UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q





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



For the quarterly period ended September 30, 2005



OR



|[ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE 
ACT OF 1934
|--- | -----------------------------------------------------------------------------------------





| | For the transition period from to | 
| | --------------------------------- | 



Commission File Number 1-7564



DOW JONES & COMPANY, INC.



(Exact name of registrant as specified in its charter)





|DELAWARE                                                        |  | 13-5034940                           | 
|--------------------------------------------------------------- |  | ------------------------------------ | 
|(State or other jurisdiction of 
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 [  ]



Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [  ] No [x]



The number of shares outstanding of each of the issuers classes of common stock on September 30, 2005: 62,642,847 shares of Common Stock and 20,453,914 shares of Class B Common Stock.





DOW JONES & COMPANY, INC.

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2005



INDEX





|                                           |  |                                                                                       | Page No.
|------------------------------------------ |  | ------------------------------------------------------------------------------------- | --------
|PART I - Financial Information (unaudited) | 
|                                           |  |                                                                                       |         
|Item 1.                                    |  | Financial Statements                                                                  |         
|                                           |  |                                                                                       |         
|                                           |  | Condensed Consolidated Statements of Income                                          |         
|                                           |  | For the quarters and nine months ended September 30, 2005 and 2004                    | 3       
|                                           |  |                                                                                       |         
|                                           |  | Condensed Consolidated Statements of Cash Flows                                      |         
|                                           |  | For the nine months ended September 30, 2005 and 2004                                 | 4       
|                                           |  |                                                                                       |         
|                                           |  | Condensed Consolidated Balance Sheets                                                |         
|                                           |  | As of September 30, 2005 and December 31, 2004                                        | 5       
|                                           |  |                                                                                       |         
|                                           |  | Notes to Condensed Consolidated Financial Statements                                  | 6       
|                                           |  |                                                                                       |         
|Item 2.                                    |  | Managements Discussion and Analysis of Financial Condition and Results of Operations | 18      
|                                           |  |                                                                                       |         
|Item 3.                                    |  | Quantitative and Qualitative Disclosures about Market Risk                            | 35      
|                                           |  |                                                                                       |         
|Item 4.                                    |  | Controls & Procedures                                                                 | 35      
|                                           | 
|                                           | 
|PART II - Other Information                | 
|                                           |  |                                                                                       |         
|Item 1.                                    |  | Legal Proceedings                                                                     | 36      
|                                           |  |                                                                                       |         
|Item 2.                                    |  | Unregistered Sales of Equity Securities and Use of Proceeds                           | 37      
|                                           |  |                                                                                       |         
|Item 6.                                    |  | Exhibits                                                                              | 37      
|                                           |  |                                                                                       |         
|                                           |  | Signature                                                                             | 38      





2



PART I - FINANCIAL INFORMATION

|Item 1. | Financial Statements | 
|------- | -------------------- | 

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

Dow Jones & Company, Inc.

(unaudited)

|(in thousands, except per share amounts)                                                        |  |   | Quarters Ended September 30 |   |   | Nine Months Ended September 30 |   |  
|----------------------------------------------------------------------------------------------- |  | - | --------------------------- | - | - | ------------------------------ | - | -
|                                                                                                |  |   | 2005                        |   |   | 2004                           |   |  
|Revenues:                                                                                       |  |   |                             |   |   |                                |   |  
|Advertising                                                                                     |  | $ | 219,975                     |   | $ | 212,148                        |   | $
|Information services                                                                            |  |   | 103,505                     |   |   | 84,906                         |   |  
|Circulation and other                                                                           |  |   | 97,756                      |   |   | 97,838                         |   |  
|                                                                                                |  |   |                             |   |   |                                |   |  
|Total revenues                                                                                  |  |   | 421,236                     |   |   | 394,892                        |   |  
|                                                                                                |  |   |                             |   |   |                                |   |  
|Expenses:                                                                                       |  |   |                             |   |   |                                |   |  
|News, production and technology                                                                 |  |   | 140,466                     |   |   | 134,056                        |   |  
|Selling, administrative and general                                                             |  |   | 160,516                     |   |   | 140,012                        |   |  
|Newsprint                                                                                       |  |   | 30,596                      |   |   | 28,382                         |   |  
|Print delivery costs                                                                            |  |   | 46,682                      |   |   | 46,416                         |   |  
|Depreciation and amortization                                                                   |  |   | 27,139                      |   |   | 25,598                         |   |  
|Restructuring                                                                                   |  |   | -                           |   |   | -                              |   |  
|                                                                                                |  |   |                             |   |   |                                |   |  
|Total operating expenses                                                                        |  |   | 405,399                     |   |   | 374,464                        |   |  
|                                                                                                |  |   |                             |   |   |                                |   |  
|Operating income                                                                                |  |   | 15,837                      |   |   | 20,428                         |   |  
|                                                                                                |  |   |                             |   |   |                                |   |  
|Other income (expense):                                                                         |  |   |                             |   |   |                                |   |  
|Investment income                                                                               |  |   | 87                          |   |   | 76                             |   |  
|Interest expense                                                                                |  |   | (4,971                      | ) |   | (964                           | ) |  
|Equity in earnings (losses) of associated companies                                             |  |   | 4,785                       |   |   | (13                            | ) |  
|Write-down of equity investments                                                                |  |   | -                           |   |   | -                              |   |  
|Gain on disposition of investments                                                              |  |   | -                           |   |   | -                              |   |  
|Contract guarantee                                                                              |  |   | (932                        | ) |   | (1,651                         | ) |  
|Other, net                                                                                      |  |   | (9                          | ) |   | 759                            |   |  
|                                                                                                |  |   |                             |   |   |                                |   |  
|Income before income taxes and minority
interests                                               |  |   | 14,797                      |   |   | 18,635                         |   |  
|Income taxes                                                                                    |  |   | 4,624                       |   |   | 7,209                          |   |  
|                                                                                                |  |   |                             |   |   |                                |   |  
|Income before minority interests                                                                |  |   | 10,173                      |   |   | 11,426                         |   |  
|Minority interests in losses of subsidiaries                                                    |  |   | -                           |   |   | 641                            |   |  
|                                                                                                |  |   |                             |   |   |                                |   |  
|Net income                                                                                      |  | $ | 10,173                      |   | $ | 12,067                         |   | $
|                                                                                                |  |   |                             |   |   |                                |   |  
|Net income per share:                                                                           |  |   |                             |   |   |                                |   |  
|Basic                                                                                           |  | $ | .12                         |   | $ | .15                            |   | $
|Diluted                                                                                         |  |   | .12                         |   |   | .15                            |   |  
|                                                                                                |  |   |                             |   |   |                                |   |  
|Cash dividends declared per share (Note 6)                                                      |  |   | .25                         |   |   | .25                            |   |  
|                                                                                                |  |   |                             |   |   |                                |   |  
|Weighted-average shares outstanding:                                                            |  |   |                             |   |   |                                |   |  
|Basic                                                                                           |  |   | 82,987                      |   |   | 81,918                         |   |  
|Diluted                                                                                         |  |   | 83,402                      |   |   | 82,295                         |   |  
|                                                                                                |  |   |                             |   |   |                                |   |  
|Comprehensive income (Note 13)                                                                  |  | $ | 8,842                       |   | $ | 11,871                         |   | $
|                                                                                                |  |   |                             |   |   |                                |   |  
|The accompanying notes are an integral part of the condensed consolidated financial statements. | 



3



CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Dow Jones & Company, Inc.

(unaudited)

|(in thousands)                                                                                  |  |   | For the Nine Months Ended September 30 |   | 
|----------------------------------------------------------------------------------------------- |  | - | -------------------------------------- | - | 
|                                                                                                |  |   | 2005                                   |   | 
|Cash Flows from Operating Activities:                                                           |  |   |                                        |   | 
|Net income                                                                                      |  | $ | 19,214                                 |   | 
|Adjustments to reconcile net income to net cash provided by                                     |  |   |                                        |   | 
|operating activities:                                                                           |  |   |                                        |   | 
|Depreciation                                                                                    |  |   | 71,838                                 |   | 
|Amortization of intangibles                                                                     |  |   | 8,761                                  |   | 
|Equity in earnings of associated companies, net of distributions                                |  |   | 7,079                                  |   | 
|Minority interests in losses of subsidiaries                                                    |  |   | -                                      |   | 
|Gain on disposition of investments                                                              |  |   | (22,862                                | ) | 
|Write-down of equity investments                                                                |  |   | 35,865                                 |   | 
|Contract guarantee                                                                              |  |   | 3,348                                  |   | 
|Changes in assets and liabilities, net of acquisitions:                                         |  |   |                                        |   | 
|Accounts receivable                                                                             |  |   | 5,068                                  |   | 
|Other assets                                                                                    |  |   | 248                                    |   | 
|Accounts payable and accrued liabilities                                                        |  |   | (47,269                                | ) | 
|Income taxes                                                                                    |  |   | 12,884                                 |   | 
|Deferred taxes                                                                                  |  |   | 919                                    |   | 
|Unearned revenue                                                                                |  |   | (3,577                                 | ) | 
|Deferred compensation and other noncurrent liabilities                                          |  |   | 14,626                                 |   | 
|Other, net                                                                                      |  |   | 3,680                                  |   | 
|                                                                                                |  |   |                                        |   | 
|Net cash provided by operating activities                                                       |  |   | 109,822                                |   | 
|                                                                                                |  |   |                                        |   | 
|Cash Flows from Investing Activities:                                                           |  |   |                                        |   | 
|Additions to plant, property and equipment                                                      |  |   | (37,931                                | ) | 
|Funding to investees                                                                            |  |   | (7,352                                 | ) | 
|Advances (to) from equity investees                                                             |  |   | (1,712                                 | ) | 
|Proceeds from disposition of investments                                                        |  |   | 47,544                                 |   | 
|Businesses acquired, net of cash received                                                       |  |   | (438,122                               | ) | 
|Other, net                                                                                      |  |   | (587                                   | ) | 
|                                                                                                |  |   |                                        |   | 
|Net cash used in investing activities                                                           |  |   | (438,160                               | ) | 
|                                                                                                |  |   |                                        |   | 
|Cash Flows from Financing Activities:                                                           |  |   |                                        |   | 
|Cash dividends                                                                                  |  |   | (61,907                                | ) | 
|Proceeds from issuance of bonds                                                                 |  |   | 224,899                                |   | 
|Repayment of commercial paper borrowings                                                        |  |   | (105,570                               | ) | 
|Increase in commercial paper borrowings                                                         |  |   | 245,527                                |   | 
|Bond issuance costs                                                                             |  |   | (1,468                                 | ) | 
|Book overdraft                                                                                  |  |   | -                                      |   | 
|Contribution from minority partner                                                              |  |   | 2,193                                  |   | 
|Proceeds from sales under stock compensation plans                                              |  |   | 23,018                                 |   | 
|                                                                                                |  |   |                                        |   | 
|Net cash provided by (used in) financing activities                                             |  |   | 326,692                                |   | 
|                                                                                                |  |   |                                        |   | 
|Effect of currency exchange rate changes on cash                                                |  |   | 2,094                                  |   | 
|                                                                                                |  |   |                                        |   | 
|Increase (decrease) in cash and cash equivalents                                                |  |   | 448                                    |   | 
|Cash and cash equivalents at beginning of year                                                  |  |   | 17,237                                 |   | 
|                                                                                                |  |   |                                        |   | 
|Cash and cash equivalents at September 30                                                       |  | $ | 17,685                                 |   | 
|                                                                                                |  |   |                                        |   | 
|The accompanying notes are an integral part of the condensed consolidated financial statements.



4



CONDENSED CONSOLIDATED BALANCE SHEETS

Dow Jones & Company, Inc.

(unaudited)

|(in thousands)                                                                                  |  |   | September 30 2005 |   |   | December 31 2004 |  
|----------------------------------------------------------------------------------------------- |  | - | ----------------- | - | - | ---------------- | -
|Assets:                                                                                         |  |   |                   |   |   |                  |  
|Current Assets:                                                                                 |  |   |                   |   |   |                  |  
|Cash and cash equivalents                                                                       |  | $ | 17,685            |   | $ | 17,237           |  
|Accounts receivable  trade, net                                                                |  |   | 176,541           |   |   | 168,497          |  
|Accounts receivable  other                                                                     |  |   | 24,441            |   |   | 23,282           |  
|Newsprint inventory                                                                             |  |   | 9,864             |   |   | 9,402            |  
|Prepaid expenses                                                                                |  |   | 22,482            |   |   | 22,471           |  
|Deferred income taxes                                                                           |  |   | 13,092            |   |   | 13,025           |  
|Total current assets                                                                            |  |   | 264,105           |   |   | 253,914          |  
|                                                                                                |  |   |                   |   |   |                  |  
|Investments in associated companies, at equity                                                  |  |   | 23,434            |   |   | 88,911           |  
|Other investments                                                                               |  |   | 8,347             |   |   | 14,302           |  
|                                                                                                |  |   |                   |   |   |                  |  
|Plant, property and equipment, at cost                                                          |  |   | 1,731,469         |   |   | 1,722,847        |  
|Less, accumulated depreciation                                                                  |  |   | 1,101,423         |   |   | 1,062,823        |  
|Plant, property and equipment, net                                                              |  |   | 630,046           |   |   | 660,024          |  
|                                                                                                |  |   |                   |   |   |                  |  
|Goodwill                                                                                        |  |   | 660,896           |   |   | 245,558          |  
|Other intangible assets, net                                                                    |  |   | 139,027           |   |   | 88,887           |  
|Deferred income taxes                                                                           |  |   | 33,664            |   |   | 13,755           |  
|Other assets                                                                                    |  |   | 17,959            |   |   | 14,852           |  
|Total assets                                                                                    |  | $ | 1,777,478         |   | $ | 1,380,203        |  
|                                                                                                |  |   |                   |   |   |                  |  
|Liabilities:                                                                                    |  |   |                   |   |   |                  |  
|Current Liabilities:                                                                            |  |   |                   |   |   |                  |  
|Accounts payable  trade                                                                        |  | $ | 63,496            |   | $ | 68,191           |  
|Accrued wages, salaries and commissions                                                         |  |   | 70,210            |   |   | 75,926           |  
|Retirement plan contributions payable                                                           |  |   | 19,484            |   |   | 24,350           |  
|Other payables                                                                                  |  |   | 74,232            |   |   | 59,947           |  
|Dividends payable                                                                               |  |   | 20,774            |   |   | -                |  
|Contract guarantee obligation                                                                   |  |   | 261,240           |   |   | 219,257          |  
|Income taxes                                                                                    |  |   | 50,807            |   |   | 43,211           |  
|Unearned revenue                                                                                |  |   | 219,453           |   |   | 215,638          |  
|Short-term debt                                                                                 |  |   | 285,800           |   |   | 9,998            |  
|Total current liabilities                                                                       |  |   | 1,065,496         |   |   | 716,518          |  
|                                                                                                |  |   |                   |   |   |                  |  
|Long-term debt                                                                                  |  |   | 224,920           |   |   | 135,845          |  
|Deferred compensation, principally postretirement benefit obligation                            |  |   | 324,530           |   |   | 312,925          |  
|Contract guarantee obligation                                                                   |  |   | 2,767             |   |   | 41,402           |  
|Other noncurrent liabilities                                                                    |  |   | 20,200            |   |   | 19,140           |  
|Total liabilities                                                                               |  |   | 1,637,913         |   |   | 1,225,830        |  
|                                                                                                |  |   |                   |   |   |                  |  
|Minority interests in subsidiaries                                                              |  |   | -                 |   |   | 3,830            |  
|                                                                                                |  |   |                   |   |   |                  |  
|Stockholders Equity:                                                                           |  |   |                   |   |   |                  |  
|Common stock                                                                                    |  |   | 102,181           |   |   | 102,181          |  
|Additional paid-in capital                                                                      |  |   | 140,345           |   |   | 124,082          |  
|Retained earnings                                                                               |  |   | 775,979           |   |   | 839,446          |  
|Accumulated other comprehensive loss, net of taxes                                              |  |   | (7,175            | ) |   | (1,940           | )
|                                                                                                |  |   |                   |   |   |                  |  
|Less, treasury stock, at cost                                                                   |  |   | 871,765           |   |   | 913,226          |  
|Total stockholders equity                                                                      |  |   | 139,565           |   |   | 150,543          |  
|Total liabilities and stockholders equity                                                      |  | $ | 1,777,478         |   | $ | 1,380,203        |  
|                                                                                                |  |   |                   |   |   |                 
|The accompanying notes are an integral part of the condensed consolidated financial statements.



5



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Dow Jones & Company, Inc.

(unaudited)



1.

Basis of Presentation



In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments considered necessary for a fair statement of the Companys consolidated financial position as of September 30, 2005, and the consolidated results of operations for the three and nine month periods ended September 30, 2005 and 2004 and consolidated cash flows for the nine month periods then ended.  All adjustments reflected in the accompanying financial statements are of a normal recurring nature.  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, 2004 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.

Earnings Per Share



Basic and diluted earnings per share have been computed as follows:



|(in thousands, except per share amounts)         |   | Quarters Ended 
September 30 |  |   | Nine Months Ended 
September 30 | 
|------------------------------------------------ | - | ---------------------------- |  | - | ------------------------------- | 
|                                                 |   | 2005 (2)                     |  |   | 2004 (3)                        | 
|                                                 |   |                              |  |   |                                 | 
|Net income                                       | $ | 10,173                       |  | $ | 12,067                          | 
|                                                 |   |                              |  |   |                                 | 
|Weighted-average shares outstanding  basic      |   | 82,987                       |  |   | 81,918                          | 
|                                                 |   |                              |  |   |                                 | 
|Effect of dilutive securities:                   |   |                              |  |   |                                 | 
|Stock options                                    |   | 131                          |  |   | 71                              | 
|Other, principally contingent stock rights       |   | 284                          |  |   | 306                             | 
|                                                 |   |                              |  |   |                                 | 
|Weighted-average shares outstanding  diluted(1) |   | 83,402                       |  |   | 82,295                          | 
|                                                 |   |                              |  |   |                                 | 
|Basic earnings per share                         | $ | .12                          |  | $ | .15                             | 
|Diluted earnings per share                       |   | .12                          |  |   | .15                             | 





|(1) | The diluted average shares outstanding have been determined using the treasury stock method, which assumes the proceeds from the exercise of outstanding options were used to repurchase shares at the average market value of the stock during the quarter.                                                                                                                                                                                   | 
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                | 
|(2) | For the quarter and nine months ended September 30, 2005, options to purchase 9.1 million shares at an average price of $53.11 and 9.1 million shares at an average price of $53.26, respectively, have been excluded from the diluted earnings per share calculation because the options exercise prices were greater than the average market price during the quarter and nine months and to include such securities would be antidilutive. | 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                | 
|(3) | For the quarter and nine months ended September 30, 2004, options to purchase 9.4 million shares at an average price of $53.94 and 8.2 million shares at an average price of $55.21, respectively, have been excluded from the diluted earnings per share calculation because the options exercise prices were greater than the average market price during the quarter and nine months and to include such securities would be antidilutive. | 





6





3.

Stock-based Compensation Plans



The Company accounts for its stock-based compensation in accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, (APB 25) and its related interpretations.  Had the Companys stock-based compensation been determined by the fair-value based method of Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation, the Companys net income and earnings per share would have been as follows:



|(in thousands, except per share amounts)       |  |   | Quarters Ended 
September 30 |   |  | Nine Months Ended 
September 30 |       
|---------------------------------------------- |  | - | ---------------------------- | - |  | ------------------------------- | ------
|                                               |  |   | 2005                         |   |  |                                 | 2004  
|                                               |  |   |                              |   |  |                                 |       
|Net income, as reported                        |  | $ | 10,173                       |   |  | $                               | 12,067
|                                               |  |   |                              |   |  |                                 |       
|Add: Stock-based compensation expense          |  |   |                              |   |  |                                 |       
|included in reported net income, net of taxes  |  |   | 1,880                        |   |  |                                 | 1,604 
|                                               |  |   |                              |   |  |                                 |       
|Deduct: Total stock-based compensation expense |  |   |                              |   |  |                                 |       
|determined under fair-value based method for   |  |   |                              |   |  |                                 |       
|all awards, net of taxes                       |  |   | (2,954                       | ) |  |                                 | (4,819
|                                               |  |   |                              |   |  |                                 |       
|Adjusted net income                            |  | $ | 9,099                        |   |  | $                               | 8,852 
|                                               |  |   |                              |   |  |                                 |       
|Basic earnings per share:                      |  |   |                              |   |  |                                 |       
|As reported                                    |  | $ | .12                          |   |  | $                               | .15   
|Adjusted                                       |  |   | .11                          |   |  |                                 | .11   
|                                               |  |   |                              |   |  |                                 |       
|Diluted earnings per share:                    |  |   |                              |   |  |                                 |       
|As reported                                    |  | $ | .12                          |   |  | $                               | .15   
|Adjusted                                       |  |   | .11                          |   |  |                                 | .11   





The following table provides the estimated fair value, under the Black-Scholes option-pricing model, of each option granted in 2005 and 2004 and the significant weighted-average assumptions used in their determination.





|Stock Options: |   | Fair
Value |  | Risk-Free
Interest
Rate |  | Dividend
Yield |  | Expected
Life |  | Volatility
|-------------- | - | ---------- |  | ----------------------- |  | -------------- |  | ------------- |  | ----------
|               |   |            |  |                         |  |                |  |               |  |           
|2005           | $ | 9.53       |  | 3.7%                    |  | 2.4%           |  | 5.0 years     |  | 27.7%     
|2004           | $ | 13.45      |  | 3.0%                    |  | 1.7%           |  | 5.0 years     |  | 29.0%     



In December 2004, the FASB issued Statement of Financial Accounting Standards No. 123 (revised 2004), "Share-Based Payment" (SFAS 123R).  This statement eliminates the alternative to apply the intrinsic value measurement provisions of APB 25 to stock compensation awards issued to employees.  Rather, SFAS 123R requires companies to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award.  That cost will be recognized in the consolidated statements of income over the period during which an employee is required to provide services in exchange for the award, usually the vesting period.  The Company is evaluating the impact of the new standard and the method of adoption.  SFAS 123R will be effective for the Company beginning January 1, 2006.



In the fourth quarter of 2004, the Company, with approval from its Board of Directors, announced the acceleration of 2.2 million stock options, representing all unvested options granted and outstanding starting after 2002.  The Companys decision to accelerate the vesting of certain outstanding stock option grants was made as part of a broad review of long-term incentive compensation in light of changes in market practices and upcoming accounting changes.  Other changes being implemented beyond accelerating the vesting of certain options include reducing overall equity grant levels, a change in the mix of grants, and applying a three-year "cliff" vesting schedule to future grants of stock options.









7





4.

Acquisitions and Dispositions



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%.



MarketWatch is a leading provider of business news, financial information and analytical tools and operates two award-winning Web sites:MarketWatch.com andBigCharts.com.  These free, advertising-supported sites served approximately seven million unique visitors per month with timely market news and information.  MarketWatch also operates the MarketWatch Information Services group, which is a leading licensor of market news, data, investment analysis tools and other online applications to financial services firms, media companies and corporations.  The Company has nearly fully integrated MarketWatch into the Consumer Electronic Publishing business.



The Company believes that the MarketWatch acquisition complementsThe Wall Street Journal Onlinenetwork, which provides premium business news to about three million unique visitors per month.  By combining the traffic ofThe Wall Street Journal network of sites and MarketWatch, the Web sites average nearly 8.2 million unique visitors per month.  These factors contributed to a purchase price in excess of the fair market value of the net tangible and intangible assets acquired from MarketWatch, and as a result, the Company recorded goodwill in connection with this transaction.



Under the purchase method of accounting, the total purchase price is allocated to MarketWatchs net tangible and intangible assets based upon their estimated fair value as of the date of completion of the acquisition.  Based upon the purchase price and the valuation performed, the preliminary purchase price allocation, which is subject to change based on the Companys final analysis, is as follows (in thousands):





|                              |   |         |  
|----------------------------- | - | ------- | -
|Tangible assets:              |   |         |  
|Current assets                | $ | 89,227  |  
|Property, plant and equipment |   | 4,030   |  
|Other assets  long term      |   | 15,749  |  
|Total tangible assets         |   | 109,006 |  
|                              |   |         |  
|Intangible assets:            |   |         |  
|Customer relationships        |   | 15,000  |  
|Developed technology          |   | 13,211  |  
|Trade name                    |   | 29,000  |  
|Goodwill                      |   | 410,901 |  
|Total intangible assets       |   | 468,112 |  
|                              |   |         |  
|Liabilities assumed:          |   |         |  
|Current liabilities           |   | (39,375 | )
|Total liabilities assumed     |   | (39,375 | )
|                              |   |         |  
|Net assets acquired           | $ | 537,743 |  





8





The Company has allocated $28.2 million to amortizable intangible assets consisting of customer-related intangible assets and developed technology with weighted-average useful lives of six and four years, respectively.  The pattern of economic benefits to be derived from certain intangible assets is estimated to be greater in the initial period of ownership; accordingly, the Company has recorded accelerated amortization expense for certain intangible assets.  Further, $29 million has been allocated to trade names and $410.9 million to goodwill, which will not be amortized.  Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired, and is not deductible for tax purposes.  Liabilities assumed include approximately $9.8 million of restructuring costs consisting of $3.2 million of charges related to severance of approximately 50 MarketWatch employees and other contractual commitments.



Exchange of Cross Shareholdings

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.



Based on preliminary estimates, the step acquisition of the remaining 10% interest in The Wall Street Journal Europe resulted in a purchase price allocation to goodwill of $4.4 million and other intangibles of $1.7 million.  The other intangibles consisted of advertising accounts valued at $0.7 million and subscription accounts valued at $0.1 million.  These intangibles will be amortized on a straight-line basis over 8 years.  The remaining $0.9 million represented acquired masthead which has an indefinite life.



Disposition of F.F. Soucy

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 sales price of $40 million resulted in a gain of $9.6 million ($9.4 million, net of taxes) in the second quarter.  As part of the sale the Company provided Brant-Allen a limited indemnification for certain income tax matters.  The Company estimated its obligation under this indemnification to be $2.2 million and recorded this amount as a contingent liability and a reduction to the gain on sale.



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.



Disposition of non-news assets of VWD

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.  Following the transaction, the Company had no involvement in the continuing operations of the disposed business.  The consideration was received at the time of the sale and a gain was recognized pursuant to the guidance in Staff Accounting Bulletin Topic 5E.







9



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.



Supplemental Pro-forma Information

The following unaudited pro forma information presents a summary of the results of operations of the Company assuming the acquisitions of MarketWatch (acquired January 21, 2005), OsterDow Jones (acquired July 7, 2004), VWD (acquired April 2, 2004) and Alternative Investor (acquired March 19, 2004) occurred at the beginning of each period (in thousands, except per share amounts):



|                               |  |   | Quarters Ended September 30 |  |   |         | Nine Months Ended September 30 | 
|------------------------------ |  | - | --------------------------- |  | - | ------- | ------------------------------ | 
|                               |  |   | 2005                        |  |   | 2004    |                                | 
|                               |  |   |                             |  |   |         |                                | 
|Net revenues                   |  | $ | 421,236                     |  | $ | 414,609 |                                | 
|Net income                     |  | $ | 10,173                      |  | $ | 10,063  |                                | 
|                               |  |   |                             |  |   |         |                                | 
|Net income per share  basic   |  | $ | .12                         |  | $ | .12     |                                | 
|Net income per share  diluted |  | $ | .12                         |  | $ | .12     |                                | 
|                               |  |   |                             |  |   |         |                                | 





5.

Write-down of Equity Investments



In July 2005, the Company and NBC Universal agreed to transfer the Companys 50% interests in both CNBC Europe and CNBC Asia (collectively CNBC International), as well as its 25% interest in CNBC World, to NBC Universal as of December 31, 2005 for nominal consideration, subject to any necessary regulatory or legal approvals.



Under the agreement, the Company will 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.



As of June 30, 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) in the second quarter of 2005, 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 is no future economic benefit to the Company.





6.

Cash Dividends Declared Per Share



The Company currently pays a $.25 per share dividend each quarter.  As of September 30, 2005, the Company had declared all four quarterly dividends for 2005.



10





7.

Goodwill and Other Intangible Assets



Goodwill balances by reportable segment were as follows:



|(in thousands)        |   | September 30 
2005 |  |   | December 31
2004
|--------------------- | - | ------------------ |  | - | ----------------
|                      |   |                    |  |   |                 
|Print publishing      | $ | 37,840             |  | $ | 33,403          
|Electronic publishing |   | 511,039            |  |   | 100,138         
|Community newspapers  |   | 112,017            |  |   | 112,017         
|                      |   |                    |  |   |                 
|Total goodwill        | $ | 660,896            |  | $ | 245,558         





Other intangible assets were as follows:



|                          |   | September 30, 2005     |  | December 31, 2004 |                         
|------------------------- | - | ---------------------- |  | ----------------- | ------------------------
|(in thousands)            |   | Gross 
Carrying
Amount |  |                   | Accumulated
Amortization
|                          |   |                        |  |                   |                         
|Subscription accounts     | $ | 29,048                 |  | $                 | 9,045                   
|Advertising accounts      |   | 20,112                 |  |                   | 4,447                   
|Developed technology      |   | 13,211                 |  |                   | 2,446                   
|Other                     |   | 3,021                  |  |                   | 934                     
|                          |   |                        |  |                   |                         
|Total                     |   | 65,392                 |  |                   | 16,872                  
|Unamortizable intangibles |   | 90,507                 |  |                   | -                       
|                          |   |                        |  |                   |                         
|Total other intangibles   | $ | 155,899                |  | $                 | 16,872                  



Amortization expense, based on intangibles subject to amortization held at September 30, 2005, is expected to be $3.1 million for the last three months of 2005, $11.7 million in 2006, $10.5 million in 2007, $7.8 million in 2008, $4.0 million in 2009 and $3.6 million in 2010.





8.

Debt



The following table summarizes the Companys debt outstanding:



|                                             |   | September 30 |   | December 31
|-------------------------------------------- | - | ------------ | - | -----------
|(in thousands)                               |   | 2005         |   | 2004       
|                                             |   |              |   |            
|Commercial paper, at rates of 3.49% to 3.93% | $ | 285,800      | $ | 145,843    
|3.875% Senior Notes due February 15, 2008    |   | 224,920      |   | -          
|Total debt outstanding                       | $ | 510,720      | $ | 145,843    



Debt outstanding at September 30, 2005 was $510.7 million which consisted of 3-year bonds totaling $224.9 million and commercial paper of $285.8 million with various maturities of less than a year.  As of September 30, 2005, the Company could borrow up to $440 million, $140 million through June 24, 2006 and $300 million through June 24, 2009 under its multiyear revolving credit agreements with several banks.  It is currently the Companys intent to manage its commercial paper borrowings as short-term obligations.



The revolving credit agreements contain restrictive covenants, including a limitation on the ratio of consolidated indebtedness to consolidated cash flow and a requirement to maintain a minimum ratio of consolidated cash flow to consolidated interest expense.  On August 29, 2005, the Company amended its 5-year credit agreement dated June 25, 2001 and its 5-year credit agreement dated June 21, 2004 to temporarily increase the leverage covenant, from 3.5x to 4.0x, for each of the two quarters ended September 30, 2005 and December 31, 2005.  At September 30, 2005, the Company was in compliance with respect to both of these restrictive covenants then in effect, with the leverage ratio equaling 3.2x at the end of the third quarter.





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Borrowings may be made either in Eurodollars with interest that approximates the applicable Eurodollar rate or in U.S. dollars with interest that approximates the bank's prime rate, its certificate of deposit rate or the federal funds rate.  A quarterly fee is payable on the commitment which the Company may terminate or reduce at any time.  The quarterly fee, which is dependent on the Companys debt rating issued by S&P and Moody's, ranges from .08% to .10%.  As of September 30, 2005 and December 31, 2004, no amounts were borrowed under the revolving credit lines.  The Company intends to extend the revolving credit agreements prior to their expiration.



9.

Restructuring



In the second quarter of 2005, the Company recorded a restructuring charge of $11.4 million 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 included headcount reductions at other parts of the business.  These workforce reductions are expected to be substantially completed by the end of the year.



The estimated employee severance payments described below were based on predetermined criteria of existing benefit plans and were therefore recorded when the liability was considered probable and reasonably estimable as required by SFAS 112 Employers Accounting for Postemployment Benefits.



The following table displays the activity and balances of the restructuring reserve accounts through September 30, 2005:



|(in thousands)            |   | December 31 
2004  
Reserve |   | 2005
Expense |  |   | Cash Payments |   |   | September 30 2005 
Reserve |  
|------------------------- | - | --------------------------- | - | ------------ |  | - | ------------- | - | - | -------------------------- | -
|Employee severance  2005 | $ | -                           | $ | 11,367       |  | $ | (3,406        | ) | $ | 7,961                      |  
|Employee severance  2004 |   | 7,262                       |   | -            |  |   | (3,746        | ) |   | 3,516                      | *
|Total                     | $ | 7,262                       | $ | 11,367       |  | $ | (7,152        | ) | $ | 11,477                     |  



*The workforce reductions related to this restructuring initiative are complete.  The remaining reserve relates primarily to continuing payments for employees that have already been terminated.



Reversal of Lease Obligation Reserve  World Financial Center (WFC)

On September 11, 2001, the Companys headquarters at the World Financial Center sustained damage from debris and dust as a result of the terrorist attacks on the World Trade Center.  Approximately 60% of the floor space, including furniture and related equipment, had been determined a total loss.  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 were leased at its World Financial Center headquarters.  This charge primarily reflected the Companys rent obligation through May 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 and reoccupy 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 of the remaining lease obligation reserve for the previously abandoned floor at WFC.





10.

Contract Guarantee



In 1998, the Company completed the sale of its former subsidiary, Telerate, to Bridge Information Systems, Inc. (Bridge).  Under the terms of the sale, the Company retained its guarantee of payments under certain circumstances of certain annual minimum payments for data acquired by Telerate from Cantor Fitzgerald Securities (Cantor) and Market Data Corporation (MDC) under contracts entered into during the period when Telerate was a subsidiary of the Company (contract guarantee).  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.  However, Bridge filed for bankruptcy protection on February 15, 2001, after unsuccessful attempts to reorganize its operations and arrange for additional financing.



The Company believes that Cantor and MDC have the obligation to cover, mitigate or otherwise reduce and/or avoid any losses or damages under these circumstances, including by securing the best possible commercial terms for the supply of the subject data to a third party or parties.  Cantor and MDC deny that they have this obligation.  The Company believes that any and all amounts which are received by Cantor and/or MDC in respect of such data would reduce any liability that the Company might have under the contract guarantee.  As of December 31, 2000, there was a high degree of uncertainty, however, as to what value the data might have in the marketplace; whether an agreement would be reached by Cantor and/or MDC to supply the data to a third party or parties, the financial position of such party or parties; the timing of any such agreement, and various related factors.  Therefore, it was not possible for the Company to determine with any certainty that any such offsets would in fact be realized, or at what time or in what amounts.  Consequently, in December 2000, the Company established a reserve in



12



the amount of $255 million representing the present value of the total estimated annual minimum payments of about $300 million over the remainder of the contract (through October 2006 and using a discount rate of approximately 6%).  In 2001, a portion of this obligation was subsequently paid by Bridge during its bankruptcy proceedings and the Company adjusted its reserve accordingly.



The third quarter of 2005 and 2004 included charges related to the accretion of the discount on the reserve balance of $0.9 million and $1.7 million, respectively.  These charges totaled $3.3 million and $5.5 million in the first nine months of 2005 and 2004, respectively.  The reserve balance as of September 30, 2005 is $264 million, of which $261.2 million is classified as current based on the original due dates of the contract.



On November 13, 2001, the Company instituted a lawsuit in the Supreme Court of the State of New York against MDC and Cantor seeking a declaratory judgment with respect to the Companys obligations, if any, under the guarantee.  In this lawsuit the Company has asked the court to find that the Company does not and will not owe any payment under the contract guarantee through October 2006.  In the alternative, the Company has asked the court to find that if any amount is owed, it must be reduced by amounts that Cantor and MDC receive or should have received from other distribution of the data.  MDC has asserted counterclaims demanding payment of $10.2 million (allegedly the balance owed by Telerate on November 15, 2001), interest, attorneys fees, specific performance of the guarantee, and a declaratory judgment as to the validity and interpretation of the guarantee through October 2006.



Cantor also commenced a separate lawsuit in the Supreme Court of the State of New York (since consolidated with the Companys case) seeking payment of $10 million (allegedly the balance of the November 2001 minimum payment), payment of $250 million in breach of contract damages, specific performance of the guarantee, a declaration that the guarantee remains in full force and effect, payment of approximately $16 million allegedly owed by Telerate and guaranteed by the Company in the guarantee for the distribution of certain other data, attorneys' fees, interest and other relief.



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.  Dispositive motions have been fully briefed for the court.  The trial previously scheduled to begin in June 2005 has been adjourned and no new trial date has been set.



Due to the stage of the lawsuit at September 30, 2005, it is not possible to determine whether the court will find that any obligation the Company had under the guarantee may be dismissed or reduced.  Accordingly, the Company believes the balance of the reserve continues to be appropriate.



While it is not possible to predict with certainty the ultimate outcome of this litigation, the Company believes the likelihood of a loss exceeding the amount reserved is remote; however, it is possible that such loss could be less than the amount reserved.





13



11.

Other Guarantees and Contingencies



In addition to the litigation that is separately disclosed in Note 10 of this Form 10-Q, there are various libel actions, legal proceedings and other matters that have arisen in the ordinary course of business that represent possible contingencies of the Company and its subsidiaries.  In the opinion of management, based on advice of legal counsel, the ultimate outcome to the Company and its subsidiaries as a result of these legal proceedings and other matters will not have a material effect on the Companys financial statements.  In addition, the Company has insurance coverage for many of these matters.



The Companys bylaws provide for indemnification of officers and directors prosecuted in a criminal action or sued in a civil action or proceeding to the full extent permitted by the Delaware General Corporation Law.  The maximum potential amount of future payments the Company could be required to make under these indemnification provisions is unlimited; however, the Company maintains directors' and officers' liability and corporation reimbursement insurance for the benefit of the Company and its directors and officers.  The policy provides coverage for certain amounts paid as indemnification pursuant to the provisions of Delaware law and the Companys bylaws.  As a result of its insurance coverage, the Company believes that the estimated fair value of these indemnification provisions is minimal.



The Company enters into indemnification agreements in its ordinary course of business, typically with companies from which it is acquiring or to which it is selling businesses, partners in joint ventures, licensees and licensors, and service providers and contractors.  Under these agreements the Company generally indemnifies, holds harmless, and agrees to reimburse the indemnified party for losses suffered or incurred by the indemnified party, as a result of the Companys activities or its breach of the agreement in question or in connection with any intellectual property infringement claim by any third party with respect to the Company's products.  These indemnification obligations generally survive termination of the underlying agreement, either for some set number of years or perpetually.  In some cases, the maximum potential amount of future payments the Company could be required to make under these indemnification obligations is unlimited.  Other than the $2.2 million Brant-Allen Industries indemnification discussed in Note 4, the Company believes that the estimated fair value of these indemnity obligations is minimal.  The Company has not incurred material costs to defend lawsuits or settle claims related to these indemnification provisions.



The Company has guaranteed payment for office space occupied by certain of its joint ventures.  Partners of the Company in these joint ventures have either directly guaranteed their share of any payments required under these guarantees or agreed to indemnify the Company for 50% of any payments the Company may be required to make under these guarantees.  The Companys share of this obligation totals $6.5 million through 2010.





12.

Pension and Other Postretirement Plans



The components of net periodic benefit costs were as follows:



|                                   |   | Quarters Ended September 30 |  
|---------------------------------- | - | --------------------------- | -
|(in thousands)                     |   | Pension Benefits            |  
|                                   |   | 2005                        |  
|Service cost                       | $ | 1,470                       |  
|Interest cost                      |   | 2,629                       |  
|Expected return on plan assets     |   | (3,303                      | )
|Amortization of prior service cost |   | 187                         |  
|Recognized actuarial loss          |   | 445                         |  
|                                   |   |                             |  
|Total benefit cost                 | $ | 1,428                       |  



|                                   |   | Nine Months Ended September 30 |  
|---------------------------------- | - | ------------------------------ | -
|(in thousands)                     |   | Pension Benefits               |  
|                                   |   | 2005                           |  
|Service cost                       | $ | 4,320                          |  
|Interest cost                      |   | 7,767                          |  
|Expected return on plan assets     |   | (9,865                         | )
|Amortization of prior service cost |   | 553                            |  
|Recognized actuarial loss          |   | 1,155                          |  
|                                   |   |                                |  
|Total benefit cost                 | $ | 3,930                          |  





14





13.

Comprehensive Income



Comprehensive income was computed as follows:



|(in thousands)                            |   | Quarters Ended 
September 30 |   |  |   | Nine Months Ended 
September 30 |   | 
|----------------------------------------- | - | ---------------------------- | - |  | - | ------------------------------- | - | 
|                                          |   | 2005                         |   |  |   | 2004                            |   | 
|Net income                                | $ | 10,173                       |   |  | $ | 12,067                          |   | 
|Add: change in                            |   |                              |   |  |   |                                 |   | 
|Adjustment for realized cumulative        |   |                              |   |  |   |                                 |   | 
|translation adjustment in net income      |   | -                            |   |  |   | -                               |   | 
|Cumulative translation adjustment         |   | (1,125                       | ) |  |   | 56                              |   | 
|Adjustment for realized loss (gain) on    |   |                              |   |  |   |                                 |   | 
|hedging included in net income            |   | 508                          |   |  |   | 7                               |   | 
|Unrealized (loss) gain on hedging         |   | (63                          | ) |  |   | 26                              |   | 
|Adjustment for realized gain (net of tax) |   |                              |   |  |   |                                 |   | 
|on investment in net income               |   | 126                          |   |  |   | -                               |   | 
|Unrealized loss on investments            |   | (777                         | ) |  |   | (285                            | ) | 
|                                          |   |                              |   |  |   |                                 |   | 
|Comprehensive income                      | $ | 8,842                        |   |  | $ | 11,871                          |   | 





14.

Business Segments



The Company reports the results of its operations in three segments: print publishing, electronic publishing and community newspapers.  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 and on U.S. television through a licensing arrangement with CNBC.  The Company manages the global Journal operations as one segment as their products comprise the global Journal brand, and there are significant interrelationships within the editions including global management, shared news flows and workforce and a global advertising customer base, sales force and pricing.  U.S. television, which represents a licensing agreement with NBC Universal to provide branding, news content and on-air expertise to CNBC, is a further extension of the Journal brand and content.  The Company also includes the operations of Barrons within print publishing instead of reporting them separately because of their relative immateriality to the Companys results on a consolidated basis and because Barrons shares services with and its operations are similar to the global Journal.



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, all of which are expected to have similar long-term economic characteristics.  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.  Revenues in the electronic publishing segment are mainly subscription-based.  The community newspapers segment publishes 15 daily newspapers, 12 Sunday papers and more than 30 weekly newspapers and shoppers in nine states in the U.S.



For both the three and nine month periods ended September 30, 2005, approximately 50% of the Companys revenues were derived from the print publishing segment, which is largely comprised of the global editions of The Wall Street Journal.  In addition, for the same periods, the electronic publishing segment, which includes newswires, online publishing, indexes and other electronic operations, comprised approximately 30% of the Companys revenue, while the remaining approximately 20% of total revenues were contributed from the general-interest community newspapers segment.



Management evaluates the performance of its segments exclusive of restructuring charges.  See Note 9 for a further discussion of these items.



15







The Companys operations by reportable business segment were as follows:



|(in thousands)                                                                                                    |   | Quarters Ended 
September 30 |   |  |   | Nine Months Ended 
September 30 |  
|----------------------------------------------------------------------------------------------------------------- | - | ---------------------------- | - |  | - | ------------------------------- | -
|                                                                                                                  |   | 2005                         |   |  |   | 2004                            |  
|Revenues(1):                                                                                                      |   |                              |   |  |   |                                 |  
|Print publishing                                                                                                  | $ | 204,424                      |   |  | $ | 209,604                         |  
|Electronic publishing                                                                                             |   | 127,054                      |   |  |   | 97,644                          |  
|Community newspapers                                                                                              |   | 89,758                       |   |  |   | 87,644                          |  
|Consolidated revenues                                                                                             | $ | 421,236                      |   |  | $ | 394,892                         |  
|                                                                                                                  |   |                              |   |  |   |                                 |  
|Income (loss) before income taxes and minority interests:                                                         |   |                              |   |  |   |                                 |  
|Print publishing                                                                                                  | $ | (26,980                      | ) |  | $ | (16,589                         | )
|Electronic publishing                                                                                             |   | 31,727                       |   |  |   | 21,692                          |  
|Community newspapers                                                                                              |   | 22,925                       |   |  |   | 23,491                          |  
|Corporate                                                                                                         |   | (11,835                      | ) |  |   | (8,166                          | )
|Segment operating income                                                                                          |   | 15,837                       |   |  |   | 20,428                          |  
|                                                                                                                  |   |                              |   |  |   |                                 |  
|Restructuring(2)                                                                                                  |   | -                            |   |  |   | -                               |  
|Consolidated operating income                                                                                     |   | 15,837                       |   |  |   | 20,428                          |  
|                                                                                                                  |   |                              |   |  |   |                                 |  
|Interest expense                                                                                                  |   | (4,971                       | ) |  |   | (964                            | )
|Equity in earnings (losses) of associated companies (3)                                                           |   | 4,785                        |   |  |   | (13                             | )
|Write-down of equity investments                                                                                  |   | -                            |   |  |   | -                               |  
|Gain on disposition of investments                                                                                |   | -                            |   |  |   | -                               |  
|Contract guarantee                                                                                                |   | (932                         | ) |  |   | (1,651                          | )
|Other income (expense), net                                                                                       |   | 78                           |   |  |   | 835                             |  
|                                                                                                                  |   |                              |   |  |   |                                 |  
|Income before income taxes and minority interests                                                                 | $ | 14,797                       |   |  | $ | 18,635                          |  
|                                                                                                                  |   |                              |   |  |   |                                 |  
|Depreciation and amortization (D&A):                                                                              |   |                              |   |  |   |                                 |  
|Print publishing                                                                                                  | $ | 14,317                       |   |  | $ | 15,396                          |  
|Electronic publishing                                                                                             |   | 9,641                        |   |  |   | 7,294                           |  
|Community newspapers                                                                                              |   | 3,143                        |   |  |   | 2,867                           |  
|Corporate                                                                                                         |   | 38                           |   |  |   | 41                              |  
|                                                                                                                  |   |                              |   |  |   |                                 |  
|Consolidated D&A                                                                                                  | $ | 27,139                       |   |  | $ | 25,598                          |  
|                                                                                                                  |   |                              |   |  |   |                                 |  
|(1)Revenues shown represent revenues from external customers.  Transactions between segments are not significant.



(2)Restructuring charges are not included in segment expenses, as management evaluates segment results exclusive of these items.  For information purposes, the restructuring charge in 2005 and the reversal of the lease obligation reserve in 2004 allocable by reportable segment for the periods presented were as follows:



|(in thousands)        |  |   | Nine Months Ended 
September 30 | 
|--------------------- |  | - | ------------------------------- | 
|                      |  |   | 2005                            | 
|                      |  |   |                                 | 
|Print publishing      |  | $ | 8,585                           | 
|Electronic publishing |  |   | 1,969                           | 
|Corporate             |  |   | 813                             | 
|Total                 |  | $ | 11,367                          | 





16





(3)Summarized income statement information for the Company's equity-basis investments in associated companies, combined, was as follows (these amounts are in aggregate at 100% levels).  The majority of these investments are partnerships, which require the associated tax benefit or expense to be recorded by the partner.



|(in thousands)    |   | Quarters Ended
 September 30 |   |         | Nine Months Ended September 30
|----------------- | - | ---------------------------- | - | ------- | ------------------------------
|                  |   | 2005                         |   | 2004    |                               
|                  |   |                              |   |         |                               
|Revenues          | $ | 108,943                      | $ | 131,971 |                               
|Operating income  |   | 11,867                       |   | 2,109   |                               
|Net income (loss) |   | 8,997                        |   | (814    | )                             





17





|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations | 
|------- | ------------------------------------------------------------------------------------- | 



Overview

Dow Jones & Company is a provider of global business and financial news and information through newspapers, newswires, magazines, the Internet, indexes, television and radio.  In addition, the Company owns general-interest community newspapers throughout the U.S.  In the quarter, approximately 50% of the Companys revenues were derived from the print publishing segment, which is largely comprised of the global editions of The Wall Street Journal.  The Companys overall financial results are largely dependent on the operating performance of The Wall Street Journal, which, to a significant extent, is dependent upon business-to-business (B2B) advertising placed in its publications, particularly from the financial and technology sectors.  The electronic publishing segment, which includes newswires, online publishing, indexes and other electronic operations, comprises approximately 30% of the Companys revenue, while the remaining approximately 20% of total revenues are contributed from the general-interest community newspapers segment.



While advertising in our online products and profits from our electronic publishing segment have been particularly strong, our print publications continue to face a very difficult and choppy industry-wide advertising environment.  Despite this tough print advertising environment, Wall Street Journal advertising grew 3.6% in the third quarter aided by the September 17 launch of our new Weekend Edition of the Journal.  In 2005, we have progressed with many important initiatives to reshape our portfolio including the acquisition of MarketWatch in January 2005, the September launch of the Weekend Edition, the October 17 launch of new reformatted international compact editions of the Journal, and we have recently announced content and design changes and a planned web width reduction at the U.S. Journal.  We remain focused on improving quality, controlling our spending and rationalizing under-performing assets to set the stage for future growth.



We expect the Weekend Edition will build off the success of our Weekend Journal and Personal Journal sections in growing and diversifying our advertising customer base by attracting more consumer-oriented advertisers as revenue from the Weekend Edition is expected to have a higher mix of consumer advertising.  We have a uniquely influential and affluent audience that not only makes large B2B spending decisions but also spends heavily on personal consumption items.  The Weekend Edition enables advertisers to reach these readers in the right place at the right time  at home on the weekend  which is highly conducive to influencing their consumer spending decisions.  While it is expected that this initiative will be dilutive to earnings by about 13 cents per share in 2005, we believe that the Weekend Edition will be a major driver of long-term growth in revenue and earnings.



In October 2005 we announced a number of innovative design and content enhancements to the Journal's U.S. print edition, which will be made to even better serve readers and attract new ones.  These improvements will include changes to the Journal's organization, navigation and content--as well as stronger links to The Wall Street Journal Online at WSJ.com--designed to make accessing Journal content faster and more convenient for readers.  Some of these enhancements will be introduced over coming months and continue through 2006, culminating in January 2007 with a reformatting of the Journal to a more industry-standard 48-inch web width from its current 60-inch web width.



Retrofitting 19 presses in the Journal's 17 print sites to print the new web width will take about 15 months to complete and the capital cost for such is estimated at $43 million which we expect will be expended in 2005 ($3 million), 2006 ($36 million) and 2007 ($4 million).  We will also incur about $13 million in one-time training, development and marketing costs for the project, the majority of which will be incurred in 2006.  The newly formatted paper will launch by January 2007 and, excluding one-time start-up costs, we expect to save about $18 million per year in operating expenses (after about $4 million per year in non-cash depreciation expense), mainly from reduced newsprint consumption, starting in 2007.  The project is expected to generate an after-tax return on investment of about 26% with a payback period of less than three years.  This initiative is expected to be dilutive to earnings in 2006 by about 7 cents per share and be accretive to earnings in 2007 and thereafter by about 13 cents per share.



We have also undertaken a number of other initiatives to reshape our portfolio and to increase profits for the Company.  In October 2005, at our international print editions of the Journal, we launched reformatted compact editions which are now in an easier to read format and are more tightly integrated with The Wall Street Journal Online at WSJ.com to better serve the needs of highly mobile international business leaders.  We expect this international repositioning will yield pretax savings of $17 million annually.  We also entered into an agreement to exit our unprofitable television partnerships with CNBC in Europe and Asia and in a digital U.S. channel, CNBC World, by the end of this year, while maintaining our profitable television licensing relationship with CNBC in the U.S.  The exit from these partnerships is expected to eliminate about $15 million of annual pretax equity losses.





18



On January 21, 2005, we completed the acquisition of MarketWatch, Inc. (MarketWatch) for a purchase price of approximately $538 million, including certain transaction costs, significantly expanding our participation in online publishing.  MarketWatch is a leading provider of business news, financial information and analytical tools and operates two award-winning Web sites: MarketWatch.com and BigCharts.com.  These free, advertising-supported sites served approximately seven million unique visitors per month with timely market news and information.  MarketWatch also operates the MarketWatch Information Services group, which is a leading licensor of market news, data, investment analysis tools and other online applications to financial services firms, media companies, and corporations.  MarketWatch has been nearly fully integrated into our Consumer Electronic Publishing business, with extensive integration of its news, advertising sales, information technology and back office operations.  The Company believes that the MarketWatch merger complements The Wall Street Journal Online network, which provides premium business news to about three million unique visitors per month.  While this acquisition is expected to be modestly dilutive in its first year, primarily due to higher interest and amortization costs, it is expected to be accretive in our first full year of ownership in 2006, when our integration benefits are effective for the full year.  Through September 2005, the combined Consumer Electronic Publishing business has been exceeding our profit expectations for 2005, largely due to higher than expected cost synergy savings.



Finally, one of the more public measures of quality is Pulitzer prizes and we are very proud to have won two additional prizes this year, one for health care coverage and the other for film criticism.  These awards represent our 30th and 31st Pulitzers, and they are especially pleasing as they represent areas of the Business of Life coverage that were expanded with the launch of the Weekend Edition of the Journal.



Consolidated Results of Operations



Quarter ended September 30, 2005 compared to quarter ended September 30, 2004:



|                                         |   |         |   |  |   |         |   | % Increase/ |  
|---------------------------------------- | - | ------- | - |  | - | ------- | - | ----------- | -
|(in thousands, except per share amounts) |   | 2005    |   |  |   | 2004    |   | (Decrease)  |  
|                                         |   |         |   |  |   |         |   |             |  
|Revenues:                                |   |         |   |  |   |         |   |             |  
|Advertising                              | $ | 219,975 |   |  | $ | 212,148 |   | 3.7         | %
|Information services                     |   | 103,505 |   |  |   | 84,906  |   | 21.9        |  
|Circulation and other                    |   | 97,756  |   |  |   | 97,838  |   | (0.1        | )
|Total revenues                           |   | 421,236 |   |  |   | 394,892 |   | 6.7         |  
|                                         |   |         |   |  |   |         |   |             |  
|Operating expenses                       |   | 405,399 |   |  |   | 374,464 |   | 8.3         |  
|                                         |   |         |   |  |   |         |   |             |  
|Operating income                         |   | 15,837  |   |  |   | 20,428  |   | (22.5       | )
|                                         |   |         |   |  |   |         |   |             |  
|Non-operating loss*                      |   | (1,040  | ) |  |   | (1,152  | ) | -           |  
|                                         |   |         |   |  |   |         |   |             |  
|Income taxes                             |   | 4,624   |   |  |   | 7,209   |   | (35.9       | )
|                                         |   |         |   |  |   |         |   |             |  
|Net income                               | $ | 10,173  |   |  | $ | 12,067  |   | (15.7       | )
|                                         |   |         |   |  |   |         |   |             |  
|Earnings per share:                      |   |         |   |  |   |         |   |             |  
|Basic                                    | $ | .12     |   |  | $ | .15     |   | (20.0       | )
|Diluted                                  |   | .12     |   |  |   | .15     |   | (20.0       | )
|                                         |   |         |   |  |   |         |   |             |  
|*Net of minority interests.             



Net Income

Net income in the third quarter of 2005 was $10.2 million, or $.12 per diluted share, compared with third quarter 2004 net income of $12.1 million, or $.15 per share (all per share amounts included herein are based on reported net income and diluted weighted-average shares outstanding).  Earnings per share for the third quarter of 2005 and 2004 included certain items affecting comparisons that had no net effect on earnings per share.  These items are detailed further beginning on page 28.



Revenues

Third quarter revenues increased $26.3 million, or 6.7%, to $421.2 million, primarily reflecting the impact of recent acquisitions and strong organic growth at the Companys electronic publishing businesses, which was partially offset by revenue declines at print publishing.  On a same property basis, meaning excluding newly-acquired operations, total revenue increased 1.5%.  Advertising revenue increased 3.7%, as strong growth in online advertising, in part due to the MarketWatch acquisition, and volume gains at print publishing were partially offset by lower advertising yield at print publishing and lower revenues from the Far Eastern Economic Review(FEER) due to its repositioning as a monthly publication.  Information services revenues grew 21.9%, reflecting incremental revenue from acquisitions as well as organic growth across electronic publishing.  Circulation and other revenue was down slightly on lower revenues from the Far Eastern Economic Review



19



(FEER).



Operating Expenses

Operating expenses in the third quarter of 2005 increased $30.9 million, or 8.3%, to $405.4 million, primarily reflecting incremental costs from newly-acquired properties (approximately four percentage points of the increase) and launch costs for the Weekend Edition as well as higher newsprint costs.  Newsprint costs increased 7.8%, driven by a 12.3% increase in the average cost per ton, partially offset by a 4% decline in consumption.  The number of full-time employees at September 30, 2005, was about 7,425 as compared to about 7,150 last year.  Excluding the acquisition of MarketWatch, the number of full-time employees was flat compared to last year.



Operating Income

Operating income in the third quarter of 2005 was $15.8 million (3.8% of revenues), down $4.6 million, or 22.5%, from 2004 operating income of $20.4 million (5.2% of revenues), as higher profits at the Companys electronic publishing businesses were more than offset by a decline in profits at the Companys print publications, in part due to planned higher costs related to the launch of the Weekend Edition.





Consolidated Results of Operations



Nine months ended September 30, 2005 compared to nine months ended September 30, 2004:



|                                         |   |           |   |  |   |           |   | % Increase/ |   
|---------------------------------------- | - | --------- | - |  | - | --------- | - | ----------- | --
|(in thousands, except per share amounts) |   | 2005      |   |  |   | 2004      |   | (Decrease)  |   
|                                         |   |           |   |  |   |           |   |             |   
|Revenues:                                |   |           |   |  |   |           |   |             |   
|Advertising                              | $ | 687,595   |   |  | $ | 694,683   |   | (1.0        | )%
|Information services                     |   | 305,564   |   |  |   | 242,251   |   | 26.1        |   
|Circulation and other                    |   | 294,347   |   |  |   | 297,369   |   | (1.0        | ) 
|Total revenues                           |   | 1,287,506 |   |  |   | 1,234,303 |   | 4.3         |   
|                                         |   |           |   |  |   |           |   |             |   
|Operating expenses                       |   | 1,215,804 |   |  |   | 1,123,826 |   | 8.2         |   
|                                         |   |           |   |  |   |           |   |             |   
|Operating income                         |   | 71,702    |   |  |   | 110,477   |   | (35.1       | ) 
|                                         |   |           |   |  |   |           |   |             |   
|Non-operating loss*                      |   | (21,467   | ) |  |   | (1,859    | ) | -           |   
|                                         |   |           |   |  |   |           |   |             |   
|Income taxes                             |   | 31,021    |   |  |   | 44,694    |   | (30.6       | ) 
|                                         |   |           |   |  |   |           |   |             |   
|Net income                               | $ | 19,214    |   |  | $ | 63,924    |   | (69.9       | ) 
|                                         |   |           |   |  |   |           |   |             |   
|Earnings per share:                      |   |           |   |  |   |           |   |             |   
|Basic                                    | $ | .23       |   |  | $ | .78       |   | (70.5       | ) 
|Diluted                                  |   | .23       |   |  |   | .78       |   | (70.5       | ) 
|                                         |   |           |   |  |   |           |   |             |   
|*Net of minority interests.             





Net Income

Net income for the first nine months of 2005 was $19.2 million, or $.23 per diluted share, compared with 2004 net income of $63.9 million, or $.78 per share (all per share amounts included herein are based on reported net income and diluted weighted-average shares outstanding).  Earnings per share for the first nine months of 2005 included certain items affecting comparisons that netted to a reduction in earnings of $.34 per share, while earnings in 2004 included certain items affecting comparisons that had no net effect on earnings per share.  These items are detailed further beginning on page 28.



Revenues

Revenues for the first nine months of 2005 increased $53.2 million, or 4.3%, to $1.3 billion, primarily due to the impact of recent acquisitions and organic growth at electronic publishing and higher revenues at community newspapers, which was partially offset by revenue declines at print publishing.  On a same property basis, meaning excluding non-comparable periods for newly-acquired operations, total revenue decreased 1%.  Advertising revenue declined $7.1 million, or 1%, primarily the result of lower advertising revenue at print publishing, partially offset by higher revenue from online products and community newspapers.  Information services revenues grew 26.1% largely reflecting incremental revenue from acquisitions and organic growth at WSJ.com and Dow Jones Indexes/Ventures.  Circulation and other revenue decreased $3 million resulting from a decline in circulation revenue at print publishing,in part reflecting lower revenues from the Far Eastern Economic Review(FEER) due to its repositioning as a monthly publication.



20



Operating Expenses

Operating expenses in the first nine months of 2005 increased $92 million, or 8.2%, to $1.2 billion, primarily reflecting incremental costs from newly-acquired properties (approximately five percentage points of the increase), higher newsprint costs and expenses associated with the launch of the Weekend Edition of the Journal.  Newsprint costs increased 5.8%, driven by a 10.5% increase in the average cost per ton, partially offset by a 4.3% decline in consumption.



Operating Income

Operating income in the first nine months of 2005 was $71.7 million (5.6% of revenues), down $38.8 million, or 35.1%, from 2004 operating income of $110.5 million (9% of revenues), as higher profits for the Companys electronic publishing segment were offset by reduced profits at the Companys print publications and the restructuring charge of $11.4 million recorded in the second quarter of 2005.





Segment Data

The Company reports the results of its operations in three segments: print publishing, electronic publishing and community newspapers.  In addition, the Company reports certain administrative activities under the corporate segment.



Print Publishing

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 and on U.S. television through a licensing arrangement with CNBC.  The Company manages the global Journal operations as one segment as their products comprise the global Journal brand, and there are significant interrelationships within the editions including global management, shared news flows and workforce and a global advertising customer base, sales force and pricing.  U.S. television, which represents a licensing agreement with NBC Universal to provide branding, news content and on-air expertise to CNBC, is a further extension of the Journal brand and content.  U.S. television contributes a significantly higher operating margin than the publications within the segment since it largely represents incremental revenue for the global Journal content and branding.  The Company also includes the operations of Barrons within print publishing instead of reporting them separately because of their relative immateriality to the Companys results on a consolidated basis and because Barrons shares services with and its operations are similar to the global Journal.





Quarter ended September 30, 2005 compared to quarter ended September 30, 2004:



|(dollars in thousands)               |   |         |    |   |         |    |  | % Increase/ |   
|------------------------------------ | - | ------- | -- | - | ------- | -- |  | ----------- | --
|                                     |   | 2005    |    |   | 2004    |    |  | (Decrease)  |   
|Revenues                             |   |         |    |   |         |    |  |             |   
|U.S. publications:                   |   |         |    |   |         |    |  |             |   
|Advertising                          | $ | 125,917 |    | $ | 128,213 |    |  | (1.8        | )%
|Circulation and other                |   | 62,861  |    |   | 62,750  |    |  | 0.2         |   
|Total for U.S. publications          |   | 188,778 |    |   | 190,963 |    |  | (1.1        | ) 
|                                     |   |         |    |   |         |    |  |             |   
|International publications:          |   |         |    |   |         |    |  |             |   
|Advertising                          |   | 8,585   |    |   | 10,159  |    |  | (15.5       | ) 
|Circulation and other                |   | 7,061   |    |   | 8,482   |    |  | (16.8       | ) 
|Total for international publications |   | 15,646  |    |   | 18,641  |    |  | (16.1       | ) 
|                                     |   |         |    |   |         |    |  |             |   
|Total revenue                        |   | 204,424 |    |   | 209,604 |    |  | (2.5        | ) 
|                                     |   |         |    |   |         |    |  |             |   
|Operating expenses                   |   | 231,404 |    |   | 226,193 |    |  | 2.3         |   
|                                     |   |         |    |   |         |    |  |             |   
|Operating loss                       | $ | (26,980 | )  | $ | (16,589 | )  |  | 62.6        |   
|                                     |   |         |    |   |         |    |  |             |   
|Operating margin                     |   | (13.2   | )% |   | (7.9    | )% |  |             |   
|                                     |   |         |    |   |         |    |  |             |   
|Included in expenses:                |   |         |    |   |         |    |  |             |   
|Depreciation and amortization        | $ | 14,317  |    | $ | 15,396  |    |  | (7.0        | ) 



21





|                                        |  |       |    |  |       |    |  |  | 
|--------------------------------------- |  | ----- | -- |  | ----- | -- |  |  | 
|Statistical information:                |  |       |    |  |       |    |  |  | 
|Advertising volume increase/(decrease): |  |       |    |  |       |    |  |  | 
|The Wall Street Journal:                |  |       |    |  |       |    |  |  | 
|General                                 |  | (6.3  | )% |  | (2.5  | )% |  |  | 
|Technology                              |  | 3.5   |    |  | (28.9 | )  |  |  | 
|Financial                               |  | 0.5   |    |  | (10.0 | )  |  |  | 
|Classified                              |  | 21.2  |    |  | 11.0  |    |  |  | 
|Total U.S. Journal                      |  | 3.6   |    |  | (6.0  | )  |  |  | 
|                                        |  |       |    |  |       |    |  |  | 
|The Asian Wall Street Journal           |  | 4.6   |    |  | (20.6 | )  |  |  | 
|The Wall Street Journal Europe          |  | 4.3   |    |  | (19.4 | )  |  |  | 
|Barrons                                |  | (21.1 | )  |  | (5.1  | )  |  |  | 





Revenues

Third quarter 2005 revenue decreased $5.2 million, or 2.5%, to $204.4 million, primarily driven by the continued softness in its advertising revenue.



U.S. advertising revenue decreased $2.3 million, or 1.8%, to $125.9 million, as lower advertising yield, and lower volume at Barrons offset the 3.6% increase in advertising linage at The Wall Street Journal.  Excluding advertising linage from the two Saturdays the Weekend Edition published in the third quarter, total U.S. Journal linage increased 0.6% in the quarter.  This figure does not factor in any shift in advertising from the Journals weekday publication to the Weekend Edition that occurred.  General advertising, which represented about 38% of total U.S. Journal linage, decreased 6.3%, reflecting decreases in auto, travel and pharmaceutical advertising, partially offset by higher general B2B advertising.  Technology advertising, which represented 16.5% of total U.S. Journal linage, increased 3.5% in the quarter, due to continued strong growth in personal computer and office products advertising partially offset by declines in communication and computer hardware advertising.  Financial advertising, which represented 14.6% of total U.S. Journal linage, increased 0.5% as declines in net wholesale and advisory advertising were more than offset by increases in tombstone and other retail advertising.  Classified and other advertising linage, the lowest yielding advertising category, increased 21.2% and represented 31% of total quarterly U.S. Journal linage.  Color advertising revenue, which sells at a 28% premium, increased 16%.



Circulation and other revenue for the U.S. print publications increased $0.1 million, or 0.2%, to $62.9 million.  Average circulation for the third quarter of 2005 for The Wall Street Journal was 1,740,000 compared with circulation of 1,844,000 in the third quarter of 2004.  The decline in average circulation in the quarter was largely due to the timing of bulk sale copies.  Barrons average circulation was 287,000 in the quarter, a decrease of 3.3% from 297,000 last year.



International print publication revenues decreased $3 million, or 16.1% to $15.6 million.  Advertising revenue was down $1.6 million, or 15.5%, primarily as a result of lower revenues from FEER due to the repositioning that occurred during the fourth quarter of 2004 as well as lower advertising yield at The Wall Street Journal Europeand The Asian Wall Street Journal.  International print circulation and other revenues decreased $1.4 million, or 16.8%, to $7.1 million on lower revenue from FEER.  Combined average circulation for the international Journals was 169,000 in the third quarter of 2005 compared with 151,000 in the third quarter of 2004.



Expenses

Print publishing expenses in the quarter increased $5.2 million, or 2.3%, to $231.4 million, as a result of launch costs for the Weekend Edition of the Journal and higher newsprint costs.  Newsprint costs increased 6.6%, reflecting an 11.8% increase in newsprint prices partially offset by a 4.7% decline in consumption.  The number of full-time employees in the print publishing segment decreased 2.5% as compared to last year.



Operating Loss

Print publishings third quarter 2005 operating loss was $27 million compared to a loss of $16.6 million in the third quarter of 2004, reflecting launch costs related to the Weekend Edition and losses at the Companys print publications, during its lowest advertising quarter as a result of seasonality.



22





Nine months ended September 30, 2005 compared to nine months ended September 30, 2004:



|(dollars in thousands)                  |   |         |    |   |         |   |  | % Increase/ |   
|--------------------------------------- | - | ------- | -- | - | ------- | - |  | ----------- | --
|                                        |   | 2005    |    |   | 2004    |   |  | (Decrease)  |   
|Revenues                                |   |         |    |   |         |   |  |             |   
|U.S. publications:                      |   |         |    |   |         |   |  |             |   
|Advertising                             | $ | 411,418 |    | $ | 444,930 |   |  | (7.5        | )%
|Circulation and other                   |   | 192,643 |    |   | 194,807 |   |  | (1.1        | ) 
|Total for U.S. publications             |   | 604,061 |    |   | 639,737 |   |  | (5.6        | ) 
|                                        |   |         |    |   |         |   |  |             |   
|International publications:             |   |         |    |   |         |   |  |             |   
|Advertising                             |   | 30,722  |    |   | 36,075  |   |  | (14.8       | ) 
|Circulation and other                   |   | 21,857  |    |   | 25,128  |   |  | (13.0       | ) 
|Total for international publications    |   | 52,579  |    |   | 61,203  |   |  | (14.1       | ) 
|                                        |   |         |    |   |         |   |  |             |   
|Total revenue                           |   | 656,640 |    |   | 700,940 |   |  | (6.3        | ) 
|                                        |   |         |    |   |         |   |  |             |   
|Operating expenses                      |   | 683,450 |    |   | 695,616 |   |  | (1.7        | ) 
|                                        |   |         |    |   |         |   |  |             |   
|Operating (loss) income                 | $ | (26,810 | )  | $ | 5,324   |   |  | -           |   
|                                        |   |         |    |   |         |   |  |             |   
|Operating margin                        |   | (4.1    | )% |   | 0.8     | % |  |             |   
|                                        |   |         |    |   |         |   |  |             |   
|Included in expenses:                   |   |         |    |   |         |   |  |             |   
|Depreciation and amortization           | $ | 42,907  |    | $ | 49,938  |   |  | (14.1       | ) 
|                                        |   |         |    |   |         |   |  |             |   
|Statistical information:                |   |         |    |   |         |   |  |             |   
|Advertising volume increase/(decrease): |   |         |    |   |         |   |  |             |   
|The Wall Street Journal:                |   |         |    |   |         |   |  |             |   
|General                                 |   | (3.4    | )% |   | 2.8     | % |  |             |   
|Technology                              |   | (12.4   | )  |   | (22.7   | ) |  |             |   
|Financial                               |   | (14.9   | )  |   | 13.9    |   |  |             |   
|Classified                              |   | 9.4     |    |   | 9.8     |   |  |             |   
|Total U.S. Journal                      |   | (3.9    | )  |   | 1.3     |   |  |             |   
|                                        |   |         |    |   |         |   |  |             |   
|The Asian Wall Street Journal           |   | (1.5    | )  |   | (3.6    | ) |  |             |   
|The Wall Street Journal Europe          |   | (7.5    | )  |   | 0.5     |   |  |             |   
|Barrons                                |   | (13.3   | )  |   | 12.2    |   |  |             |   





Revenues

Print publishing revenue for the first nine months of 2005 decreased $44.3 million, or 6.3%, to $656.6 million, which is primarily the result of softness in B2B advertising both in the U.S. and internationally.



Advertising revenue in the U.S. decreased $33.5 million, or 7.5%, to $411.4 million, reflecting lower television revenue from CNBC coupled with a 3.9% decline in advertising linage at The Wall Street Journal.  General advertising, which represented about 40.4% of total U.S. Journal linage, decreased 3.4% as declines in advertising for travel, auto and pharmaceuticals exceeded the modest increase in B2B advertising.  Continued softness in nearly all technology advertising categories, except for personal computer and office products, led to a 12.4% decrease year to date in technology advertising, which represented 15.2% of total U.S. Journal linage.  Financial advertising, which represented 16.4% of total U.S. Journal linage, decreased 14.9% as the increases in tombstone advertising were exceeded by the declines in the other categories.  Classified and other advertising linage, which represented 28% of total U.S. Journal linage, increased 9.4%.  Color advertising revenue increased 12.3%.  Circulation and other revenue for the U.S. print publications decreased $2.2 million, or 1.1%, to $192.6 million.



23



Revenues for international print publications decreased $8.6 million, or 14.1%, to $52.6 million.  Advertising revenue declined $5.4 million, or 14.8%, driven by lower revenues from FEER, which was repositioned during the fourth quarter of 2004, as well as lower advertising volume at the international editions of the Journal.  Circulation and other revenue for the international print publications decreased $3.3 million, or 13%, to $21.9 million.



Expenses

For the first nine months of 2005, print publishing expenses decreased $12.2 million, or 1.7%, to $683.5 million.  This reflects reductions from the repositioning of FEER, as well as less compensation, facilities and depreciation expenses.  These expense reductions were partially offset by higher marketing and other related costs for the launch of the Weekend Edition of the Journal as well as a 4.6% increase in newsprint costs, reflecting a 10.3% increase in newsprint prices partially offset by a 5.1% decline in consumption.



Operating (Loss) Income

For the first nine months of 2005, the operating loss for print publishing was $26.8 million compared to income of $5.3 million (0.8% of revenues) in the first nine months of 2004.  The loss in 2005 reflects lower profits in the U.S., primarily the result of launch costs for the Weekend Edition of the Journal, as well as continued losses at the international publications.





Electronic Publishing

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, all of which are expected to have similar long-term economic characteristics.  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.  Revenues in the electronic publishing segment are mainly subscription-based.



On January 21, 2005, the Company completed the acquisition of MarketWatch for a purchase price of approximately $538 million, including certain transaction costs.  The Company has nearly fully integrated MarketWatch into the Consumer Electronic Publishing business.  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.  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.  On March 19, 2004, the Company purchased Alternative Investor, a provider of newsletters, databases and industry conferences for the venture capital and private equity markets for $85 million.  Alternative Investor was integrated with the Companys newsletters division and the recently acquired Technologic Partners business.



Quarter ended September 30, 2005 compared to quarter ended September 30, 2004:



|(dollars in thousands)         |   |         |   |  |   |        |   |  | % Increase/ |   | 
|------------------------------ | - | ------- | - |  | - | ------ | - |  | ----------- | - | 
|                               |   | 2005    |   |  |   | 2004   |   |  | (Decrease)  |   | 
|Revenues:                      |   |         |   |  |   |        |   |  |             |   | 
|Dow Jones Newswires:           |   |         |   |  |   |        |   |  |             |   | 
|North America                  | $ | 51,136  |   |  | $ | 50,021 |   |  | 2.2         | % | 
|International                  |   | 16,812  |   |  |   | 15,515 |   |  | 8.4         |   | 
|Total Dow Jones Newswires      |   | 67,948  |   |  |   | 65,536 |   |  | 3.7         |   | 
|                               |   |         |   |  |   |        |   |  |             |   | 
|Consumer Electronic Publishing |   | 43,707  |   |  |   | 19,258 |   |  | 127.0       |   | 
|Dow Jones Indexes/Ventures     |   | 15,399  |   |  |   | 12,850 |   |  | 19.8        |   | 
|Total revenue                  |   | 127,054 |   |  |   | 97,644 |   |  | 30.1        |   | 
|                               |   |         |   |  |   |        |   |  |             |   | 
|Operating expenses             |   | 95,327  |   |  |   | 75,952 |   |  | 25.5        |   | 
|                               |   |         |   |  |   |        |   |  |             |   | 
|Operating income               | $ | 31,727  |   |  | $ | 21,692 |   |  | 46.3        |   | 
|                               |   |         |   |  |   |        |   |  |             |   | 
|Operating margin               |   | 25.0    | % |  |   | 22.2   | % |  |             |   | 
|                               |   |         |   |  |   |        |   |  |             |   | 
|Included in expenses:          |   |         |   |  |   |        |   |  |             |   | 
|Depreciation and amortization  | $ | 9,641   |   |  | $ | 7,294  |   |  | 32.2        |   | 



24





|                              |  |         |  |  |  |         |  |  |  |  | 
|----------------------------- |  | ------- |  |  |  | ------- |  |  |  |  | 
|Statistical information:      |  |         |  |  |  |         |  |  |  |  | 
|Dow Jones Newswires terminals |  | 297,000 |  |  |  | 297,000 |  |  |  |  | 
|WSJ.com subscribers           |  | 764,000 |  |  |  | 701,000 |  |  |  |  | 







Revenues

Electronic publishing revenues increased $29.4 million, or 30.1%, to $127.1 million, driven by acquisitions and strong organic revenue growth at all electronic publishing businesses.



Dow Jones Newswires revenue increased $2.4 million, or 3.7%, to $67.9 million.  Revenues in North America and internationally increased $1.1 million and $1.3 million, respectively.  English-language terminals carrying Dow Jones Newswires at September 30, 2005 were flat at 297,000 as compared with last year as the international terminal increase of 7,000 was offset by the 7,000 terminal decrease in North America.



Consumer Electronic Publishing revenue increased $24.4 million, or 127%, to $43.7 million reflecting the MarketWatch acquisition and strong revenue growth at WSJ.com.  On a pro forma basis, including MarketWatch revenues in the respective periods prior to the Companys acquisition in January 2005, Consumer Electronic Publishing revenues grew 12%, reflecting growth in advertising and subscriber revenue.  At September 30, 2005, the number of WSJ.com subscribers increased 9% to 764,000 from 701,000 a year earlier.  Including MarketWatch, total unduplicated unique visitors to the Companys online network averaged 8.2 million a month in the third quarter 2005.  Dow Jones Indexes/Ventures revenues, which include Dow Jones Indexes and reprints/permissions businesses, increased $2.5 million, or 19.8%, to $15.4 million.



Expenses

Electronic publishing expenses were up $19.4 million, or 25.5%, to $95.3 million resulting from incremental expenses from the acquisition of MarketWatch, which accounted for the majority of the increase, with the remainder of the increase primarily from higher compensation, facilities and marketing costs.  The number of full-time employees in the electronic publishing segment was up 15% from a year ago mainly due to acquisitions.



Operating Income

Electronic publishings operating income was $31.7 million (25% of revenues), an improvement of $10 million, or 46.3%, over third quarter 2004 operating income of $21.7 million (22.2% of revenues), driven by increased profits at all electronic publishing businesses.





Nine months ended September 30, 2005 compared to nine months ended September 30, 2004:



|(dollars in thousands)         |   | 2005    |   |  |   | 2004    |   |  | % Increase/
(Decrease) |   | 
|------------------------------ | - | ------- | - |  | - | ------- | - |  | ---------------------- | - | 
|Revenues:                      |   |         |   |  |   |         |   |  |                        |   | 
|Dow Jones Newswires:           |   |         |   |  |   |         |   |  |                        |   | 
|North America                  | $ | 150,282 |   |  | $ | 143,369 |   |  | 4.8                    | % | 
|International                  |   | 49,675  |   |  |   | 40,928  |   |  | 21.4                   |   | 
|Total Dow Jones Newswires      |   | 199,957 |   |  |   | 184,297 |   |  | 8.5                    |   | 
|                               |   |         |   |  |   |         |   |  |                        |   | 
|Consumer Electronic Publishing |   | 124,178 |   |  |   | 57,320  |   |  | 116.6                  |   | 
|Dow Jones Indexes/Ventures     |   | 48,521  |   |  |   | 38,610  |   |  | 25.7                   |   | 
|Total revenue                  |   | 372,656 |   |  |   | 280,227 |   |  | 33.0                   |   | 
|                               |   |         |   |  |   |         |   |  |                        |   | 
|Operating expenses             |   | 290,081 |   |  |   | 217,075 |   |  | 33.6                   |   | 
|                               |   |         |   |  |   |         |   |  |                        |   | 
|Operating income               | $ | 82,575  |   |  | $ | 63,152  |   |  | 30.8                   |   | 
|                               |   |         |   |  |   |         |   |  |                        |   | 
|Operating margin               |   | 22.2    | % |  |   | 22.5    | % |  |                        |   | 
|                               |   |         |   |  |   |         |   |  |                        |   | 
|Included in expenses:          |   |         |   |  |   |         |   |  |                        |   | 
|Depreciation and amortization  | $ | 28,416  |   |  | $ | 20,904  |   |  | 35.9                   |   | 
|                               |   |         |   |  |   |         |   |  |                        |   | 





25





Revenues

Electronic publishing revenues for the first nine months of 2005 increased $92.4 million, or 33%, to $372.7 million, driven by acquisitions and strong organic revenue growth at all electronic publishing businesses.



Dow Jones Newswires revenue increased $15.7 million, or 8.5%, to $200 million, largely reflecting the effect of acquisitions as well as 2.8% organic growth.  Revenues in North America and internationally increased $6.9 million and $8.7 million, respectively.  Consumer Electronic Publishing revenue increased $66.9 million, or 116.6%, to $124.2 million, reflecting the MarketWatch acquisition and strong revenue growth at WSJ.com.  On a pro forma basis, including MarketWatch revenues in the respective periods prior to the Companys acquisition in January 2005, Consumer Electronic Publishing revenues grew 11%, reflecting growth in advertising and subscriber revenue.  Dow Jones Indexes/Ventures revenues, which include Dow Jones Indexes and reprints/permissions businesses, increased $9.9 million, or 25.7%, to $48.5 million.



Expenses

Electronic publishing expenses increased $73 million, or 33.6%, to $290.1 million resulting from incremental expenses from acquisitions which accounted for the majority of the increase, with the remainder of the increase primarily from higher compensation, facilities, depreciation and marketing costs.



Operating Income

Electronic publishings operating income was $82.6 million (22.2% of revenues), an improvement of $19.4 million, or 30.8%, over last years operating income of $63.2 million (22.5% of revenues), driven by acquisitions and strong organic revenue growth at all electronic publishing businesses.





Community Newspapers

Community newspapers includes the operations of Ottaway Newspapers, which publishes 15 daily newspapers and over 30 weekly newspapers and shoppers in nine states in the U.S.  In the quarter, community newspapers comprised roughly 20% of the Companys revenues.





Quarter ended September 30, 2005 compared to quarter ended September 30, 2004:



|(dollars in thousands)                  |   |        |    |  |   |        |   |  | % Increase/ |  
|--------------------------------------- | - | ------ | -- |  | - | ------ | - |  | ----------- | -
|                                        |   | 2005   |    |  |   | 2004   |   |  | (Decrease)  |  
|Revenues                                |   |        |    |  |   |        |   |  |             |  
|Advertising                             | $ | 67,566 |    |  | $ | 65,583 |   |  | 3.0         | %
|Circulation and other                   |   | 22,192 |    |  |   | 22,061 |   |  | 0.6         |  
|Total revenue                           |   | 89,758 |    |  |   | 87,644 |   |  | 2.4         |  
|                                        |   |        |    |  |   |        |   |  |             |  
|Operating expenses                      |   | 66,833 |    |  |   | 64,153 |   |  | 4.2         |  
|                                        |   |        |    |  |   |        |   |  |             |  
|Operating income                        | $ | 22,925 |    |  | $ | 23,491 |   |  | (2.4        | )
|                                        |   |        |    |  |   |        |   |  |             |  
|Operating margin                        |   | 25.5   | %  |  |   | 26.8   | % |  |             |  
|                                        |   |        |    |  |   |        |   |  |             |  
|Included in expenses:                   |   |        |    |  |   |        |   |  |             |  
|Depreciation and amortization           | $ | 3,143  |    |  | $ | 2,867  |   |  | 9.6         |  
|                                        |   |        |    |  |   |        |   |  |             |  
|Statistical information:                |   |        |    |  |   |        |   |  |             |  
|Advertising volume increase/(decrease): |   |        |    |  |   |        |   |  |             |  
|                                        |   |        |    |  |   |        |   |  |             |  
|Daily                                   |   | (1.1   | )% |  |   | 2.8    | % |  |             |  
|Non-daily                               |   | (5.6   | )  |  |   | 14.5   |   |  |             |  
|Overall                                 |   | (2.0   | )  |  |   | 4.9    |   |  |             |  





Revenues

Community newspapers revenue was up $2.1 million, or 2.4%, to $89.8 million, driven by a $2 million, or 3%, increase in advertising revenue as increased advertising rates and preprint revenue exceeded the 2% decline in overall linage.  The linage results were hampered by weak auto advertising, which more than offset the gains in real estate and help wanted classified advertising.  Average daily circulation in the third quarter of 2005 was 433,000 compared with 440,000 in 2004.



26





Expenses

Community newspapers expenses increased $2.7 million, or 4.2%, to $66.8 million as a result of higher compensation, newsprint, marketing and delivery expenses.  Expenses in 2005 also included increased costs from an investment in a new Ottaway-wide internet initiative and content management system, which the Company expects will contribute to increased online revenue and profit in the future.  Newsprint expense increased 9.1% as a result of an 11.1% increase in newsprint prices, which was partially offset by a 1.8% decrease in consumption for the quarter.  The number of full-time employees in the community newspapers segment increased 1.2% as compared to last year.





Operating Income

Operating income in the third quarter of 2005 was $22.9 million (25.5% of revenues) compared with income last year of $23.5 million (26.8% of revenues).





Nine months ended September 30, 2005 compared to nine months ended September 30, 2004:



|(dollars in thousands)                                    |   |         |    |  |   |         |   |  | % Increase/ |  
|--------------------------------------------------------- | - | ------- | -- |  | - | ------- | - |  | ----------- | -
|                                                          |   | 2005    |    |  |   | 2004    |   |  | (Decrease)  |  
|Revenues                                                  |   |         |    |  |   |         |   |  |             |  
|Advertising                                               | $ | 194,256 |    |  | $ | 188,768 |   |  | 2.9         | %
|Circulation and other                                     |   | 63,954  |    |  |   | 64,368  |   |  | (0.6        | )
|Total revenue                                             |   | 258,210 |    |  |   | 253,136 |   |  | 2.0         |  
|                                                          |   |         |    |  |   |         |   |  |             |  
|Operating expenses                                        |   | 199,352 |    |  |   | 187,512 |   |  | 6.3         |  
|                                                          |   |         |    |  |   |         |   |  |             |  
|Operating income                                          | $ | 58,858  |    |  | $ | 65,624  |   |  | (10.3       | )
|                                                          |   |         |    |  |   |         |   |  |             |  
|Operating margin                                          |   | 22.8    | %  |  |   | 25.9    | % |  |             |  
|                                                          |   |         |    |  |   |         |   |  |             |  
|Included in expenses:                                     |   |         |    |  |   |         |   |  |             |  
|Depreciation and amortization                             | $ | 9,163   |    |  | $ | 8,685   |   |  | 5.5         |  
|                                                          |   |         |    |  |   |         |   |  |             |  
|Statistical information*:                                 |   |         |    |  |   |         |   |  |             |  
|Advertising volume increase/(decrease):                   |   |         |    |  |   |         |   |  |             |  
|                                                          |   |         |    |  |   |         |   |  |             |  
|Daily                                                     |   | (0.6    | )% |  |   | 3.0     | % |  |             |  
|Non-daily                                                 |   | (5.3    | )  |  |   | 13.7    |   |  |             |  
|Overall                                                   |   | (1.5    | )  |  |   | 4.9     |   |  |             |  
|                                                          |   |         |    |  |   |         |   |  |             |  
|* Percentage for 2004 excludes newly-acquired operations. |   |         |   





Revenues

Community newspapers revenue was up $5.1 million, or 2%, to $258.2 million.  Advertising revenue was up $5.5 million, or 2.9%, to $194.3 million, as increased advertising rates and preprint revenue exceeded the 1.5% overall linage decline.  The linage decline reflected weak auto advertising, partially offset by gains in real estate and help wanted classified advertising.  Circulation and other revenue declined $0.4 million, or 0.6%, to $64 million.



Expenses

Community newspapers expenses for the first nine months of 2005 increased $11.8 million, or 6.3%, to $199.4 million as a result of higher compensation, newsprint, marketing and delivery expenses.  Expenses in 2005 also included increased costs from an investment in a new Ottaway-wide internet initiative and content management system, which the Company expects will contribute to increased online revenue and profit in the future.  Newsprint expense increased 8.2% as a result of a 9.8% increase in newsprint prices, which was partially offset by a 1.5% decrease in consumption.



Operating Income

Operating income for the first nine months of 2005 was $58.9 million (22.8% of revenues) compared with income last year of $65.6 million (25.9% of revenues).



27





Certain Items Affecting Comparisons



The following tables summarize certain items affecting comparisons for the three and nine months ended September 30, 2005 and 2004:



|                                  |  | Quarters Ended September 30 | 
|--------------------------------- |  | --------------------------- | 
|(in millions, except              |  | 2005                        | 
|per share amounts)                |  | Operating                   | 
|                                  |  |                             | 
|Included in non-operating income: |  |                             | 
|Contract guarantee (a)            |  |                             | 
|Certain income tax matters (b)    |  |                             | 
|Total                             |  |                             | 





|                                     |   | Nine Months Ended September 30 | 
|------------------------------------ | - | ------------------------------ | 
|(in millions, except                 |   | 2005                           | 
|per share amounts)                   |   | Operating                      | 
|                                     |   |                                | 
|Included in operating income:        |   |                                | 
|Restructuring (c)                    | $ | (11.4)                         | 
|Included in non-operating income:    |   |                                | 
|Contract guarantee (a)               |   |                                | 
|Gain on disposition of               |   |                                | 
|investments (d)                      |   |                                | 
|Write-down of equity
investments (e) |   |                                | 
|Certain income tax matters(b)        |   |                                | 
|Total                                | $ | (11.4)                         | 



(a) 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.  Dispositive motions have been fully briefed for the court.  The trial previously scheduled to begin in June 2005 has been adjourned and no new trial date has been set.



The third quarter of 2005 and 2004 included charges related to the accretion of the discount on the reserve balance of $0.9 million and $1.7 million, respectively.  These charges totaled $3.3 million and $5.5 million in the first nine months of 2005 and 2004, respectively.



28



(b) Certain income tax matters:



Income tax expense in the third quarter of 2005 and 2004 included a tax benefit of $1.1 million and $1.5 million, respectively, as a result of favorable resolutions of state and federal tax matters.



(c) Restructuring:



2005

In the second quarter 2005, the Company recorded a restructuring charge of $11.4 million 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 are expected to be substantially completed by the end of the year.



2004

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 (WFC) headquarters.  This charge primarily reflected the Companys rent obligation through May 2005 on this vacated space.



In the first quarter 2004, the Company renewed its lease at the World Financial Center, 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.



(d) 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.



(e) Write-down of equity investments:



In July 2005, the Company and NBC Universal agreed to transfer the Companys 50% interests in both CNBC Europe and CNBC Asia (collectively CNBC International), as well as its 25% interest in CNBC World, to NBC Universal as of December 31, 2005 for nominal consideration, subject to any necessary regulatory or legal approvals.



Under the agreement, the Company will 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.



As of June 30, 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) in the second quarter of 2005, 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 is no future economic benefit to the Company.



29



Non-operating Loss



Interest Expense, Net of Investment Income

Interest expense, net increased by $4 million to $4.9 million for the third quarter of 2005, reflecting financing costs associated with the acquisition of MarketWatch as well as higher interest rates in connection with the Companys commercial paper program.  Debt outstanding at September 30, 2005 totaled $510.7 million, compared with debt of $145.8 million at December 31, 2004 and $196.6 million at September 30, 2004.



Equity in Earnings of Associated Companies

In the third quarter of 2005, the Companys share of equity in earnings of associated companies increased $4.8 million to $4.8 million, as compared to 2004s third quarter results which were near breakeven.  During the third quarter, the increase reflected the elimination of losses from CNBC International and CNBC World and improved results at Factiva, STOXX and SmartMoney.  For the first nine months of 2005, the Companys share of equity in earnings of associated companies increased $6 million, as compared to the first nine months of 2004, to $7.4 million, which reflected the elimination of losses from CNBC International.



30



Income Taxes



The effective income tax rates, net of minority interests, are as follows for the periods presented:



|                                     |  | Quarters Ended
September 30 |  | Nine Months Ended
September 30
|------------------------------------ |  | --------------------------- |  | ------------------------------
|                                     |  | 2005                        |  |                               
|Effective income tax rate            |  | 31.2%                       |  |                               
|Effective income tax rate, excluding |  |                             |  |                               
|items identified in table below      |  | 36.6%                       |  |                               



The effective income tax rates were affected by certain transactions, which are detailed below.



|                           |  |   | Quarters Ended September 30 |  
|-------------------------- |  | - | --------------------------- | -
|(dollars in millions)      |  |   | 2005                        |  
|                           |  |   | Income
Taxes                |  
|                           |  |   |                             |  
|Reported(1)                |  | $ | 4.6                         |  
|Adjusted to remove:        |  |   |                             |  
|Contract guarantee         |  |   |                             |  
|Certain income tax matters |  |   | (1.1                        | )
|Adjusted                   |  | $ | 5.7                         |  
|                           |  |   |                             |  





|                                                                                         |  |   | Nine Months Ended September 30 |  
|---------------------------------------------------------------------------------------- |  | - | ------------------------------ | -
|(dollars in millions)                                                                    |  |   | 2005                           |  
|                                                                                         |  |   | Income
Taxes                   |  
|                                                                                         |  |   |                                |  
|Reported(1)                                                                              |  | $ | 31.0                           |  
|Adjusted to remove:                                                                      |  |   |                                |  
|Restructuring                                                                            |  |   | (4.4                           | )
|Contract guarantee                                                                       |  |   |                                |  
|Gain on disposition of                                                                   |  |   |                                |  
|Investments                                                                              |  |   | 5.2                            |  
|Write-down of investments                                                                |  |   | 0.8                            |  
|Certain income tax matters                                                               |  |   | (1.1                           | )
|Adjusted                                                                                 |  | $ | 30.5                           |  
|                                                                                         |  |   |                                |  
|(1)Net of minority interests.                                                           
|(2)The product of the individual amounts does not equal calculated rate due to rounding.
|(3)The sum of the individual amounts does not equal calculated rate due to rounding.    



Capital Loss Carryforwards

As of September 30, 2005, the Company had a capital loss carryforward remaining of approximately $444 million (a deferred tax asset of approximately $167 million which is fully reserved).  Approximately $125 million of this loss carryforward is recognized for tax purposes and expires in 2006.  The remaining $319 million of this carryforward, which primarily relates to the Cantor contract guarantee obligation, will be recognized for tax purposes only to the extent, if any, that the Company is required to make payment.  If the Company is required to make any such payment, the resulting loss carryforward will be available for use five years from the year it is recognized.





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Liquidity and Capital Resources



Overview

The primary source of the Companys liquidity is cash flow from operating activities.  The key component of operating cash inflow is cash receipts from advertising customers and subscribers to print publications and electronic information services.  Operating cash outflows include payments to vendors for raw materials, services and supplies, payments to employees, and payments of interest and income taxes.  Certain employee compensation such as bonuses and payments to the Companys defined contribution pension plan are paid annually in the first quarter of the year.  The Company expects its cash balance and cash provided from operations to be sufficient to meet its normal recurring operating commitments, fund capital expenditures and pay dividends.



As previously disclosed, in 2000 the Company established a reserve for the present value of the total estimated payments through October 2006 in connection with the Companys guarantee of certain minimum payments for data acquired by the Companys former Telerate subsidiary from Cantor Fitzgerald Securities (Cantor) and Market Data Corporation (MDC).  Bridge Information Systems, Inc., which purchased Telerate in 1998, filed for bankruptcy 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 allegedly due under the contract guarantee.  The Company has various substantial defenses to these claims and the litigation is proceeding.



As of September 30, 2005, the balance of the reserve for the contract guarantee was $264 million.  The Company has classified $261.2 million of this reserve as current based on the original due dates of the contract.  Due to the stage of the lawsuit at September 30, 2005, it is not possible to determine whether the court will find that any obligation under the guarantee may be dismissed or reduced.  Accordingly, the Company believes the balance of the reserve continues to be appropriate.  In the event there is an adverse judgment against the Company it would likely be appealed.  If any significant amounts are ultimately considered due, they could be financed through the issuance of additional debt.



The Companys liquidity requirements may be funded, if necessary, through the issuance of commercial paper, bank loans or debt securities.  Debt outstanding at September 30, 2005 was $510.7 million which consisted of 3-year bonds totaling $224.9 million and commercial paper of $285.8 million with various maturities of less than a year.  It is currently the Companys intent to manage its commercial paper borrowings as short-term obligations.  The Companys commercial paper program is supported by multiyear revolving credit facilities with several banks.  As of September 30, 2005, the Company could borrow up to $440 million, $140 million through June 24, 2006 and $300 million through June 24, 2009 under its multiyear revolving credit agreements with several banks.



The revolving credit agreements contain restrictive covenants, including a limitation on the ratio of consolidated indebtedness to consolidated cash flow and a requirement to maintain a minimum ratio of consolidated cash flow to consolidated interest expense.  On August 29, 2005, the Company amended its 5-year credit agreement dated June 25, 2001 and its 5-year credit agreement dated June 21, 2004 to temporarily increase the leverage covenant, from 3.5x to 4.0x, for each of the two quarters ended September 30, 2005 and December 31, 2005.  At September 30, 2005, the Company was in compliance with respect to both of these restrictive covenants then in effect, with the leverage ratio equaling 3.2x at the end of the third quarter.



Credit Ratings

Following the announcement of third quarter earnings, Standard & Poors (S&P), a credit ratings agency, placed the Companys long-term corporate credit and senior unsecured credit ratings on CreditWatch with negative implications.  At the same time, however, the Companys short-term corporate credit and commercial paper ratings were affirmed by S&P.  A downgrade to the Companys current long-term credit ratings by S&P, if any, is not expected to significantly affect the Companys borrowing costs.



32





The Companys credit ratings as of September 30, 2005 are listed below:



|                     | Credit Ratings
|-------------------- | --------------
|                     | Long Term     
|Standard & Poors(a) | A-*           
|Moodys(b)           | A2            
|Fitch(c)             | A             



|* Subsequent to September 30, 2005, the long-term credit rating from S&P was placed on CreditWatch as described above                         
|----------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                              
|(a) S&P ratings range from AAA (highest) to D (lowest) for long-term securities and A-1 (highest) to D (lowest) for short-term securities.    
|(b)Moody's ratings range from Aaa (highest) to C (lowest) for long-term securities and P-1 (highest) to NP (lowest) for short-term securities.
|(a)Fitch ratings range from AAA (highest) to D (lowest) for long-term securities and F-1 (highest) to D (lowest) for short-term securities.   



The commercial paper ratings discussed above have not significantly affected the Company's ability to issue or rollover its outstanding commercial paper borrowings at this time.  The Company maintains the aforementioned lines of credit with commercial banks, as well as cash and short-term investments held by U.S. and foreign-based subsidiaries, to serve as alternative sources of liquidity and to support its commercial paper program.





Cash Flow Summary



For the nine months ended September 30, 2005 and 2004:





|(in millions)                                       |   | 2005   |   |  |   | 2004   |   | 
|--------------------------------------------------- | - | ------ | - |  | - | ------ | - | 
|Net cash provided by operating activities           | $ | 109.8  |   |  | $ | 147.5  |   | 
|Net cash used in investing activities               |   | (438.2 | ) |  |   | (138.4 | ) | 
|Net cash provided by (used in) financing activities |   | 326.7  |   |  |   | (11.0  | ) | 
|Effect of currency exchange rate changes on cash    |   | 2.1    |   |  |   | (0.6   | ) | 
|                                                    |   |        |   |  |   |        |   | 
|Increase (decrease) in cash and cash equivalents    |   | 0.4    |   |  |   | (2.5   | ) | 
|Cash and cash equivalents at beginning of year      |   | 17.2   |   |  |   | 23.5   |   | 
|                                                    |   |        |   |  |   |        |   | 
|Cash and cash equivalents at September 30           | $ | 17.7   | * |  | $ | 21.0   |   | 



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



Operating Activities

Cash provided by operating activities for the first nine months of 2005 was $109.8 million, which was down $37.7 million from net cash provided by operations in the same period last year.  The decline was primarily the result of decreased operating income and higher interest paid.



33





Investing Activities

Net cash used in investing activities was $438.2 million in the first nine months of 2005, primarily as a result of the January 21, 2005 acquisition of MarketWatch.  Net cash used in investing activities totaled $138.4 million last year, primarily reflecting the acquisition of Alternative Investor and capital expenditures of $45.3 million.



Financing Activities

Net cash provided by financing activities for the first nine months of 2005 was $326.7 million, reflecting an increase in commercial paper borrowings of $245.5 million and the issuance of $225 million three-year fixed rate bonds, principally related to the acquisition of MarketWatch.  Cash outlays in the first nine months of 2005 included the repayment of $105.6 million of commercial paper borrowings as well as the payment of $61.9 million in dividends to shareholders.  Net cash used in financing activities for the first nine months of 2004 was $11 million, reflecting a net increase in debt of $43.4 million, principally related to the acquisition of Alternative Investor.  Cash outlays in the first nine months of 2004 included the payment of $61.3 million in dividends to shareholders.





Forward-Looking Statements



This document 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 and readership of the Journal and Ottaway that may be caused by the declining frequency of regular newspaper buying and readership 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 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 are included in the Forward looking statements exhibit to this filing and 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.



34







|Item 3. | Quantitative and Qualitative Disclosures about Market Risk | 
|------- | ---------------------------------------------------------- | 



Foreign Currency Exchange Risk

The Company enters into foreign-currency forward exchange contracts, designated as cash flow hedges, to hedge anticipated operating expenses that are denominated in foreign currencies (principally the
e uro and
the p ound
s terling).
   Revenues of the Company are largely collected in U.S. dollars.
  These contracts, which expire
 ratably over 2005, are entered into to protect against the risk that operating expenses will be adversely affected by devaluation in the U.S. dollar relative to these currencies.
  Realized gains or losses on foreign-currency forward contracts are recognized currently through income and generally offset the transaction gains or losses on the foreign-currency cash flows which they are intended to hedge.



As of
September 30, 2005, the Company had foreign currency forward exchange contracts
, designated as cash flow hedges,
to exchange US$5.8 million for 3.1 million British pounds and US$4.4 million for 3.3 million euro; as of December 31, 2004 the exchange contracts were for US$23.9 million for 12.5 million British pounds and US$18.7 million for 14.0 million euro.   The fair value of the contracts
for the nine months ended September 30, 2005 and
the year ended 2004 was a
n unrealized loss
 of $0.9 million and
an unrealized gain of $
0.3 million, respectively.





Interest Rate Risk

The Companys commercial paper outstanding of $285.8 million at September 30, 2005 is also subject to market risk as the debt reaches maturity and is reissued at prevailing interest rates.  At September 30, 2005, interest rates outstanding ranged from 3.49% to 3.93%, with a weighted-average of 3.75%.  At September 30, 2005 the Company had $224.9 million of fixed rate bonds outstanding, which mature in February 2008.  A change in the market interest rate impacts the fair value of the instrument but has no impact on earnings or cash flows.





|Item 4. | Controls & Procedures | 
|------- | --------------------- | 



Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report, under the supervision and with the participation of the Companys management, including the Companys Chief Executive Officer (CEO) and Chief Financial Officer (CFO), an evaluation of the effectiveness of the Companys disclosure controls and procedures was performed.  Based on this evaluation, the CEO and CFO have concluded that the Companys disclosure controls and procedures are effective to ensure that material information is recorded, processed, summarized and reported by management of the Company on a timely basis in order to comply with the Companys disclosure obligations under the Securities Exchange Act of 1934 and the SEC rules thereunder.



Changes in Internal Controls over Financial Reporting

As a result of the Companys acquisition of MarketWatch, Inc. (MarketWatch) in the first quarter of 2005, the Company has expanded its internal controls over financial reporting to include consolidation of the MarketWatch results of operations.  These controls will be incorporated into the Companys Section 404 assessment for 2005.  There were no other changes in the Companys internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during the three-month period ended September 30, 2005 that have materially affected, or are reasonably likely to materially affect, the Companys internal control over financial reporting.



35





PART II - OTHER INFORMATION



|Item 1. | Legal Proceedings | 
|------- | ----------------- | 



On November 13, 2001, the Company instituted a lawsuit in the Supreme Court of the State of New York against Market Data Corp. (MDC) and Cantor Fitzgerald Securities (together with its affiliates, Cantor) seeking a declaratory judgment with respect to the Companys obligations, if any, under a guarantee issued to MDC and Cantor.  The guarantee relates to certain annual minimum payments owed by Telerate under certain conditions for data acquired by Telerate from Cantor Fitzgerald and MDC under contracts entered into when Telerate was a subsidiary of the Company, and is described in Managements Discussion and Analysis.



In this lawsuit the Company has asked the court to find that the Company does not and will not owe any payment under the contract guarantee through October 2006.  In the alternative, the Company has asked the court to find that if any amount is owed, it must be reduced by amounts that Cantor and MDC receive or should have received from other distribution of the data after Telerate stopped receiving the government securities data from Cantor and MDC.  MDC has asserted counterclaims demanding payment of $10.2 million (allegedly the balance owed by Telerate on November 15, 2001), interest, attorneys fees, specific performance of the guarantee, and a declaratory judgment as to the validity and interpretation of the guarantee through October 2006.



Cantor also commenced a separate lawsuit in the Supreme Court of the State of New York (since consolidated with the Companys case) seeking payment of $10 million (allegedly the balance of the November 2001 minimum payment), payment of $250 million in breach of contract damages, specific performance of the guarantee, a declaration that the guarantee remains in full force and effect, payment of approximately $16 million allegedly owed by Telerate and guaranteed by the Company in the guarantee for the distribution of certain other data, attorneys fees, interest, and other relief.



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.  Dispositive motions have been fully briefed for the court.  The trial previously scheduled to begin in June 2005 has been adjourned and no new trial date has been set.





36







|Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 
|------- | ----------------------------------------------------------- | 



In 1998 the Companys Board of Directors authorized the repurchase of $800 million of the Companys common stock and in September 2000 authorized the repurchase of an additional $500 million of the Companys common stock.  As of September 30, 2005, approximately $326.4 million remained under board authorization for share repurchases.  The Company has not repurchased any shares of its common stock since the first quarter of 2003.







|Item 6. | Exhibits | 
|------- | -------- | 



|Exhibit
Number |  | Document                                                                                                                                      
|-------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------
|               |  |                                                                                                                                               
|10             |  | Dow Jones 2001 Long-term Incentive Plan as amended as of April 20, 2005.                                                                      
|               |  |                                                                                                                                               
|31.1           |  | Certifications by the Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as amended.
|               |  |                                                                                                                                               
|31.2           |  | Certifications by the Chief Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as amended.
|               |  |                                                                                                                                               
|32.1           |  | Statement pursuant to Section 1350(a) of title 18, United States Code.                                                                        
|               |  |                                                                                                                                               
|99             |  | Information Relating to Forward-looking Statements; Risks Relating to Our Business.                                                           



37







SIGNATURE



Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.





|      |                  |  |     | DOW JONES & COMPANY, INC.              
|----- | ---------------- |  | --- | ---------------------------------------
|      |                  |  |     | (Registrant)                           
|      |                  |  |     |                                        
|      |                  |  |     |                                        
|Date: | November 8, 2005 |  | By: | /s/ Robert Perrine                     
|      |                  |  |     | Robert Perrine                         
|      |                  |  |     | Chief Accounting Officer and Controller





38