wall Street Journal linage, climbed 10.4%, in part due to
increased advertising by the technology and consulting industries.
Financial linage, which makes up about 25% of total Journal linage, dipped
17.7%, due to a decline in securities and tender offers as well as Initial
Public Offering related advertising. Classified and other Journal linage,
which constituted the remaining 15% of Journal linage, increased 7.2% from
the comparable period in 1998, primarily from real estate and employment
advertising. Barron's national advertising pages were down approximately
11% compared with 1998's first quarter. Advertising revenue for
international print publications grew 13%. The revenue increases at The
Wall Street Journal Europe (+33.9%) and The Asian Wall Street Journal
(+6.7%), were partially offset by a decline at the Far Eastern Economic
Review (-19.9%).
Circulation revenue in the first quarter of 1999 was down less than 1%
from the like 1998 quarter. First quarter average circulation at the
domestic Wall Street Journal was down 1.6% from the like 1998 period. (The
Journal's Statement of Total Circulation (STC), which in addition to
circulation data provides information on the quality and character of the
publication's paid circulation, including complimentary and third party
amenity copies, subscription term and price, showed circulation of 1.9
million for the six months ended March 31, 1999, which was flat with the
six-month period ended March 31, 1998).
Barron's first quarter average paid circulation reached a record level
of approximately 316,000, up 4.4% from comparable 1998's first quarter.
The Asian and European Journals combined circulation increased nearly 16%
to 144,000 from first quarter of 1998.
Operating expenses climbed 4.3%, to $238.1 million in the first quarter
of 1999, reflecting higher compensation costs, international selling and
production expenses and U.S. distribution costs. Newsprint expense
decreased $1.7 million, or 5.3%, in 1999. The average newsprint price per
ton was $546, down 9.1%, while consumption increased 4% from 1998.
Newsprint expense relative to total consolidated expenses was approximately
10% in both periods. Ending employee count for this segment at March 31,
1999 was down 5%, due to restructuring certain of the company's departments
and through a voluntary separation program in December 1998.
PAGE 12
ELECTRONIC PUBLISHING
First quarter 1999 operating income was $13.5 million, a decrease of
$7.8 million, or 36.6%, compared with the first quarter of 1998. Revenues
of $97.5 million were substantially flat compared with 1998's first
quarter. Operating expenses increased 10.2%, to $84 million, in large part
reflecting higher compensation costs associated with sales and
international expansion, an increase in promotional spending, and
expenditures associated with improving technology, product enhancement and
content. The EBITDA margin was 20.3%, down from 27.5% at March 31, 1998.
Dow Jones Newswires revenue in the first quarter was $50.9 million,
down $0.3 million, or 0.5%, from the first quarter of 1998 due to faster
than expected cancellation of Telerate-related terminals in Europe and
Asia. (In 1999, Dow Jones Newswires commenced a business partnership to
distribute the newswires on Reuters and Bloomberg terminals worldwide, with
availability on the bulk of the Reuters platforms having commenced in
February, 1999). There were 299,000 newswires terminals at March 31, 1999,
an increase of 26,000, or 9.5%, from the first quarter of 1998. Terminal
growth in North America was 29,000, somewhat offset by 3,000 cancellations
overseas. Revenues in the U.S. are affected by larger accounts which tend
to contract for more terminals and receive volume discounts. The 3,000
overseas terminals that cancelled were yielding higher per-terminal revenue
than those in the U.S., resulting in a revenue decline of 13%. In
addition, other revenues also declined, most noticeably a reduction of
$500,000 from the sale of EDGAR Direct in late 1998. Dow Jones Indexes
revenue of $3.2 million remained flat in 1999. Excluding $1 million in
one-time index fees from 1998, revenue increased approximately 42%. Assets
based on Dow Jones Indexes grew to $38 billion from $12 billion a year ago.
The Wall Street Journal Interactive Edition revenue was $5.4 million,
an increase of $1.8 million, or 51.8%, compared with 1998's like period.
Advertising revenue rose 60% and subscription revenue grew 44% on both
volume gains and a subscription price increase. At March 31, 1999,
subscribers to the Interactive Journal totaled approximately 283,000, up
41% from March 31, 1998 and 6% from year-end 1998. Revenue from Dow Jones
Interactive and other products decreased $1.6 million, or 3.9%, to $38
million in the first quarter of 1999, in part due to a contractual
reduction in a third party licensing contract and reduced revenue from IDD
Enterprises. Adjusting for these, pure Dow Jones Interactive revenues grew
by 8% in the quarter. Included within that 8% is a continued decline in
revenues from the traditional librarian, or professional researcher, market
which is a contracting market and one where we are forcing migration to our
web-based product. The end-user corporate desktop component of the Dow
Jones Interactive business has grown roughly 30%. The total user count for
Dow Jones Interactive stood at 650,000 at March 31, 1999, compared to
430,000 a year ago.
Electronic publishing expenses were up 10.2%, or 8% excluding Dow Jones
Interactive content royalties. Approximately two-thirds of the expense
growth was driven by marketing and selling costs as the company promoted
its interactive products and expanded both the interactive and newswire
businesses internationally.
PAGE 13
COMMUNITY NEWSPAPERS
First quarter 1999 operating income was $14 million at the community
newspapers segment, up $5.8 million, or 71.6%, from the comparable 1998
period. The operating margin increased to 18.9% from 11.5% in 1998
reflecting the full impact of cost reductions and advertising rate
increases, both implemented in third and fourth quarter of 1998. First
quarter 1999 EBITDA margin rose to 24.8% from 17.6% a year earlier.
Community newspapers revenue of $73.9 million advanced $3 million, or 4.3%,
from 1998. Rate increases in the first quarter drove a 5.8% gain in
advertising revenue from the comparable period in 1998. Advertising linage
was down 0.8% from the like period in 1998, due to a decline in display ads
that resulted from store closings and a slight loss of linage in response
to the advertising rate increases.
Circulation revenue grew 1%. A 3% revenue gain from a subscription
price increase was partially offset by a 2% revenue reduction from a
decline in volume. Operating expenses in 1999 were $59.9 million, down
$2.8 million, or 4.5%, reflecting a decrease in compensation expense from
the voluntary separation program announced in the second quarter of 1998
and lower newsprint expense in 1999's first quarter.
OTHER INCOME/DEDUCTIONS
Net interest income in 1999's first quarter was $1.3 million compared
to net interest expense of $1.8 million a year earlier. Long-term debt
outstanding at March 31, 1999, was $149.9 million compared with $165.8
million a year earlier and approximately equal to 1998's year-end balance.
The company's share of losses from associated companies was $3.7
million compared with losses of $6 million a year earlier. The improvement
was due to reduced losses from the company's European and Asian business
television partnerships with CNBC.
In the first quarter of 1999, the company reported a pretax gain of
$10.6 million, or $.12 per diluted share, from the sale of partial holdings
in OptiMark Technologies, Inc. The first quarter of 1998 included a pretax
gain of $15.4 million, or $.11 per diluted share, from the sales of the
company's interests in WBIS+ TV and Mediatex.
TELEVISION
The company benefited from a profit at the U.S. television operations
(which are included in the print publishing segment) and the reduced losses
from international television (which are reported in Equity in Losses of
Associated Companies) as compared with the first quarter of 1998. The
programming alliance with CNBC in the U.S. began April 2, 1998. The
combined U.S. and international pretax television results were losses of
$3.2 million in 1999 as compared with losses of $10.1 million in the first
three months of 1998.
PAGE 14
INCOME TAXES
The effective income tax rate for the first quarter of 1999 was 36.8%,
compared with 44.8% in 1998. The lower effective tax rate in 1999 resulted
from the tax-free gain on the sale of OptiMark Technologies, Inc. shares.
Excluding Telerate in 1998 and the effect of investment gains in each year,
the effective tax rate would have been 42.3% in 1999 and 42.2% in 1998.
At March 31, 1999, the company had available approximately $565 million
of capital loss carryforwards, or a deferred tax asset of $212 million,
which was fully reserved through a valuation allowance, resulting from the
sale of Telerate in May 1998.
FINANCIAL POSITION AND CASH FLOW
During 1998 the company's board of directors authorized the company to
repurchase up to $800 million of Dow Jones' common stock over the next
three years. In the first quarter of 1999 the company repurchased 1.54
million shares of its common stock at an aggregate price of $70.5 million.
Another 1 million outstanding put options (puts) could obligate the company
to repurchase up to $43.5 million of its common stock (net of premiums
received on outstanding puts) over the next eight months. At March 31,
1999, approximately $390 million of the board authorization was available
for stock repurchases, after reserving for the exercise of puts.
Cash provided by operations for the first quarter of 1999 was $39.6
million, compared with $66.9 million in the first three months of 1998.
The decline in cash provided by operations, relative to a year ago, was
largely due to changes in working capital that included Telerate in 1998,
and in part due to the timing of collections of trade accounts receivable.
In 1999, in addition to cash provided by operations, the company received
$13 million in cash from the disposition of partial holdings in OptiMark
Technologies, Inc., and $5 million from sales under employee stock
compensation plans.
In the first quarter 1999, the company funded the repurchase of 1.54
million shares of its common stock ($70.5 million), capital expenditures of
$54.6 million, paid dividends of $22.1 million and funded $9.8 million into
various investments. Cash and cash equivalents, which include highly-
liquid investments with a maturity of three months or less, was $42.8
million at March 31, 1999, as compared to $50.4 million a year earlier.
The company has guaranteed payment under certain circumstances of
certain annual minimum payments for data acquired by Telerate (now wholly-
owned by Bridge Information Systems, Inc.) from Cantor Fitzgerald
Securities and Market Data Corporation under contracts entered into during
the period when Telerate was a subsidiary of the company. The annual
minimum payments average approximately $50 million per year through October
2006. Bridge has agreed to indemnify the company if the company is
required to make any payments under the guarantee.
PAGE 15
STOCK AWARDS
The company has granted restricted stock awards, consisting of the
company's common stock, to certain senior executives. These shares were
granted as sign-on awards in order to induce the executives to become
employed by the company. Under the terms of the awards, one-third of the
shares vest on the first anniversary of the date of grant, an additional
one-third vests on the second anniversary and the remainder vests on the
third anniversary. The grantee is not permitted to sell, transfer or make
any other disposition of the shares prior to vesting. The grantee receives
dividends on the shares and is entitled to vote them from the date of
grant. Any shares that have not vested are forfeited if the grantee does
not continue in the company's employment. The awards were made on the
following dates: 4,700 shares were granted on April 15, 1998, 2,275 shares
were granted on February 1, 1999 and 3,245 shares were granted on May 10,
1999. These awards were exempt from registration under Section 4(2) of the
Securities Act of 1933, as amended, as transactions not involving any
public offering.
ACCOUNTING PRONOUNCEMENTS
In March 1998, Statement of Position No. 98-1 (SOP 98-1) "Accounting
for the Cost of Computer Software Developed or Obtained for Internal Use"
was issued by the AICPA Accounting Standards Executive Committee (AcSEC) to
address whether and under what conditions the costs of internal-use
software should be capitalized. Costs associated with the application's
development stage must be capitalized and are recognized as (1) external
direct costs of materials and services consumed in developing or obtaining
internal-use software, (2) payroll and payroll related costs for employees
who are directly associated with and devoted time to the internal-use
software project, and (3) interest costs associated with the development of
the internal-use software project. Costs associated with preliminary
project and post-implementation stages must be expensed. The company has
adopted SOP 98-1 as of the beginning of its fiscal year, January 1999. In
the first quarter of 1999, the company capitalized internal-use software
costs of approximately $1.2 million ($0.7 million net of tax). The effect
on 1999 first quarter earnings due to capitalization of the internal-use
software was an enhancement of approximately $.01 per diluted share.
In June 1998, Statement of Financial Accounting Standards No. 133 (SFAS
133) "Accounting for Derivative Instruments and Hedging Activities" was
issued. SFAS 133 establishes accounting and disclosure requirements for
derivatives 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 has adopted SFAS 133 as of the
beginning of its fiscal year, January 1999. In the first quarter of 1999,
the company recognized unrealized losses on foreign currency derivatives of
approximately $0.5 million. Such losses are included within the foreign
currency translation adjustments component of other comprehensive income in
Note 9 on page 6.
PAGE 16
YEAR 2000
The company has completed its assessment of its Year 2000 problem. The
company expects its efforts to modify existing software, and the
replacement of certain systems, will be completed so as not to interrupt
ongoing operations. The company expects operating costs over the 1997-1999
period to modify its systems for the Year 2000 issue to be in the range
between $13 million and $17 million. Through the end of March 31, 1999,
the company's expenses related to Year 2000 issues were approximately $13
million.
In 1996, Dow Jones established a project team responsible for
identifying and resolving Year 2000 issues. These efforts include, but are
not limited to, identification and review of internal operating systems and
applications, and customer products and services, as well as formal
discussions with information providers and other key suppliers to the
business.
Through the first quarter of 1999, approximately 48% of the compliance
surveys sent to the company's lessors and product/service providers have
been returned. The company is in the process of determining which lessors
or providers require follow-up action.
The company has identified existing computer applications and
categorized them into three categories: (1) Applications to be modified,
(2) Applications to be replaced by Year 2000 compliant systems, and (3)
Applications initially reported as Year 2000 compliant that need to be
tested to confirm their readiness. Through March 1999, approximately 80%
of applications requiring modification have been certified as Year 2000
compliant, roughly 70% of replacement applications have been certified and
about 80% of initially reported Year 2000 compliant applications have been
confirmed.
The company expects the remaining applications will be Year 2000
compliant by the middle of 1999. In the first half of 1999, the company
plans to perform testing of its systems, excluding replacement systems
which will be tested upon installation. Contingency planning began in
fourth quarter of 1998. The primary focus will be to plan for unprepared
providers of goods and services, the potential for numerous simultaneous
outages, facilities problems, and the potential for unforeseen internal and
external failures of computer applications and hardware. In addition the
company is ensuring the availability of employees and others at year-end.
While the company expects its Year 2000 efforts to be successful, if the
modifications and replaced systems are not made compliant in a timely
manner, it could result in a material effect on the company. Additionally,
the company's products and services as well as the tools that Dow Jones
uses to conduct its Year 2000 evaluation are dependent on technological
components, equipment, software that were developed by third parties and
that may not be year 2000 compliant. Failure of such third party
components, equipment or software to operate properly with regard to the
Year 2000 could interrupt ongoing operations or require the company to
incur unanticipated expenses to remedy any problems, which could have a
material adverse effect on the company's business and operating results.
PAGE 17
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," "believes," "anticipates," "likely," "will," and
similar expressions identify forward-looking statements. These forward-
looking statements are subject to certain risks and uncertainties which
could cause actual results and events to differ materially from those
anticipated in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, global economic and
stock market conditions, and their impact on advertising sales and sales of
the company's products and services; the inability to expand newspaper page
capacity and/or production and service capacity for electronic publishing
products on a timely basis to satisfy customer demands; the extent to which
the company is able to achieve increased revenues/earnings from
distribution of its newswires services; the extent to which the company is
able to achieve and maintain a more diversified advertising base for its
print publications; cost of newsprint and labor; 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; increased competition in the markets for financial news and
information and advertising resulting from the rise in popularity of the
Internet, financial television programming and other news media; business
conditions (growth or consolidation) in the financial service industry;
the company's ability to negotiate collective bargaining agreements with
its labor unions without work interruptions: adverse verdicts in legal
proceedings, including libel actions; risks associated with 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 that results in
business interruption or shutdown, financial loss, reputation loss, and/or
legal liability; and such other risk factors as may have been or may be
included from the time to time in the company's reports filed with the
Securities and Exchange Commission.
PAGE 18
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
At the Annual Meeting of Stockholders on April 21, 1999, there were
represented in person or by proxy 60,370,371 shares of Common Stock
(carrying one vote per share) and 19,751,165 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 59,373,244 997,127
William C. Steere, Jr. 59,381,492 988,879
2) the holders of the Common Stock and the Class B Common Stock,
voting together, elected as directors:
FOR VOTES WITHHELD
Christopher Bancroft 249,150,941 8,731,080
Peter R. Kann 248,283,570 9,598,451
Leslie Hill 251,695,954 6,186,067
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 1999 by a vote of
257,557,913 votes in favor; 120,031 votes against and 204,077 abstentions.
4) the holders of the Common Stock and the Class B Common Stock,
voting together, failed to approve a stockholder proposal to establish
cumulative voting in the election of directors by a vote of 222,190,131
votes against; 24,927,620 votes in favor; 4,982,424 abstentions and
5,781,846 broker non-votes.
5) the holders of the Common Stock and the Class B Common Stock,
voting together, failed to approve a stockholder proposal to establish one-
year terms for directors by a vote of 176,106,155 votes against; 38,447,276
votes in favor; 4,956,246 abstentions and 38,372,344 broker non-votes.
In addition, the following directors continued in office after the
meeting: Rand V. Araskog, William C. Cox, Harvey Golub, Roy Hammer, Irvine
O. Hockaday, Jr., Vernon E. Jordan, Jr., David K.P. Li, Jane C. MacElree,
Frank N. Newman and James H. Ottaway, Jr.
PAGE 19
ITEM 5: OTHER INFORMATION
PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF INCOME *
Dow Jones & Company, Inc.
=============================================================================
(in thousands, except Quarters Ended March 31
share amounts) 1999 1998
- -----------------------------------------------------------------------------
REVENUES:
Advertising $254,727 $244,666
Information services 94,907 95,884
Circulation and other 112,448 109,432
- -----------------------------------------------------------------------------
Total revenues 462,082 449,982
- -----------------------------------------------------------------------------
EXPENSES:
News, operations and development 128,181 122,652
Selling, administrative and general 169,661 160,287
Newsprint 37,395 39,855
Second class postage
and carrier delivery 29,015 28,268
Depreciation and amortization 25,016 22,426
- -----------------------------------------------------------------------------
Operating expenses 389,268 373,488
- -----------------------------------------------------------------------------
Operating income 72,814 76,494
OTHER INCOME (DEDUCTIONS):
Investment income 2,875 301
Interest expense (1,581) (2,246)
Equity in losses of associated companies (3,691) (6,007)
Gain on disposition of
businesses and investments 10,618 15,390
Other, net 450 (329)
- -----------------------------------------------------------------------------
Income before income taxes 81,485 83,603
Income taxes 29,963 34,001
- -----------------------------------------------------------------------------
NET INCOME $ 51,522 $ 49,602
=============================================================================
NET INCOME PER SHARE:
- Basic $.56 $.51
- Diluted .56 .50
Weighted-average shares outstanding:
- Basic 91,394 96,878
- Diluted 92,164 98,248
=============================================================================
* Pro forma statements of income exclude Telerate results of operations in
1998. Dow Jones completed the sale of Telerate on May 29, 1998.
PAGE 20
ITEM 5: OTHER INFORMATION (cont.)
SUPPLEMENTAL PRO FORMA REVENUE SEGMENT INFORMATION *
Dow Jones & Company, Inc.
=============================================================================
Quarters Ended March 31
(in thousands) 1999 1998
- -----------------------------------------------------------------------------
PRINT PUBLISHING:
U.S. Publications:
Advertising $185,631 $181,040
Circulation and other 78,624 76,155
International Publications:
Advertising 15,005 13,270
Circulation and other 11,348 11,039
------- -------
Total pro forma revenues 290,608 281,504
ELECTRONIC PUBLISHING:
Dow Jones Newswires 50,878 51,158
Dow Jones Indexes 3,241 3,286
Dow Jones Interactive and other 38,036 39,591
The Wall Street Journal Interactive Edition 5,382 3,546
------- -------
Total pro forma revenues 97,537 97,581
COMMUNITY NEWSPAPERS:
Advertising 51,489 48,687
Circulation and other 22,448 22,210
------- -------
Total pro forma revenues 73,937 70,897
Total pro forma segment revenues $462,082 $449,982
=============================================================================
* Pro forma statements of income exclude Telerate results of operations in
1998. Dow Jones completed the sale of Telerate on May 29, 1998.
PAGE 21
ITEM 5: OTHER INFORMATION (cont.)
SUPPLEMENTAL PRO FORMA REVENUE SEGMENT INFORMATION *
Dow Jones & Company, Inc.
ELECTRONIC PUBLISHING HISTORY:
(in thousands)
=============================================================================
REVENUES BY QUARTERS 98-4Q 98-3Q 98-2Q 98-1Q
- -----------------------------------------------------------------------------
Dow Jones Newswires $51,129 $52,230 $51,736 $51,158
Dow Jones Indexes 2,947 3,474 2,783 3,286
Dow Jones Interactive
and other 39,851 39,040 38,774 39,591
The Wall Street Journal
Interactive Edition 5,398 4,064 4,171 3,546
------- ------- ------- -------
Total pro forma revenues $99,325 $98,808 $97,464 $97,581
=============================================================================
=============================================================================
FULL-YEAR REVENUES 1998 1997
- -----------------------------------------------------------------------------
Dow Jones Newswires $206,253 $171,245
Dow Jones Indexes 12,490 32,629 **
Dow Jones Interactive
and other 157,256 149,586
The Wall Street Journal
Interactive Edition 17,179 9,772
------- -------
Total pro forma revenues $393,178 $363,232
=============================================================================
* Pro forma statements of income exclude Telerate results of operations in
1998. Dow Jones completed the sale of Telerate on May 29, 1998.
** Includes $31 million in one-time licensing fees.
PAGE 22
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits filed:
Exhibit
Number Document
- ------- --------
* 27 Financial Data Schedule
* Securities and Exchange Commission and New York Stock Exchange copies
only.
(b) Reports on Form 8-K:
No reports on Form 8-K have been filed during the period for which this
report is filed.
PAGE 23
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: May 13, 1999 By: /s/ Lawrence K. Kinsella
----------------------
Comptroller
(Chief Accounting Officer)