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Dow Jones Reports Improved Revenue And Profit For Second Quarter 2004; Provides 3rd Quarter Outlook NEW YORK --(Business Wire)-- July 15, 2004 -- Dow Jones & Company (NYSE: DJ) today reported that it earned 41 cents per diluted share during the second quarter of 2004, compared with 38 cents per diluted share in the second quarter of 2003. Excluding the special items explained herein, the Company earned 41 cents per diluted share during the second quarter of 2004, up 52% over the 27 cents per diluted share earned in the second quarter of 2003.Revenue rose 11.2% in the second quarter of 2004 to $437.8 million compared to second quarter of 2003 and operating income was up 5.8% over last year to $56.3 million. Excluding special items, operating income increased 61.7% and operating margins were 12.9% in 2004, up from 8.8% in 2003. Results were driven by improved revenue, profit and margin in nearly all of the company's major businesses. Special Items: In the second quarter of 2004, the Company recorded special items which net to zero cents per share as a special gain of two cents per share related to the disposition of an investment was offset by a loss of two cents per share for accretion of discount on a contract-guarantee obligation. In the second quarter of 2003, special items netted to a gain of 11 cents per share and included a gain from the settlement of a business-interruption insurance claim with respect to loss of operating income suffered as a result of the terrorist attacks on the World Trade Center on Sept. 11, 2001, net of a charge for accretion of discount on a contract-guarantee obligation. "We're encouraged once again by improvements in revenue and profit in each of our business segments during the quarter," said Peter R. Kann, chairman and chief executive officer of Dow Jones & Company. "Our continued focus on product quality, effective sales efforts, sensible investments, operating efficiencies and cost controls is paying off as evidenced by year over year earnings growth in each quarter since the beginning of 2003." Mr. Kann continued: "Nonetheless, we still see inconsistent trends in monthly Wall Street Journal advertising and ad levels, and results remain well below what we consider normal levels. We'll continue to control all we can to maximize financial results in any advertising environment." Dow Jones also said that it expects earnings per share before special items in the third quarter of 2004, to be about 20 cents per share, compared with 14 cents per share in the third quarter of 2003. This assumes third-quarter 2004 linage at the U.S. Wall Street Journal will be up in the low single digit percentage range over the third quarter of 2003. The third quarter, including the summer months, is historically the Company's lightest quarter for advertising at The Wall Street Journal. Based on currently anticipated special items in the third quarter of 2004, the Company expects reported earnings per share to be in the upper-teens cents per share range, compared with 35 cents per share in the third quarter of 2003. Please refer to the attached table for a reconciliation of the Company's third quarter earnings before and after special items. Segment Results Print Publishing revenue increased $19.5 million, or 8.3%, in the second quarter of 2004 over the same period a year ago. Operating income rose 210% to $17.3 million and operating margin was 6.8% in the second quarter of 2004--an improvement from the prior year's operating margin of 2.4%. U.S. Wall Street Journal advertising linage increased 3.3% (up 1.1% in June, with one extra issue) while linage at the international editions of the Journal increased 6.9% (flat in the month of June, with two extra issues in the European edition and one extra issue in the Asian edition). Barron's advertising pages increased 21.1% in the quarter (down 25.4% in June with one less issue). Electronic Publishing revenue in the second quarter of 2004 increased 20.2% and operating income rose 42.7% from the same period a year ago, driven by the acquisitions of Alternative Investor Group in March 2004 and vwd, a German business wire, in April 2004, together with improved performance in all business segments. Operating margin of 23.8% was up over the previous year's 20.1%. Terminal counts at Newswires were down 2.0% to last year, but up 0.7% on a sequential basis. Paid subscribers to The Wall Street Journal Online grew to 684,000 as of June 30, 2004, up 1.9% from the prior year period. Ottaway Community Newspapers' revenue in the second quarter of 2004 increased 10.8% from the same period a year ago to $87.8 million with operating income up 17.0% to $25.2 million. Operating margin of 28.7% was up over last year's 27.1%. Excluding the May 2003 acquisition of The Record of Stockton, same property revenue was up 6.4% and operating income was up 13.1%. Same-property advertising linage increased 5.5% in the second quarter (linage was up 4.7% in June even with one fewer Sunday). The Company ended the second quarter with $215 million in debt, compared with $258 million at the end of the first quarter of 2004. As previously announced, the Company will host an earnings conference call at 10 a.m. ET today. The call can be accessed via a live Web cast through the Investor Relations section of the Company's Web site, www.dowjones.com, or through a listen-only, dial-in conference line, by dialing 877-407-3140. A replay of the conference call and the full text of the prepared remarks will be available on the Company's Web site in the Investor Relations section shortly after the call concludes. Dow Jones & Company (NYSE: DJ; dowjones.com) publishes The Wall Street Journal and its international and online editions, Barron's and the Far Eastern Economic Review, Dow Jones Newswires, Dow Jones Indexes and the Ottaway group of community newspapers. Dow Jones is co-owner with Reuters Group of Factiva, with Hearst of SmartMoney and with NBC Universal of CNBC television operations in Asia and Europe. Dow Jones also provides news content to CNBC and radio stations in the U.S. Information Relating To Forward-Looking Statements: This press release contains forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those anticipated, including the cyclical nature of the Company's business and the strong, negative impact of economic downturns on advertising revenues, particularly in the Company's core advertising market--B2B advertising; the risk that inconsistent trends across major advertising categories, such as technology and finance, will continue; the risk that advertising levels will not return to the pre-boom, pre-bust levels that the Company considers normal levels; the Company's ability to limit and manage expense growth, especially in light of its prior cost cutting and its planned growth initiatives; the uncertainties relating to the Company's guarantee to Cantor Fitzgerald Securities and Market Data Corporation; the intense competition the Company's existing products and services face; the risk that the Company's initiatives to attract more consumer advertising, and other diversified advertising, to The Wall Street Journal will not succeed; with respect to Newswires, the negative impact of consolidations and layoffs in the financial services industry on sales; and such other risk factors as may be included from time to time in the Company's reports filed with the Securities and Exchange Commission and posted in the Investor Relations section of the Company's web site (www.dowjones.com). This press release includes certain non-GAAP financial measures as defined under SEC rules. As required by SEC rules, we have attached to this press release a reconciliation of those measures to the most directly comparable GAAP measures. This reconciliation is also available on the Investor Relations page of our web site (www.dowjones.com) -0- *T Dow Jones & Company Earnings Summary (Unaudited) (in thousands, except per share amounts) Quarters Ended June 30 Six Months Ended June 30 2004 2003 2004 2003 Reported results: Revenues $437,790 $393,586 $839,411 $751,816 Operating income 56,290 53,224 90,049 70,803 Net income 34,041 30,838 51,857 97,770 Effective tax rate* 42.3% 41.8% 42.0% 22.6% Diluted EPS $.41 $.38 $.63 $1.19 Excluding items described in Note 2: Operating income $ 56,290 $ 34,816 $ 87,288 $ 52,395 Net income 34,019 22,217 52,158 31,938 Effective tax rate* 40.9% 40.0% 40.1% 40.0% Diluted EPS $.41 $.27 $.63 $.39 EPS percentage change 51.9% 8.0% 61.5% 18.2% *The effective income tax rate is net of minority interests. See notes to financial information on page 10. Reconciliation of Third Quarter Earnings Outlook Quarters Ended September 30, 2004 Guidance 2003 Actual Reported earnings per share upper-teens cents $.35 per share range** Adjusted to remove: Contract guarantee (.02) (.03) Special income tax matters ____________ .24 EPS before special items about $0.20 $.14 cents per share **Based on special items currently anticipated. Condensed Consolidated Statements of Income (Unaudited) (in thousands, except per share amounts) Quarters Ended June 30 Six Months Ended June 30 2004 2003 2004 2003 Revenues: Advertising $255,836 $223,328 $482,535 $413,836 Information services 81,518 71,060 157,345 142,916 Circulation and other 100,436 99,198 199,531 195,064 Total revenues 437,790 393,586 839,411 751,816 Expenses: News, production and technology 130,052 120,080 252,609 235,375 Selling, administrative and general 148,779 134,773 294,014 263,795 Newsprint 28,947 27,462 56,578 50,533 Print delivery costs 47,024 48,719 94,869 94,625 Depreciation and amortization 26,698 27,736 54,053 55,093 Restructuring charges and September 11 related items, net (18,408) (2,761) (18,408) Operating expenses 381,500 340,362 749,362 681,013 Operating income 56,290 53,224 90,049 70,803 Other income (deductions): Investment income 165 179 256 253 Interest expense (800) (745) (1,448) (1,198) Equity in earnings of associated companies 2,139 2,171 1,399 322 Gain on disposition of investment 3,260 3,260 Gain on resolution of Telerate sale loss contingencies 59,821 Contract guarantee (1,819) (2,459) (3,804) (5,069) Other, net (499) 212 (1,265) 651 Income before income taxes and minority interests 58,736 52,582 88,447 125,583 Income taxes 25,004 22,139 37,485 28,620 Income before minority interests 33,732 30,443 50,962 96,963 Minority interests 309 395 895 807 Net income $ 34,041 $ 30,838 $ 51,857 $ 97,770 Net income per share: - Basic $.42 $.38 $.63 $1.20 - Diluted .41 .38 .63 1.19 Weighted-average shares outstanding: - Basic 81,799 81,382 81,779 81,595 - Diluted 82,211 81,674 82,211 81,860 See notes to financial information on page 10. Dow Jones & Company Segment Information (Unaudited) (dollars in thousands) Quarters Ended Six Months Ended June 30 June 30 2004 2003 2004 2003 Revenues: Print publishing $253,761 $234,285 $491,336 $448,709 Electronic publishing 96,214 80,012 182,583 159,199 Community newspapers: Comparable operations 81,118 76,256 149,531 140,875 Newly-acquired operations 6,697 3,033 15,961 3,033 Consolidated revenues $437,790 $393,586 $839,411 $751,816 Percentage change in revenues excluding newly-acquired operations 7.6% (6.2)% 8.3% (5.6)% Operating income: Print publishing $ 17,289 $ 5,578 $ 21,913 $ 893 Electronic publishing 22,947 16,083 41,460 32,914 Community newspapers: Comparable operations 23,340 20,643 38,335 33,224 Newly-acquired operations 1,821 857 3,798 857 Corporate (9,107) (8,345) (18,218) (15,493) Segment operating income 56,290 34,816 87,288 52,395 Restructuring charges and September 11 related items, net 18,408 2,761 18,408 Consolidated operating income $ 56,290 $ 53,224 $ 90,049 $ 70,803 Operating margin: Print publishing 6.8% 2.4% 4.5% 0.2% Electronic publishing 23.8 20.1 22.7 20.7 Community newspapers: Comparable operations 28.8 27.1 25.6 23.6 Newly-acquired operations 27.2 28.3 23.8 28.3 Segment operating margin 12.9 8.8 10.4 7.0 Depreciation and amortization (D&A): Print publishing $ 16,866 $ 17,708 $ 34,542 $ 35,388 Electronic publishing 6,950 6,788 13,610 13,578 Community newspapers: Comparable operations 2,548 3,034 5,032 5,792 Newly-acquired operations 291 75 786 75 Corporate 43 131 83 260 Consolidated D&A $ 26,698 $ 27,736 $ 54,053 $ 55,093 See notes to financial information on page 10. Dow Jones & Company Supplemental Segment Revenue Information (Unaudited) (in thousands) Quarters Ended June 30 Six Months Ended June 30 2004 2003 2004 2003 Print Publishing: U.S. Publications: Advertising $165,535 $147,098 $316,717 $276,955 Circulation and other 66,104 67,322 132,057 133,712 International Publications: Advertising 13,996 11,141 25,916 21,134 Circulation and other 8,126 8,724 16,646 16,908 Total 253,761 234,285 491,336 448,709 Electronic Publishing: Dow Jones Newswires: Domestic 48,945 41,867 93,348 85,232 International 14,616 10,640 25,413 21,251 Total Newswires(*) 63,561 52,507 118,761 106,483 Consumer Electronic Publishing(**) 19,893 17,582 38,062 32,953 Dow Jones Indexes/ Ventures 12,760 9,923 25,760 19,763 Total 96,214 80,012 182,583 159,199 Community Newspapers: Advertising Comparable operations 60,577 55,884 109,668 101,575 Newly-acquired operations 5,740 2,616 13,517 2,616 Total advertising 66,317 58,500 123,185 104,191 Circulation and other Comparable operations 20,541 20,372 39,863 39,300 Newly-acquired operations 957 417 2,444 417 Total circulation and other 21,498 20,789 42,307 39,717 Total 87,815 79,289 165,492 143,908 Total segment revenues $437,790 $393,586 $839,411 $751,816 (*) The increase in Dow Jones Newswires revenue in the second quarter of 2004 was largely due to acquisitions. (**) Includes WSJ.com, related vertical sites, licensing/business development and radio/audio. See notes to financial information on page 10. Dow Jones & Company Statistical Information (Unaudited) Quarters Ended Six Months Ended June 30 June 30 2004 2003 2004 2003 Advertising Volume Year-Over-Year Percentage Change: The Wall Street Journal General 15.2% (15.4)% 3.9% (7.4)% Technology (27.9) (3.2) (16.3) (15.7) Financial 5.3 (14.5) 24.5 (26.9) Classified 10.5 11.1 9.2 13.1 Total 3.3 (7.9) 4.7 (9.4) The Asian Wall Street Journal 5.0 (4.9) 6.3 (0.3) The Wall Street Journal Europe 8.6 4.9 10.9 12.6 Barron's 21.1 (22.9) 21.5 (20.4) Ottaway Newspapers (*) Daily 3.8 (2.9) 3.2 (1.8) Non-daily 13.2 0.3 13.2 1.5 Total 5.5 (2.4) 4.9 (1.3) Wall Street Journal advertising as a percentage of total Journal linage: General 44.0% 39.4% 40.9% 41.2% Technology 14.8 21.2 15.3 19.2 Financial 17.6 17.3 20.0 16.8 Classified 23.6 22.1 23.8 22.8 Other statistics: June 30 June 30 2004 2003 Dow Jones Newswires terminals 291,000 297,000 WSJ.com subscribers 684,000 671,000 WSJ.com unique visitors/business day 143,000 127,000 Average monthly unique visitors to the Journal Network (**) 4,172,000 n/a Average monthly page views to the Journal Network (**) 66,438,000 n/a (*) Percentage excludes divested/newly-acquired operations. (**) Beginning in the second quarter of 2004, page views and unique visitors statistics for the Journal Network have been calculated using a new measurement technology. Prior year figures are not available on a comparable basis. The Journal Network consists of WSJ.com and related vertical sites. Dow Jones & Company Notes to Financial Information *T 1. The Company's calculation of net income, operating income and earnings per share excluding special items may not be comparable to similarly titled measures reported by other companies, since companies and investors may differ as to what type of events warrant adjustment. Net income, operating income and earnings per share excluding special items are not measures of performance under generally accepted accounting principles and should not be construed as substitutes for consolidated net income, operating income and earnings per share as a measure of performance. However, management uses these measures in comparing the Company's historical performance and believes that they provide meaningful and comparable information to investors to assist in their analysis of the Company's performance relative to prior periods and its competitors. 2. The following table reconciles reported results to income adjusted for special items for the second quarter and the six months ended June 30, 2004 and 2003. -0- *T Quarters Ended June 30 (in millions, except 2004 2003 per share amounts) Operating Net EPS Operating Net EPS Reported income $56.3 $34.0 $.41 $53.2 $30.8 $.38 Adjusted to remove: Included in operating income: Gain from business interruption insurance claim (a) 18.4 11.1 .14 Included in non-operating income: Contract guarantee (b) (1.8) (.02) (2.5) (.03) Gain on disposition of investment (c) 1.8 .02 Adjusted $56.3 $34.0 $.41 $34.8 $22.2 $.27 Six Months Ended June 30 (in millions, except 2004 2003 per share amounts) Operating Net EPS Operating Net EPS Reported $90.0 $51.9 $.63 $70.8 $97.8 $1.19 Adjusted to remove: Included in operating income: Reversal of lease obligation reserve - WFC (a) 2.8 1.7 .02 Gain from business interruption insurance claim (a) 18.4 11.1 .14 Included in non-operating income: Contract guarantee (b) (3.8) (.04) (5.1) (.06) Gain on disposition of investment (c) 1.8 .02 Gain on resolution of Telerate sale loss contingencies (d) 59.8 .73 Adjusted $87.3* $52.2 $.63 $52.4 $31.9* $ .39* * The sum of the individual amounts does not equal the total due to rounding. *T (a) Restructuring charges and September 11 related items, net: Reversal of lease obligation reserve - World Financial Center (WFC): In the fourth quarter 2001, the Company recorded a charge of $32.2 million as a result of its decision to permanently re-deploy certain personnel and abandon four of seven floors that were leased at its World Financial Center headquarters. This charge primarily reflected the Company's rent obligation through 2005 on this vacated space. In the first quarter 2004, the Company decided to extend the term of its lease for one of the floors that was previously abandoned. The Company will re-occupy this floor with personnel from another New York location, whose lease term was expiring. As a result, the Company reversed $2.8 million ($1.7 million, net of taxes, or $.02 per diluted share) of the remaining lease obligation reserve of the previously abandoned floor at WFC. Gain from business interruption insurance claim In the second quarter of 2003, the Company recorded a gain of $18.4 million ($11.1 million after taxes, or $.14 per diluted share) reflecting the settlement of its business interruption insurance claim for loss of operating income suffered as a result of the terrorist attacks on the World Trade Center on September 11, 2001. (b) Contract guarantee: Under the terms of the Company's 1998 sale of Telerate to Bridge Information Systems (Bridge), Dow Jones retained its guarantee of payments under certain circumstances of certain minimum payments for data acquired by Telerate from Cantor Fitzgerald Securities (Cantor) and Market Data Corporation (MDC). The annual minimum payments average approximately $50 million per year through October 2006 under certain conditions. Bridge agreed to indemnify Dow Jones for any liability Dow Jones incurred under the contract guarantee with respect to periods subsequent to Bridge's purchase of Telerate. In 2000, based in part on uncertainty with Bridge's solvency as well as other factors, the Company established a reserve of $255 million representing the net present value of the total minimum payments of about $300 million from 2001 through October 2006, using a discount rate of 6%. Bridge filed for bankruptcy in February 2001 but made payments for this data for the post-petition periods through October 2001, when Telerate ceased operations, went out of business, sold certain assets and rejected its contracts with Cantor and MDC. The Company is now in litigation with Cantor and MDC with respect to their claims for amounts due under the contract guarantee. The Company has various substantial defenses to these claims and the litigation is proceeding. Earnings in 2004 and 2003 have included charges related to the accretion of the discount on the reserve balance. These charges totaled $1.8 million and $2.5 million in the second quarters of 2004 and 2003, respectively. For the first six months of 2004 and 2003, charges related to the accretion of discount totaled $3.8 million and $5.1 million, respectively. (c) Gain on disposition of investment: On April 2, 2004, simultaneous with the Company's acquisition of the remaining interest in the news operations of Vereinigte Wirtschaftsdienste GmbH ("VWD"), VWD sold its non-news assets to a third party, resulting in cash proceeds to Dow Jones of $6.7 million. Dow Jones was a minority shareholder in VWD. As a result of this sale, the Company recorded an after-tax gain of $1.8 million, or $.02 cents per diluted share, in the second quarter of 2004. (d) Gain on resolution of Telerate sale loss contingencies: In the first quarter of 2003, the Company recorded a gain of $59.8 million ($.73 per diluted share) on the resolution of certain loss contingencies resulting from the sale of its former Telerate subsidiary to Bridge Information Systems (Bridge). The reserve for loss contingencies was established as part of the loss on sale of Telerate in 1998 and related to various claims that arose out of the Stock Purchase Agreement, including a purchase price adjustment related to working capital, an indemnification undertaking and other actual and potential claims and counter-claims between the Company and Bridge. In February 2001, Bridge declared bankruptcy. In March 2003, these matters were resolved by the bankruptcy court, and the Company's contingent liabilities were thereby extinguished. 3. The Company made the following acquisitions during the first half of 2004 and 2003. Acquisition of Remaining Interest in VWD news operations in 2004 On April 2, 2004, the Company acquired the remaining interest in the news operations of Vereinigte Wirtschaftsdienste GmbH ("VWD"), a German newswires business, for $12.1 million. The acquired business consists of financial newswires and business newsletters, which have been combined into the Company's Dow Jones Newswires business, under the brand name Dow Jones-VWD News. Dow Jones was a minority shareholder in VWD. Acquisition of Alternative Investor in 2004 On March 19, 2004, the Company completed its acquisition of Alternative Investor from Wicks Business Information for $85 million plus net working capital. The $85 million purchase price could be increased by $5 million, payable in 2008, based on the performance of the acquired business. The acquisition was funded by the issuance of debt under the Company's commercial paper program. Alternative Investor is a provider of newsletters, databases and industry conferences for the venture-capital and private-equity markets, and has been combined into the Company's Dow Jones Newswires business. Acquisition of The Record of Stockton, California in 2003 On May 5, 2003, the Company's Ottaway Newspaper subsidiary acquired The Record of Stockton, California from Omaha World-Herald Company for $144 million in cash, plus net working capital. The Record has daily paid circulation of 59,271 and Sunday circulation of 72,698. 4. Restructuring charges and September 11 related items, net are not included in segment expenses, as management evaluates segment results exclusive of these items. For information purposes, the reversal of the lease obligation reserve in 2004 and the gain from insurance claim in 2003 allocable to each segment for the quarters and six months ended June 30, 2004 and 2003 were as follows: -0- *T (in thousands) Quarters Ended June 30 Six Months Ended June 30 2004 2003 2004 2003 Print Publishing $17,422 $2,631 $17,422 Electronic Publishing 951 125 951 Community newspapers Corporate 35 5 35 Total income - $18,408 $2,761 $18,408 *T 5. The Company's business and financial news and information operations are reported in two segments: print publishing and electronic publishing. The results of the Company's Ottaway Newspapers subsidiary, which publishes 15 daily newspapers and more than 30 weeklies and shoppers in nine states in the U.S., are reported in the community newspaper segment. Print publishing includes the global operations of The Wall Street Journal and its international editions, as well as Barron's and U.S. television operations (results of the Company's international television ventures are included in equity in earnings of associated companies). Electronic publishing includes the operations of Dow Jones Newswires, Consumer Electronic Publishing and Dow Jones Indexes/Ventures. -0- *T 6. Summarized financial information for 50% held equity-basis investments in associated companies is as follows (amounts are at 100% levels): (in thousands) Quarters Ended June 30 Six Months Ended June 30 2004 2003 2004 2003 Factiva Revenues $66,637 $61,804 $130,171 $123,957 Operating income 8,709 2,608 12,969 4,892 Depreciation and amortization 3,340 3,213 6,442 6,415 SmartMoney Revenues $12,904 $12,251 $25,074 $ 24,344 Operating loss (88) (1,116) (586) (1,028) Depreciation and amortization 211 455 422 895 CNBC International (*) Revenues $11,629 $ 9,851 $20,486 $ 18,152 Operating loss (6,429) (5,295) (14,995) (12,926) Depreciation and amortization 785 968 1,741 1,966 (*) Includes the results of CNBC Europe and CNBC Asia. *T |
