EX-99 2 dowjonesfourthquarter2005ear.htm EXHIBIT 99 Exhibit 99



Exhibit 99


Investor Contact:

 

Dow Jones & Company

Mark Donohue


 

200 Liberty Street

Director, Investor Relations

 

New York, NY 10281

(609) 520-5660

  
   

Media Contact:

  

Amy Wolfcale


  

Vice President, Corporate Communications

  

(212) 416-3213

  



DOW JONES REPORTS FOURTH QUARTER RESULTS

Provides 1st Quarter Outlook


NEW YORK (January 26, 2006)¾Dow Jones & Company (NYSE: DJ) today reported that it earned 49 cents per diluted share during the fourth quarter of 2005, compared with 43 cents per diluted share in the fourth quarter of 2004.  Excluding the special items explained herein, the Company earned 41 cents per diluted share during the fourth quarter of 2005 compared with 43 cents per diluted share in the fourth quarter of 2004.  Planned losses from the Weekend Edition of The Wall Street Journal, launched September 17th, were about five cents per share in the fourth quarter.

Revenue of $482.2 million increased 10.3% over the fourth quarter of 2004, mainly due to the acquisition of MarketWatch, organic revenue growth across Electronic Publishing, and the launch of Weekend Edition.  Operating income of $49.6 million declined 4.0%.  Excluding special items, operating income declined 15.0% compared to the fourth quarter 2004, mainly due to planned spending for Weekend Edition and higher newsprint, marketing and severance-related expenses at Print Publishing.

Special Items: In the fourth quarter of 2005, the Company recorded special items netting to eight cents per share as a special gain of 11 cents per share related to a tax benefit was offset by a charge of two cents per share for restructuring at an equity investment and one cent per share for accretion of discount on a contract-guarantee obligation.  In the fourth quarter of 2004, the Company recorded special items netting to zero as a special gain of seven cents per share related to a tax benefit was offset by a charge of five cents per share for a restructuring charge and a two cent per share loss for accretion of discount on a contract-guarantee obligation.

For the full year 2005, earnings were $0.73 per share, compared to $1.21 per share in 2004.  Excluding the special items described herein, earnings in 2005 of $0.98 per share were down 19.0% versus $1.21 per share in 2004.  Operating income was $121.3 million compared to 2004’s $162.2 million.  Excluding special items, operating income was $132.7 million, down 20.1% from last year.  Please refer to the attached financial exhibits and notes for more details on the Company’s results.

Commenting on fourth quarter results, Peter R. Kann, chairman and chief executive officer of Dow Jones, said, “We’re pleased to have increased revenues at each of our business segments, including advertising gains each month of the quarter at the domestic and international editions of The Wall Street Journal.  We continued to post strong profit gains in Electronic Publishing, though these were offset by planned losses for Weekend Edition and a decline in Ottaway income.”

Mr. Kann continued: “While full year 2005 profits were adversely affected by a continued difficult environment for print advertising, we made major investments to strengthen our portfolio.  These investments include the acquisition of MarketWatch, launch of Weekend Edition, repositioning of the Journal’s international editions, Ottaway internet and infrastructure initiatives, and the announced redesign of the U.S. Journal.  These investments set the stage for future profitable growth.”

Dow Jones said it estimates first quarter 2006 earnings per share before special items to be in the low teens cents per share range compared to the 11 cents per share earned in the first quarter of 2005.  The first quarter 2006 estimate includes losses of about six cents per share from Weekend Edition.  The Company expects total linage at the U.S. Wall Street Journal including Weekend Edition will be up in the mid single digits percentage range compared to the first quarter 2005.  Based on currently known and quantified special items in the first quarter of 2006, the Company expects reported earnings per share to be in the low teens cents per share range, compared with 10 cents per share in the first quarter of 2005.  






Segment Results

Print Publishing revenue of $259.5 million in the fourth quarter of 2005 increased 4.7% versus the same period a year ago primarily due to increased revenue at the U.S. and international editions of the Journal.  Advertising linage at the U.S. Wall Street Journal, including Weekend Edition, increased 8.1% (up 17.0% in Dec.).  Advertising yield (or revenue per line) declined slightly due to the heavier mix of lower yielding classified linage in the quarter.  Advertising linage at the international editions of the Journal increased 20.6% (up 16.8% in Dec.).  Barron’s advertising pages decreased 10.2% in the quarter (down 9.2% in Dec.).  Operating income declined 85.8% to $3.7 million from $26.2 million last year, due to planned losses for Weekend Edition and higher newsprint, marketing and severance-related expenses.

Electronic Publishing revenue of $134.2 million in the fourth quarter of 2005 increased 32.9% over the same period a year ago, driven by the acquisition of MarketWatch, together with increased revenue in all Electronic Publishing business units.  Operating income of $29.5 million in the fourth quarter of 2005 increased 85.6% over last year due to the acquisition of MarketWatch and organic growth at Indexes/Ventures, Consumer Electronic Publishing and Dow Jones Newswires.  Operating margin of 22.0% in the fourth quarter of 2005 was up from the previous year’s 15.7%.  Terminal counts at Newswires were 304,000, up 2.0% from the same period last year.  Paid subscribers to The Wall Street Journal Online grew to 768,000 as of December 31, 2005, up 7.9% from the prior year period.

At Ottaway Newspapers, our community media group, revenue of $88.5 million in the fourth quarter of 2005 was up slightly from the same period a year ago.  Operating income of $20.9 million was down 11.1% and operating margin was 23.6% versus 26.6% last year mainly due to higher newsprint prices, delivery costs, employee costs and expenses related to Ottaway’s Internet initiative.  Advertising linage decreased 6.0% in the fourth quarter (down 5.4% in Dec.).






The Company ended the fourth quarter of 2005 with $472 million in debt compared to $511 million at the end of the third quarter 2005 and $146 million at the end of the fourth quarter of 2004.  The increase over prior year is due to $439 million in debt incurred to finance the Company’s acquisition of MarketWatch in January 2005.

As previously announced, the Company will host an earnings conference call at 10 a.m. EST 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, MarketWatch and the Ottaway group of community newspapers. Dow Jones is co-owner with Reuters Group of Factiva and with Hearst of SmartMoney. Dow Jones also provides news content to CNBC and radio stations in the U.S.

Information Relating To Forward-Looking Statements; Non-GAAP Reconciliation:

This press release contains forward-looking statements, such as those including the words "believe," "expect," "intend," "estimate," "anticipate," "will," "outlook," "guidance," "forecast" and similar expressions, 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 and that B2B advertising levels, particularly in technology and finance, may or may not return to historical levels; the Company's ability to expand and diversify the Journal's market segment focus beyond finance and technology; the Company's ability to limit and manage expense growth, especially in light of its prior cost cutting and its growth initiatives such as the new Weekend Edition; intense competition for ad revenues and readers the Company's products and services face; the impact on the future circulation of the Journal and community newspapers that may be caused by the declining frequency of regular newspaper buying by young people; with respect to our new Weekend Edition, the risks that it may not generate anticipated advertising revenues, resulting in greater losses than expected in its first two years of operation, and that it may draw advertising away from the Company's other consumer advertising sections; with respect to Newswires and other subscription-based products and services, the negative impact of business consolidations and layoffs in the financial services industry on sales; the uncertainties relating to the Company's guarantee to Cantor Fitzgerald Securities and Market Data Corporation; 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). The Company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. 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.



5




Dow Jones & Company, Inc.

Earnings Summary

(Unaudited)

                   

(in thousands, except per share amounts)

                
   

Quarters Ended
December 31

    

Twelve Months Ended
December 31

  
   

2005

 

 

 

2004

 

   

2005

 

 

 

2004

 

 

Reported results:

      

 

 

       

 

 

 

Revenues

 

 $

482,184

  

 $

437,155

   

 $

1,769,690

  

$

1,671,458

  
                   

Operating income

 

$

49,606

  

$

51,697

   

$

121,308

  

$

162,174

  
                   

Net income

 

$

41,181

  

$

35,624

   

$

60,395

  

$

99,548

  
                   

Effective tax rate*

  

22.8%

   

28.0%

    

41.7%

   

37.0%

  
                   

Diluted EPS

 

$

.49

  

$

.43

   

$

.73

  

$

1.21

  

  

                  

Excluding items described in Note 2:

                 

Operating income

 

 $

49,606

  

 $

58,390

   

 $

132,675

  

$

166,106

  
                   

Net income

 

$

34,351

  

$

35,476

   

$

81,820

  

$

99,871

  
                   

Effective tax rate*

  

37.4%

   

38.5%

    

38.4%

   

39.7%

  
                   

Diluted EPS

 

$

.41

  

$

.43

   

$

.98

  

$

1.21

  
                   

EPS percentage change

  

(4.7%

)

  

-

    

(19.0%

)

  

26.0%

  
                   

*The effective income tax rate is net of minority interests.

               
                

See notes to financial information on page 10.

               




Reconciliation of first quarter 2006 earnings outlook:

 

Quarters Ended March 31

 
   

2006 Guidance

   

2005 Actual

 
         
 

Reported earnings per share

 

 low teens cents

  

$

.10

 
   

per share range

     
 

Adjusted to remove:

       
 

Contract guarantee

 

                   (.01)

   

(.02

)

         
   

low teens cents

     
 

EPS before special items

 

per share range

*

 

$

.11

**

         
         

*

Based on special items currently anticipated.                    

       

**

Items do not total due to rounding.

       




6


 

Dow Jones & Company, Inc.

Condensed Consolidated Statements of Income

(Unaudited)

                 

(in thousands, except per share amounts)                        

  

Quarters Ended
December 31

   

Twelve Months Ended
December 31

 
   

2005

   

2004

   

2005

   

2004

 

Revenues:

                

Advertising

 

 $

273,693

  

 $

251,642

  

 $

961,288

  

 $

946,325

 

Information services

  

106,240

   

86,457

   

411,804

   

328,708

 

Circulation and other

  

102,251

   

99,056

   

396,598

   

396,425

 

Total revenues

  

482,184

   

437,155

   

1,769,690

   

1,671,458

 
                 

Expenses:                                                    

                

News, production and technology

  

144,095

   

127,143

   

560,988

   

513,808

 

Selling, administrative and general

  

169,420

   

150,688

   

649,250

   

584,714

 

Newsprint

  

36,566

   

30,107

   

126,449

   

115,067

 

Print delivery costs

  

54,795

   

45,571

   

192,027

   

186,856

 

Depreciation and amortization

  

27,702

   

25,256

   

108,301

   

104,907

 

Restructuring

  

-

   

6,693

   

11,367

   

3,932

 

Total operating expenses

  

432,578

   

385,458

   

1,648,382

   

1,509,284

 
                 

Operating income

  

49,606

   

51,697

   

121,308

   

162,174

 

                                                                  

                

Other income (expense):                                        

                

Investment income

  

1,555

   

188

   

2,127

   

520

 

Interest expense

  

(5,372

)

  

(1,328

)

  

(19,255

)

  

(3,740

)

Equity in earnings of associated companies

  

6,739

   

989

   

14,090

   

2,375

 

Write-down of equity investments

  

-

   

-

   

(35,865

)

  

-

 

Gain on disposition of investments

  

-

   

-

   

22,862

   

3,260

 

Contract guarantee

  

(742

)

  

(1,478

)

  

(4,090

)

  

(6,933

)

Other, net

  

1,590

   

(1,065

)

  

2,434

   

(1,571

)

                 

Income before income taxes and minority interests

  

53,376

   

49,003

   

103,611

   

156,085

 

Income taxes

  

12,195

   

13,884

   

43,216

   

58,578

 

Income before minority interests

  

41,181

   

35,119

   

60,395

   

97,507

 

Minority interests in losses of subsidiaries

  

-

   

505

   

-

   

2,041

 

Net income

 

 $

41,181

  

 $

35,624

  

 $

60,395

  

 $

99,548

 
                 

Net income per share:                                        

                

Basic

 

$

.50

  

$

.43

  

$

.73

  

$

1.22

 

Diluted

  

.49

   

.43

   

.73

   

1.21

 
                 

Weighted-average shares outstanding:                            

                

Basic

  

83,104

   

82,014

   

82,751

   

81,878

 

Diluted

  

83,451

   

82,397

   

83,189

   

82,285

 

                                                              

                

See notes to financial information on page 10.     

                

       



7


        

Dow Jones & Company, Inc.

Segment Information

(Unaudited)

                                                          

               

(dollars in thousands)                          

 

Quarters Ended
December 31

   

Twelve Months Ended
December 31

 
  

2005

   

2004

   

2005

   

2004

 

Revenues:                                                   

               

Print publishing

$

259,499

  

 $

247,893

  

$

916,139

  

 $

948,833

 

Electronic publishing

 

134,201

   

100,954

   

506,857

   

381,181

 

Community media

 

88,484

   

88,308

   

346,694

   

341,444

 

Consolidated revenues

$

482,184

  

$

437,155

  

$

1,769,690

  

$

1,671,458

 

                                                                   

               

Percentage change in revenues excluding

               

newly-acquired operations(1)

 

5.5

%

  

1.5

%

  

1.0

%

  

4.9

%

                

Operating income (loss):

               

Print publishing

$

3,709

  

$

26,161

  

$

(23,101

)

 

$

31,485

 

Electronic publishing

 

29,471

   

15,882

   

112,046

   

79,034

 

Community media

 

20,891

   

23,491

   

79,749

   

89,115

 

Corporate

 

(4,465

)

  

(7,144

)

  

(36,019

)

  

(33,528

)

Segment operating income

 

49,606

   

58,390

   

132,675

   

166,106

 
                

Restructuring

 

-

   

(6,693

)

  

(11,367

)

  

(3,932

)

Consolidated operating income

$

49,606

  

$

51,697

  

$

121,308

  

$

162,174

 
                

Operating margin:                                                  

               

Print publishing

 

1.4

%

  

10.6

%

  

(2.5

)%

  

3.3

%

Electronic publishing

 

22.0

%

  

15.7

%

  

22.1

 %

  

20.7

%

Community media

 

23.6

%

  

26.6

%

  

23.0

 %

  

26.1

%

Segment operating margin

 

10.3

%

  

13.4

%

  

7.5

 %

  

9.9

%

                                                                         

               

Depreciation and amortization (D&A):                                     

               

Print publishing

$

14,024

  

$

15,397

  

$

56,931

  

$

65,335

 

Electronic publishing

 

10,228

   

6,828

   

38,644

   

27,732

 

Community media

 

3,413

   

2,990

   

12,576

   

11,675

 

Corporate

 

37

   

41

   

150

   

165

 

Consolidated D&A

$

27,702

  

$

25,256

  

$

108,301

  

$

104,907

 
                
  

(1) Percentage represents change in revenue excluding non-comparable periods for newly-acquired operations.

 
                

See notes to financial information on page 10.        

 




8



Dow Jones & Company, Inc.

Supplemental Segment Revenue Information

(Unaudited)

               

(in thousands)          

 

Quarters Ended
December 31

  

Twelve Months Ended
December 31

 
  

2005

   

2004

  

2005

   

2004

 

Print publishing:

              

U.S. publications:

              

Advertising

 $

168,455

  

 $

161,719

 

 $

579,873

  

 $

606,649

 

Circulation and other

 

67,992

   

65,568

  

260,635

   

260,375

 

Total for U.S. publications

 

236,447

   

227,287

  

840,508

   

867,024

 
               

International publications:

              

Advertising

 

15,837

   

12,555

  

46,559

   

48,630

 

Circulation and other

 

7,215

   

8,051

  

29,072

   

33,179

 

Total for international publications

 

23,052

   

20,606

  

75,631

   

81,809

 
               

Total for print publishing

 

259,499

   

247,893

  

916,139

   

948,833

 
               

Electronic publishing:

              

Dow Jones Newswires:

              

North America

 

50,226

   

49,006

  

200,508

   

192,375

 

International

 

17,619

   

14,770

  

67,294

   

55,698

 

Total Newswires

 

67,845

   

63,776

  

267,802

   

248,073

 
               

Consumer Electronic Publishing(1)

 

48,519

   

22,390

  

172,697

   

79,710

 

Dow Jones Indexes/Ventures

 

17,837

   

14,788

  

66,358

   

53,398

 
               

Total electronic publishing

 

134,201

   

100,954

  

506,857

   

381,181

 
               

Community media:

              

Advertising

 

67,541

   

66,998

  

261,797

   

255,766

 

Circulation and other

 

20,943

   

21,310

  

84,897

   

85,678

 

Total community media

 

88,484

   

88,308

  

346,694

   

341,444

 
               

Total segment revenues

 $

482,184

  

 $

437,155

 

 $

1,769,690

  

 $

1,671,458

 
               

(1) Includes WSJ.com, related vertical sites, licensing/business development, radio/audio, and the January 2005

 

acquisition of MarketWatch, Inc.  On a pro forma basis, including MarketWatch revenues in the

 

respective periods prior to the Company’s acquisition, Consumer Electronic Publishing revenues

 

grew 7.6% and 10.2% in the quarter and twelve months ended December 31, 2005, respectively.

 
               
               

See notes to financial information on page 10.

              



9


                 

Dow Jones & Company, Inc.

Statistical Information

(Unaudited)

            
 

Quarters Ended
December 31

  

Twelve Months Ended
December 31

 
 

2005

  

2004

  

2005

  

2004

 

Advertising volume increase/(decrease)(1):

           
            

The Wall Street Journal(2):                                                     

           

General

12.5

%

 

3.0

%

 

1.2

%

 

4.0

%

Technology

3.2

  

(26.5

)

 

(8.1

)

 

(23.8

)

Financial

(14.9

)

 

(8.7

)

 

(14.9

)

 

7.0

 

Classified

21.9

  

6.4

  

12.4

  

8.9

 

Total

8.1

  

(5.1

)

 

(0.7

)

 

(0.5

)

                                                                          

           

The Wall Street Journal Asia

12.3

  

(2.7

)

 

2.3

  

(3.3

)

The Wall Street Journal Europe

29.3

  

(14.1

)

 

1.6

  

(3.5

)

Barron’s

(10.2

)

 

10.7

  

(12.5

)

 

11.7

 

                                                                            

           

Ottaway Newspapers:                                                   

           

Daily

(4.6

)

 

2.7

  

(1.6

)

 

2.9

 

Non-daily

(11.7

)

 

1.3

  

(6.9

)

 

10.1

 

Total

(6.0

)

 

2.4

  

(2.6

)

 

4.2

 

                                                                        

           

The Wall Street Journal advertising as a

           

percentage of total Journal linage(1):

           

                                                                        

           

General

46.3

  

44.4

  

42.1

  

41.4

 

Technology

16.5

  

17.3

  

15.6

  

16.8

 

Financial

13.8

  

17.6

  

15.7

  

18.3

 

Classified

23.4

  

20.7

  

26.6

  

23.5

 

                                                                             

           

                                                                             

           

Other statistics:

   

December 31

 
       

2005

  

2004

 
            

Dow Jones Newswires terminals

      

304,000

  

298,000

 

WSJ.com subscribers

      

768,000

  

712,000

 

WSJ.com unique visitors/business day

      

175,000

  

153,000

 

Average monthly unique visitors during the quarter to Dow Jones Online(3)

  

8,049,000

  

9,062,000

 

Average monthly page views during the quarter to Dow Jones Online

  

298,577,000

  

n/a

 
         

(1)  General and technology advertising for 2004 was reclassified to conform to the current year presentation.

 

(2)  Includes advertising from the Weekend Edition launched September 17, 2005.

 

(3)  Average monthly unique visitors to Dow Jones Online is from NielsenNetRatings.  The 2005 amount includes

WSJ.com, MarketWatch.com, BigCharts.com, Barron's Online, and the Journal's other vertical websites.  The 2004

amount represents comparable unduplicated audience (i.e., unique visitors).




10

Dow Jones & Company, Inc.

Notes to Financial Information




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 fourth quarter and the twelve months ended December 31, 2005 and 2004:

                               


  

Quarters Ended December 31

 

(in millions, except

 

2005

  

2004

 

per share amounts)

 

Operating

  

Net

  

EPS

  

Operating

  

Net

  

EPS

 
                   

Reported income  

$

49.6

 

$

41.2

 

$

.49

 

$

51.7

 

$

35.6

 

$

.43

 

Adjusted to remove:

                  

Included in operating income:

                  

Restructuring (a)

          

(6.7

)

 

(4.0

)

 

(.05

)

Included in non-operating income:

                  

Restructuring of an equity
investment (b)

    

(1.3

)

 

(.02

)

         

Contract guarantee (c)

    

(0.7

)

 

(.01

)

    

(1.5

)

 

(.02

)

Certain income tax matters (d)

    

8.9

  

.11

     

5.7

  

.07

 

Adjusted income

$

49.6

 

$

34.4

*

$

.41

 

$

58.4

 

$

35.5

*

$

.43

 



  

Twelve Months Ended December 31

 

(in millions, except

 

2005

  

2004

 

per share amounts)

 

Operating

  

Net

  

EPS

  

Operating

  

Net

  

EPS

 
                   

Reported income

$

121.3

 

$

60.4

 

$

.73

 

$

162.2

 

$

99.5

 

$

1.21

 

Adjusted to remove:

                  

Included in operating income:

                  

Restructuring (a)

 

(11.4

)

 

(6.9

)

 

(.08

)

 

(3.9

)

 

(2.3

)

 

(.03

)

Included in non-operating income:

                  

Restructuring of an equity
investment (b)

    

(1.3

)

 

(.02

)

         

Contract guarantee (c)

    

(4.1

)

 

(.05

)

    

(6.9

)

 

(.08

)

Gain on disposition of

                  

investments (e)

    

17.7

  

.21

     

1.8

  

.02

 

Write-down of equity

   investments (f)

    

(36.7

)

 

(.44

)

         

Certain income tax matters (d)

    

10.0

  

.12

     

7.2

  

.09

 

Adjusted income

$

132.7

 

$

81.8

*

$

.98

*

$

166.1

 

$

99.9

*

$

1.21

 


*The sum of the individual amounts does not equal total due to rounding.



11

Dow Jones & Company, Inc.

Notes to Financial Information



(a) Restructuring:


2005

In the second quarter 2005, the Company recorded a restructuring charge of $11.4 million ($6.9 million, net of taxes) primarily reflecting employee severance related to a workforce reduction of about 120 full-time employees.  Most of the charge relates to the Company’s efforts to reposition its international print and online operations but also includes headcount reductions at other parts of the business.  These workforce reductions were substantially completed by the end of the year.


2004

In the fourth quarter 2004, the Company recorded a restructuring charge of $6.7 million ($4.0 million, net of taxes) primarily reflecting employee severance related to a workforce reduction of about 100 employees.  This charge principally related to the Company’s decision to reposition the Far Eastern Economic Review from a weekly magazine to a monthly publication beginning in December 2004, with the balance related to headcount reductions in circulation and international operations.


In the first quarter 2004, the Company renewed its lease at the World Financial Center (WFC), including extending the term of one of the floors that was previously abandoned.  The Company reoccupied this floor with personnel from another of its New York locations, whose lease term was expiring.  As a result, the Company reversed $2.8 million ($1.7 million, net of taxes) of the remaining lease obligation reserve for the previously abandoned floor at WFC.

 



12

Dow Jones & Company, Inc.

Notes to Financial Information



Restructuring charges are not included in segment expenses, as management evaluates segment results exclusive of these items.  For information purposes, the restructuring charges in 2005 and 2004, allocable by segment for the twelve months ended December 31, 2005 and 2004 were as follows:


(in thousands)

 

Quarters Ended
December 31

   

Twelve Months Ended
December 31

 
  

2005

  

2004

   

2005

  

2004

 
              

Print Publishing

$

-

 

$

6,192

  

$

8,585

 

$

3,561

 

Electronic Publishing

 

-

  

405

   

1,969

  

280

 

Corporate

 

-

  

96

   

813

  

91

 

Total

$

-

 

$

6,693

  

$

11,367

 

$

3,932

 


(b) Restructuring of an equity investment:


During the fourth quarter 2005, Dow Jones Reuters Business Interactive LLC (Factiva), a 50% equity investee, recorded a restructuring charge of $4.3 million primarily reflecting employee severance and termination of an operating lease.   The Company’s share of this restructuring charge was $2.1 million ($1.3 million, net of taxes).


(c) Contract guarantee:


Under the terms of the Company's 1998 sale of Telerate to Bridge Information Systems (Bridge), the Company 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 the Company for any liability the Company 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 present value of the total estimated minimum annual 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.  The trial court in January 2003 denied motions by each of the parties that their own claims for relief be granted and that competing claims be dismissed.  Appeals from those decisions were not pursued, and discovery has concluded.  On January 25, 2006, the trial court denied the bulk of the parties' motions for summary judgment, leaving the resolution of the case for trial.  The Court did grant Dow Jones' motion for summary judgment on a small issue in the case.  The Court did not set a trial date, but has directed the parties to appear before it at a conference in early March.


The fourth quarter of 2005 and 2004 included charges related to the accretion of the discount on the reserve balance of $0.7 million ($.01 per diluted share) and $1.5 million ($.02 per diluted share), respectively.  These charges totaled $4.1 million ($.05 per diluted share) and $6.9 million ($.08 per diluted share) for the years ended 2005 and 2004, respectively.


(d) Certain income tax matters:


2005

In the fourth quarter 2005, the Company received a federal tax refund, including interest, related to the settlement of claims from previously filed returns.  Pursuant to the settlement of these claims, during the fourth quarter of 2005, the Company recorded an adjustment of $8 million to its tax accounts and recorded interest income of $1.4 million ($0.9 million, net of taxes).  The total impact of these items was an increase in net income of $8.9 million ($.11 per diluted share).


Income tax expense in the third quarter 2005 included a tax benefit of $1.1 million ($.01 per diluted share) as a result of a favorable resolution of certain state and federal tax matters.


2004

Income tax expense in 2004 included tax benefits of $5.7 million ($.07 per diluted share) in the fourth quarter and $1.5 million ($.02 per diluted share) in the third quarter as a result of the favorable resolutions of certain federal tax matters.  


(e) Gain on disposition of investments:


2005

In April 2005, the Company concluded the sale of its 39.9% minority interest in F.F. Soucy Inc., a Canadian newsprint mill, to its majority owner, Brant-Allen Industries, Inc.  The proceeds from the sale price of $40 million in cash were used to reduce the Company’s commercial paper borrowings.  The Company recorded a gain of $9.6 million ($9.4 million, net of taxes) in the second quarter.


During the second quarter of 2005, the Company and the von Holtzbrinck Group completed its exchange of cross shareholdings.  In exchange for the Company’s 10% interest in Handelsblatt, the Company received the remaining 10% minority interest in The Wall Street Journal Europe that it did not already own; an 11.5% increase in its interest in a Czech Republic business periodical, effectively increasing the Company’s interest to 23%; and, $6 million in cash.  The transaction was accounted for at fair value and the Company recorded a gain of $13.2 million ($8.3 million, net of taxes) in connection with the disposal of its interest in Handelsblatt.


2004

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 the Company of $6.7 million.  As a result of this sale, the Company recorded a gain of $3.3 million ($1.8 million, net of taxes) in the second quarter of 2004.


(f) Write-down of equity investments:


In December 2005, the Company completed the transfer of its 50% interests in both CNBC Europe and CNBC Asia (collectively CNBC International), as well as its 25% interest in CNBC World, to NBC Universal for nominal consideration pursuant to a July 2005 agreement.  Under the agreement, the Company committed to fund CNBC International for the remainder of 2005, up to approximately $6 million, irrespective of the operating performance of the ventures, and through 2006 the Company will continue to provide access to news resources and other services to CNBC International, nonexclusively.  There are no plans to alter the licensing relationship in the U.S. between the Company and CNBC.


In the second quarter of 2005, in connection with the binding agreement reached with NBC Universal, the Company determined that an other-than-temporary decline in the value of its investments in CNBC International and CNBC World had occurred and, as a result, the Company recorded a charge of $35.9 million ($36.7 million, including taxes), largely reflecting the write-down of the investments’ carrying value ($32 million), with the remainder primarily reflecting the additional firmly committed cash payment for which there was no future economic benefit to the Company.




13

Dow Jones & Company, Inc.

Notes to Financial Information



3.  The Company made the following acquisitions during 2005 and 2004:

 

2005

Acquisition of MarketWatch

On January 21, 2005, the Company completed its acquisition of MarketWatch, Inc. (MarketWatch) for a purchase price of approximately $538 million.  The purchase price consisted of cash tendered totaling $507.7 million to acquire the 28.2 million outstanding common shares of MarketWatch; the exchange of 1.2 million stock options valued at $25 million using the Black-Scholes option pricing model; and, direct third party transaction costs of approximately $5 million.  This acquisition was financed by $439 million of short-term commercial paper borrowings and cash, including cash received from MarketWatch of $74 million.  In February 2005, the Company refinanced $225 million of its commercial paper borrowings with three-year bonds bearing a fixed interest rate of 3.875%.


Acquisition of The Barnstable Patriot

On October 3, 2005, Ottaway Community Media purchased The Barnstable Patriot newspaper and related assets of Cornerstone Communications Inc. for $1.2 million in cash.  The acquisition resulted in a purchase price allocation of $1.1 million to goodwill and other intangibles, and $0.1 million to tangible assets.


2004

Acquisition of remaining interest in OsterDow Jones

On July 7, 2004, the Company acquired the remaining two-thirds interest in OsterDow Jones Commodity News for $1.6 million.  The new operation, “Dow Jones Commodities Service,” was combined with the Company’s Dow Jones Newswires business.  The step acquisition resulted in a purchase price allocation to goodwill of $1.4 million and tangible assets of $0.2 million.


Acquisition of remaining interest in VWD news operations

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.  The Company was a minority shareholder in VWD.  


Acquisition of Alternative Investor

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.  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.



4.  The Company reports the results of its operations in three segments: print publishing, electronic publishing and community media.  In addition, the Company reports certain administrative activities under the corporate segment.  Print publishing, which is largely comprised of the global editions of The Wall Street Journal, publishes business and financial content world-wide.  This content is published primarily in the U.S., Europe, Asia and Latin America editions of The Wall Street Journal as well as in Barron’s and on U.S. television through a licensing arrangement with CNBC.  Electronic publishing, which electronically distributes business and financial news and information, includes the operations of Dow Jones Newswires, Consumer Electronic Publishing and Dow Jones Indexes/Ventures.  Consumer Electronic Publishing includes the results of WSJ.com and its related vertical sites, MarketWatch and the Company’s licensing/business development and radio/audio businesses.  The community media segment publishes 15 daily newspapers, 12 Sunday papers and more than 30 weekly newspapers and “shoppers” in nine states in the U.S.  



14

Dow Jones & Company, Inc.

Notes to Financial Information





5.  Summarized financial information for 50% held equity-basis investments in associated companies were as follows (amounts are at 100% levels):


(in thousands)

 

Quarters Ended
December 31

   

Twelve Months Ended December 31

 
  

2005

   

2004

   

2005

   

2004

 

Factiva

               

Revenues

$

72,486

  

$

67,295

  

$

281,643

  

$

263,036

 

Operating (loss) income(1)

 

(764

)

  

3,557

   

11,082

   

17,544

 

Depreciation and amortization

 

3,351

   

2,309

   

11,899

   

11,393

 
              

SmartMoney

               

Revenues

$

16,663

  

$

15,654

  

$

55,862

  

$

53,004

 

Operating income

 

1,997

   

888

   

1,701

   

101

 

Depreciation and amortization

 

105

   

132

   

468

   

668

 
                

(1) Includes a restructuring charge of $4.3 million (at 100% level) as described in Note 2 above.