DOW JONES & CO INC - 10-Q Quarterly Report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2004

¨	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

incorporation or organization)

(I.R.S. Employer

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 ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No ¨

The number of shares outstanding of each of the issuer’s classes of common stock on March 31, 2004: 61,111,067 shares of Common Stock and 20,674,462 shares of Class B Common Stock.

DOW JONES & COMPANY, INC.

INDEX


		PAGE

PART I. Financial Information

Item 1.	Financial Statements (unaudited)

	Condensed Consolidated Statements of Income – For the three months ended March 31, 2004 and 2003	3

	Condensed Consolidated Statements of Cash Flows – For the three months ended March 31, 2004 and 2003	4

	Condensed Consolidated Balance Sheets – March 31, 2004 and December 31, 2003	5

	Notes to Condensed Consolidated Financial Statements	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	12

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	23

Item 4.	Controls & Procedures	23

PART II. Other Information

Item 1.	Legal Proceedings	23

Item 2.	Changes in Securities, Use of Proceeds, and Issuer Purchases of Equity Securities	24

Item 4.	Submission of Matters to a Vote of Security Holders	24

Item 6.	Exhibits and Reports on Form 8-K	25

I. FINANCIAL INFORMATION

Item 1:

Financial Statements

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

Dow Jones & Company, Inc.

For the three months ended March 31, 2004 and 2003

(unaudited)


(in thousands, except per share amounts)	Three Months Ended March 31
	2004			2003

Revenues:
Advertising	$	226,699		$	190,508
Information services		75,827			71,856
Circulation and other		99,095			95,866


Total revenues		401,621			358,230


Expenses:
News, production and technology		122,557			115,295
Selling, administrative and general		145,235			129,022
Newsprint		27,631			23,071
Print delivery costs		47,845			45,906
Depreciation and amortization		27,355			27,357
Restructuring charges and September 11 related items		(2,761	)


Operating expenses		367,862			340,651


Operating income		33,759			17,579

Other income (deductions):
Investment income		91			74
Interest expense		(648	)		(453	)
Equity in losses of associated companies		(740	)		(1,849	)
Gain on resolution of Telerate sale loss contingencies					59,821
Contract guarantee		(1,985	)		(2,610	)
Other, net		(766	)		439


Income before income taxes and minority interests		29,711			73,001
Income taxes		12,481			6,481


Income before minority interests		17,230			66,520
Minority interests in losses of subsidiaries		586			412


Net income	$	17,816		$	66,932


Per share:
Net income:
Basic	$	.22		$	.82
Diluted		.22			.82

Cash dividends		.25			.25

Weighted-average shares outstanding:
Basic		81,758			81,791
Diluted		82,212			82,028

Comprehensive income	$	18,353		$	66,817

The accompanying notes are an integral part of the financial statements.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Dow Jones & Company, Inc.

For the three months ended March 31, 2004 and 2003

(unaudited)


(in thousands)	Three Months Ended March 31
	2004			2003

Operating Activities:
Net income	$	17,816		$	66,932
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		26,702			27,061
Amortization of intangibles		653			296
Equity in losses of associated companies, net of distributions		1,538			1,849
Minority interests in losses of subsidiaries		(586	)		(412	)
Gain on resolution of Telerate sale loss contingencies					(59,821	)
Contract guarantee		1,985			2,610
Changes in assets and liabilities:
Accounts receivable		(13,622	)		15,131
Other assets		(3,950	)		(3,122	)
Accounts payable and accrued liabilities		(26,233	)		(45,895	)
Income taxes		16,549			716
Deferred taxes		(3,860	)		(1,161	)
Unearned revenue		6,565			4,049
Other noncurrent liabilities		3,745			1,786
Other, net		708			(907	)


Net cash provided by operating activities		28,010			9,112

Investing Activities:
Additions to plant, property and equipment		(16,116	)		(14,341	)
Funding of equity investees		(4,069	)		(8,411	)
Advances from equity investees		6,945			2,523
Proceeds from insurance					1,271
Business acquired		(85,331	)
Other, net		209			1,219


Net cash used in investing activities		(98,362	)		(17,739	)

Financing Activities:
Cash dividends		(20,429	)		(20,472	)
Increase in long-term debt		105,313			26,982
Book overdraft		(4,547	)
Purchases of treasury stock					(18,698	)
Proceeds from sales under stock compensation plans		2,661			30
Contribution from minority partner, net					7,428

Net cash provided by (used in) financing activities		82,998			(4,730	)

Increase (decrease) in cash and cash equivalents		12,646			(13,357	)
Cash and cash equivalents at beginning of year		23,514			39,346

Cash and cash equivalents at March 31	$	36,160		$	25,989

The accompanying notes are an integral part of the financial statements.

CONSOLIDATED BALANCE SHEETS

Dow Jones & Company, Inc.

(unaudited)


(dollars in thousands)	March 31 2004		December 31 2003
Assets:
Current Assets:
Cash and cash equivalents	$	36,160	$	23,514
Accounts receivable – trade, net		171,700		157,750
Accounts receivable – other		18,399		17,522
Newsprint inventory		12,966		12,315
Prepaid expenses		18,611		20,055
Deferred income taxes		14,721		14,723

Total current assets		272,557		245,879

Investments in associated companies, at equity		84,500		89,230

Other investments		15,439		14,558

Plant, property and equipment, at cost		1,742,500		1,731,874
Less, accumulated depreciation		1,069,563		1,042,590

Plant, property and equipment, net		672,937		689,284

Goodwill		231,409		153,320

Other intangible assets		88,104		70,124

Deferred income taxes		16,575		17,394

Other assets		28,919		24,365


Total assets	$	1,410,440	$	1,304,154


Liabilities:
Current Liabilities:
Accounts payable – trade	$	64,468	$	65,732
Accrued wages, salaries and commissions		53,780		63,240
Retirement plan contributions payable		4,974		24,224
Other payables		64,766		71,287
Contract guarantee obligation		178,223		164,642
Income taxes		49,443		32,987
Unearned revenue		205,131		191,411

Total current liabilities		620,785		613,523

Long-term debt		258,423		153,110
Deferred compensation, principally postretirement benefit obligation		293,979		288,364
Contract guarantee obligation		77,488		89,083
Other noncurrent liabilities		21,966		23,834


Total liabilities		1,272,641		1,167,914

Minority interests in subsidiaries		5,993		6,579

Stockholders’ Equity:
Common stock		102,181		102,181
Additional paid-in capital		123,559		122,012
Retained earnings		819,120		821,733
Accumulated other comprehensive income, net of taxes		10,267		9,730

		1,055,127		1,055,656
Less, treasury stock, at cost		923,321		925,995

Total stockholders’ equity		131,806		129,661

Total liabilities and stockholders’ equity	$	1,410,440	$	1,304,154

The accompanying notes are an integral part of the financial statements.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Dow Jones & Company, Inc.

(unaudited)

1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements reflect all adjustments considered necessary by management to present fairly the Company’s consolidated financial position as of March 31, 2004, and the consolidated results of operations for the three month periods ended March 31, 2004 and 2003 and consolidated cash flows for the three month periods then ended. In management’s opinion, all adjustments necessary for a fair presentation in accordance with generally accepted accounting principles are reflected in the financial statements presented. Reclassifications of certain amounts for prior years have been recorded to conform to the current year presentation.

The condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company’s annual report on Form 10-K for the year ended December 31, 2003 filed with the Securities and Exchange Commission. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year.

2. 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 to abandon four of seven floors that are leased at its World Financial Center headquarters. This charge primarily reflected the Company’s rent obligation through 2005 on this vacated space.

During the first quarter of 2004, the Company decided to extend the term of its lease for one of the floors that was previously abandoned. The Company plans to re-occupy this floor with personnel from another of its New York locations, whose lease term is 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 for the previously abandoned floor at WFC.

3. Contract Guarantee

Under the terms of the Company’s 1998 sale of Telerate to Bridge Information Systems, Inc. (Bridge), Dow Jones retained its guarantee 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 about Bridge’s solvency as well as other factors, the Company established a reserve of $255 million representing the net present value of the total estimated payments from 2001 through October 2006, using a discount rate of 6%.

Earnings in 2004 and 2003 included charges related to the accretion of the discount on the reserve balance. These charges were $2.0 million and $2.6 million in the first quarters of 2004 and 2003, respectively.

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. In January 2003, the trial court denied motions by each of the parties that their own claims for