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, 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 June 30, 1999: 69,591,578 shares of Common Stock and
21,253,559 shares of Class B Common Stock.
PAGE 2
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (L0SS)
Dow Jones & Company, Inc.
================================================================================
Quarters Ended Six Months Ended
(in thousands, except June 30 June 30
per share amounts) 1999 1998 1999 1998
- --------------------------------------------------------------------------------
Revenues:
Advertising $302,609 $277,043 $557,336 $ 521,709
Information services 94,395 209,782 189,302 477,165
Circulation and other 113,567 114,317 226,015 223,749
- --------------------------------------------------------------------------------
Total revenues 510,571 601,142 972,653 1,222,623
- --------------------------------------------------------------------------------
Expenses:
News, operations and
development 134,264 186,575 262,445 404,083
Selling, administrative
and general 177,219 211,790 346,880 437,549
Newsprint 36,645 43,028 74,040 82,883
Second class postage
and carrier delivery 30,032 29,639 59,047 57,907
Depreciation and
amortization 24,844 44,246 49,860 98,859
Restructuring 2,755 2,755
- --------------------------------------------------------------------------------
Operating expenses 405,759 515,278 795,027 1,081,281
- --------------------------------------------------------------------------------
Operating income 104,812 85,864 177,626 141,342
Other income (deductions):
Investment income 1,896 2,125 4,771 3,032
Interest expense (1,242) (1,838) (2,823) (4,520)
Equity in losses of
associated companies (6,935) (3,618) (10,626) (9,505)
(Loss) gain on disposition of
businesses and investments (136,387) 10,618 (120,997)
Other, net (126) (2,978) 324 (3,272)
- --------------------------------------------------------------------------------
Income (loss)
before income taxes 98,405 (56,832) 179,890 6,080
Income taxes (benefit) 41,193 (5,135) 71,156 23,079
- --------------------------------------------------------------------------------
Net income (loss) $ 57,212 $(51,697) $108,734 $ (16,999)
================================================================================
Per Share:
Net income per share:
- Basic $0.63 $(0.54) $1.19 $(0.18)
- Diluted 0.62 (0.54) 1.18 (0.18)
Weighted-average shares outstanding:
- Basic 90,699 96,476 91,063 96,610
- Diluted 91,676 96,476 91,996 96,610
Cash dividends declared $0.48 $0.48 $0.72 $0.72
- --------------------------------------------------------------------------------
Comprehensive income (loss) $ 64,084 $(46,175) $128,929 $ (7,291)
================================================================================
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) 1999 1998
- --------------------------------------------------------------------------
Operating Activities:
Net income (loss) $108,734 $(16,999)
Adjustments to reconcile net income (loss)
To net cash provided by operating activities:
Depreciation and amortization 49,860 98,859
(Gain) loss on disposition of businesses
and investments (10,618) 120,997
Changes in assets and liabilities (71,836) (101,892)
Other, net 13,001 18,003
- --------------------------------------------------------------------------
Net cash provided by operating activities 89,141 118,968
- --------------------------------------------------------------------------
Investing Activities:
Additions to plant and property (98,084) (131,954)
Businesses and investments acquired,
net of cash received (24,392) (46,323)
Disposition of businesses and investments 13,250 465,964
Other, net 801 2,402
- --------------------------------------------------------------------------
Net cash (used in) provided by
investing activities (108,425) 290,089
- --------------------------------------------------------------------------
Financing Activities:
Cash dividends (43,839) (46,630)
Reduction of long-term debt (63,015)
Repurchase of treasury stock, net of put premiums (70,500) (189,891)
Other, net 17,546 36,209
- --------------------------------------------------------------------------
Net cash used in financing activities (96,793) (263,327)
- --------------------------------------------------------------------------
Effect of exchange rate changes on cash (134) (658)
- --------------------------------------------------------------------------
(Decrease) increase in cash and cash equivalents (116,211) 145,072
Cash and cash equivalents at beginning of year 142,877 23,763
- --------------------------------------------------------------------------
Cash and cash equivalents at June 30 $ 26,666 $168,835
==========================================================================
See notes to condensed consolidated financial statements.
PAGE 4
CONDENSED CONSOLIDATED
BALANCE SHEETS
Dow Jones & Company, Inc.
==========================================================================
June 30 December 31
(in thousands) 1999 1998
- --------------------------------------------------------------------------
Assets:
Cash and cash equivalents $ 26,666 $ 142,877
Accounts receivable-trade, net 254,016 236,928
Accounts receivable-other 22,559 19,038
Inventories 12,832 11,386
Deferred income taxes 13,618 13,992
Prepaid expenses 17,211 18,068
Other investments 79,448
- --------------------------------------------------------------------------
Total current assets 426,350 442,289
- --------------------------------------------------------------------------
Investments in associated companies,
at equity 41,871 41,406
Other investments 169,290 222,858
Plant and property, at cost 1,667,802 1,575,781
Less, accumulated depreciation 1,019,378 973,664
- --------------------------------------------------------------------------
648,424 602,117
Goodwill, less accumulated amortization 84,801 86,554
Deferred income taxes 66,425 67,171
Other assets 30,284 28,927
- --------------------------------------------------------------------------
Total assets $1,467,445 $1,491,322
==========================================================================
Liabilities:
Accounts payable and accrued liabilities $ 269,744 $ 324,190
Dividend payable 21,799
Income taxes 35,396 37,198
Unearned revenue 230,947 238,409
- --------------------------------------------------------------------------
Total current liabilities 557,886 599,797
Long-term debt 149,916 149,889
Other noncurrent liabilities 237,083 232,296
- --------------------------------------------------------------------------
Total liabilities 944,885 981,982
- --------------------------------------------------------------------------
Stockholders' Equity:
Common stock 102,181 102,181
Additional paid-in capital 138,589 137,479
Retained earnings 667,335 624,239
Accumulated other comprehensive income 56,008 35,813
- --------------------------------------------------------------------------
964,113 899,712
Less, treasury stock, at cost 441,553 390,372
- --------------------------------------------------------------------------
Total stockholders' equity 522,560 509,340
- --------------------------------------------------------------------------
Total liabilities and stockholders' equity $1,467,445 $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
June 30, 1999, and December 31, 1998, and the consolidated results of
operations for the three and six month periods ended June 30, 1999 and
1998 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. Second quarter 1999 included a restructuring charge of $2.8 million
($1.6 million after-tax or 2 cents per diluted share) for employee
severance associated with the conversion to electronic pagination of
The Wall Street Journal. The severance charge of $2.8 million, which
applies to approximately 70 employees, reduced operating income for the
print publishing segment in the second quarter of 1999. The company
expects that the layoffs will be substantially completed in the second
quarter of 2000.
3. First quarter 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.
4. First quarter 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., publisher of Texas
Monthly magazine (three cents per share).
5. On May 29, 1998, the company completed the sale of Telerate
(formerly, Dow Jones Markets), a former subsidiary, to Bridge
Information Systems, Inc. The accepted purchase price (subject to
post-closing adjustment) included $360 million in cash and $150 million
of five year, convertible, 4% preferred stock of Bridge. In the second
quarter of 1998, a loss was recorded on the sale of Telerate of $136.4
million ($98 million after-tax or $1.02 per diluted share). Pro forma
results excluding Telerate operations and loss on sale are included in
the Other Information section as supplemental data on pages 18 and 19
of this Form 10-Q. Certain liabilities included in the accrued
liabilities as of June 30, 1999 and December 31, 1998 are principally
related to long-term contracts the company had entered into when
Telerate was a wholly-owned subsidiary.
6. 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.
7. 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 in the second quarter of 1999 put options
(puts) on approximately 1.3 million shares bringing to 2 million the
number of shares subject to puts at June 30, 1999. Outstanding puts
could obligate the company to repurchase up to $94.6 million of its
common stock (net of put premiums) through June 2000.
PAGE 6
NOTES TO FINANCIAL STATEMENTS (cont.)
Dow Jones & Company, Inc.
8. Comprehensive income was computed as follows:
=================================================================================
Quarters Ended Six Months Ended
June 30 June 30
(in thousands) 1999 1998 1999 1998
- ---------------------------------------------------------------------------------
Net income $ 57,212 $(51,697) $108,734 $(16,999)
Foreign currency translation
adjustments (621) 8,643 (1,077) 8,461
Less: realized foreign currency
translation adjustment
included in net (loss) (9,023) (9,023)
Unrealized gain on investments 7,493 5,902 21,272 10,270
- ---------------------------------------------------------------------------------
Comprehensive income $ 64,084 (46,175) $128,929 $ (7,291)
=================================================================================
9. Diluted earnings per share have been computed as follows:
=================================================================================
Quarters Ended Six Months Ended
(in thousands, except June 30 June 30
share amounts) 1999 1998 1999 1998
- ---------------------------------------------------------------------------------
Net income $57,212 $(51,697) $108,734 $(16,999)
Weighted-average shares
outstanding - basic 90,699 96,476 91,063 96,610
Stock options 840 735
Other, principally
contingent stock rights 137 198
- ---------------------------------------------------------------------------------
Weighted-average shares
outstanding - diluted 91,676 96,476 91,996 96,610
Diluted earnings per share $0.62 $(0.54) $1.18 $(0.18)
=================================================================================
Certain employee stock options and put options have been excluded
from diluted earnings per share in 1999 and 1998 because to include such
securities would be antidilutive.
10. Certain of the 1998 amounts have been reclassified for comparative
purposes.
11. The table on the following page compares revenues, income (loss)
before income taxes and EBITDA by business segment for the 1999 and
1998 quarters and six months ended June 30:
PAGE 7
SEGMENT INFORMATION
FOR THE QUARTERS ENDED AND SIX MONTHS ENDED JUNE 30
====================================================================================
Quarters Ended Six Months Ended
June 30 June 30
(in thousands) 1999 1998 1999 1998
- ------------------------------------------------------------------------------------
Revenues:
Print publishing $327,192 $307,885 $617,800 $ 589,389
Electronic publishing 98,786 97,464 196,323 195,045
Community newspapers 84,593 81,390 158,530 152,287
------- -------- -------- --------
Segment pro forma revenues 510,571 486,739 972,653 936,721
Telerate 114,403 285,902
------- -------- -------- --------
Consolidated revenues $510,571 $601,142 $972,653 $1,222,623
- ------------------------------------------------------------------------------------
Income (loss) before income taxes:
Print publishing (2) $ 79,850 $ 69,749 $132,319 $ 122,972
Electronic publishing 10,181 18,377 23,668 39,658
Community newspapers 23,603 16,067 37,596 24,222
Corporate (8,822) (6,118) (15,957) (12,283)
------- ------- -------- --------
Pro forma operating income 104,812 98,075 177,626 174,569
Telerate (12,211) (33,227)
------- ------- -------- --------
Consolidated operating income 104,812 85,864 177,626 141,342
Equity in losses of associated
companies (6,935) (3,618) (10,626) (9,505)
(Loss) gain on disposition
of businesses and investments (136,387) 10,618 (120,997)
Other income (deductions),net 528 (2,691) 2,272 (4,760)
-------- -------- -------- --------
Income (loss) before income taxes $ 98,405 $(56,832) $179,890 $ 6,080
- ------------------------------------------------------------------------------------
EBITDA: (1a)
Print publishing $ 96,611 $ 82,255 $163,424 $ 148,057
Electronic publishing 16,644 24,034 36,436 50,866
Community newspapers 27,978 20,439 46,338 32,890
Corporate (8,822) (6,118) (15,957) (12,283)
------- ------- -------- -------
Segment pro forma EBITDA 132,411 120,610 230,241 219,530
Telerate 9,500 20,671
------- ------- -------- -------
Consolidated EBITDA $132,411 $130,110 $230,241 $ 240,201
EBITDA Margin:
Print publishing 29.5% 26.7% 26.5% 25.1%
Electronic publishing 16.8% 24.7% 18.6% 26.1%
Community newspapers 33.1% 25.1% 29.2% 21.6%
All segments (2a) 25.9% 24.8% 23.7% 23.4%
====================================================================================
(1a) EBITDA is computed as operating income excluding depreciation,
amortization and restructuring costs.
(2a) Excludes Telerate results from operations and loss on sale.
PAGE 8
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
FOR THE SECOND QUARTERS AND THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
Net income for the second quarter was $57.2 million, or $.62 per
diluted share, in 1999 versus a loss of $51.7 million, or $.54 per share
in 1998. Revenues declined from $601.1 million in 1998's second quarter
to $510.6 million this year; however, second quarter operating income
increased to $104.8 million from $85.9 million a year ago.
In the first half net income was $108.7 million, or $1.18 per
diluted share, compared with a net loss of $17 million, or $.18 per
diluted share, last year. Revenues dropped to $972.7 million from the
$1.2 billion earned last year. Operating income of $177.6 million in
1999's first half improved from $141.3 million in 1998.
On May 29, 1998, the company completed the sale of Telerate, its
former subsidiary, to Bridge Information Systems, Inc. A loss on the
sale of Telerate of $136.4 million ($98 million after-tax) was recorded
in the second quarter of 1998. 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. Pro forma results
excluding Telerate operations and loss on sale are included in the Other
Information section as supplemental data on pages 18 and 19 of this Form
10-Q.
In the second quarter of 1999, the company recorded a restructuring
charge of $2.8 million ($1.6 million after-tax) for employee severance
as part of its conversion process to electronic pagination of The Wall
Street Journal. The company expects additional severance charges
associated with realigning its technology organization to be recorded
in the second half of 1999.
For purposes of understanding the financial results for the periods
presented in this Form 10-Q, the following text excludes Telerate
results from operations and loss on sale (pro forma results). In
addition, the following special items are excluded from all periods;
(1) second quarter 1999 - employee severance charge ($1.6 million after
- -tax, or -$.02 per share), (2) first quarter 1999 - net gain on sale of
the company's interest in OptiMark Technologies, Inc. ($10.6 million
after-tax, or +$.12 per share) and (3) first quarter 1998 - net gain on
sales of the company's interest in WBIS+ TV and Mediatex Communications
Corp. ($10.1 million after-tax, or +$.11 per share).
Excluding the restructuring charge, second quarter 1999 net income
was $58.9 million, or $.64 per diluted share, compared with pro forma
net income of $54.7 million, or $.56 per diluted share, in 1998's
second quarter. Earnings per share increased $.08, or 14.3%, per
diluted share due to improved print publishing operating income (+$.03
per diluted share excluding U.S. Television, newsprint price benefit
and severance charge), enhanced earnings at community newspapers (+$.04,
excluding newsprint price benefits), impact of share repurchases
(+$.04), and lower newsprint expense (+$.04). These increases were
partially offset by reduced earnings in electronic publishing (-$.05)
and corporate expenses (-$.02) related to the launch of process redesign
initiatives and third party fees for the Dow Jones Interactive and
Reuters Business Briefing joint venture, which formed Dow Jones Reuters
Business Interactive LLC on July 1, 1999.
PAGE 9
Operating income (excluding the restructuring charge), was $107.6
million, an increase of $9.5 million, or 9.7%, compared with pro forma
operating income in 1998's second quarter of $98.1 million. This rise
was mostly due to improved advertising linage of 6.9% at The Wall Street
Journal and an increase in operating income of $7.5 million, or 46.9%,
at community newspapers.
Second quarter revenues of $510.6 million grew $23.8 million, or
4.9%, compared with pro forma revenue in 1998. The revenue growth was
driven by an advertising increase of $25.6 million, or 9.2%.
Consolidated operating expenses (before the restructuring charge)
increased $14.3 million, or 3.7%, to $403 million. Print publishing
expenses, excluding newsprint and special charges, rose 5.6%, partially
due to higher compensation, selling efforts and continued efforts to
expand international print circulation. Electronic publishing expenses
grew 12% from sales and marketing, compensation and content fees all
partially related to international expansion. Consolidated newsprint
expense decreased $6.4 million, or 14.8%, compared with the like period
in 1998, reflecting an average 17% decline in newsprint prices and a
2.7% increase in consumption. The company employed approximately 8,400
full-time employees at June 30, 1999, down 4.2% from the 8,750 employees
a year earlier.
First half 1999 net income (excluding special items) was $99.8
million, or $1.08 per diluted share, an improvement of $.12, or 12.5%,
compared with pro forma net income (less special items) of $94.2
million, or $.96 per diluted share, in the first half of 1998. The
earnings per share growth was due to reduced worldwide television losses
(+$.06), enhanced earnings at community newspapers (+$.07, excluding
newsprint benefits), the impact of share repurchases (+$.07), and lower
newsprint expense (+$.06). These increases were partially offset by
reduced earnings in print publishing (-$.02 per share, excluding U.S.
Television, the newsprint price benefit and the severance charge),
lower earnings in electronic publishing (-$.10), and corporate expenses
(-$.02). Assuming a continued favorable economic environment, in the
second half the company anticipates to at least repeat the 12.5% gain
in first-half earnings per share, absent special items.
Operating income (excluding the restructuring charge) for the first
six months was $180.4 million, an increase of $5.8 million, or 3.3%,
compared with 1998's pro forma operating income of $174.6 million. The
improvement in operating income was chiefly due to advertising revenue
growth of $35.6 million, or 6.8%, driven by an advertising linage gain
of 4.3% at The Wall Street Journal. Also, community newspaper earnings
grew $13.4 million, or 55.2%, as operating expenses declined $7.1
million, or 5.6%, reflecting the cost reduction programs initiated in
mid 1998 and lower newsprint prices.
Revenues through June were $972.7 million, an increase of $35.9
million, or 3.8%, compared with pro forma revenues of $936.7 million in
the first half of 1998. Print publishing segment revenue was up $28.4
million, or 4.8%, electronic publishing revenue rose $1.3 million,
roughly 1%, and community newspapers grew $6.2 million, or 4.1%.
First half 1999 consolidated operating expenses (before the
restructuring charge) increased $30.1 million, or 4%, to $792.3 million,
with the drivers of growth similar to those in the second quarter
mentioned above. Print publishing expenses, excluding newsprint and
the severance charge, rose 5.8%. Electronic publishing expenses grew
11.1%. Consolidated newsprint expense decreased $8.8 million, or 10.7%,
reflecting an average 13.1% decline in newsprint prices and a 2.9%
increase in consumption.
PAGE 10
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 64% of second
quarter and first half 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, Dow Jones Interactive, dowjones.com, and
The Wall Street Journal Interactive Edition. Electronic publishing and
community newspapers comprised approximately 20% and 16%, respectively,
of 1999's year-to-date revenues.
PRINT PUBLISHING
Print publishing operating income in the second quarter of 1999
(excluding the severance charge of $2.8 million) was $82.6 million, an
increase of $12.9 million, or 18.4%, from $69.7 million earned a year
earlier. The growth was mainly due to the strength of advertising in
The Wall Street Journal. The EBITDA margin was 29.5%, compared to 26.7%
a year earlier.
Revenues for the second quarter of $327 million increased $19.3
million, or 6.3%. Advertising revenue grew 9.4%, largely on the
strength of a 6.9% advertising linage gain at The Wall Street Journal.
U.S. television grew nearly 80% while International print revenues were
up $1.2 million, or 4.2%, driven by 14.3% growth at The Wall Street
Journal Europe whereas revenue for the Asian publications fell 1%.
Second quarter 1999 general advertising linage, which comprised
59.6% of total Wall Street Journal linage, climbed 8.8%, in part due to
increased advertising by the technology firms promoting server and
networking products. Other strong performers included the
telecommunications and consulting industries. Financial linage, which
made up 26.9% of total Journal linage, was up 7%, chiefly due to
strength in wholesale advertising. Classified, and other linage, which
constituted the remaining 13.5% of Journal linage, was down 1% from the
comparable period in 1998, primarily from softness in employment
advertising and tougher comparisons with last year's second quarter as
the Weekend edition, (first published on March 20, 1998), began to
attract additional real estate advertising. Barron's national
advertising pages were up 3.5%.
Circulation revenue in 1999's second quarter was down 2.9% from the
like period in 1998. Second quarter average circulation at the domestic
Wall Street Journal remained relatively flat with the expansion of bulk
distribution to the hotel and airline markets. Barron's average
circulation gained 3.7% to about 309,000. International print
circulation revenue decreased 5.3%, largely the result of weaker foreign
currencies against the U.S. dollar. Average combined circulation for
the Asian and European Journals was up 14.2% to 145,000.
PAGE 11
Operating expenses, excluding the before mentioned severance charge,
climbed $6.5 million, or 2.7%, to $244.6 million in the second quarter
of 1999, reflecting higher compensation costs. Selling and marketing
costs also increased from last year with the introduction of the
Journal's new advertising promotion "Adventures in Capitalism" and
spending related to international expansion. In the second quarter of
1999, this segment benefited from a newsprint expense decrease of $5
million, or 14.5%. The average newsprint price per ton was $491, down
17.2%, while consumption increased 2.8% from 1998's second quarter.
Operating income in the first half of 1999 (before the severance
charge) was $135.1 million, an increase of $12.1 million, or 9.8%, from
operating income of $123 million earned a year earlier. The increase was
mainly due to the strength of advertising in the second quarter. The
EBITDA margin in the first half of 1999 was 26.5% compared to 25.1% a
year earlier.
Revenues for the six months ended June 30, 1999 increased $28.4
million, or 4.8%, from $589.4 million in 1998. Advertising revenue grew
6.5%, largely on a 4.3% advertising linage gain at The Wall Street
Journal and on the growth of U.S. television. International print
revenues were up $3.3 million, or 6.1%, driven by 18.1% growth in The
Wall Street Journal Europe. Asian operations were essentially flat.
First half 1999 general advertising linage at The Wall Street
Journal climbed 8.9%, in part due to increased advertising in
technology, telecommunications and utilities, hotels and resorts and
professional services. Financial linage was down about 4%, largely due
to a decline in security offers. Classified and other linage was up
2.9% from the comparable period in 1998, primarily from real estate
advertising. Barron's national advertising pages were down 3.9%.
Operating expenses, excluding the severance charge, climbed $16.3
million, or 3.5%, to $482.7 million in the first half of 1999. In the
first half of 1999, the company continued to benefit from reduced
newsprint prices with that expense declining $8.8 million, or 10.7%.
The average newsprint price per ton for the first half of 1999 was $519,
down 13.1%, while consumption increased 2.9%.
ELECTRONIC PUBLISHING
Second quarter 1999 operating income was $10.2 million, a decrease
of $8.2 million, or 44.6%, compared with 1998's second quarter.
Revenues rose 1.4% to $98.8 million. Operating expenses increased 12%
to $88.6 million.
Dow Jones Newswires revenue in the second quarter was $51.1 million,
down 1.2% from 1998 due to cancellation of Telerate-related terminals
in Europe and Asia somewhat offset by the start of new distribution
channels with Reuters and Bloomberg. At June 30, 1999, there were
304,000 newswires terminals, up 6.7% from 285,000 at the end of the
second quarter of 1998. Terminal growth in North America was 23,000,
somewhat offset by 4,000 cancellations overseas. Revenues in the U.S.
are affected by larger accounts which tend to contract for more
terminals and receive volume discounts. The 4,000 overseas terminals
that cancelled were yielding higher per-terminal revenue than those in
the U.S., resulting in a 20% decline in international revenue. The
company expects single digit revenue growth for the second half of 1999
due to lead times involved in establishing new clients. In addition,
the company continues to pursue other channels of distribution. In
July 1999, the company agreed to provide real-time Dow Jones Newswires
material to selected customers of DLJdirect Inc., an on-line brokerage
subsidiary of Donaldson, Lufkin & Jenrette, Inc.
PAGE 12
Dow Jones Indexes revenue of $3.1 million increased 10.1% in the
second quarter of 1999. The average number of futures contracts on the
CBOT and options contracts on the CBOE each grew approximately 19% from
the second quarter of 1998. Volume in DIAMONDS, which trades on
American Stock Exchange, rose roughly 150% compared to the prior year's
second quarter. Assets based on Dow Jones Indexes grew to $58 billion
from $13.6 billion a year ago, primarily due to growth of the Dow Jones
STOXX partnership, launched in the third quarter of 1998.
The Wall Street Journal Interactive Edition revenue in the second
quarter of 1999 was $7.9 million (including dowjones.com), an increase
of $3.7 million, or 89%, compared with 1998's like period. Advertising
revenue more than doubled from last year's quarter and subscription
revenue grew roughly 54%, partly reflecting a 20% price increase for
non-print subscribers effective November, 1998. In part, subscription
growth reflects arrangements from new distribution channels, such as the
AT&T WorldNet Service which offers its customers the Interactive Journal
as part of its subscription package with the first month free followed
by normal rates. At June 30, 1999, subscribers to the Interactive
Journal totaled approximately 306,000, up 37.2% from a year ago.
Revenue from Dow Jones Interactive and other products decreased
$2 million, or 5.2%, to $36.7 million in the second quarter of 1999,
in part due to a contractual reduction in a third party licensing
contract and reduced revenue from IDD Enterprises. Excluding these and
other non-core businesses, Dow Jones Interactive revenues grew roughly
7% in the second quarter with double-digit growth coming from the
end-user corporate desktop component. The total user count for Dow
Jones Interactive stood at 749,000 at June 30, 1999, compared to 513,000
a year ago.
Second quarter operating expenses for electronic publishing
increased 12% to $88.6 million, in large part due to sales and marketing
costs associated with promoting interactive products and the global
expansion of both interactive and newswires businesses and increased
content (royalty) costs.
First half 1999 operating income for electronic publishing was $23.7
million, a decrease of $16 million, or 40.3%, from 1998. The decline
was chiefly due to an operating expense increase of $17.3 million, or
11.1%, resulting from expansion/promotion of products, global sales
efforts and additional content fees. Segment revenues of $196.3 million
were up $1 million from 1998's first half. Dow Jones Newswires revenues
of $102 million were flat with a year ago. Revenue at Dow Jones
Interactive and other products decreased $3.6 million, or 4.5%, to $74.8
million, largely from revenue drops from IDD Enterprises products and
third party licensing contracts. The Wall Street Journal Interactive
Edition revenue was $13.3 million, an increase of $5.5 million, or 72%,
compared with 1998's like period. Dow Jones Indexes' revenue increased
3.9%, to $6.3 million. The EBITDA margin for the overall segment through
June was 18.6%, down from 26.1% in 1998. The company expects the
electronic publishing segment to continue to focus on revenue and market
share growth that will yield EBITDA margins below last year for the
second half of 1999.
PAGE 13
COMMUNITY NEWSPAPERS
Second quarter 1999 operating income was $23.6 million at the
community newspapers segment, up $7.5 million, or 47%, from the
comparable 1998 period. The operating margin increased to 27.9% from
19.7% in 1998 reflecting the full impact of cost reductions and
advertising rate increases, both implemented in the latter half of 1998.
Community newspapers revenue of $84.6 million advanced $3.2 million, or
3.9%. Rate increases drove a 4.5% gain in advertising revenue from the
comparable period in 1998. Advertising linage was down 1.3% due to a
decline in display ads resulting from store closings and 1998 benefiting
from advertising related to one-time bank mergers.
Second quarter 1999 circulation revenue grew 3.2% from the like
period last year. Operating expenses were $61 million, down $4.3
million, or 6.6%, reflecting a decrease in compensation expense
resulting from the voluntary separation program announced at the end of
the second quarter of 1998 and a 16% drop in newsprint expense.
First half 1999 operating income was $37.6 million, up $13.4
million, or 55%, from the like 1998 period. The operating margin
increased to 23.7% from 15.9% in 1999 reflecting the cost cutting
measures implemented during 1998. The EBITDA margin rose to 29.2% from
21.6% in 1998. The company expects to exceed its long-term EBITDA
margin target of 27% for community newspapers, for all of 1999.
Community newspapers revenue of $158.5 million advanced $6.2
million, or 4.1%, from 1998's first half. Advertising revenue increased
5.1% to $112.6 million, from a year-earlier and circulation revenue grew
2.6%. For the first six months, operating expenses were down $7.1
million to $120.9 million, mostly due to the separation program and
lower newsprint expense.
OTHER INCOME/DEDUCTIONS
Net interest income in the second quarter of 1999 and 1998 was $0.7
million and $0.4 million, respectively. Year-to-date net interest
income in 1999 was $1.9 million versus net interest expense of $1.5
million in 1998. Long-term debt was $149.9 million at June 30, 1999
and 1998 and $234.1 million at December 31, 1997.
The company's share of losses from associated companies in the
second quarter was $6.9 million in 1999 compared with $3.6 million a
year earlier. The wider loss resulted from reduced earnings at the
company's newsprint mill affiliate (due to lower newsprint prices),
SmartMoney (due to development costs for smartmoney.com) and other
affiliates, partially offset by a 12.2% improvement in international
television. First half 1999 equity losses were $10.6 million versus
$9.5 million in 1998.
In the first quarter of 1999, the company reported a pretax gain of
$10.6 million from the sale of a portion of its holdings in OptiMark
Technologies, Inc. First quarter 1998 included a pretax gain of $15.4
million from the sales of the company's interests in WBIS+ TV and
Mediatex.
On July 7, 1999, the company completed the sale of its interest in
United States Satellite Broadcasting, Inc. (USSB) to Hughes Electronics,
a General Motors subsidiary, receiving proceeds of $79.4 million, which
is included in other investments as a current asset. An after-tax gain
from the sale of $57.3 million, or $.62 per diluted share, will be
recorded in the third quarter of 1999.
PAGE 14
INCOME TAXES
The effective income tax rates for the second quarter and first half
of 1999 were 41.9% and 39.6%, compared with 42% and 41.4% in 1998,
respectively. The lower effective tax rate in the first half of 1999
resulted from the first quarter 1999 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 first six months effective
tax rate would have been 42% in 1999 and 42.1% in 1998.
At June 30, 1999, the company had available approximately $565
million of capital loss carryforwards (a deferred tax asset of $212
million) which was fully reserved through a valuation allowance
(resulting from the sale of Telerate in May 1998). After the third
quarter sale of USSB shares, capital loss carryforwards available were
approximately $510 million.
FINANCIAL POSITION AND CASH FLOW
In the first half of 1999, the company repurchased 1.54 million
shares of its common stock at an aggregate price of $70.5 million. The
company issued in the second quarter 1.3 million put options (puts).
At June 30, 1999 there were 2 million puts outstanding which could
obligate the company to repurchase up to $94.6 million of its common
stock (net of put premiums) through June 2000. In 1998 the company's
board of directors authorized the company to repurchase up to $800
million of Dow Jones' common stock over the subsequent three years. At
June 30, 1999, approximately $340 million of the board authorization
was available for stock repurchases, after reserving for the exercise
of puts.
In the first half of 1999, the company funded the repurchase of its
common stock for $70.5 million, capital expenditures of $98 million,
(including $33 million for The Wall Street Journal color expansion
project), paid dividends of $44 million and funded $24 million in
various investments. Cash and cash equivalents, which include
highly-liquid investments with a maturity of three months or less, were
$26.7 million at June 30, 1999 compared to $168.8 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.
NEW CREDIT FACILITY
In June 1999, the company established a one year $400 million credit
facility with a consortium of banks. The company, through the credit
facility, will have available funds through various loan arrangements
with variable interest rates which will be based on the type of loan
and the current market rates at the time the loans are requested. The
credit facility replaces another $400 million credit facility which was
to expire in November 1999. At June 30, 1999, there were no borrowings
under either facility. The company also uses commercial paper from time
to time for short-term borrowings.
PAGE 15
NEW BUSINESS INITIATIVES:
DOW JONES REUTERS BUSINESS INTERACTIVE LLC
In June 1999, Reuters Group Plc and Dow Jones &
Company announced the formation of a joint venture (effective July 1,
1999), Dow Jones Reuters Business Interactive LLC, each with 50%
ownership. The venture is expected to expand upon both partners'
existing interactive businesses and to develop an integrated (combining
both Dow Jones and Reuters products) web-based service to provide
corporate news, information and research data; targeting users of the
corporate desktops, traditional librarian and professional researcher
markets. The new service will include access to The Wall Street Journal
and both Reuters and Dow Jones Newswires, from interfaces in 11
languages and content in nine others. Also, it will target its
penetration into developed markets in North America and Western Europe
and emerging markets in Asia, Eastern Europe and Latin America. The
company expects this new integrated service to be available in the
middle of next year. Prior to the availability of the new service,
Dow Jones Reuters Business Interactive LLC will provide proprietary
content from Dow Jones and Reuters to its full customer base.
THE WALL STREET JOURNAL SUNDAY
In April 1999, the company announced a new
initiative to launch The Wall Street Journal Sunday pages to commence
in the third quarter of 1999. The company expects total combined
circulation will be just over 4.3 million. The package of four pages,
roughly half news, half advertising, will be published once a week in
the business sections of partner newspapers. The participating
newspapers will initially include such publications as The Denver Post,
The Sun-Sentinel of Fort Lauderdale, Florida, The Minneapolis Star
Tribune, The Orange County Register, The St. Petersburg Times, the
Milwaukee Journal-Sentinel, the New Orleans Times-Picayune, the Raleigh
News & Observer, the St. Louis Post-Dispatch and The Sacramento Bee.
The content will focus on personal finance and careers. The company
will receive a content fee and share in the advertising revenues.
OTHER
In May 1999, Dow Jones launched a new free vertical portal Web site,
dowjones.com. The new Internet site offers business information and
research services, targeting a broad group of business professionals.
In April 1999, Dow Jones, the Financial Times and Independent Media
agreed to launch later this year Vedomosti, or The Record, a daily
Russian business newspaper.
In June 1999, with an effective date of January 1, 2000, von
Holtzbrink group and Dow Jones agreed to swap minority stakes in The
Wall Street Journal Europe and Handelsblatt, Germany's leading business
newspaper. Under the agreement, Dow Jones will own 22% of Handelsblatt,
while von Holtzbrink group will own 49% of the European Journal
including Dow Jones' minority interests in a Czech business publisher
(Economia) and German financial news agency (VWD).
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 without interrupting
ongoing operations. The company estimates operating costs over the
1997-1999 period to modify its systems for the Year 2000 issue will
range between $16 million and $18 million. Through June 30, 1999 the
company's expenses were approximately $14.6 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.
The company has identified existing computer applications and
categorized them as: (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 June 1999, approximately 95% of
applications requiring modification have been certified as Year 2000
compliant, roughly 94% of replacement applications have been certified
and about 95% of initially reported Year 2000 compliant applications
have been confirmed.
The company started contingency planning in the fourth quarter of
1998. The primary focus is to plan for unprepared providers of goods
and services, the potential for numerous simultaneous outages, facility
problems and unforeseen internal and external failures of computer
applications and hardware. As part of this effort the company is
ensuring the availability of employees and others at year-end. This
contingency planning project is specific to potential Year 2000 related
issues and includes; (1) program definition, (2) business risk
assessments, (3) strategy development, (4) business continuity and
readiness plan development for mission critical processes, (5) testing
readiness plans and (6) developing and implementing event response
procedures and a team to monitor and address any Year 2000 related
failures.
At June 30, 1999, the readiness plans for essentially all mission
critical processes have been developed with the remainder scheduled for
completion in July 1999. These plans will be tested and any proactive
measures will be implemented during the second half of 1999. An event
response team will be in place during the remainder of this year and
will continue into the Year 2000.
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 newswire
services; the extent to which the company is able to achieve and
maintain a more diversified advertising base for its print publications;
the size of the global corporate desktop market for on-line business
information and research services and competition in that market; the
extent to which the company is able to achieve and maintain advertising
revenues from its free services on the Internet, 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 time to time in the company's reports filed
with the Securities and Exchange Commission.
PAGE 18
ITEM 5: OTHER INFORMATION
PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF INCOME *
Dow Jones & Company, Inc.
Quarters Ended Six Months Ended
June 30 June 30
=============================================================================
(in thousands, except
share amounts) 1999 1998 1999 1998
-----------------------------------------------------------------------------
REVENUES:
Advertising $302,609 $277,043 $557,336 $521,709
Information services 94,395 95,379 189,302 191,263
Circulation and other 113,567 114,317 226,015 223,749
-----------------------------------------------------------------------------
Total revenues 510,571 486,739 972,653 936,721
-----------------------------------------------------------------------------
EXPENSES:
News, operations and
development 134,264 129,589 262,445 252,241
Selling, administrative
and general 177,219 163,873 346,880 324,160
Newsprint 36,645 43,028 74,040 82,883
Second class postage
and carrier delivery 30,032 29,639 59,047 57,907
Depreciation and
amortization 24,844 22,535 49,860 44,961
Restructuring 2,755 2,755
-----------------------------------------------------------------------------
Operating expenses 405,759 388,664 795,027 762,152
-----------------------------------------------------------------------------
Operating income 104,812 98,075 177,626 174,569
OTHER INCOME (DEDUCTIONS):
Investment income 1,896 1,795 4,771 2,096
Interest expense (1,242) (1,351) (2,823) (3,597)
Equity in losses of
associated companies (6,935) (3,618) (10,626) (9,505)
Gain on disposition of
businesses and investments 10,618 15,390
Other, net (126) (469) 324 (918)
-----------------------------------------------------------------------------
Income before income taxes 98,405 94,432 179,890 178,035
Income taxes 41,193 39,686 71,156 73,687
-----------------------------------------------------------------------------
NET INCOME $ 57,212 $ 54,746 $108,734 $104,348
=============================================================================
NET INCOME PER SHARE:
- Basic $.63 $.57 $1.19 $1.08
- Diluted .62 .56 1.18 1.07
Weighted-average shares
outstanding:
- Basic 90,699 96,476 91,063 96,610
- Diluted 91,676 97,677 91,996 97,920
=============================================================================
* Pro forma statements of income exclude Telerate results of operations and
loss on sale. Dow Jones completed the sale of Telerate on May 29, 1998.
PAGE 19
ITEM 5: OTHER INFORMATION (cont.)
SUPPLEMENTAL PRO FORMA REVENUE SEGMENT INFORMATION *
Dow Jones & Company, Inc.
================================================================================
Quarters Ended Six Months Ended
June 30 June 30
(in thousands)) 1999 1998 1999 1998
-----------------------------------------------------------------------------
PRINT PUBLISHING:
U.S. Publications:
Advertising $218,087 $198,692 $403,718 $379,732
Circulation and other 79,209 80,506 157,833 156,661
International Publications:
Advertising 18,823 17,804 33,828 31,074
Circulation and other 11,073 10,883 22,421 21,922
------- ------- ------- -------
Total pro forma revenues 327,192 307,885 617,800 589,389
ELECTRONIC PUBLISHING:
Dow Jones Newswires 51,103 51,736 101,981 102,894
Dow Jones Indexes 3,063 2,783 6,304 6,069
Dow Jones Interactive
and other 36,746 38,774 74,782 78,365
The Wall Street Journal
Interactive Edition 7,874 4,171 13,256 7,717
------- ------- ------- -------
Total pro forma revenues 98,786 97,464 196,323 195,045
COMMUNITY NEWSPAPERS:
Advertising 61,120 58,476 112,609 107,163
Circulation and other 23,473 22,914 45,921 45,124
------- ------- ------- -------
Total pro forma revenues 84,593 81,390 158,530 152,287
Total pro forma segment
revenues $510,571 $486,739 $972,653 $936,721
=============================================================================
* Pro forma statements of income exclude Telerate results of operations and
loss on sale. Dow Jones completed the sale of Telerate on May 29, 1998.
PAGE 20
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits filed:
Exhibit
Number Document
- ------- --------
10.15 The Restated Certificate of Incorporation of the company, as
amended April 22, 1988 and April 25, 1989.
10.16 The By-laws of the company restated as of May 17, 1989.
10.17 The Restated Credit Facility as of June 29, 1999.
* 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 21
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
DOW JONES & COMPANY, INC.
-------------------------
(Registrant)
Date: August 11, 1999 By: /s/ Lawrence K. Kinsella
----------------------
Comptroller
(Chief Accounting Officer)