NEW YORK, Oct. 18, 2006 (PRIMEZONE) -- Dow Jones & Company (NYSE:DJ) today reported earnings of 19 cents per diluted share during the third quarter of 2006, compared with 12 cents per diluted share in the third quarter of 2005. Excluding a special tax gain and severance charge explained herein, we earned 11 cents per diluted share during the third quarter of 2006, down 8.3% from the 12 cents per diluted share earned in the third quarter of 2005, mainly due to higher interest expense.
During the third quarter, we announced our intention to sell up to six Ottaway community newspaper properties including cash sales and exchanges for other community newspapers. Proceeds will be used to finance the acquisition of Factiva announced today (see separate release). These six properties are presented in this press release as discontinued operations and are excluded from revenues, operating expenses and operating income as well as segment results for all periods. Also, if we were to conclude prior to the filing of our third quarter 10-Q that it is more likely than not that our available capital loss carryforwards will be utilized, we would adjust the value of our deferred tax assets and increase third quarter reported net income and EPS. Any such increase in reported income will not affect EPS before special items. Please refer to the attached for additional financial information.
Revenue increased 3.9% to $412.4 million compared with the third quarter of 2005, due to increased revenue at all segments except for Local Media (formerly known as Community Media). Operating income increased 45.0% to $13.6 million from $9.4 million in the third quarter of 2005 due to improved performance at Consumer and Enterprise Media, partially offset by a decline at Local Media.
Special Items: As further explained in the attached Notes to Financial Information, in the third quarter of 2006, we recorded a special gain of $7.6 million (9 cents per share) as a result of a favorable resolution of state and federal tax matters. We also incurred a severance charge of one cent per share. In the third quarter of 2005, we recorded special items netting to zero cents per share as a special gain of one cent per share related to a tax benefit was offset by a charge of one cent for accretion of discount on a contract-guarantee obligation. Please refer to the attached for additional income statement and other financial information.
Commenting on third quarter results, Rich Zannino, chief executive officer of Dow Jones, said, "We increased revenue and profit in nearly all our core business operations and tightly managed expenses which led to a 61% increase in operating income in the third quarter. However, these improved results were more than offset by higher interest expense and modestly lower equity earnings, resulting in a slight decline in EPS before special items and a severance charge. For the first nine months of 2006, we're pleased that revenue was up 6.8%, operating income before special items was up 33% and EPS before special items was up 12%, all in spite of a continuing difficult print advertising environment and planned dilution from our investment in Weekend Edition."
Mr. Zannino concluded: "We have many initiatives underway to diversify our reliance on print advertising revenue, strengthen our portfolio, improve our businesses, increase revenue and tightly manage costs to fuel long term profitable growth. During the third quarter, we announced another three major such initiatives. In July, we announced the outsourcing of a number of finance, technology and service functions. In August, we announced that we are exploring the sale of up to six Ottaway newspapers. Proceeds will be used to reduce debt and fund the acquisition of Reuters' 50% interest in Factiva, announced this morning. We will continue these efforts to accelerate our future earnings growth."
We currently estimate fourth quarter 2006 earnings per share before special items and before any impact of Factiva and Ottaway transactions to be in the low to mid 40 cents per share range compared with the 41 cents per share earned in the fourth quarter of 2005. In line with this estimate, we expect advertising revenue at the U.S. Wall Street Journal to be in the low to mid single digits over the fourth quarter 2005. Based on currently known and quantified special items in the fourth quarter of 2006, we expect reported earnings per share to be in the low to mid 40 cents per share range, compared with 49 cents per share earned in the fourth quarter of 2005.
Segment Results
Consumer Media revenue of $247.2 million in the third quarter of 2006 increased 4.6% versus the same period a year ago on a 3.9% increase in advertising revenue and a 5.7% gain in circulation and other revenue. Advertising revenue at the U.S. Wall Street Journal print edition increased 0.3% in the third quarter on a linage increase of 1.1%. Dow Jones Online advertising revenue increased 12.4% in the quarter slowed by a soft July. The 5.7% gain in circulation and other revenue at Consumer Media was driven by increases at both the print Journal and at Dow Jones Online. Consumer Media had an operating loss of $18.0 million in the third quarter, seasonally its weakest quarter, which was slightly improved over its loss of $19.9 million in the third quarter of 2005, as a planned increase in losses at the Journal's Weekend Edition were more than offset by improved results at Dow Jones Online and international print editions in the third quarter 2006. Paid subscribers to The Wall Street Journal Online grew to 788,000 as of September 30, 2006, up 3.1% over the prior year period. Since its launch as a separate paid Web site in January of 2006, Barron's Online has added 70,000 paid subscribers as of September 30, 2006.
Enterprise Media revenue of $100.4 million in the third quarter of 2006 increased 5.5% over the same period a year ago, primarily driven by increased revenue at Dow Jones Indexes/Ventures and Dow Jones Newswires, partially offset by a decline at Dow Jones Licensing Services. Operating income increased 9.6% over last year to $27.0 million. Operating margin of 26.9% in the third quarter of 2006 was up 100 basis points from the previous year's 25.9%. Terminal counts at Newswires were 298,000, up slightly from the same period last year.
At Local Media, as noted above, we are treating the six properties presently for sale as discontinued operations. Local Media revenue in the third quarter of 2006 declined 0.6% (down 0.7% including the six properties) to $64.9 million compared with the third quarter of 2005. Advertising revenue decreased 1.1% (down 0.9% including the six properties) on a 7.7% decline in advertising volume (down 7.7% including the six properties) due to a decrease in classified and retail advertising revenue, partially offset by a 67% increase in online advertising revenue (up 66% including the six properties) and increased ad rates. Operating income declined 14.3% (down 13.4% including the six properties) to $14.1 million compared with the prior year period, mainly due to higher employee pension, marketing and depreciation expense. Consequently, the operating margin in the quarter was 21.8%, down 340 basis points from 25.2% last year.
We ended the third quarter of 2006 with $669 million in debt compared with $674 million at the end of the second quarter 2006 and $511 million at the end of the third quarter of 2005. The increase in debt levels versus prior year is primarily due to $202 million in debt incurred in the first quarter of 2006 to finance our litigation settlement with Cantor Fitzgerald Securities and Market Data Corp.
As previously announced, we 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 our Web site, www.dowjones.com, or through a listen-only, dial-in conference line, by dialing 877-407-9205. A replay of the conference call and the full text of the prepared remarks will be available on our 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.
The Dow Jones & Company logo is available at http://www.primezone.com/newsroom/prs/?pkgid=2636
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," "plan," "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 B2B advertising market; 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 Franchise'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, its growth initiatives and its new organizational structure; 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 some consumers and by changes made from time to time by agencies such as the Audit Bureau of Circulations and various syndicated research organizations in the way they measure circulation and readership numbers; with respect to the 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 Journal's other consumer advertising sections; the impact on online advertising revenues of fluctuations or decreases in Web site traffic levels; 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 risk that the conditions to the Factiva acquisition are not met and the acquisition is not consummated; the risk that the contemplated sales of the Ottaway newspapers may not be consummated or may be delayed and that the Company may need to pursue alternative means of financing the Factiva acquisition; 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.
Dow Jones & Company, Inc.
Earnings Summary
(Unaudited)
(in thousands, except per share amounts)
Three Months Ended Nine Months Ended
September 30 September 30
----------------------- -----------------------
2006 2005 2006 2005
-------- -------- -------- --------
Reported results:
Revenues(1) $ 412,422 $ 396,754 $1,298,512 $1,215,368
Operating
income(1) $ 13,613 $ 9,388 $ 56,223 $ 52,962
Net income $ 16,010 $ 10,173 $ 106,289 $ 19,214
Effective tax
rate(1) (43.7)% 24.0% 8.3% 74.0%
Diluted EPS $ .19 $ .12 $ 1.27 $ .23
Excluding special
items described in
Note 4:
Operating
income(1) $ 15,138 $ 9,388 $ 85,420 $ 64,329
Net income $ 9,380 $ 9,970 $ 53,579 $ 47,469
Effective tax
rate(1) 39.4% 33.7% 38.5% 38.5%
Diluted EPS $ .11 $ .12 $ .64 $ .57
EPS percentage
change (8.3)% (20.0)% 12.3% (26.9)%
See notes to financial information.
Reconciliation of fourth quarter earnings outlook:
Quarters Ended
December 31
-------------------------
2006 2005
Guidance Actual
------------ -----------
Reported earnings per share Low to mid $ .49
40 cents per
share
Adjusted to remove:
Restructuring by an equity investment (.02)
Contract guarantee (.01)
Certain income tax matters .11
------------ -----------
EPS before special items Low to mid
40 cents per
share $ .41
============ ===========
(1) Amounts exclude discontinued operations as discussed in Note 2.
Dow Jones & Company, Inc.
Condensed Consolidated Statements of Income
(Unaudited)
(in thousands, except
per share amounts)
Three Months Ended Nine Months Ended
September 30 September 30
-------------------- --------------------
2006 2005 2006 2005
------ ------ ------ ------
Revenues(1):
Advertising $ 207,819 $ 202,120 $ 691,054 $ 634,886
Information
services 95,717 93,424 286,482 277,001
Circulation and
other 108,886 101,210 320,976 303,481
---------- ---------- ---------- ----------
Total revenues 412,422 396,754 1,298,512 1,215,368
Expenses:
News, production
and technology 134,241 133,894 404,202 397,341
Selling,
administrative
and general 157,240 152,752 482,511 456,718
Newsprint 31,080 28,476 97,723 83,866
Print delivery
costs 52,169 45,701 157,033 134,353
Depreciation and
amortization 24,079 26,543 73,148 78,761
Restructuring and
other items, net -- -- 27,672 11,367
---------- ---------- ---------- ----------
Total operating
expenses 398,809 387,366 1,242,289 1,162,406
---------- ---------- ---------- ----------
Operating income 13,613 9,388 56,223 52,962
Other income
(expense):
Investment income 590 87 873 572
Interest expense (8,457) (4,971) (22,901) (13,883)
Equity in earnings
of associated
companies 3,319 4,785 9,801 7,351
Write-down of
equity
investments -- -- -- (35,865)
Gain on
disposition of
investments -- -- -- 22,862
Contract guarantee -- (932) 62,649 (3,348)
Other, net (277) 73 (1,238) 953
---------- ---------- ---------- ----------
Income from
continuing
operations before
income taxes 8,788 8,430 105,407 31,604
Income taxes (3,837) 2,021 8,740 23,386
---------- ---------- ---------- ----------
Income from
continuing
operations 12,625 6,409 96,667 8,218
Income from
discontinued
operations, net
of tax(3) 3,385 3,764 9,622 10,996
---------- ---------- ---------- ----------
Net income $ 16,010 $ 10,173 $ 106,289 $ 19,214
========== ========== ========== ==========
Net income per
basic share:
Continuing
operations $ .15 $ .08 $ 1.16 $ .10
Discontinued
operations .04 .05 .12 .13
---------- ---------- ---------- ----------
Net income per
basic share $ .19 $ .12(2) $ 1.28 $ .23
========== ========== ========== ==========
Net income per
diluted share:
Continuing
operations $ .15 $ .08 $ 1.16 $ .10
Discontinued
operations .04 .05 .12 .13
---------- ---------- ---------- ----------
Net income per
diluted share $ .19 $ .12(2) $ 1.27(2) $ .23
========== ========== ========== ==========
Weighted-average
shares
outstanding:
Basic 83,288 82,987 83,187 82,639
Diluted 83,779 83,402 83,623 83,108
(1) Dow Jones Online subscription revenue was reclassified for all
periods presented from Information Services revenue to
Circulation revenue.
(2) The sum of the individual amounts does not equal total due to
rounding.
(3) Does not factor in any interest savings that would result from
utilizing the proceeds from the sales to reduce debt.
See notes to financial information.
Dow Jones & Company, Inc.
Segment Information
(Unaudited)
(dollars in thousands) Three Months Ended Nine Months Ended
September 30(1) September 30(1)
-------------------- --------------------
2006 2005 2006 2005
-------- -------- -------- --------
Revenues:
Consumer media(2) $ 247,184 $ 236,345 $ 814,099 $ 746,820
Enterprise media(3) 100,382 95,133 295,428 282,476
Local media(4) 64,856 65,276 188,985 186,072
---------- ---------- ---------- ----------
Consolidated revenues $ 412,422 $ 396,754 $1,298,512 $1,215,368
========== ========== ========== ==========
Operating income (loss):
Consumer media $ (17,959) $ (19,924) $ (819) $ (13,530)
Enterprise media 27,033 24,671 76,879 69,295
Local media 14,119 16,476 35,436 40,118
Corporate (9,580) (11,835) (27,601) (31,554)
---------- ---------- ---------- ----------
Segment operating income 13,613 9,388 83,895 64,329
Restructuring and
other items, net -- -- (27,672) (11,367)
---------- ---------- ---------- ----------
Consolidated operating
income $ 13,613 $ 9,388 $ 56,223 $ 52,962
========== ========== ========== ==========
Operating margin:
Consumer media (7.3)% (8.4)% (0.1)% (1.8)%
Enterprise media 26.9% 25.9% 26.0% 24.5%
Local media 21.8% 25.2% 18.8% 21.6%
Segment operating
margin 3.3% 2.4% 6.5% 5.3%
Depreciation and
amortization (D&A):
Consumer media $ 16,162 $ 18,222 $ 48,948 $ 54,226
Enterprise media 5,102 5,736 15,927 17,097
Local media 2,783 2,547 8,178 7,325
Corporate 32 38 95 113
---------- ---------- ---------- ----------
Consolidated D&A $ 24,079 $ 26,543 $ 73,148 $ 78,761
========== ========== ========== ==========
(1) Amounts exclude discontinued operations as discussed in Note 2.
(2) Consumer media includes The Wall Street Journal Franchise
(including domestic and international print, online, television
and radio); Barron’s Franchise (including print, online and
conferences); and MarketWatch Franchise (including online,
newsletter, television and radio).
(3) Enterprise media includes Dow Jones Newswires, Dow Jones
Financial Information Services, Dow Jones Licensing Services and
Dow Jones Indexes/Ventures.
(4) Local media, formerly known as community media, includes our
portfolio of daily and weekly Ottaway local newspaper properties.
See notes to financial information.
Dow Jones & Company, Inc.
Supplemental Segment Revenue Information
(Unaudited)
(in thousands) Three Months Ended Nine Months Ended
September 30(1) September 30(1)
-------------------- --------------------
2006 2005 2006 2005
-------- -------- -------- --------
Consumer media:
U.S. media (2):
Advertising $ 147,217 $ 143,323 $ 512,859 $ 461,031
Circulation and other 81,973 77,376 247,849 233,210
---------- ---------- ---------- ----------
Total U.S. media 229,190 220,699 760,708 694,241
---------- ---------- ---------- ----------
International media (3):
Advertising 10,682 8,585 31,866 30,722
Circulation and other 7,312 7,061 21,525 21,857
---------- ---------- ---------- ----------
Total international media 17,994 15,646 53,391 52,579
---------- ---------- ---------- ----------
Total Consumer media
Advertising 157,899 151,908 544,725 491,753
Circulation and other 89,285 84,437 269,374 255,067
---------- ---------- ---------- ----------
Total consumer media $ 247,184 $ 236,345 $ 814,099 $ 746,820
========== ========== ========== ==========
Enterprise media:
Dow Jones Newswires/FIS:
North America $ 48,637 $ 49,050 $ 143,442 $ 141,920
International 20,230 16,365 58,247 50,506
---------- ---------- ---------- ----------
Dow Jones Newswires/FIS 68,867 65,415 201,689 192,426
Dow Jones Indexes/
Ventures 19,139 15,399 54,470 48,521
Dow Jones Licensing
Services 12,376 14,319 39,269 41,529
---------- ---------- ---------- ----------
Total enterprise media $ 100,382 $ 95,133 $ 295,428 $ 282,476
========== ========== ========== ==========
Local media:
Advertising $ 49,146 $ 49,711 $ 144,016 $ 141,547
Circulation and other 15,710 15,565 44,969 44,525
---------- ---------- ---------- ----------
Total local media $ 64,856 $ 65,276 $ 188,985 $ 186,072
========== ========== ========== ==========
Total segment revenues $ 412,422 $ 396,754 $1,298,512 $1,215,368
========== ========== ========== ==========
(1) Amounts exclude discontinued operations as discussed in Note 2.
(2) Includes the domestic Wall Street Journal Franchise (including
print, online, television and radio); Barron's Franchise
(including print, online and conferences); and MarketWatch
Franchise (including online, newsletters, television and radio).
(3) Includes the international editions of the Journal and the Far
Eastern Economic Review.
See notes to financial information.
Dow Jones & Company, Inc.
Supplemental Segment Statistical Information
(Unaudited)
(amounts in thousands) Three Months Ended Nine Months Ended
September 30(1) September 30(1)
----------------- -----------------
2006 2005 2006 2005
------ ------ ------ ------
Advertising revenue and
volume increase/(decrease)(2):
The Wall Street Journal:
Total advertising revenue 0.3% 0.1% 10.3% (5.0)%
Total advertising volume 1.1% 3.6% 9.1% (3.9)%
General (2.0)% (6.1)% 6.4% (0.6)%
Technology (0.9)% 4.2% 2.3% (12.2)%
Financial 9.5% (2.4)% 10.5% (17.2)%
Classified 1.1% 21.2% 15.9% 9.4%
International advertising
revenue (3) 24.4% (15.5)% 3.7% (14.8)%
Barron's advertising revenue 22.8% (19.9)% 9.9% (10.8)%
Barron's advertising volume 15.1% (21.1)% 1.4% (13.3)%
Ottaway advertising
revenue(1) (1.1)% 4.7% 1.7% 4.0%
Ottaway Newspapers linage(1) (7.7)% (0.8)% (6.7)% (1.5)%
Dow Jones Online statistics:
Dow Jones Online advertising
revenue (4) 12.4% 144.3% 20.1% 137.1%
WSJ.com paid subscriptions 788 764 788 764
Barrons.com paid subscriptions 70 n/a 70 n/a
Average monthly unique
visitors to WSJ.com 3,539 3,881 3,670 3,770
WSJ.com average monthly
page views 106,104 99,470 107,713 92,994
Average monthly unique
visitors to MarketWatch.com 4,687 5,328 5,283 6,144
MarketWatch.com average
monthly page views 176,637 184,562 196,189 189,503
Average monthly unique
visitors to Dow Jones
Online(5) 7,545 8,150 7,973 8,808
Dow Jones Online average
monthly page views 286,322 284,032 307,983 282,497
Other:
Dow Jones Newswires terminals 298 297 298 297
(1) Amounts exclude discontinued operations as discussed in Note 2.
(2) General, technology and financial advertising for 2005 was
reclassified to conform to the current year presentation.
(3) Includes the international editions of the Journal and the Far
Eastern Economic Review.
(4) Includes MarketWatch, which was acquired January 21, 2005. On a
pro-forma basis, advertising revenues in the first nine months
of 2006 and 2005 were up 17% and 18%, respectively.
(5) Average monthly unique visitors to Dow Jones Online is from
NielsenNetRatings and includes WSJ.com, MarketWatch.com,
BigCharts.com, Barron's Online, and the Journal's other vertical
websites.
1. Our 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 our historical performance and believes that they provide meaningful and comparable information to investors to assist in their analysis of our performance relative to prior periods and our competitors.
2. During the third quarter of 2006, we announced our plan to seek alternatives for certain local media newspaper businesses including cash sales and exchanges for other community newspapers. We are currently evaluating options for newspapers in the following six markets: Danbury, CT; Oneonta, NY; Plattsburgh, NY; Santa Cruz, CA; Sunbury, PA; and Traverse City, MI. Management is actively marketing these properties and expects to dispose of these assets within one year. Accordingly, these operations are presented as discontinued operations pursuant to Statement of Financial Accounting Standards No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets". Further, the results of those newspapers were excluded from our segment results for all periods presented.
Operating results for the six local media newspapers included within discontinued operations were as follows:
Three Months Ended Nine Months Ended
(in thousands) September 30 September 30
----------------- -----------------
2006 2005 2006 2005
------- ------- ------- -------
Revenues $24,318 $24,482 $71,628 $72,138
Operating income $ 5,738 $ 6,449 $16,338 $18,740
Income before income taxes $ 5,736 $ 6,367 $16,337 $18,631
Income taxes $ 2,351 $ 2,603 $ 6,715 $ 7,635
Net income $ 3,385 $ 3,764 $ 9,622 $10,996
Depreciation and amortization $ 663 $ 596 $ 1,947 $ 1,838
3. Effective February 22, 2006, we established a new organizational structure pursuant to which we organize and report our business segments to better align our businesses with the markets they serve. We were previously organized around our channels of distribution -- print publishing, electronic publishing and community newspapers. Now, we are organized around our distinct brands (franchises), customers and markets with our business and financial content organizations reported in two separate segments -- Consumer Media and Enterprise Media, and our local general-interest community newspapers and their online media properties reported in the Local Media segment. This new approach better aligns our organizational structure, leadership team, and franchises with our strategic and financial goals. Previously reported segment results of operations were restated to reflect these changes, which did not impact total consolidated results of operations. We continue to report certain administrative activities under corporate.
Consumer media is comprised primarily of The Wall Street Journal franchise (including domestic and international print, online, television and radio); and the relatively smaller Barron's (including print, online and conferences) and MarketWatch franchises (including online, newsletters, television and radio). The consumer media segment is an integrated business that offers business and financial information content to the consumer market around the globe. This content is produced to gain readership and ultimately to earn revenue from advertisers and those readers. We manage consumer media as one segment as their products largely comprise the global WSJ brand, and its sales, newsgathering and most production efforts are centralized and shared across the different editions and our various offerings in the segment are highly integrated.
Enterprise media is managed as one segment as it comprises product offerings under the Dow Jones brand and offers business and financial information content to other businesses and financial professionals around the globe. Enterprise media's revenues are primarily subscription-based and are comprised of Dow Jones Newswires, Dow Jones Financial Information Services, Dow Jones Indexes and Reprints/Permissions and Dow Jones Licensing Services.
Local media, formerly known as community media, includes the operations of Ottaway Newspapers, which publishes daily newspapers, weekly newspapers and "shoppers" in the U.S.
4. The following table reconciles reported results to income adjusted for special items for the three and nine months ended September 30, 2006 and 2005:
Three Months Ended September 30
---------------------------------------------------
(in millions, except 2006 2005
per share amounts) -------------------------- ------------------------
Operating(1) Net EPS Operating(1) Net EPS
--------- ----- ----- --------- ----- -----
Reported income $13.6 $16.0 $ .19 $ 9.4 $10.2 $ .12
Adjusted to
remove:
Included in
operating income:
Severance (a) (1.5) (0.9) (.01) -- -- --
Included in non-
operating income:
Contract
guarantee (b) -- -- -- -- (0.9) (.01)
Certain income
tax matters (c) -- 7.6 .09 -- 1.1 .01
----- ----- ----- ----- ----- -----
Adjusted income $15.1 $ 9.4(2) $ .11 $ 9.4 $10.0 $ .12
===== ===== ===== ===== ===== =====
Three Months Ended September 30
---------------------------------------------------
(in millions, except 2006 2005
per share amounts) -------------------------- ------------------------
Operating(1) Net EPS Operating(1) Net EPS
--------- ------ ------ --------- ------ ------
Reported income $ 56.2 $106.3 $ 1.27 $ 53.0 $ 19.2 $ .23
Adjusted to
remove:
Included in
operating
income:
Severance (a) (1.5) (0.9) (.01) -- -- --
Restructuring
and other
items, net (d) (27.7) (16.6) (.20) (11.4) (6.9) (.08)
Included in non-
operating income:
Contract
guarantee (b) -- 62.6 .75 -- (3.3) (.04)
Gain on dis-
position of
investments (e) -- -- -- -- 17.7 .21
Write-down of
equity
investments (f) -- -- -- -- (36.7) (.44)
Certain income
tax matters (c) -- 7.6 .09 -- 1.1 .01
------ ------ ------ ------ ------ ------
Adjusted income $ 85.4 $ 53.6 $ .64 $ 64.3(2) $ 47.5(2) $ .57
====== ====== ====== ====== ====== ======
(1) Amounts exclude discontinued operations as discussed in Note 2.
(2) The sum of the individual amounts does not equal total due
to rounding.
(a) Severance:
During the third quarter of 2006, our then Vice President and Chief Financial Officer resigned by mutual agreement. Accordingly, we recorded a severance charge of $1.5 million ($0.9 million, net of taxes) pursuant to his employment agreement.
(b) Contract guarantee:
On March 13, 2006, we entered into a definitive settlement agreement to conclude all litigation relating to our obligations under a contract guarantee issued in 1995 to Cantor Fitzgerald Securities (Cantor) and Market Data Corporation (MDC). Pursuant to the settlement agreement, we agreed to pay an aggregate of $202 million to Cantor and MDC, which was below the $265 million contractual obligation that we had previously reserved. Accordingly, we recorded a benefit in the first quarter of 2006 of $62.6 million.
For tax purposes, the settlement payment was treated as a capital loss which we could carry forward for five years as an offset to capital gains. We could not conclude that it was more likely than not that we would realize any net tax savings from capital loss carryforwards prior to their expiration and therefore have a full valuation allowance on the capital loss carryforward.
In the first quarter of 2006, we paid $200 million of the settlement amount, while the remaining $2 million was paid in the second quarter of 2006. We financed the payments with commercial paper. Additionally, on March 27, 2006, we entered into a $250 million 18-month credit agreement to support this increased balance of commercial paper outstanding.
(c) Certain income tax matters:
In the third quarter of 2006, we recorded a tax benefit of $7.2 million and related interest income of $0.4 million totaling $.09 per diluted share as a result of favorable resolution of certain state and federal tax matters. Income tax expense in the third quarter of 2005 included a tax benefit of $1.1 million ($.01 per diluted share) also as a result of a favorable resolution of tax matters.
(d) Restructuring and other items, net:
2006
During the second quarter of 2006, we recorded a net charge of $6.8 million, reflecting a restructuring charge of $9.9 million ($6 million, net of taxes), partially offset by a gain of $3.1 million ($1.9 million, net of taxes) on the sale of certain fixed assets. The restructuring primarily reflected the elimination of certain positions in technology, circulation and administrative support in favor of outsource vendors. In total, approximately 250 full-time and 500 part-time employees were affected.
During the first quarter of 2006, we recorded a charge of $20.9 million ($12.5 million, net of taxes) related to the reorganization of our business. The charge primarily reflected employee severance related to the previously announced elimination of certain senior level positions, as well as additional workforce reductions at other areas of the business identified as part of the reorganization during the first quarter. In total, approximately 65 full-time employees were affected.
2005
In the second quarter of 2005, we 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 related to our efforts to reposition our international print and online operations but also included staff reductions at other parts of the business.
Restructuring and other items are not included in segment expenses, as management evaluates segment results exclusive of these items. For information purposes, the restructuring and other items allocable to each segment and corporate were as follows:
Nine Months Ended
(in thousands) September 30
----------------------
2006 2005
-------- --------
Consumer media $ 19,313 $ 8,856
Enterprise media 5,072 1,698
Local media (1,358) --
Corporate 4,645 813
-------- --------
Total $ 27,672 $ 11,367
======== ========
(e) Gain on disposition of investments:
In April 2005, we concluded the sale of our 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 our commercial paper borrowings. We recorded an after-tax gain of $9.4 million in the second quarter.
During the second quarter of 2005, we completed an exchange of cross shareholdings with the von Holtzbrinck Group. In exchange for our 10% interest in Handelsblatt, we received the remaining 10% minority interest in The Wall Street Journal Europe that we did not already own; an 11.5% increase in our interest in a Czech Republic business periodical, effectively increasing our interest to 23%; and $6 million in cash. We recorded an after-tax gain of $8.3 million in connection with the disposal of our interest in Handelsblatt.
(f) Write-down of investments:
In December 2005, we completed the disposal of our 50% interests in both CNBC Europe and CNBC Asia (collectively CNBC International), as well as our 25% interest in CNBC World, to NBC Universal for nominal consideration pursuant to a 2005 agreement. Through 2006 we will continue to provide access to news resources and other services to CNBC International, nonexclusively.
In the second quarter of 2005, in connection with the binding agreement reached with NBC Universal, we determined that an other-than-temporary decline in the value of our investments in CNBC International and CNBC World had occurred and, as a result, we 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 we received no future economic benefit.
5. Summarized financial information for 50% held equity-basis investments in associated companies were as follows (amounts are at 100% levels):
Three Months Ended Nine Months Ended
(in thousands) September 30 September 30
----------------- -------------------
2006 2005 2006 2005
------- ------- -------- --------
Factiva
Revenues $72,729 $69,650 $215,095 $209,157
Operating income $ 3,737 $ 4,500 $ 8,945 $ 11,846
Depreciation and
amortization $ 2,512 $ 2,849 $ 7,387 $ 8,548
SmartMoney
Revenues $14,615 $12,643 $ 44,588 $ 39,199
Operating income (loss) $ 203 $ (321) $ 1,712 $ (296)
Depreciation and
amortization $ 90 $ 114 $ 309 $ 363