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 September 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 September 30, 1999: 68,240,355 shares of Common Stock and
21,230,914 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.
==========================================================================
Quarters Ended Nine Months Ended
(in thousands, except September 30 September 30
per share amounts) 1999 1998 1999 1998
- --------------------------------------------------------------------------
Revenues:
Advertising $289,549 $231,457 $ 846,885 $ 753,166
Information services 68,556 96,935 257,858 574,100
Circulation and other 111,690 115,233 337,705 338,982
- --------------------------------------------------------------------------
Total revenues 469,795 443,625 1,442,448 1,666,248
- --------------------------------------------------------------------------
Expenses:
News, operations and
development 121,598 131,448 384,043 535,531
Selling, administrative
and general 175,794 161,588 522,674 599,137
Newsprint 34,704 38,510 108,744 121,393
Second class postage
and carrier delivery 29,450 28,612 88,497 86,519
Depreciation and
amortization 24,106 22,577 73,966 121,436
Restructuring 16,340 2,755 16,340
- --------------------------------------------------------------------------
Operating expenses 385,652 399,075 1,180,679 1,480,356
- --------------------------------------------------------------------------
Operating income 84,143 44,550 261,769 185,892
Other income (deductions):
Investment income 2,480 4,535 7,251 7,567
Interest expense (918) (909) (3,741) (5,429)
Equity in losses of
associated companies (8,171) (4,483) (18,797) (13,988)
Gain on disposition of
businesses and investments 57,607 68,225 (120,997)
Other, net (383) 97 (59) (3,175)
- --------------------------------------------------------------------------
Income before income taxes 134,758 43,790 314,648 49,870
Income taxes 31,957 17,931 103,113 41,010
- --------------------------------------------------------------------------
Net income $102,801 $ 25,859 $ 211,535 $ 8,860
==========================================================================
Per share:
Net income per share:
- Basic $1.14 $0.28 $2.33 $0.09
- Diluted 1.13 0.27 2.32 0.09
Weighted-average shares outstanding:
- Basic 90,040 93,928 90,711 95,825
- Diluted 90,689 95,113 91,333 97,125
Cash dividends declared $0.72 $0.72
- --------------------------------------------------------------------------
Comprehensive income $ 42,498 $ 13,157 $171,427 $ 5,866
==========================================================================
See notes to condensed consolidated financial statements.
PAGE 3
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
Dow Jones & Company, Inc.
==========================================================================
Nine Months Ended September 30
(in thousands) 1999 1998
- --------------------------------------------------------------------------
Operating Activities:
Net income $211,535 $ 8,860
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 73,966 121,436
(Gain) loss on disposition of businesses
and investments (68,225) 120,997
Changes in assets and liabilities (66,780) (76,714)
Other, net 19,457 31,928
- --------------------------------------------------------------------------
Net cash provided by operating activities 169,953 206,507
- --------------------------------------------------------------------------
Investing Activities:
Additions to plant and property (144,159) (175,658)
Businesses and investments acquired,
net of cash received (39,518) (50,734)
Disposition of businesses and investments 92,698 465,983
Other, net 2,084 8,429
- --------------------------------------------------------------------------
Net cash (used in) provided by
investing activities (88,895) 248,020
- --------------------------------------------------------------------------
Financing Activities:
Cash dividends (65,662) (69,195)
Reduction of long-term debt (63,015)
Repurchase of treasury stock, net of put premiums (141,529) (201,193)
Other, net 18,524 50,874
- --------------------------------------------------------------------------
Net cash used in financing activities (188,667) (282,529)
- --------------------------------------------------------------------------
Effect of exchange rate changes on cash 123 78
- --------------------------------------------------------------------------
(Decrease) increase in cash and cash equivalents (107,486) 172,076
Cash and cash equivalents at beginning of year 142,877 23,763
- --------------------------------------------------------------------------
Cash and cash equivalents at September 30 $ 35,391 $195,839
==========================================================================
See notes to condensed consolidated financial statements.
PAGE 4
CONDENSED CONSOLIDATED
BALANCE SHEETS
Dow Jones & Company, Inc.
==========================================================================
September 30 December 31
(in thousands) 1999 1998
- --------------------------------------------------------------------------
Assets:
Cash and cash equivalents $ 35,391 $ 142,877
Accounts receivable-trade, net 261,355 236,928
Accounts receivable-other 20,609 19,038
Inventories 14,116 11,386
Deferred income taxes 13,659 13,992
Prepaid expenses 17,964 18,068
- --------------------------------------------------------------------------
Total current assets 363,094 442,289
- --------------------------------------------------------------------------
Investments in associated companies,
at equity 53,129 41,406
Other investments 169,504 222,858
Plant and property, at cost 1,696,555 1,575,781
Less, accumulated depreciation 1,034,676 973,664
- --------------------------------------------------------------------------
661,879 602,117
Goodwill, less accumulated amortization 83,950 86,554
Deferred income taxes 68,299 67,171
Other assets 31,076 28,927
- --------------------------------------------------------------------------
Total assets $1,430,931 $1,491,322
==========================================================================
Liabilities:
Accounts payable and accrued liabilities $ 278,004 $ 324,190
Income taxes 41,070 37,198
Unearned revenue 224,589 238,409
- --------------------------------------------------------------------------
Total current liabilities 543,663 599,797
Long-term debt 149,931 149,889
Other noncurrent liabilities 241,843 232,296
- --------------------------------------------------------------------------
Total liabilities 935,437 981,982
- --------------------------------------------------------------------------
Stockholders' Equity:
Common stock 102,181 102,181
Additional paid-in capital 138,756 137,479
Retained earnings 770,112 624,239
Accumulated other comprehensive (loss) income (4,295) 35,813
- --------------------------------------------------------------------------
1,006,754 899,712
Less, treasury stock, at cost 511,260 390,372
- --------------------------------------------------------------------------
Total stockholders' equity 495,494 509,340
- --------------------------------------------------------------------------
Total liabilities and stockholders' equity $1,430,931 $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 September 30,
1999, and December 31, 1998, and the consolidated results of operations for
the three and nine month periods ended September 30, 1999 and 1998 and the
consolidated cash flows for the nine-month periods then ended. All
adjustments reflected in the accompanying unaudited condensed consolidated
financial statements are of a normal recurring nature. Certain prior year
amounts have been reclassified to conform with current year presentation.
The results of operations for the respective interim periods are not
necessarily indicative of the results to be expected for the full year.
2. On July 1, 1999, the company formed a 50-50 joint venture, Dow Jones
Reuters Business Interactive LLC (DJRBI), with Reuters Group Plc, into
which Dow Jones contributed a significant portion of its interactive
business unit. Additionally, the company provided fixed assets with a net
book value of $9.9 million. The company's share of the joint venture's
results are included in Equity in Losses of Associated Companies. On
November 8, 1999, the Dow Jones Reuters Business Interactive product was
renamed Factiva.
3. In the third quarter of 1999, Dow Jones completed the sale of its
interest in United States Satellite Broadcasting, Inc. The company
realized a net gain of $57.3 million, or $.63 per diluted share.
4. The second quarter of 1999 included a restructuring charge of $2.8
million ($1.6 million after tax, or $.02 per diluted share) for employee
severance associated with the conversion to electronic pagination of The
Wall Street Journal. The severance charge, which applies to approximately
70 employees, reduced operating income for the print publishing segment.
The company expects that the layoffs will be substantially completed in the
second quarter of 2000.
5. First quarter 1999 included a net gain of $10.6 million, or $.12 per
diluted share, from the sale of a portion of the company's minority
interest in OptiMark Technologies, Inc.
6. In the third quarter of 1998, the company recorded a restructuring
charge of $16.3 million ($9.6 million after tax, or $.10 per diluted share)
for a voluntary staff reduction plan at community newspapers.
7. 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 $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 19 and 20 of this Form 10-Q. Certain liabilities included in
accrued liabilities as of September 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.
8. First quarter 1998 included a net gain of $10.1 million, or 11 cents
per diluted share, from the sales of the company's interests in WBIS+ TV
($.08 per diluted share) and Mediatex Communications Corp., publisher of
Texas Monthly magazine ($.03 per diluted share).
PAGE 6
9. 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.
10. In the third quarter of 1999, the company repurchased 1.5 million
shares of its common stock at an aggregate price of $76.3 million.
Additionally, the company sold put options (puts) on 333,000 shares,
bringing to 2 million the number of shares subject to puts at September 30,
1999. Outstanding puts may require the company to repurchase up to $96.1
million of its common stock (net of put premiums) through September 2000.
11. Comprehensive income was computed as follows:
===========================================================================
Quarters Ended Nine Months Ended
September 30 September 30
(in thousands) 1999 1998 1999 1998
- ---------------------------------------------------------------------------
Net income $102,801 $ 25,859 $211,535 $ 8,860
Adjustments for realized
gain included in net income (57,607) (38,840)
Less: realized foreign currency
translation adjustment
included in net income (9,023)
Foreign currency translation
adjustments 832 (245) 8,461
Unrealized holdings (3,528) (12,702) (1,023) (2,432)
- ---------------------------------------------------------------------------
Comprehensive income $ 42,498 $ 13,157 $171,427 $ 5,866
===========================================================================
12. Diluted earnings per share have been computed as follows:
===========================================================================
Quarters Ended Nine Months Ended
(in thousands, except September 30 September 30
per share amounts) 1999 1998 1999 1998
- ---------------------------------------------------------------------------
Net income $102,801 $ 25,859 $211,535 $ 8,860
Weighted-average shares
outstanding - basic 90,040 93,928 90,711 95,825
Stock options 509 908 488 1,034
Other, principally
contingent stock rights 140 277 134 266
- ---------------------------------------------------------------------------
Weighted-average shares
outstanding - diluted 90,689 95,113 91,333 97,125
Diluted earnings per share $1.13 $0.27 $2.32 $0.09
===========================================================================
PAGE 7
NOTES TO FINANCIAL STATEMENTS (cont.)
Dow Jones & Company, Inc.
13. 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.
14. Various libel actions, environmental and other legal proceedings that
have arisen in the ordinary course of business are pending against the
company and its subsidiaries. In the opinion of management, the ultimate
outcome to the company and its subsidiaries as a result of legal
proceedings is adequately covered by insurance, or if not covered, would
not have a material effect on the company's financial statements taken as a
whole.
15. The table on the following page compares revenues, income before income
taxes and EBITDA by business segment for the 1999 and 1998 quarters and
nine months ended September 30. EBITDA is computed by the company as
operating income excluding depreciation and amortization and restructuring
charges. EBITDA is a measure used by the company's management in
determining a business unit's performance. EBITDA may be calculated
differently by other companies and investors should not view the company's
calculation of EBITDA as an alternative to GAAP measurements such as
operating income, net income and cash flows provided by or used in
operating, investing and financing activities.
PAGE 8
SEGMENT INFORMATION
FOR THE QUARTERS AND NINE MONTHS ENDED SEPTEMBER 30
=============================================================================
Quarters Ended Nine Months Ended
September 30 September 30
(in thousands) 1999 1998 1999 1998
- -----------------------------------------------------------------------------
Revenues:
Print publishing $310,027 $263,604 $ 927,827 $ 852,993
Electronic publishing 75,071 98,808 271,394 293,853
Community newspapers 84,697 81,213 243,227 233,500
-------- -------- ---------- ----------
Segment pro forma revenues 469,795 443,625 1,442,448 1,380,346
Telerate 285,902
-------- -------- ---------- ----------
Consolidated revenues $469,795 $443,625 $1,442,448 $1,666,248
- -----------------------------------------------------------------------------
Income before income taxes:
Print publishing $ 61,304 $ 31,435 $ 193,623 $ 154,407
Electronic publishing 8,013 17,731 31,681 57,389
Community newspapers 22,855 968 60,451 25,190
Corporate (8,029) (5,584) (23,986) (17,867)
-------- -------- ---------- ----------
Pro forma operating income 84,143 44,550 261,769 219,119
Telerate (33,227)
-------- -------- ---------- ----------
Consolidated operating income 84,143 44,550 261,769 185,892
Equity in losses of associated
companies (8,171) (4,483) (18,797) (13,988)
Gain (loss) on disposition
of businesses and investments 57,607 68,225 (120,997)
Other income (deductions),net 1,179 3,723 3,451 (1,037)
-------- -------- ---------- ----------
Income before income taxes $134,758 $ 43,790 $ 314,648 $ 49,870
- -----------------------------------------------------------------------------
EBITDA: (1)
Print publishing $ 75,153 $ 43,661 $ 238,577 $ 191,718
Electronic publishing 13,851 23,685 50,287 74,551
Community newspapers 27,274 21,705 73,612 54,595
Corporate (8,029) (5,584) (23,986) (17,867)
-------- -------- ---------- ----------
Segment pro forma EBITDA 108,249 83,467 338,490 302,997
Telerate 20,671
-------- -------- ---------- ----------
Consolidated EBITDA $108,249 $ 83,467 $ 338,490 $ 323,668
EBITDA Margin:
Print publishing 24.2% 16.6% 25.7% 22.5%
Electronic publishing 18.5% 24.0% 18.5% 25.4%
Community newspapers 32.2% 26.7% 30.3% 23.4%
All segments (2) 23.0% 18.8% 23.5% 22.0%
=============================================================================
Supplemental disclosures including the company's half of DJRBI's results
are presented on pages 20 and 21 of this Form 10-Q.
(1) EBITDA is computed as operating income excluding depreciation,
amortization and restructuring costs.
(2) Excludes Telerate results from operations and loss on sale.
PAGE 9
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
FOR THE QUARTERS AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
Net income for the third quarter was $102.8 million, or $1.13 per
diluted share, in 1999 versus $25.9 million, or $.27 per diluted share, in
1998. Revenues advanced to $469.8 million this year from $443.6 million in
1998's third quarter. Operating income increased to $84.1 million from
$44.6 million a year ago.
For the first nine months of 1999 net income was $211.5 million, or
$2.32 per diluted share, compared with $8.9 million, or $.09 per diluted
share, last year. Revenues dropped to $1.44 billion from the $1.67 billion
earned last year. Operating income of $261.8 million in the first nine
months improved from $185.9 million in 1998.
Dow Jones Reuters Business Interactive LLC (DJRBI), a joint venture,
was established July 1, 1999. The company's 50% share of the joint
venture's results are reported in Equity in Losses of Associated Companies.
Prior to July 1, 1999, results of the interactive business contributed to
the joint venture were included in electronic publishing operating results.
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
$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 19 and 20 of this Form 10-Q.
In the third quarter of 1999, the company realized a net gain of $57.3
million, or $.63 per diluted share, from the sale of its full interest in
United States Satellite Broadcasting, Inc. (USSB), a provider of direct
satellite television programming.
The following table summarizes special items, net of income taxes:
==========================================================================
Quarters Ended Nine Months Ended
(in thousands, except September 30 September 30
per share data) 1999 1998 1999 1998
- --------------------------------------------------------------------------
Investment sale gains:
USSB Inc. $57.3 $57.3
OptiMark Technologies,
Inc. 10.6
WBIS+ TV $ 7.4
Mediatex Communications
Corp. 2.7
----- ----- ----- -----
Total investments 57.3 67.9 10.1
Severance charges: ($ 9.6) ( 1.6) ( 9.6)
----- ----- ----- -----
Total special items $57.3 ($ 9.6) $66.3 $ 0.5
- --------------------------------------------------------------------------
Earnings per diluted share:
Investment sale gains $ .63 $ .75 $ .11
Severance charges ($ .10) ($ .02) ($ .10)
==========================================================================
PAGE 10
The company's consolidated financial results for the quarters and nine
months ended September 30, 1999 and 1998 were as follows:
==========================================================================
Quarters Ended Nine Months Ended
(in thousands, except September 30 September 30
per share data) 1999 1998 1999 1998
- --------------------------------------------------------------------------
Net income excluding
Telerate and
special items $ 45,479 $35,418 $145,238 $129,620
Telerate results of
operations and loss on sale (121,347)
Special items 57,322 (9,559) 66,297 587
------- ------ ------- -------
Net income as reported $102,801 $25,859 $211,535 $ 8,860
- --------------------------------------------------------------------------
Diluted earnings per share from
continuing operations $.50 $.37 $1.59 $1.33
Telerate results of
operations and loss on sale (1.25)
Special items .63 ( .10) .73 .01
- --------------------------------------------------------------------------
Diluted earnings
per share as reported $1.13 $.27 $2.32 $.09
==========================================================================
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). The company reports
DJRBI's results in Equity in Losses of Associated Companies. However,
to assist the reader in understanding the revenue and expense trends of
the company, certain discussions and analysis will present the electronic
publishing business segment or consolidated operating results including the
company's 50% share of revenues, expenses and operating income of DJRBI.
Net income (excluding special items as defined above) was $45.5
million, or $.50 per diluted share, in the third quarter of 1999 compared
with $35.4 million, or $.37 per diluted share, earned in 1998. Earnings
increased $.13, or 35%, per diluted share, due to improved print publishing
operating income (+$.14 excluding U.S. Television and newsprint price
benefit), lower newsprint prices (+$.05), enhanced earnings at community
newspapers (+$.03 excluding newsprint price benefit), and impact of share
repurchases (+$.02). These increases were partially offset by reduced
earnings in electronic publishing (-$.07) and lower investment income and
equity results (-$.03). Equity losses were greater due to an earnings
decline at F.F. Soucy (a newsprint mill owned 39.9% by Dow Jones), the
inclusion of the third quarter results of DJRBI (prior to July 1, 1999, the
former Dow Jones Interactive business was reported in operating results)
and SmartMoney (specifically from development costs for SmartMoney.com).
PAGE 11
Third quarter operating income, excluding special items, grew 38% to
$84.1 million in 1999, driven by strong advertising revenue gains, improved
margins at community newspapers and lower newsprint costs in 1999.
Revenues of $469.8 million grew $26.2 million, or 5.9%, from 1998.
Advertising revenue benefited from a 27% advertising linage gain at The
Wall Street Journal. The EBITDA margin increased to 23.0% from 18.8% in
1998.
Excluding special items, consolidated operating expenses in the third
quarter of 1999 increased $2.9 million, or 0.8%, to $385.7 million, from
the like period in 1998. Print publishing expenses rose 7.1%, partially
due to higher compensation (in part due to increased sales commissions
driven by revenue growth) and marketing efforts associated with The Wall
Street Journal branding campaign. Electronic publishing expenses fell 17%.
Including 50% of DJRBI, consolidated operating expenses increased
8.1%, with electronic publishing expenses increasing 18% to $95.3 million,
due to sales and marketing, compensation and content fees, all partially
related to international expansion. Third quarter 1999 consolidated
newsprint expense decreased $3.8 million, or 9.9%, compared with the like
period in 1998 reflecting an average decline of 19% in newsprint prices
partially offset by an 11.3% increase in consumption.
Net income for the first three quarters of 1999 of $145.2 million, or
$1.59 per diluted share, grew 20% per diluted share from the 1998 like
period's pro forma results, excluding special items from both years.
Diluted earnings per share increased $.26, due to improved print publishing
operating income (+$.11 excluding U.S. Television and newsprint price
benefit), enhanced earnings at community newspapers (+$.10, excluding
newsprint price benefits), the impact of share repurchases (+$.10), lower
newsprint expense (+$.10), and reduced worldwide television losses (+$.08).
These increases were partially offset by reduced earnings in electronic
publishing (-$.17), lower equity results and an increase of corporate
expenses associated with compensation, establishment of the DJRBI joint
venture and process redesign (-$.07).
Consolidated operating income, excluding special items, for the first
nine months was $264.5 million, an increase of $29.1 million, or 12.3%,
compared with 1998's operating income. Revenue grew 8.4% at domestic print
publications, with U.S. television revenue more than doubled from the prior
year (the programming alliance with CNBC in the U.S. began April 2, 1998).
This was partially offset by an electronic publishing revenue decline of
46%, due to the inclusion of the former Dow Jones Interactive business unit
into Equity in Losses of Associated Companies effective July 1, 1999.
Electronic publishing revenues, including one-half of DJRBI, were $297.8
million, up 1.3%, from a year ago. Community newspapers operating
earnings grew $18.9 million, or 46%. Consolidated revenues through
September 1999 grew $62.1 million, an increase of 4.5%, largely due to
growth in the print publishing segment. Consolidated expenses for the
three-quarters of 1999 increased $33 million, or 2.9%.
Given the continuing strength in Wall Street Journal linage, the
company expects fourth quarter 1999 earnings per share, excluding special
items, to grow at least at the 20% pace achieved in the first nine months
of 1999. Enhanced margins at the community newspapers and lower newsprint
costs should also continue to benefit earnings in 1999. Electronic
publishing's earnings falloff is expected to partially offset these gains
as the company continues its marketing and sales initiatives and expands
its news content and distribution channels globally.
PAGE 12
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).
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, The Wall Street Journal Interactive Edition,
dowjones.com, and Dow Jones Interactive and other.
PRINT PUBLISHING
Print publishing operating income in the third quarter was $61.3
million, an increase of $29.9 million, or 95%, from 1998. The EBITDA
margin rose to 24.2% from 16.6% in 1998. Revenues of $310 million advanced
$46.4 million, or 18%. Advertising revenue grew 32%, mostly from the
strength of a 27% linage gain at The Wall Street Journal (third quarter
1998 linage was down 6.8% from the like period in 1997). U.S. television
grew 28%, while International print revenue was down $1.7 million, or 6%,
due to a revenue falloff from Asian publications, almost entirely due to
the Far Eastern Economic Review. Wall Street Journal Europe revenue rose
6.8%.
General advertising linage in The Wall Street Journal, which comprised
58% of total linage, climbed 39% over third quarter 1998, in part due to
increased advertising by technology firms promoting server and networking
products as well as growth in "dot.com" advertising. Other strong
performers included the telecommunications and utility industries. Luxury
goods, professional services and corporate image advertising also provided
substantial growth to the general category. Financial linage, which made
up 29% of total Journal linage, was up 23%, driven by the strong economy
and resurgence in IPO activity. Classified and other linage, which
constituted the remaining 13% of Journal linage, was down 2% from the
comparable period in 1998, reflecting some migration of employment
advertising to the Internet. Barron's national advertising pages were up
nearly 20%.
Circulation revenue in 1999's third quarter was down 4.7% from a year
ago. Average circulation at the domestic Wall Street Journal remained
relatively flat with the expansion of low-revenue bulk distribution to the
hotel and airline markets offsetting a slight drop in subscription
circulation. Barron's average circulation gained 1% to about 290,000.
International print circulation revenue decreased 9.6%, largely the result
of a revenue decline from The Far Eastern Economic Review and a weaker U.S.
dollar. Average combined circulation for the Asian and European Journals
was up 14.4% to 143,000.
PAGE 13
Operating expenses rose $16.6 million, or 7.1%, to $248.7 million in
the third quarter of 1999, reflecting higher compensation (in part due to
increased sales commissions driven by revenue growth), promotional spending
linked to the Journal's branding campaign and costs related to
international expansion. The segment benefited from a newsprint expense
decrease of $2.3 million, or 7.6%. The average newsprint price per ton was
$475, down 19%, while tons used increased 14.1% from 1998's third quarter.
Operating income in the first nine months of 1999 was $196.4 million,
an increase of $42 million, or 27%, from $154.4 million earned a year
earlier. Revenues advanced $74.8 million, or 8.8%, with advertising
revenue up $77.4 million, or 13.3%. Advertising linage at The Wall Street
Journal rose 11.1%, as general advertising linage grew 17%. Financial
linage was up 4%, reflecting increases in image advertising. Classified
and other linage gained 1.3% from the comparable period in 1998, primarily
from real estate advertising. Barron's national advertising pages were up
2.7%.
Operating expenses increased $32.9 million, or 4.7%, to $731.4 million
in 1999. The company continued to benefit from reduced newsprint prices,
with that expense declining $9.1 million, or 9.4%. The average newsprint
price per ton for the first nine months of 1999 was $504, down 15%, while
newsprint consumption increased 7.1%. The EBITDA margin in the first nine
months of 1999 was 25.7%, versus 22.5% a year earlier.
Advertising rates for the U.S. Wall Street Journal will increase 4%
effective January 2000. Four-color and spot color ad rates will rise 5%
and 8%, respectively. Advertising rate changes for The Wall Street Journal
Europe and The Asian Wall Street Journal will be announced later this
year.
ELECTRONIC PUBLISHING
On July 1, 1999, the company formed a 50-50 joint venture, Dow Jones
Reuters Business Interactive LLC with Reuters Group Plc, into which
Dow Jones contributed significant portions of its interactive business
unit. The company's share of DJRBI's results are reported in Equity in
Losses of Associated Companies. Prior to July 1, 1999, results of the
interactive business contributed to DJRBI were included in the company's
electronic publishing revenue, expenses and operating income.
Electronic publishing's third quarter operating income of $8 million
decreased $9.7 million, or 55%, compared with 1998's third quarter.
Revenues fell 24% to $75.1 million. Operating expenses decreased 17% from
$81.1 million in 1998. If the company's 50% share of DJRBI operating
results were included in this segment, operating income would have
decreased 65%, or $11.5 million, to $6.2 million in 1999. Revenues would
have increased $2.7 million to $101.5 million, while operating expenses
would have jumped $14.2 million, or 18%, chiefly from sales and marketing
efforts in all business units as well as costs related to international
expansion of the interactive products and Newswires businesses.
Dow Jones Newswires third quarter revenue was flat at $52.2 million in
1999, due to cancellation of Telerate-related terminals in Europe and Asia
partly offset by the start of distribution channels with Reuters and
Bloomberg. Through September 1999, the company initiated 17,500 user
trials on Reuters and Bloomberg, of which 8,200 were completed, with
roughly one-third continuing as paid subscribers.
PAGE 14
At September 30, 1999, there were 312,000 newswires terminals, up 6.5%
from 293,000 a year ago. 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 that tend to contract for more terminals and
receive larger 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, offsetting growth in
North America.
In the third quarter of 1999, Dow Jones Indexes revenue of $3.3 million
declined 5.3% from the like period in 1998. Excluding one-time fees,
revenue increased 2.5% from 1998. The average number of futures contracts
on the CBOT and options contracts on the CBOE declined 2% from like period
in 1998. Volume in DIAMONDS, which trade on the American Stock Exchange,
more than doubled from last year.
Dow Jones Indexes initiated and maintains two new indexes, the Dow
Jones Internet Indexes (comprised of 40 Internet commerce or service
stocks) and the Dow Jones Global Titans Index (comprised of 50 of the
world's largest blue-chip stocks) launched in August of 1999. Assets based
on Dow Jones Indexes grew to $137 billion from $15 billion a year ago,
chiefly 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 third
quarter of 1999 advanced $3.5 million, to $7.5 million, compared with
1998's like period. Advertising revenue more than doubled from last year's
third quarter and subscription revenue grew roughly 62%, partly reflecting
a 20% price increase for non-print subscribers effective November 1998.
Subscription growth reflects new distribution agreements. In the third
quarter 1999, the company launched a new marketing strategy to promote its
interactive product through point-of-purchase subscription sales. The
Interactive Journal also partnered with other interactive companies to
supplement its content and distribution channels. At September 30, 1999,
there were roughly 330,000 subscribers to the Interactive Journal, up 29%
from a year ago.
Third quarter 1999 revenue for dowjones.com was $2.3 million. Launched
at the end of May 1999, the business news and information portal averages
approximately 40,000 sessions per business day, with an average of four-
page views per session. The free portal site is exclusively supported by
sponsorships, banner advertising and e-commerce.
Dow Jones Interactive and other revenues (including the company's 50%
of DJRBI's revenue) was $36.2 million in the third quarter of 1999, down
7.4%, mainly from a contractual reduction in a third party licensing contract
and a decline in direct consumer sales. Excluding these factors, the
company's former Dow Jones Interactive business' revenue increased 7%, driven
by 30% growth in the enterprise customer base. There was a slight decline in
the non-enterprise customer base reflecting customer conversions and price
changes. Year-to-date 1999 revenues fell 5.5% to $110.9 million.
In the first nine months of 1999, operating income for electronic
publishing was $31.7 million, a decrease of $25.7 million, or 45%. Segment
revenue of $271.4 million fell $22.5 million from 1998. Dow Jones
Newswires revenue of $154.2 million was flat with a year ago. Revenue at
The Wall Street Journal Interactive Edition was up $8.3 million, to $20.1
million. Dow Jones Indexes' revenue was flat at $9.6 million from 1998's
like period. Dow Jones Interactive and other fell $32.9 million, or 28%,
partly reflecting the contribution at July 1, 1999 of Dow Jones Interactive
to DJRBI which is now included in equity. Segment operating expenses in
1999 were up $3.2 million, or 1.4%, to $239.7 million.
PAGE 15
Including one-half of DJRBI's results in the electronic publishing
segment, operating income decreased $27.5 million, or 48%, in the first
nine months of 1999. Revenues grew $3.9 million, or 1.3%, and operating
expenses increased $31.5 million, or 13.3%. The growth in expenses was due
to marketing and selling costs associated with promoting interactive
products, expansion of Newswires businesses and content fees. Supplemental
disclosures for the electronic publishing segment are included on pages 20
and 21 of this Form 10-Q. The company expects the electronic publishing
segment to continue to focus on revenue and market share growth which will
yield EBITDA margins below last year for the remainder of 1999.
COMMUNITY NEWSPAPERS
Third quarter 1999 operating income of $22.9 million at the community
newspapers segment increased 32% from last year, excluding a restructuring
charge in 1998's third quarter. Community newspapers revenue of $84.7
million advanced $3.5 million, or 4.3%. Advertising linage was up 0.8%.
Excluding the restructuring charge in 1998, operating expenses of $61.8
million were down $2.1 million, or 3.2%, largely due to a decrease in
newsprint expense of 18%. The EBITDA margin increased to 32.2% from 26.7%.
In the first nine months of 1999, operating income was $60.5 million,
up $18.9 million, or 46%, from the like 1998 period, again excluding the
1998 restructuring charge. The EBITDA margin increased to 30.3% from 23.4%
reflecting the cost cutting measures implemented during the third quarter
of 1998. The company expects this segment to exceed its long-term EBITDA
margin target of 27% for all of 1999. Revenue of $243.2 million advanced
$9.7 million, or 4.2%, from 1998. Advertising revenue increased $8.5
million, or 5.1%, to $173 million from a year-earlier and circulation
revenue grew $1.4 million, or 2.2%. Operating expenses decreased $9.2
million, or 4.8%, to $182.7 million, excluding restructuring.
OTHER INCOME/DEDUCTIONS
Net interest income in the third quarter of 1999 and 1998 was $1.6
million and $3.6 million, respectively. Through September net interest
income was $3.5 million versus $2.1 million in 1998. Long-term debt was
$149.9 million at September 30, 1999 and 1998.
The company's share of Equity in Losses of Associated Companies in the
third quarter 1999 was $8.2 million compared with $4.5 million a year
earlier. The wider loss largely resulted from the reduced earnings at
F.F. Soucy, the company's newsprint mill affiliate (due to lower newsprint
prices), the inclusion of the company's 50% share of DJRBI effective
July 1, 1999 and SmartMoney (specifically from development costs for
SmartMoney.com), partially offset by a 17% improvement in international
television. Year-to-date 1999 equity losses were $18.8 million versus
$14 million in 1998.
On July 7, 1999, the company completed the sale of its interest in
United States Satellite Broadcasting, Inc. to Hughes Electronics and
recorded a pretax gain of $57.3 million. 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. (The pretax and
after-tax gains on these transactions are the same due to the usage of
certain tax loss carryforwards resulting from the Telerate sale). First
quarter 1998 included a pretax gain of $15.4 million from the sales of
the company's interests in WBIS+ TV and Mediatex.
PAGE 16
INCOME TAXES
The effective income tax rates for the third quarter and year-to-date
1999 were 24% and 33%, respectively, compared with 41% in both periods in
1998. The lower effective tax rates resulted from the utilization of
capital loss carryforwards on the sales of investments. Excluding Telerate
in 1998 and the effect of investment gains in each year, the effective tax
rate in the third quarter and nine months would have been 41% and 42%, in
both years, respectively.
At September 30, 1999, the company had available approximately $480
million of capital loss carryforwards (a deferred tax asset of $184
million) which was fully reserved through a valuation allowance (resulting
from the sale of Telerate in May 1998).
FINANCIAL POSITION AND CASH FLOW
In the first nine months of 1999, the company repurchased approximately
3 million shares at an average price per share of $48.19. In 1998, the
Board of Directors authorized repurchase expenditures of up to $800
million. As of September 30, 1999, the remaining amount of repurchase
authorizations from the company's Board of Directors was $263.8 million,
after reserving for the exercise of put options.
In the first three quarters of 1999, the company funded from operating
cash flow and sale of investments the repurchase of its common stock of
$141.5 million, capital expenditures of $144.2 million (including $50.6
million for The Wall Street Journal color expansion project), dividends of
$65.7 million and $39.5 million in various investments. Cash and cash
equivalents, which include highly-liquid investments with a maturity of
three months or less, were $35.4 million at September 30, 1999 compared
with $142.9 million at year-end.
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.
In November 1999, the company disclosed its intention to sell Dow Jones
Financial Publishing Corp. The company, which publishes Asset Management,
Realty Stock Review, Dow Jones Property and Investment Advisor, was
acquired by Dow Jones in 1995.
PAGE 17
YEAR 2000
The company has completed its assessment of its Year 2000 status. 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 September 30, 1999 the company's expenses
were approximately $15.4 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 September 1999, approximately 98% of applications
requiring modification have been certified as Year 2000 compliant, roughly
96% of replacement applications have been certified and all of the
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 September 30, 1999, the readiness plans for essentially all mission
critical processes have been developed. These plans will be tested and any
proactive measures will be implemented by year end. An event response team
will be in place during the balance 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 and 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 18
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 its revenues and earnings targets for
distribution of its newswires services, taking into account any
cancellations of Telerate-related terminals that may occur and the
company's ability to add new subscribers; 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 (which includes free and paid competitive
services), 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 19
ITEM 5: OTHER INFORMATION
PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF INCOME *
Dow Jones & Company, Inc.
==========================================================================
Quarters Ended Nine Months Ended
(in thousands, except September 30 September 30
per share amounts) 1999 1998 1999 1998
- --------------------------------------------------------------------------
REVENUES:
Advertising $289,549 $231,457 $ 846,885 $ 753,166
Information services 68,556 96,935 257,858 288,198
Circulation and other 111,690 115,233 337,705 338,982
- --------------------------------------------------------------------------
Total revenues 469,795 443,625 1,442,448 1,380,346
- --------------------------------------------------------------------------
EXPENSES:
News, operations and
development 121,598 131,448 384,043 383,689
Selling, administrative
and general 175,794 161,588 522,674 485,748
Newsprint 34,704 38,510 108,744 121,393
Second class postage
and carrier delivery 29,450 28,612 88,497 86,519
Depreciation and
amortization 24,106 22,577 73,966 67,538
Restructuring 16,340 2,755 16,340
- --------------------------------------------------------------------------
Operating expenses 385,652 399,075 1,180,679 1,161,227
- --------------------------------------------------------------------------
Operating income 84,143 44,550 261,769 219,119
OTHER INCOME (DEDUCTIONS):
Investment income 2,480 4,535 7,251 6,631
Interest expense (918) (909) (3,741) (4,506)
Equity in losses of
associated companies (8,171) (4,483) (18,797) (13,988)
Gain on disposition of
businesses and investments 57,607 68,225 15,390
Other, net (383) 97 (59) (821)
--------------------------------------------------------------------------
Income before income taxes 134,758 43,790 314,648 221,825
Income taxes 31,957 17,931 103,113 91,618
--------------------------------------------------------------------------
NET INCOME $102,801 $ 25,859 $ 211,535 $ 130,207
===========================================================================
NET INCOME PER SHARE:
- Basic $1.14 $.28 $2.33 $1.36
- Diluted 1.13 .27 2.32 1.34
Weighted-average shares
outstanding:
- Basic 90,040 93,928 90,711 95,825
- Diluted 90,689 95,113 91,333 97,125
==========================================================================
*Excludes Telerate results from operations and loss of sale.
PAGE 20
ITEM 5: OTHER INFORMATION (cont.)
SUPPLEMENTAL PRO FORMA REVENUE SEGMENT INFORMATION *
Dow Jones & Company, Inc.
===========================================================================
Quarters Ended Nine Months Ended
September 30 September 30
(in thousands) 1999 1998 1999 1998
- ---------------------------------------------------------------------------
PRINT PUBLISHING:
U.S. Publications:
Advertising $207,309 $156,617 $ 611,027 $ 536,349
Circulation and other 76,736 79,350 234,569 236,011
International Publications:
Advertising 15,596 15,585 49,424 46,659
Circulation and other 10,386 12,052 32,807 33,974
-------- -------- ---------- ----------
Total pro forma
revenues 310,027 263,604 927,827 852,993
ELECTRONIC PUBLISHING:
Dow Jones Newswires 52,218 52,230 154,199 155,124
Dow Jones Indexes 3,289 3,474 9,593 9,543
The Wall Street Journal
Interactive Edition 7,517 4,064 20,124 11,781
dowjones.com 2,302 2,951
Dow Jones Interactive
and other (a) 36,158 39,040 110,940 117,405
-------- -------- ---------- ----------
Total pro forma
revenues 101,484 98,808 297,807 293,853
COMMUNITY NEWSPAPERS:
Advertising 60,425 57,400 173,034 164,563
Circulation and other 24,272 23,813 70,193 68,937
-------- -------- ---------- ----------
Total pro forma
revenues 84,697 81,213 243,227 233,500
Total pro forma segment
revenues $496,208 $443,625 $1,468,861 $1,380,346
===========================================================================
(a) The amounts presented include the company's 50% share of DJRBI's
revenues. Content fees between the joint venture and partners are
eliminated.
*Excludes Telerate results from operations and loss of sale.
PAGE 21
ITEM 5: OTHER INFORMATION (cont.)
SUPPLEMENTAL PRO FORMA CONSOLIDATED INFORMATION (1)
Dow Jones & Company, Inc.
===========================================================================
Quarters Ended Nine Months Ended
September 30 September 30
(in thousands) 1999 1998 1999 1998
- ---------------------------------------------------------------------------
Revenues $496,208 $443,625 $1,468,861 $1,380,346
Operating expenses 413,866 382,735 1,206,138 1,144,887
Operating income 82,342 60,890 262,723 235,459
EBITDA 107,381 83,467 337,622 302,997
EBITDA margin 21.6% 18.8% 23.0% 22.0%
===========================================================================
SUPPLEMENTAL PRO FORMA ELECTRONIC PUBLISHING SEGMENT INFORMATION (1)
Dow Jones & Company, Inc.
===========================================================================
Quarters Ended Nine Months Ended
September 30 September 30
(in thousands) 1999 1998 1999 1998
- ---------------------------------------------------------------------------
Revenues $101,484 $98,808 $297,807 $293,853
Operating income 6,212 17,731 29,880 57,389
EBITDA 12,983 23,685 49,419 74,551
EBITDA margin 12.8% 24.0% 16.6% 25.4%
===========================================================================
(1) The amounts presented include the company's 50% share of DJRBI's
results and exclude all special items. Also, the amounts presented
exclude Telerate results from operations and loss of sale.
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: November 12, 1999 By: /s/ Lawrence K. Kinsella
-------------------------
Comptroller
(Chief Accounting Officer)