Back to GetFilings.com
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2001
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 (I.R.S. Employer
incorporation or organization) Identification No.)
200 LIBERTY STREET, NEW YORK, NEW YORK 10281
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 416-2000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Common Stock $1.00 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
Class B Common Stock $1.00 par value
(Title of class)
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 a check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. (X)
Aggregate market value of common stock held by non-affiliates of the
registrant at January 31, 2002 was approximately $2,506,000,000.
The number of shares outstanding of each of the registrant's classes of common
stock on January 31, 2002: 63,480,881 shares of Common Stock and
20,892,456 shares of Class B Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates information from certain portions of the registrant's
definitive Proxy Statement for the 2002 annual meeting of stockholders to be
filed with the Securities and Exchange Commission within 120 days after the
close of the fiscal year.
PART I.
ITEM 1. Business.
Dow Jones & Company, Inc. (the company) is a global provider of business and
financial news and information. Its operations are divided into three
operating segments: print publishing, electronic publishing and general-
interest community newspapers. Financial information about operating
segments and geographic areas is incorporated by reference to Note 16 to the
Financial Statements of this report.
At December 31, 2001, the company employed 8,077 full-time employees. The
company's principal executive offices are located at 200 Liberty Street, New
York, New York, 10281. However, as a result of the September 11 terrorist
attacks the company had to temporarily move out of this facility, which was
adjacent to the World Trade Center, to its owned facilities located at 4300
North Route 1, South Brunswick, New Jersey 08852.
Print publishing
- ----------------
The print publishing segment contains the operations of The Wall Street
Journal and its international editions, Barron's and other periodicals, as
well as U.S. television operations. Results of the company's international
television ventures are included in equity in losses of associated
companies.
The Wall Street Journal, the company's flagship publication, is one of the
country's largest daily newspapers with average circulation for 2001 of
1,798,000. The Journal's three major regional editions are printed at 17
plants located across the United States. The Wall Street Journal also
offers advertisers the opportunity to focus their messages through 18
localized editions.
The company completed its four year, $226 million project to triple color
print capacity, from 8 to 24 pages and expand overall print capacity at The
Wall Street Journal by 20%, from 80 to 96 pages. The new capacity will be
put into full service in April, 2002 when the company debuts enhancements to
The Wall Street Journal, including a new fourth section (Personal Journal),
and significantly expanded use of color for news and advertising throughout
the paper. Benefits of this project include: reinforcing the Journal as a
must-read for every serious businessperson; opening its pages to new
readers; improving circulation economics by making it easier to attract new
customers and retain existing ones; and attracting new advertisers (both
color and black & white) to bring more ad revenue and reduce our reliance on
technology and financial advertising categories.
The Journal provides weekend-oriented coverage every Friday via a fourth
section "Weekend Journal". Weekend Journal includes expanded personal-
finance coverage as well as pages devoted to travel, wines, sports,
residential real estate and the arts. The Journal also publishes at various
times of the year special reports on topics such as technology, personal
finance and executive compensation, e-commerce, health, medicine as well as
demographically targeted editions devoted to subjects of retirement and
small business.
The Wall Street Journal Sunday, launched in 1999, is a three-to-eight page
package, with content focused on personal finance and careers. The Sunday
Journal is published once a week in the business sections of partner
newspapers with combined circulation of about 9.4 million. In 2001,
additional metropolitan and community newspapers were added bringing the
total newspapers carrying The Sunday Journal to 51. In early 2002, four
additional newspapers, The Knoxville News-Sentinel, Charlottesville Daily
Progress, Naples Daily News and The Akron Beacon-Journal began publishing
The Sunday Journal.
-2-
The Wall Street Journal participating newspapers as of December 2001 include:
The Advocate (Stamford, CT) The News and Observer (Raleigh, NC)
Austin American-Statesman The News-Times (Danbury, CT)
Billings Gazette (Billings, MT) The News Tribune (Tacoma, WA)
The Buffalo News The Macomb Daily
Bangor Daily News Middletown Herald-Record
Chippewa Herlad (Chippwa Falls, WI) The Oakland Press
Contra Costa Times The Orange County Register
Daily Herald (suburban Chicago) The Orlando Sentinel
The Daily Item (Sunbury, PA) The Post & Courier (Charleston, SC)
The Daily News Sun (Sun City,AZ)) The Providence Journal
The Denver Post Quad-City Times (Davenport, IA)
Duluth News Tribune The Record (Bergen County, NJ)
Everett (Washington) Herald Record-Eagle (Traverse City, MI)
The Eagle (Bryant/College Station, TX) Richmond-Times Dispatch
East Valley Tribune (Mesa, AZ) Royal Oak Tribune
Greenwich Time The Sacramento Bee
The Hartford Courant Santa Cruz County Sentinel
The Herald-Democrat (Sherman, TX) Star-Telegram (Ft. Worth/Arlington, TX)
The Honolulu Star-Bulletin Star Tribune (Minneapolis, St. Paul, MN)
The Las Vegas Review-Journal St. Petersburg Times
The Lawrence Eagle Tribune St. Louis Post-Dispatch
The Los Angeles Daily News Sun-Sentinel (South Florida)
Milwaukee Journal Sentinel Tulsa World
The Missoulian (Missoula, MT) The Times-Picayune (New Orleans, LA)
The Montana Standard (Butte, MT) Wilkes-Barre Times Leader
Morning News of
Northwest Arkansas (Springdale, AK)
The Technology Journal, initiated in February 1998, is published each Thursday
in the Marketplace section of The Wall Street Journal. The coverage focuses
on companies with new technology affecting people's lives, or some trend or
movement in technology.
The production of the paper employs satellite transmission of page images to
the outlying plants and other technologies designed to speed the delivery of
editorial material to the presses and to reduce the steps taken in the
printing process.
In 2000, the company completed the key phase of The Wall Street Journal
pagination project, ending more than three decades of remote composition. The
project was launched in early 1999 to streamline the production process and
compose electronically all news and advertising pages of the Journal using a
fully integrated system with new ad-layout and editorial components. The
project accomplishments included getting fresher content into the Journal
while ensuring timely home delivery; simplifying the company's technology
structure by installing best-of-class industry-proven solutions; and giving
front-end control of the pages to the News and Advertising departments.
The Wall Street Journal is delivered principally in two ways: through the
company's National Delivery Service, Inc. subsidiary and by second-class
postal service. In 2001, the National Delivery Service on average delivered
about 1.2 million, or 82%, of the Journal's subscription copies each
publishing day. This system provides delivery earlier and more reliably than
the U.S. Postal Service. Approximately 151,000 copies of the Journal are sold
each business day at newsstands.
Barron's, the Dow Jones Business and Financial Weekly, is a magazine that
specializes in reporting and commentary on financial markets. The weekend
magazine, which had an average circulation of 291,000 in 2001, uses twelve of
the seventeen printing plants employed in the production of the domestic Wall
-3-
Street Journal. Barron's is edited in New York City and is delivered by
second-class postal service and through National Delivery Service. Barron's
sells 94,000 copies at newsstands weekly. In January 2002, Barron's tripled
its color capacity and launched a new "Technology Week" section covering the
fast-changing business sector to tech-savvy investors.
The Wall Street Journal Europe is headquartered in Brussels, Belgium and
printed in Belgium, Germany, Switzerland, Italy, Spain and the United Kingdom.
It is available on the day of publication in continental Europe, the United
Kingdom, the Middle East and North Africa. The newspaper had an average
circulation in 2001 of 99,000. Effective January 1, 2000, the company and the
von Holtzbrinck Group, a leading German media company (publisher of
Handelsblatt, a German business newspaper, and with interests in TV
production, radio broadcasting and multimedia) exchanged equity-shareholdings
in their respective subsidiaries so as to give the von Holtzbrinck Group 49%
ownership of The Wall Street Journal Europe and the company 22% ownership of
the von Holtzbrinck Group's business daily, Handelsblatt.
The Asian Wall Street Journal is headquartered and printed in Hong Kong and is
transmitted by satellite to additional printing sites in Singapore, Japan,
Thailand, Malaysia, Taiwan, Philippines, Korea and Indonesia. The Asian Wall
Street Journal had average circulation of 86,000 in 2001.
The Asian Journal provides the foundation for the company's Asian Wall Street
Journal Weekly Edition, which is published in New York for North American
readers with interests in Asia.
In 2001, The Wall Street Journal Europe and The Asian Wall Street Journal
launched the Weekend Journal, which appears every Friday and offers readers
advice on personal spending and leisure time. In January, a new daily
section, Networking, was launched in The Wall Street Journal Europe and The
Asian Wall Street Journal providing information on how technology is changing
ordinary companies, business practices and society.
The company began expanding readership of The Wall Street Journal news content
by introducing The Wall Street Journal Americas in 1994 to Central and South
America. Since then the company has broadened its delivery of Journal news
content to other parts of the world. These Special Editions are part of 36
newspapers in 15 countries. They are published in 13 different languages and
serve a combined circulation of nearly 6 million.
The Far Eastern Economic Review, published weekly in Hong Kong, is Asia's
leading English-language business magazine. Circulation is about 101,000,
concentrated in Hong Kong, Malaysia, Singapore and other parts of Southeast
Asia. Close to 13,000 copies are sold in North America and Europe.
The Wall Street Journal Classroom Edition, which is published nine times
during the school year and is read by an estimated 700,000 students every
month during the academic year in more than 4,500 middle-school and high-
school classrooms throughout the United States. Individuals, organizations
and corporations sponsor nearly one-third of all subscriptions.
SmartMoney, The Wall Street Journal Magazine of Personal Business, featuring
personal investing, spending and saving money, is published jointly with
Hearst Corp. In 1999, SmartMoney launched a free portal site, SmartMoney.com,
which provides a resource for private investors on personal finance and daily
updates on current investment opportunities.
Vedomosti, or The Record, was introduced in 1999 in Russia. Vedomosti,
-4-
considered the only independent business newspaper in Russia, is published
daily, Monday through Friday. Readership of the publication reached over
100,000 in 2001. Initial circulation is centered in the business community in
Moscow and St. Petersburg, with a regional expansion program currently being
pursued. The new publication uses original content created by 72 local
reporters and editors and content from The Financial Times and The Wall Street
Journal translated into the Russian language. On April 3, 2000, the St.
Petersburg edition of Vedomosti was launched. The newspaper is owned one-
third each by Dow Jones, Pearson and Independent Media.
Also included in this segment is the domestic portion of the company's
television group. As a result of the global business television alliance with
NBC, the company's domestic operations provide business news programming to
CNBC as part of a multiyear license agreement. The company's overseas
television ventures, which were merged with CNBC's overseas operations into
equally-owned operations in Europe and Asia Pacific, are included as part of
the equity in losses of associated companies.
In early 1998, NBC and Dow Jones re-launched their business information
channels in Europe and Asia Pacific as CNBC, a service of NBC and Dow Jones.
The overseas services reach in total over 63 million households on a full-time
basis and nearly 36 million households on a part-time basis.
Additionally as part of the television alliance with NBC, Dow Jones joined
Microsoft Corp. and NBC in certain interactive initiatives, including
supplying highlights of WSJ.com to the MSNBC Internet site, and an ownership
interest in MSNBC Business Video in the United States, renamed CNBC/Dow Jones
Business Video. This service provides live and archived audio and video
business and financial news events via the World Wide Web.
Electronic publishing
- ---------------------
Electronic publishing includes the operations of Dow Jones Newswires, Dow
Jones Indexes, and WSJ.com.
Dow Jones Newswires is a global publisher of real-time business and financial
news. Its various wires are displayed on approximately 330,000 English-
language terminals worldwide, providing users with real-time information on
equities, fixed income, foreign exchange, commodities and energy. Dow Jones
Newswires has a dedicated staff of close to 800 business and financial
journalists in addition to drawing on the resources of the global Journal and
Associated Press. Since 1999, the company began to distribute Newswires
material on a real-time basis to customers of on-line brokers. In addition to
providing news to financial firm Web sites, Dow Jones Newswires offers a set
of online products in the professional-to-professional (P2P) market and
providing news to niche commodities trading markets, such as energy, paper,
metals and agricultural products.
Dow Jones News Service, a 24-hour service, is North America's pre-eminent
supplier of business and financial news to subscribers at brokerage firms,
banks, investment companies and other businesses. Capital Markets Report is
the company's newswire that covers treasury, fixed income and financial
futures markets around the world.
The Dow Jones Economic Report and the Dow Jones Financial Report, which are
produced outside the United States in conjunction with the Associated Press
(AP) since 1967, provide international economic, business and financial news
to subscribers in 64 countries. In addition to these two broad international
newswires, the company and the AP offer specialized wires dedicated to the
-5-
coverage of European and Asian equities, banking and the markets in foreign
exchange. Other newswires provided in alliance with the AP include the World
Equities Report, which serves U.S. institutions investing in international
markets.
In 2000, the company introduced the Dow Jones Chinese Language Newswires,
marking the first time that Dow Jones provided comprehensive news and research
on the U.S. stock market in Chinese. In addition to the Chinese Newswires,
the company also launched local language product offerings in Japanese,
Spanish, French, Bahasa, Portugese and German.
Washington-based Federal Filings, Inc. publishes newswires, newsletters and
investment research based on its coverage of federal regulatory agencies,
Capitol Hill and bankruptcy courts nationwide. Federal Filings' products
include Corporate Filings Alert, a real-time newswire covering the Security
Exchange Commission filings; Daily Bankruptcy Review, a compendium of large
bankruptcy filings throughout the U.S.; and several other newsletters targeted
at niche investing communities.
Beginning January 1, 2002, OsterDowJones Commodity News, a global news company
created by Oster Communications, Inc. and Dow Jones began operations. The
merger created a strong global company that will bring together Oster's long
history of serving the information needs of the global food and fiber industry
and Dow Jones' global news coverage and international distribution network.
Oster and Dow Jones also announced an intention to form OsterDowJones Energy
News, a jointly owned news company covering energy markets, which is expected
to begin operating in the spring of 2002.
WSJ.com was introduced in 1996 on the Internet and offers continuously updated
coverage of business news both in the U.S. and around the world, supported by
the global resources of The Wall Street Journal and Dow Jones Newswires. The
Wall Street Journal Online has undergone a $28 million redesign which was
launched in late January 2002, featuring easier to navigate pages and state-
of-the-art personalization. Subscribers have access to more than 30,000 in-
depth background reports on companies, an archive of news articles, and
personal news and stock portfolios. At December 31, 2001, WSJ.com had over
626,000 subscribers and was the largest paid subscription news site on the
Internet.
Other consumer sites in the Journal Network include CareerJournal.com;
OpinionJournal.com; RealEstateJournal.com; StartupJournal.com;
CollegeJournal.com; CareerJournalAsia.com; and CareerJournalEurope.com.
The Dow Jones Indexes group develops, maintains and markets Dow Jones' various
index products. In 1997, the company began licensing the Dow Jones Industrial
Averages as well as other indexes as the basis for trading options, futures,
unit trusts, annuities, exchange traded funds, mutual funds, derivatives and
specialized structured products. In 1998, Dow Jones and the leading exchanges
of France (SBF-Bourse de Paris), Germany (Deutsche Borse) and Switzerland
(Swiss Exchange) entered into a joint venture, named STOXX Ltd. The Dow Jones
Indexes now have more than 5,000 indexes.
The Dow Jones STOXX family of indices accounted for $289 billion of assets at
year-end 2001, constituting the majority of total assets under management
based on Dow Jones Indexes. STOXX tracks the performance of certain European
equities, including broad-based measures as well as gauging the market
performance of countries that have joined the European Economic and Monetary
Union.
Dow Jones Reuters Business Interactive LLC (Factiva) is a joint venture
launched in mid-1999 with Reuters Group Plc. Factiva provides world-class
-6-
global news and business information through its Web sites and content
integration solutions. Factiva's business information includes Dow Jones and
Reuters Newswires and The Wall Street Journal, plus nearly 8,000 other sources
and 8,500 business-oriented Web sites from around the world. These sources
provide current news, historical articles, local-language articles, market
research and investment analyst reports, and stock quotes.
Factiva is the number one provider of global news and business information to
corporate end users and holds the number two position, based on revenue, in
the business news and information marketplace. Integration of content into an
enterprise portal or corporate application is an emerging information
requirement of corporate customers. Factiva is positioned for growth through
new integration products, business expansion through a channel marketing
program, and diversification.
Community Newspapers
- --------------------
Community newspapers published by Ottaway Newspapers, Inc., a wholly-owned
subsidiary, include 19 general-interest dailies in 11 states: California,
Connecticut, Kentucky, Massachusetts, Michigan, Minnesota, Missouri, New
Hampshire, New York, Oregon and Pennsylvania. Average circulation of the
dailies during 2001 was approximately 540,000; Sunday circulation for 14
newspapers was 512,000. Community newspapers also publishes more than 30
weekly and shoppers publications. The principal administrative office of
Ottaway Newspapers is in Campbell Hall, New York. The primary delivery method
for the newspapers is carrier delivery.
Other
- -----
Dow Jones' investments include a minority interest in Nation Multimedia Group
Public Co., Ltd., a Bangkok, Thailand, publisher of English and Thai-language
magazines and newspapers; Media Technology Ventures III, an investment
consortium for investing in digital media companies; VWD-Vereinigte
Wirtschaftsdienste GmbH, a German news agency specializing in business and
economic news and information; HB-Dow Jones S.A., a part-owner of Economia, a
publishing company in the Czech Republic; CareerCast, Inc., a leading supplier
of middleware data services to employers and Internet jobs and career sites in
San Diego, California; and F.F. Soucy Inc. & Partners, L.P., a newsprint mill
in Canada.
Raw Materials
- -------------
The primary raw material used by the company is newsprint. In 2001
approximately 262,000 metric tons were consumed. Newsprint was purchased
principally from 11 suppliers. The company is a limited partner in F.F.
Soucy, Inc. & Partners, L.P., Riviere du Loup, Quebec, Canada. F.F. Soucy
furnished 16% of total newsprint requirements in 2001. The company has signed
long-term contracts with certain newsprint suppliers, including F.F. Soucy,
for a substantial portion of its annual newsprint requirements. For many
years the available sources of newsprint have been adequate to supply the
company's needs.
-7-
Research and Development
- ------------------------
Research and development expenses were $27 million in 2001, $30.6 million in
2000 and $30.5 million in 1999.
Competition
- -----------
The print publications of the company are highly competitive. In its various
news-publishing activities, Dow Jones competes with a wide spectrum of other
information media. All metropolitan general interest newspapers and many
small city or suburban papers carry business and financial pages or sections,
including securities quotations, as do many Internet-based publications and
services. In addition, specialized magazines in the business and financial
field, as well as general news magazines publish substantial amounts of
business-related material. Nearly all these publications seek to sell
advertising space and much of this effort is directly or indirectly
competitive with Dow Jones' publications. The Journal also competes for
advertising with non-business publications, such as technology magazines,
offering audiences of similar demographic quality. In addition, the Journal
and the company's other business publications also compete with television and
radio for advertisers.
The company's newswires compete with other global financial newswires
including Reuters Group Plc, Bloomberg L.P., as well as McGraw-Hill, Inc. The
company's newswires maintain a stronger market position in North America than
internationally.
Dow Jones' index-licensing business competes with various organizations that
develop and license indexes, including the Standard & Poors unit of McGraw-
Hill, Inc., Financial Times, and Morgan Stanley/Capital International. Dow
Jones competes with these organizations in developing benchmarks of equity
market performance to which investable products may be linked.
Factiva competes with various business information service providers,
including The Thomson Corporation and Lexis-Nexis, a division of Reed Elsevier
Plc. Factiva is the number one provider of global news and business
information to corporate end users and holds the number two position, based on
revenue, in the business news and information marketplace. Factiva also
competes with various online services offered via the Internet. Information
services that were formerly available to only a few research professionals in
business are now readily available to many due to the expansion of the
Internet. Competition to meet the growing demand for fast access to business
and personal finance information is intense and technologies to disseminate
this information are rapidly changing.
All of the community newspapers operating under Ottaway Newspapers, Inc.
compete with metropolitan general interest newspapers, and most compete with
other newspapers, local radio and television available in their respective
sales areas.
-8-
The company's overseas business television ventures compete with various
international satellite networks that specialize in general news but also
provide business programming. Also, individual television stations, networks
and cable channels in each country broadcast programming that competes for
advertising and the attention of viewers in their respective markets.
ITEM 2. Properties.
Dow Jones operates 17 plants with an aggregate of approximately one million
square feet for the printing of its domestic publications. Printing plants
are located in Palo Alto and Riverside, California; Denver, Colorado; Orlando,
Florida; LaGrange, Georgia; Naperville and Highland, Illinois; Des Moines,
Iowa; White Oak, Maryland; Chicopee Falls, Massachusetts; South Brunswick, New
Jersey; Charlotte, North Carolina; Bowling Green, Ohio; Sharon, Pennsylvania;
Dallas and Beaumont, Texas; and Federal Way, Washington. All plants include
office space. All are owned in fee except the Palo Alto, California, plant,
which is located on 8.5 acres under a lease to Dow Jones for 50 years,
expiring in 2015.
Other facilities owned in fee with a total of approximately 870,000 square
feet house news, sales, administrative, technology and operational staff.
These facilities are located in South Brunswick, New Jersey, and Chicopee
Falls, Massachusetts. The company has leased 214,000 square feet of office
space in South Brunswick.
Dow Jones occupies two major leased facilities in New York City, including
leasing over 300,000 square feet at the World Financial Center, which
primarily houses editorial and executive staff, and 98,000 square feet at a
separate location for advertising sales staff. See a further discussion of
the World Financial Center on page 21 of Management's Discussion and Analysis.
The company also leases other business and editorial offices in numerous
locations around the world, including 92,000 square feet in Jersey City, N.J.,
74,000 square feet in four locations in London and 70,000 square feet in three
locations in Hong Kong.
Ottaway Newspapers operates in 26 locations, including a 24,000 square foot
administrative headquarters in Campbell Hall, New York. These facilities are
located in Santa Cruz, California; Danbury, Connecticut; Ashland, Kentucky;
Kennebunk and York, Maine; Beverly, Hyannis, New Bedford, Gloucester,
Nantucket, Salem and Newburyport, Massachusetts; Traverse City, Michigan;
Mankato, Minnesota; Joplin, Missouri; Exeter and Portsmouth, New Hampshire;
Middletown, Oneonta, and Plattsburgh, New York; Medford, Oregon; and Grove
City, Sharon, Stroudsburg and Sunbury, Pennsylvania. Local printing
facilities, which include office space, total approximately 1.1 million square
feet. All facilities are owned in fee except the office space in Salem, which
is leased.
The company believes that its current facilities are suitable and adequate,
well maintained and in good condition. Older facilities have been modernized
and expanded to meet present and anticipated needs.
ITEM 3. Legal Proceedings
On February 20, 2001, Market Data Corp. (MDC) commenced a lawsuit against Dow
Jones in the Supreme Court of the State of New York, seeking to compel the
company to pay $11.7 million, plus interest, attorneys fees and costs, that
MDC claimed was owed under the guarantee issued to MDC and Cantor Fitzgerald
Securities (together with its affiliates, "Cantor"), together with unspecified
-9-
consequential damages that MDC claimed result from Dow Jones' failure to pay
on the guarantee. The guarantee relates to certain annual "minimum payments"
owed by Telerate for data acquired by Telerate from Cantor Fitzgerald and MDC
under contracts entered into when Telerate was a subsidiary of Dow Jones, and
is described in Management's Discussion and Analysis.
In April 2001, Dow Jones paid $5.8 million to MDC covering the period January
1 to February 14, 2001 preceding Bridge's Chapter 11 bankruptcy filing.
Bridge made the payments for the post-petition periods through the third
quarter of 2001. After certain amendments were made to the complaint, the
remaining claims in this lawsuit sought the payment of interest on the payment
made in the first quarter of 2001 and for attorneys' fees and costs in this
litigation. The parties settled these claims and this lawsuit was then
withdrawn.
In October 2001, the bankruptcy court granted Bridge's motion to reject
Telerate's contracts with Cantor and MDC. Telerate has indicated that it has
ceased operations, is no longer receiving government securities data from
Cantor and MDC and will not make further payments to Cantor and MDC.
Cantor and MDC advised the company that they would demand payment from Dow
Jones of an amount they alleged was due on November 15 under the contract
guarantee as well as future amounts due through October 2006. The company has
various substantial defenses to these claims.
On November 13, 2001, the company instituted a lawsuit in the Supreme Court of
the State of New York seeking a declaratory judgment with respect to the
contract guarantee and the claims of Cantor and MDC. 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 and Cantor have moved to
dismiss the company's complaint. MDC has asserted counterclaims demanding
payment of $10,197,416 (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 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 Company has moved to oppose MDC's and Cantor's motions, claims, and
counterclaims.
ITEM 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
-10-
Executive Officers of the Registrant
- ------------------------------------
Each executive officer is elected annually to serve at the pleasure of the
Board of Directors.
Mr. Zannino and Mr. Vieth have been employed by the company for fewer than
five years.
Peter R. Kann, age 59, Chairman of the Board since July 1991, Chief Executive
Officer since January 1991 and Publisher of The Wall Street Journal since
January 1989, served as President from July 1989 to July 1991 and Chief
Operating Officer from July 1989 to December 1990, Executive Vice President
from 1985 to 1989 and Associate Publisher of The Wall Street Journal from 1979
to 1988.
Richard F. Zannino, age 43, joined the company in February 2001 as Executive
Vice President and Chief Financial Officer. Before joining Dow Jones, Mr.
Zannino was Executive Vice President of Liz Claiborne, Inc., having joined in
1998 as Senior Vice President, Finance & Administration and Chief Financial
Officer. Previously, Mr. Zannino had worked briefly as Chief Financial
Officer of General Signal Corporation, prior to that company's sale and before
that for five years at Saks Fifth Avenue, ultimately as Executive Vice
President and Chief Financial Officer.
Peter G. Skinner, age 57, Executive Vice President since October 1998 and
General Counsel and Secretary since 1985, Senior Vice President from November
1989 to October 1998, President, Television from January 1995 to December
1997, served as Vice President from 1985 to November 1989.
James H. Ottaway Jr., age 64, Senior Vice President since 1986, President of
Magazines since February 1988, Chairman of Ottaway Newspapers, Inc. since
1979, served as President of the International Group from February 1988 to
January 1995, as Vice President/Community Newspapers from 1980 to 1985 and as
President of Ottaway Newspapers, Inc. from 1970 to 1985 and its Chief
Executive from 1976 to January 1989, resuming that position in June 1998.
L. Gordon Crovitz, age 43, Senior Vice President and President, Electronic
Publishing and Senior Vice President/Electronic Publishing since October 1998,
Vice President/Planning and Development from November 1997 to October 1998.
Managing Director for Telerate's Asia/Pacific operation from September 1996 to
November 1997. Editor and Publisher of Review Publishing Company from July
1993 to September 1996.
Christopher W. Vieth, age 37, Vice President, Finance and Corporate
Controller, joined the company in July 2000. Prior to joining Dow Jones, Mr.
Vieth had been Vice President and Corporate Controller of Barnes and Noble,
Inc. since May 1999. He joined Barnes and Noble in December 1995 as Director
of Finance. From 1987 through 1995, Mr. Vieth worked at Amerada Hess
Corporation.
-11-
PART II.
ITEM 5. Market for the Registrant's Common Equity and Related
Stockholder Matters.
The company's common stock is listed on the New York Stock Exchange. The class
B common stock is not traded. The approximate number of stockholders of record
as of January 31, 2002 was 10,838 for common stock and 3,934 for class B common
stock. The company paid $1.00 per share in dividends in 2001 and in 2000.
=============================================================================
Market Price 2001 Market Price 2000
----------------- Dividends ----------------- Dividends
Quarters High Low Paid 2001 High Low Paid 2000
- -----------------------------------------------------------------------------
First $64 19/64 $48 3/32 $.25 $72 7/8 $57 3/8 $.25
Second 59 3/4 49 13/16 .25 77 5/16 62 3/8 .25
Third 61 19/32 43 3/16 .25 75 59 3/8 .25
Fourth 55 1/4 43 3/64 .25 61 13/16 51 3/8 .25
=============================================================================
ITEM 6. Selected Financial Data.
See Management's Discussion and Analysis of Financial Condition and Results
of Operations for a discussion of factors that affect the comparability of
the information reflected in this table.
The following table shows selected financial data for the most recent five
years:
===========================================================================
(in thousands, except
per share amounts) 2001 2000 1999 1998 1997
- ---------------------------------------------------------------------------
Revenues $1,773,083 $2,202,618 $2,001,835 $2,158,106 $2,572,518
Net income (loss) 98,220 (118,962) 272,429 8,362 (802,132)
- ---------------------------------------------------------------------------
Per share amounts:
Net income (loss)
Basic $1.15 $(1.35) $3.01 $.09 $(8.36)
Diluted 1.14 (1.35) 2.99 .09 (8.36)
Dividends 1.00 1.00 .96 .96 .96
- ---------------------------------------------------------------------------
Total assets $1,298,340 $1,362,056 $1,512,713 $1,484,022 $1,919,734
Long-term debt,
including
current portion 173,958 150,865 149,945 149,889 234,124
===========================================================================
Net income (loss) included unusual after-tax items as follows:
=============================================================================
(in thousands) 2001 2000 1999 1998 1997
- -----------------------------------------------------------------------------
Restructuring and other
special charges $(43,926) $(1,643) $(45,484) $(934,990)
Gain (loss) on
disposition of
businesses and
investments $ 18,161 51,660 (103,621) 31,243
Reserve for
contract
guarantee 17,136 (255,308)
Write-down of
investments (8,827) (178,499)
Special items within
equity in losses (3,009) 2,052 (4,225) (19,302)
Adjustment of
income tax
valuation allowance 30,000
=============================================================================
-12-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results in 2001 reflect a depressed global advertising environment,
particularly in the company's core financial and technology advertising
sectors, which adversely affected the company's advertising dependent
businesses. The adverse advertising environment was further exacerbated by
the September 11 terrorist attacks. After the attacks, the company
experienced cancellations by advertisers as well as other lost revenue at
its electronic businesses, totaling roughly $30 million in 2001. These lost
revenues are estimated based on actual cancellations and pre-September 11
advertising trends. Finally, cyclically very strong revenues in 2000 and
1999 made 2001 comparisons difficult.
In response to this difficult business environment, the company took steps
to better align its costs with its revenues by initiating three separate
restructuring efforts. It also moved to aggressively reduce other operating
expenses and capital expenditures, while tightly controlling working capital
and other cash flow items. However, the company did preserve adequate
spending for newsgathering, news delivery, and marketing to maintain the
premium quality, integrity and reliability of its brands and products. It
also continued to fund long-term strategic projects, including completion of
the color print expansion project at the U.S. Journal and the redesign of
the Online Journal website.
2001 RESULTS COMPARED TO 2000
Net income in 2001 was $98.2 million, or $1.14 per share (all "per share"
amounts included herein are based on GAAP net income or loss and use diluted
shares). This compares to a net loss of $119 million, or $1.35 per share,
in 2000. Included in earnings per share were special items netting to a
loss of $.10 per share in 2001 and a loss of $4.67 per share in 2000. These
special items are detailed beginning on page 20.
Revenues in 2001 decreased $429.5 million, or 20%, to $1.8 billion.
Advertising revenue decreased $414.9 million, or 28%, reflecting the weak
global advertising environment. Information services revenue increased $8
million, or 2.8%, primarily due to modest growth in Newswires revenue and an
increase in paid subscriptions at the Online Journal at WSJ.com.
Circulation and other revenue declined $22.6 million, or 5%, reflecting an
increase in circulation more than offset by an increase in lower revenue-
producing copies. Revenue from U.S. operations, which comprised 90% of
total revenues, fell 20%, while revenue from international operations
declined 13%.
Operating expenses of $1.7 billion were reduced by $41.5 million, or 2.4%,
compared with 2000. Excluding special charges of $73.2 million in 2001,
operating expenses were reduced by $114.7 million, or 6.7%, primarily due to
reductions in promotional spending, lower newsprint consumption and overall
company-wide cost reduction efforts. Newsprint expense was down 17%,
reflecting a 21% reduction in consumption slightly offset by a 4.5% increase
in average price per ton.
As a result of these factors, operating income in 2001 of $110.2 million
(6.2% of revenues) dropped $388 million, or 78%, from $498.2 million (22.6%
of revenues) in 2000. Excluding special charges, operating income of $183.4
million (10.3% of revenues) fell $314.8 million, or 63%, from $498.2 million
in 2000.
The company completed its four year, $226 million project to triple color
print capacity, from 8 to 24 pages and expand overall print capacity at The
Wall Street Journal by 20%, from 80 to 96 pages. The new capacity will be
put into full service in April, 2002 when the company debuts enhancements to
-13-
The Wall Street Journal, including a new fourth section (Personal Journal),
and significantly expanded use of color for news and advertising throughout
the paper. Benefits of this project include: reinforcing the Journal as a
must-read for every serious businessperson; opening its pages to new
readers; improving circulation economics by making it easier to attract new
customers and retain existing ones; and attracting new advertisers (both
color and black & white) to bring more ad revenue and reduce the company's
reliance on technology and financial advertising categories.
The Online Journal redesign project was completed and launched in January
2002. This $28 million investment includes improvements in underlying
infrastructure, including new servers, a new content management system and a
simpler, more modern architecture to accommodate long-term growth in scale
and new product initiatives. The redesigned site will include a new look
and feel with easier user access to information and state-of-the-art
personalization features aimed at increasing site usage.
2000 RESULTS COMPARED TO 1999
Net loss in 2000 was $119 million, or $1.35 per share, compared to net
income of $272.4 million, or $2.99 per share, in 1999. Included in earnings
per share were special items netting to a loss of $4.67 per share in 2000
and a gain of $.55 per share in 1999. These special items are detailed
beginning on page 20.
Revenues in 2000 rose 10% to $2.2 billion from the $2 billion recorded in
1999, largely due to growth in advertising revenue in our print publishing
segment. Revenues from U.S. operations comprised 91% of total revenues and
increased 9.1% while revenues from international operations improved 20%.
Advertising revenues increased 19% and accounted for all of the year over
year increase in total company revenue. Information services revenues
decreased 11% reflecting the contribution of Dow Jones Interactive (DJI) to
the Factiva joint venture with Reuters on July 1, 1999, and the company's
accounting for Factiva on the equity method. Adjusting for the de-
consolidation of DJI revenues (DJI earned about $60 million of revenue in
1999), information services revenue was up about 10%. Circulation and other
revenues decreased 0.5%, as higher circulation was offset by an increase in
the number of lower revenue producing copies.
Operating expenses of $1.7 billion in 2000 grew $92.1 million, or 5.7%, from
$1.6 billion in 1999. Excluding special items in 1999, operating expenses
increased $94.9 million, or 5.9%, reflecting higher newsprint costs and
promotional spending, partially offset by the de-consolidation of DJI
expenses in 2000 (DJI spent roughly $60 million in 1999). Newsprint expense
was up 21% in 2000 on a 9.7% increase in consumption and a 10.1% increase in
average price per ton.
Operating income of $498.2 million (22.6% of revenues) in 2000 was up $108.7
million, or 28%, from $389.5 million (19.5% of revenues) in 1999. Excluding
special items in 1999, operating income advanced $105.9 million, or 27%,
from $392.3 million (19.6% of revenues) in 1999.
In September 2000, the company completed the key phase of The Wall Street
Journal pagination project, which streamlines the production process and
enables electronic composition of all news and advertising pages of The Wall
Street Journal. Benefits include: getting fresher content into the Journal,
while ensuring timely home delivery; simplifying the company's technology
structure; and giving front-end control of the pages to the news and
advertising departments. Barron's went live with the new system in the
first quarter of 2001.
-14-
SEGMENT DATA
A summary of results of operations for each of the company's principal
business segments as well as additional financial data is displayed in Note
16 to the financial statements.
The company's business and financial news and information operations are
reported in two segments: print publishing and electronic publishing. The
results of the company's Ottaway Newspapers subsidiary, which publishes 19
daily newspapers, 14 Sunday papers and more than 30 weeklies and shoppers in
12 states in the U.S., are reported in the community newspaper segment.
Print publishing accounted for approximately 62% of 2001 revenues, community
newspapers accounted for 20%, and electronic publishing comprised the
remaining 18%.
Print publishing includes the operations of The Wall Street Journal and its
international editions, Barron's and other periodicals, as well as U.S.
television operations (results of the company's international television
ventures are included in equity in losses of associated companies).
Electronic publishing includes the operations of Dow Jones Newswires, Dow
Jones Indexes, the Online Journal (including other Internet publishing
sites), Dow Jones Interactive (up to July 1, 1999 when it was contributed to
Factiva) and other. The company's 50% share of Factiva's results is
reported in equity in losses of associated companies.
PRINT PUBLISHING
============================================================================
(in thousands) 2001 2000 1999
- ----------------------------------------------------------------------------
Revenues
U.S. Publications:
Advertising $ 705,961 $1,071,731 $ 892,317
Circulation and other 279,959 299,000 311,565
International Publications:
Advertising 79,080 102,686 73,327
Circulation and other 41,934 45,529 43,588
- ----------------------------------------------------------------------------
Total revenues 1,106,934 1,518,946 1,320,797
Operating expenses 1,064,913 1,118,789 1,013,760
- ----------------------------------------------------------------------------
Operating income $ 42,021 $ 400,157 $ 307,037
============================================================================
Special charges * $ 49,447 $ 2,755
Depreciation and amortization 65,668 $ 64,965 62,562
============================================================================
* Special charges, which are included in operating expenses above, are
detailed beginning on page 20.
In 2001, revenues fell $412 million, or 27%, from 2000. Advertising revenue
for U.S. publications fell $365.8 million, reflecting a 37.6% decline in
advertising linage at The Wall Street Journal as well as a 33.4% drop in
Barron's national ad pages. International print revenues fell 18% as
advertising linage at The Wall Street Journal Europe decreased 28%, linage
at The Asian Wall Street Journal fell 27.7%, and at The Far Eastern Economic
Review advertising pages declined 32.2%. U.S. television advertising
license revenue decreased 41%.
-15-
Linage declines were driven by the overall softness in the global
advertising markets, exacerbated by the company's heavy reliance on
technology and financial advertising which were particularly hard hit and,
together, comprised 41% of the U.S. Journal's total linage in 2001, down
from 50% in 2000.
General advertising includes advertising from technology, automotive,
telecommunications and professional services firms, as well as consumer and
corporate image advertising. Linage for this category, which comprises 61%
of total Journal linage, fell 39.6%, following a 19% gain in 2000 and a
21.9% improvement in 1999. Technology, the largest component of general
advertising, fell 54.4% in 2001, after a 77% increase in 2000 and a 32%
increase in 1999. Within technology, business to business e-commerce, which
thrived during the first half of 2000 and much of 1999, dropped
significantly in 2001, as did advertising for computer hardware and
software. Beyond technology, general linage fell 29.8% due to lower
telecommunications, professional service, travel and business to consumer
advertising.
Financial advertising consists of advertising by banks, brokerage and
investment firms as well as tombstones and initial public offerings. This
category, which comprised 23% of total advertising in 2001, was down 42.3%
in 2001, after increasing 4.2% in 2000 and 17.7% in 1999. The decline in
2001 reflects a cyclical downturn in the financial markets.
Classified and other linage, which accounts for the remaining 16% of total
advertising, decreased 17.8%, reflecting softness in recruitment and real
estate advertising, following gains of 12.3% in 2000 and 2% in 1999.
Circulation and other revenues for U.S. print publications declined $19
million, or 6.4%, in 2001. Average circulation for The Wall Street Journal
was 1,798,000 in 2001 up from 1,789,000 in 2000 and 1,772,000 in 1999.
Barron's average annual circulation was 291,000 compared with 305,000 in
2000 and 300,000 in 1999. Circulation revenues were down primarily due to a
drop in paid orders, partially offset by a 2001 price increase in Journal
single copy units.
Circulation and other revenue for international print publications in 2001
was down 7.9% from 2000. Average combined circulation for the international
editions of The Wall Street Journal for 2001 was 185,000 up 8.8% from
170,000 in 2000 and compared with 147,000 in 1999, resulting from an
increase in lower rate copies. Circulation revenue was also negatively
affected by a stronger U.S. dollar, a decline in Wall Street Journal Europe
newsstand revenue and volume declines at the Far Eastern Economic Review.
Print Publishing expenses in 2001 were reduced by $53.9 million, or 4.8%,
below 2000 levels. Excluding special items, expenses declined by $103.3
million, or 9.2%, largely as a result of lower advertising and promotional
expenses, lower newsprint costs and other cost reductions. Newsprint
expense decreased 21%, as a result of a 24% decrease in consumption slightly
offset by a 4.5% increase in average newsprint prices.
Print publishing operating income of $42 million (3.8% of revenues) in 2001
fell $358.1 million, or 89%, from 2000. Excluding special items, print
publishing operating income of $91.5 million (8.3% of revenues) fell $308.7
million, or 77%, from $400.2 million (26.3% of revenues) in 2000.
In 2000, revenues for print publishing grew $198.1 million, or 15%, from
1999, largely reflecting a 14.1% advertising linage gain at The Wall Street
Journal. Barron's revenue improved 12% as a result of a 12.9% increase in
national ad pages. Revenue from the international publications rose 27% as
a result of a 14.9% linage increase at The Wall Street Journal Europe, a
25.2% increase The Asian Wall Street Journal and 35.2% advertising page
-16-
growth at the Far Eastern Economic Review. Other contributing factors were
U.S. television advertising revenue more than doubled when compared to 1999,
offset by a decline in U.S. circulation and other revenues of 4% in 2000.
Print publishing expenses in 2000 rose $105 million, or 10%, from a year
earlier. Excluding a $2.8 million restructuring charge in 1999, expenses
grew $107.8 million, or 11%. Expense growth was largely volume-related
coupled with increased promotional spending. Newsprint expense was up 21%,
driven by a 10% increase in usage and a 10% increase in average price.
Print publishing operating income in 2000 increased $93.1 million, or 30%,
from 1999. Excluding special items operating income of $400.2 million
(26.3% of revenues) advanced $90.4 million, or 29%, from $309.8 million
(23.5% of revenues) in 1999.
On January 1, 2000, Dow Jones exchanged 49% of its ownership of The Wall
Street Journal Europe and other investments for a 22% interest in
Handelsblatt, Germany's leading business newspaper and a subsidiary of von
Holtzbrinck Group. In conjunction with this new alliance, the company
initiated expanded promotional programs to position The Wall Street Journal
Europe to be the leading regional business publication in Europe.
ELECTRONIC PUBLISHING
============================================================================
(in thousands) 2001 2000 1999
- ----------------------------------------------------------------------------
Revenues
Dow Jones Newswires:
North America $193,134 $192,019 $172,193
International 41,864 39,894 36,868
- ----------------------------------------------------------------------------
Total Newswires 234,998 231,913 209,061
The Wall Street Journal Online 37,038 50,219 30,939
Dow Jones Indexes 16,021 14,637 12,924
Other * 29,929 30,800 97,074
- ----------------------------------------------------------------------------
Total revenues 317,986 327,569 349,998
Operating expenses 291,065 287,272 314,888
- ----------------------------------------------------------------------------
Operating income $ 26,921 $ 40,297 $ 35,110
============================================================================
Special charges ** $ 18,796
Depreciation and amortization 22,421 $ 25,261 $ 23,262
============================================================================
* Results in 1999 included Dow Jones Interactive (DJI), a significant
portion of which was contributed to the Factiva joint venture, effective
July 1, 1999. Factiva is recorded as an equity investment.
** Special charges, which are included in operating expenses above, are
detailed beginning on page 20.
In 2001, electronic publishing revenue fell $9.6 million, or 2.9%, from
2000, largely reflecting a drop in advertising revenue at the Online
Journal. Expenses increased $3.8 million, or 1.3%. Excluding special
charges, operating expenses decreased $15 million, or 5.2%, largely due to
cost reduction efforts at The Online Journal and other electronic publishing
businesses. Excluding special charges, losses in 2001 from The Online
Journal and related vertical sites were 13% less than losses in 2000 as cost
cutting efforts more than offset revenue shortfalls (including these
charges, Online Journal and related vertical site losses were 22% worse).
Electronic publishing operating income of $26.9 million (8.5% of revenues)
-17-
decreased $13.4 million, or 33% from 2000. Excluding special items,
operating income of $45.7 million (14.4% of revenues) increased $5.4
million, or 13%, from $40.3 million (12.3% of revenues) in 2000.
Dow Jones Newswires revenue in 2001 increased $3.1 million, or 1.3%, from
2000. International newswire revenue posted a gain of 4.9%, while North
America revenue grew 0.6%. North America revenue growth was driven by
growth in financial firms, Internet sites and non-retail agreements,
partially offset by a decline in retail revenue due to continued
retrenchment in the securities industry. The 4.9% gain in international
reflected growth in non-traditional distribution channels (such as on-line
brokerages, e-commerce sites and wholesale agreements). At the end of 2001,
there were 330,000 newswire terminals compared with 346,000 a year ago.
North America terminals decreased 23,000, offset by an increase of 7,000
terminals throughout the rest of the world. Excluding special items,
Newswires expenses rose 2.4%.
The Online Journal and related verticals revenue in 2001 fell $13.2 million,
or 26%, from 2000, reflecting a 50% decline in advertising revenue and an
8.7% rise in subscription revenue. The ratio between advertising and
subscription revenue for 2001 was 41% to 59%, respectively, versus 59%
advertising to 41% subscription in 2000. The number of Online Journal
subscribers at the end of 2001 reached 626,000, up from 535,000 in 2000 and
375,000 in 1999. At year-end 2001, the average number of different
individuals who accessed at least one page of The Online Journal subscriber-
only content over the course of a 24-hour day was 107,000 compared with
100,000 in 2000 and the average monthly page views per user was 137 in 2001
versus 122 in 2000. Excluding special items, operating expenses were
reduced 21% below 2000 levels.
Dow Jones Indexes revenue in 2001 increased $1.4 million, or 9.5%,
reflecting an increase in exchange-traded funds, custom indexes/calculation
agent and royalty revenues. Excluding special items, operating expenses
grew 9.7%.
In 2000, electronic publishing's revenue and expense comparisons relative to
1999 are distorted by the fact that 1999 includes a half-year of Dow Jones
Interactive (DJI), which was contributed to the Factiva joint venture in
mid-1999. Revenues decreased $22.4 million, or 6.4%, as revenue increases
at other electronic publishing products could not offset the loss of DJI
revenue. Expenses fell $27.6 million, or 8.8%. After adjusting for DJI,
expenses for 2000 increased about 13%, largely due to promotion of the
company's interactive products, including Internet development costs and
continued expansion of the Newswires business, principally internationally.
This was partially offset by the December 1999 sale of the company's IDD
Enterprises subsidiary and the April 1, 2000 contribution of dowjones.com to
the Work.com joint venture. Electronic publishing's 2000 operating income
of $40.3 million (12.3% of revenues) increased $5.2 million, or 15%, from
$35.1 million (10% of revenues) in 1999.
-18-
COMMUNITY NEWSPAPERS
==========================================================================
(in thousands) 2001 2000 1999
- --------------------------------------------------------------------------
Revenues
Advertising $247,367 $256,015 $237,005
Circulation and other 100,796 100,088 94,035
- --------------------------------------------------------------------------
Total revenues 348,163 356,103 331,040
Operating expenses 263,337 261,621 246,081
- --------------------------------------------------------------------------
Operating income $ 84,826 $ 94,482 $ 84,959
==========================================================================
Special charges* $ 321
Depreciation and amortization 16,450 $ 17,234 $ 17,845
==========================================================================
* Special charges, which are included in operating expenses above, are
detailed beginning on page 20.
In 2001, community newspaper revenues declined 2.2% from 2000. This
relatively modest decrease in revenue largely resulted from an $8.6 million,
or 3.4%, decline in advertising revenue, which comprised 71% of total
revenue. Overall advertising linage fell 3.1% in 2001, with linage at the
daily papers down 4.2%, while up 3.3% at the non-dailies. Circulation and
other revenues showed a slight improvement of 0.7%. Average circulation for
the dailies was 540,000 in 2001 versus 546,000 in 2000. Operating expenses
rose 0.7% resulting from higher administration costs, which were nearly
offset by savings in newsprint consumption and other cost containment
efforts. Newsprint costs declined 1.2% on a 5.1% reduction in consumption
and a 4% increase in average newsprint prices. Operating income of $84.8
million (24.4% of revenues) decreased $9.7 million, or 10%, in 2001.
Excluding special items, operating income of $85.1 million (24.5% of
revenues) decreased $9.3 million, or 9.9%, from $94.5 million (26.5% of
revenues) in 2000.
In 2000, community newspapers reported a 7.6% increase in revenues from
1999. The revenue growth largely resulted from a $19 million, or 8%,
increase in advertising revenue. Community newspapers overall advertising
linage rose 3.6% in 2000, with linage at the daily papers up 3.9% and 1.6%
at non-dailies. Operating expenses in 2000 rose 6.3%, resulting from higher
newsprint, promotion and print delivery costs. Operating income increased
$9.5 million, or 11%, in 2000.
The company is considering possible sales or swaps of existing Ottaway
papers to enhance its portfolio of community newspapers.
-19-
SPECIAL ITEMS
The following table summarizes special items by year. The term "special
items" as used throughout management's discussion and analysis, refers to
those items within the table.
Summary of Special Items
(in millions, except
per share amounts) 2001 Income 2000 Income 1999 Income
Pre-tax Net EPS Pre-tax Net EPS Pre-tax Net EPS
------- --- --- ------- --- --- ------- --- ---
Included in
operating income:
Restructuring charges ($39.3) ($23.5) ($.27) ($2.8) ($1.6)($.02)
WFC operating
lease (32.2) (19.3) (.23)
WTC disaster-related (1.7) (1.0) (.01)
Included in non-
operating income:
Shut-down of Work.com (2.4) (1.6) (.02)
SmartMoney operating
lease (3.6) (2.2) (.02)
Early extinguishment of
debt-CNBC Europe 1.2 .7 .01
International TV
restructuring $3.2 $2.1 $.02
Reserve for contract
guarantee 17.1 17.1 .20 (255.3) (255.3) (2.93)
Write-downs of
investments:
iBEAM (4.0) (4.0) (.05)
Nation Multimedia (4.8) (4.8) (.06)
Bridge Information
Systems (166.4) (166.4) (1.90)
OptiMark Technologies (12.1) (12.1) (.14)
Investment gains (losses):
DJ Financial
Publishing 13.8 9.5 .10
SportsTicker
Enterprises 6.4 4.8 .05
Swap of NextVenue
shares for iBEAM
shares 3.8 3.8 .04
USSB Inc. 57.6 57.3 .63
OptiMark Technologies 10.6 10.6 .12
IDD Enterprises (16.3) (16.3) (.18)
Income tax valuation
allowance 30.0 .35
----- ----- ---- ------ ------ ----- ----- ----- ----
TOTAL ($69.7) ($8.6) ($.10) ($406.6)($413.6)($4.67)* $49.1 $50.0 $.55
* Per share amounts for each special item were calculated using the average shares outstanding
during the quarter that the transaction occurred. Therefore, the total of the individual
items does not add to the full-year earnings per share on special items.
2001 SPECIAL ITEMS
In 2001, pretax income included special charges of $69.7 million. After
taxes and minority interests, special items netted to a loss of $8.6
million, or $.10 per share, as follows:
Special charges against operating income totaled $73.2 million. These
charges include: $39.3 million in restructuring charges related to work-
force reductions and related asset write-downs; $32.2 million to record
losses related to the relocation of certain personnel from the company's
World Financial Center headquarters; and $1.7 million to cover expenses
related to the September 11 terrorist attacks.
-20-
Special items recorded below operating income netted to a gain of $3.5
million. These included income of $17.1 million on a contract guarantee,
partially offset by investment write-downs of $8.8 million and special items
netting to a charge of $4.8 million in equity in losses of associated
companies.
A tax benefit of $30 million was recorded in the fourth quarter of 2001 as
the company believes that it is more likely than not that it will use a
portion of its capital loss carryforwards to offset capital gains on
impending sales of certain Ottaway newspapers. Consequently, the valuation
allowance against these carryforwards was reduced in an amount equal to the
anticipated net tax benefit.
Additional details of each of the above items follows, with a summary
provided in the table on page 20.
Restructuring Charges. In 2001, the company initiated three separate
workforce reductions totaling roughly 550, or 6%, of its full-time
employees. Severance and other exit costs related to these workforce
reductions, which occurred in every business segment, amounted to $34.9
million. The company also wrote down assets that were made obsolete or
redundant, or were abandoned totaling $4.4 million. Annualized cost savings
associated with the workforce reduction is expected to be about $47 million.
As of December 31, 2001, 91% of the employees that were part of the
workforce reduction were terminated and the remaining separations will be
completed in the first half of 2002. About $12.9 million of these costs
remained to be paid in 2002.
World Financial Center. The company's corporate headquarters is located in
seven floors of leased office space at the World Financial Center, which was
adjacent to the World Trade Center. As a result of the Trade Center
attacks, our office space sustained significant damage. Approximately 60%
of this space, including furniture and related equipment, has been
determined to be a total loss. The company has insurance policies that
cover property damage, extra expenses and business interruption and is
currently in discussions with its insurance providers to determine the
amount of the claim. Based on these discussions, the company believes it
will recover the book value of $15 million in assets destroyed in addition
to costs incurred of $2 million related to the clean-up of the office space.
The company has written off the book value of these assets and recorded a
receivable, included in other non-current assets.
Further, the company announced in October 2001 that it intended to
permanently relocate various personnel from four floors of the World
Financial Center, primarily to company-owned facilities in South Brunswick,
New Jersey. The company recorded a charge of $32.2 million in the fourth
quarter of 2001, reflecting undiscounted lease obligations (through the
lease expiration in mid-2005) on the vacated floors and $3.7 million to
write down undamaged leasehold improvements on these floors.
The company will re-occupy the remaining three floors once reconstruction
has been completed and they have been determined suitable for occupancy.
September 11 Expenses. Charges of $1.7 million were recorded to cover
temporary relocation costs and a charitable donation of $1 million to the
September 11 Fund, partly offset by savings from World Financial Center rent
abatement.
Contract Guarantee. In 1998, the company completed the sale of its Telerate
business to Bridge Information Systems (Bridge). Under the terms of the
sale, Dow Jones retained its guarantee of payments of certain annual minimum
payments for data acquired by Telerate from Cantor Fitzgerald Securities
-21-
(Cantor) and Market Data Corporation (MDC) under contracts entered into when
Telerate was a subsidiary of Dow Jones. As further discussed herein, in
December 2000, the company established a reserve in the amount of $255
million representing the present value of the estimated annual minimum
payments over the remainder of the contract (through October 2006), using a
discount rate of approximately 6%.
At December 31, 2001, the company's reserve for the contract guarantee was
$232.4 million. The reserve reduction resulted from: Dow Jones making a
$5.8 million payment under its guarantee for amounts not paid by Bridge
prior to its bankruptcy; payments totaling $31.1 million that Bridge made
after its bankruptcy filing; partially offset by amortization of discount on
the reserve balance of $14 million.
In October 2001, the bankruptcy court granted Bridge's motion to reject
Telerate's contracts with Cantor and MDC. Telerate has indicated that it
has ceased operations and is no longer receiving the government securities
data from Cantor and MDC and will not be making payments to Cantor and MDC.
Cantor and MDC advised the company that they would be seeking payment from
Dow Jones of an amount they allege was due on November 15 under the contract
guarantee and future payments due through 2006. The company has various
substantial defenses to these claims.
On November 13, 2001, the company filed a lawsuit in the Supreme Court of
the State of New York seeking a declaratory judgment with respect to the
contract guarantee and the claims of Cantor and MDC. 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 and Cantor
Fitzgerald have filed motions to dismiss, counterclaims, and an additional
lawsuit against the company disagreeing with the company's position and
asserting damages of approximately $250 million.
Due to the stage of the lawsuit at December 31, 2001, 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.
Write-down of Investments. In 2001, the company realized a loss of $8.8
million from impairment in the value of its investments in Nation Multimedia
Group Public Co.($4.8 million), and iBEAM Broadcasting Corp.($4 million).
These investments are marketable equity securities, which are carried at
their market price. Prior to the realization of losses for these
investments in the third quarter of 2001, the company recorded the
unrealized losses associated with these investments directly to other
comprehensive income in Stockholders' Equity.
The company holds a less than 10% interest in Nation Multimedia Group Public
Company, a diversified media company based in Thailand, which is publicly
traded on the Bangkok Exchange. Prior to and during 2000 there had been
volatility in the market price of Nation Multimedia. At December 2000, the
company's investment in Nation Multimedia was valued at $3.9 million and the
company had recorded $3.4 million of unrealized losses through other
comprehensive income. The company's investment continued to decline in
2001, and in the third quarter the company determined the impairment of the
investment was other than temporary. This determination was based on the
investment's declining market price in 2001, approximately a 37% decline
through September 30, 2001, combined with increased economic uncertainty in
-22-
Southeast Asia, which was significantly heightened after the September 11
terrorist attacks.
In October 2000, the company received shares of iBEAM Broadcasting
Corporation (iBEAM) in exchange for the company's shares of NextVenue Inc.
The company valued the consideration based on the market value of the shares
it received on the date the purchase of NextVenue was consummated in October
2000. The market value of iBEAM began to deteriorate in the fourth quarter
of 2000 and continued to deteriorate throughout 2001. As of December 31,
2000, the company had recorded $3.3 million of unrealized losses in other
comprehensive income. In March 2001, iBEAM's 10-K public filing included a
going concern opinion. In April 2001, iBEAM announced it would restructure
its operations and was considering selling the company. In May 2001, Nasdaq
notified iBEAM that it may be delisted because its stock was trading below
the $1.00 minimum. iBEAM received an extension and in September, its
shareholders approved a one-for-ten reverse stock split, which was expected
to raise the market value. The reverse stock split failed to increase the
market value and the stock continued to trade below the minimum trading
level, and a delisting was likely. Considering the impact of the September
11 terrorist attacks on the economy, a near term rebound was not likely.
Therefore, the company realized a loss of its full $4 million investment in
September 2001. Subsequent to the company's write-down, iBEAM announced it
was filing for bankruptcy and selling its assets.
Special Items in Equity Investments. Equity in losses of associated
companies included special items netting to a charge of $4.8 million, as
follows: a charge of $3.6 million related to a loss on an office lease
abandoned by SmartMoney; a gain of $1.2 million related to the early
extinguishment of debt at CNBC Europe; and a charge of $2.4 million for
costs related to the shut-down of Work.com.
2000 SPECIAL ITEMS
In 2000, the company recorded special items which netted to a loss of $406.6
million ($413.6 million after taxes and minority interest, or $4.67 per
share), as follows:
The company recorded write-downs totaling $178.5 million, on the company's
investments in Bridge and OptiMark Technologies, Inc. (OptiMark) and a
reserve of $255 million for a contract guarantee related to the sale of
Telerate. These charges were partially offset by net gains on sales of
businesses and investments totaling $18.1 million. Also, in 2000, a 1998
restructuring charge ($2.1 million after taxes) relating to an equity
investment was reversed, resulting from the favorable disposition of a
satellite lease in Europe.
Additional details of the above items follows, with a summary provided in
the table on page 20.
Investment Write-downs. The company wrote down the carrying value of its
investments in Bridge and SAVVIS Communications Corp. (in aggregate, $166.4
million) and OptiMark Technologies, Inc. ($12.1 million).
Dow Jones accounted for these investments under the cost method; therefore,
changes in the value of the investment are not recognized unless there is
impairment in value of the investment that is deemed to be "other than
temporary." It is the company's policy to continually monitor investments
for indications of impairment.
The purchase price for the sale of Telerate in 1998 to Bridge consisted of
$150 million aggregate par value of 5 year, redeemable, convertible, 4%
-23-
preferred stock of Bridge, which was included in other investments, and cash
of $360 million. In 1999, Dow Jones acquired approximately 1.78 million
shares of SAVVIS Communications Corp. at 50 cents per share for an aggregate
cost of $.9 million and issued subordinated debt to Bridge which had a
carrying value (including interest) of $2.9 million. Bridge was SAVVIS'
largest customer and shareholder and a significant vendor for technical
support services.
Throughout 2000, Bridge experienced continued operating shortfalls from plan
and experienced a need for substantial relief from its bank lenders and
additional financing. These developments, when combined with the pricing of
its third quarter issuance of convertible notes, clearly demonstrated that
there was a decline in the value of the company's preferred stock holdings.
In addition, Bridge notified its lenders that as of September 30, 2000 it
was not in compliance with certain financial covenants under its outstanding
credit agreement. Bridge's principal shareholder had taken over management
of the company and launched several initiatives focused on improving
operations, increasing revenues and raising additional capital. However,
there was no assurance that these efforts would be successful. These
factors, combined with the lack of updated long-term forward projections,
left Dow Jones management with insufficient objective evidence to determine
that the decline in value of the company's preferred stock holdings was
temporary. Using the third quarter convertible notes financing transaction
as a benchmark, Dow Jones recorded a charge to earnings in the third quarter
of 2000 of $82.3 million to write down this investment (there was no tax
benefit as this was a capital loss). Also, the company discontinued
accruing dividends on its preferred stock holdings effective with the third
quarter of 2000. The revised carrying value for this investment at
September 30, 2000 was $80.3 million.
Bridge's financial position continued to deteriorate during the fourth
quarter of 2000, and it continued to experience severe operational
difficulties. During the fourth quarter and continuing into January and
early February 2001, Bridge's primary investor, Welsh Carson Anderson &
Stowe, engaged in negotiations with Bridge and its lenders in an effort to
reach an agreement to restructure Bridge's debt, arrange additional
financing and significantly reorganize its operations. However, those
negotiations did not reach a successful conclusion and on February 15, 2001
Bridge filed a petition under Chapter 11 of the Bankruptcy Code with a view
to seeking a sale of its assets in order to repay its creditors in whole or
in part.
In light of the foregoing events, Dow Jones concluded that its Bridge-
related investments had been further impaired, and were now worthless. As a
result, in the fourth quarter of 2000, the company wrote off $84.1 million
representing the remaining value of the Bridge preferred stock, the Bridge
subordinated debt and the SAVVIS stock.
The company holds a minority interest in OptiMark Technologies, Inc.
consisting of preferred and common shares with an aggregate cost of $12.1
million. During the second quarter of 2000, OptiMark began experiencing
operating and cash flow difficulties. The conditions worsened during the
third quarter 2000 which prompted OptiMark to institute a short-term
restructuring plan and seek additional financing to sustain its operations.
The company believed that any impairment in this investment was only
temporary. In the fourth quarter 2000, the company was advised that the
additional financing had been delayed. In addition, OptiMark's short-term
restructuring plan was not generating sufficient cash flow. Public filings
also indicated there was question of OptiMark's ability to continue as a
going concern. As a result of these factors, the company determined that
the impairment was other than temporary and wrote off the full investment in
the fourth quarter of 2000.
-24-
Contract Guarantee. Under the terms of the company's 1998 sale of Telerate,
Dow Jones 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 when Telerate was a subsidiary of Dow Jones. The
annual minimum payments average approximately $50 million per year through
October 2006 under certain conditions. Bridge agreed to indemnify Dow Jones
for any liability Dow Jones incurred under the contract guarantee with
respect to periods subsequent to Bridge's purchase of Telerate. However,
Bridge filed for bankruptcy protection on February 15, 2001 after
unsuccessful attempts to reorganize its operations and arrange for
additional financing.
Dow Jones believes that MDC and Cantor have the obligation to cover,
mitigate or otherwise reduce or avoid any losses or damages to Dow Jones
under the contract guarantee, including by securing the best possible
commercial terms for the supply of the subject data to a third party or
parties. MDC and Cantor deny that they have this obligation. Dow Jones
believes that any and all amounts which are received by MDC and/or Cantor in
respect of such data would reduce any liability that Dow Jones 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 MDC and/or Cantor 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 Dow Jones 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 the amount of $255 million representing the present value of
the estimated annual minimum payments over the remainder of the contract
(through October 2006) using a discount rate of approximately 6%. (As
explained above, Dow Jones has commenced a lawsuit (which is opposed by MDC
and Cantor) seeking to establish the absence of any liability under the
guarantee.)
Net Gains on Sale of Businesses and Investments. These net gains totaled
$18.1 million, as follows: a gain of $9.5 million from the sale of Dow Jones
Financial Publishing Corp.; a gain of $4.8 million on the sale of the
company's minority interest in SportsTicker Enterprises L.P.; and a net gain
of $3.8 million resulting from the exchange of the company's holdings in
NextVenue Inc. for shares issued through a merger of iBEAM Broadcasting
Corp.
1999 SPECIAL ITEMS
Earnings in 1999 included net gains on sales of businesses and investments
of $51.6 million and a net restructuring charge of $1.6 million for employee
severance associated with the conversion to electronic pagination of The
Wall Street Journal. Details are provided in the table on page 20.
STAFFING COSTS
At December 31, 2001, the company employed about 8,100 full-time employees,
down 5.8%, or nearly 500 employees from a year ago, largely due to a general
workforce reduction. At December 31, 2000, the number of employees was
nearly 8,600, up 4.9% from 1999, largely due to international expansion.
Consolidated employee compensation expense (including retirement plans and
medical benefits) was approximately 46% of total operating expenses in 2001,
compared with 42% of total operating expenses in 2000 and 1999, excluding
restructuring charges in both 2001 and 1999. The increase in percentage
from 2000 was primarily due to total operating expenses decreasing at a
higher rate than compensation, as a result of increases in fringe benefit
-25-
costs and annual salary increases and cost cutting in non-compensation
expense areas.
OTHER INCOME/DEDUCTIONS
Investment income, net of interest expense, in 2001 was $.9 million, down
from $6.1 million in 2000. The reduction in interest income was due to the
elimination of accrued Bridge dividends after the first half of 2000 coupled
with a reduction of interest income due to lower cash balances in 2001.
The company's share of losses from equity investments was $17.2 million in
2001 and 2000. Excluding special items in both 2001 and 2000, equity losses
improved $8 million largely reflecting an increase in the company's 50%
share of Factiva profits (formed on July 1, 1999), reduced losses at
SmartMoney, the shut-down of Work.com and lower losses at the international
television joint ventures. Partly offsetting these gains were decreased
earnings from the Handelsblatt and VWD investments. Special items netted to
a $4.8 million loss in 2001, consisting of a loss on an office lease of
SmartMoney and costs associated with the shut-down of Work.com, offset by a
gain relating to the early extinguishment of debt for CNBC Europe. In 2000,
equity in losses included a $3.2 million gain relating to the favorable
disposition of a satellite lease at CNBC Europe.
In 2001, the company recorded special items netting to a gain of $17.1
million relating to payments made by Bridge in excess of the amortization of
discount, related to the previously discussed reserve for contract guarantee
(see also Note 2 to the consolidated financial statements). The company
also recorded a write-down of $8.8 million, from the previously discussed
impairment of the company's investments in Nation Multimedia Group Public
Co. and iBEAM Broadcasting Corp.
In 2000, the company recorded $255 million for the previously discussed
reserve for the contract guarantee, $166.4 million for write-downs in the
company's Bridge-related investments, $12.1 million for the write-down of
its investment in OptiMark Technologies, Inc., and $24 million in pretax
gains on sales of businesses and investments.
Included in 1999 earnings were pretax gains of $10.6 million from the sale
of a portion of the company's minority interest in OptiMark Technologies,
Inc., and $57.6 million from the sale of the company's interest in United
States Satellite Broadcasting, Inc. In addition, the company recorded a
pretax loss of $16.3 million from the sale of IDD Enterprises, L.P., a
wholly owned subsidiary.
INCOME TAXES
The effective income tax rate in 2001 and 2000 was distorted by a reduction
in the tax valuation allowance in 2001 (related to the expectation of
utilizing a portion of the company's capital loss carryforwards) and the
non-deductibility of the reserve for the contract guarantee and the
investment write-downs in 2000. The following table shows the impact of
these items.
==========================================================================
2001 2000 1999
- --------------------------------------------------------------------------
Effective income tax rate (net
of minority interests) 9.9% 252.5% 34.8%
Effective income tax rate (net of minority
interests) excluding special items 40.0% 39.2% 39.7%
==========================================================================
-26-
At December 31, 2001, the company had available approximately $485 million
of capital loss carryforward (a deferred tax asset of $183 million, of which
$153 million was fully reserved through a valuation allowance). The company
may utilize the carryforwards through 2003. In addition, the company has
recorded an unrecognized capital loss carryforward of $402 million (a
deferred tax asset of $153 million which was fully reserved) that will be
available for use for five years from the year it is recognized for tax
purposes.
Based on a plan the company completed at year-end 2001 to utilize existing
capital loss carryforwards prior to their expiration, the company has
reduced its tax valuation allowance by $30 million ($.35 per share) in 2001.
These capital loss carryforwards, which largely related to the sale of
Telerate, had been previously fully reserved. Sales of certain Ottaway
newspapers, which will generate capital gains, are pending and the company
believes that it is more likely than not that it will be able to realize a
net tax savings of $30 million on future sales of these properties.
ACCOUNTING PRONOUNCEMENT
In June 2001, the FASB issued Statement of Financial Accounting Standards
No. 142 (SFAS 142) "Goodwill and Other Intangible Assets." SFAS 142
requires that an intangible asset that is acquired either individually or
with a group of other assets be initially recognized and measured based on
fair value. An intangible with a finite life is amortized over its useful
life, while an intangible with an indefinite life, including goodwill, is
not amortized. All intangible assets, including goodwill, are tested at
least annually for impairment. SFAS 142 is effective for fiscal years
beginning after December 15, 2001. The company will adopt the provisions of
SFAS 142 as of January 1, 2002, and expects a reduction in expenses of
approximately $4 million in 2002, with respect to businesses held at the end
of 2001.
FINANCIAL POSITION
During 2001, the company paid $154 million to repurchase 2.6 million shares
of its common stock. As of December 31, 2001, puts are outstanding covering
667,000 shares at strike prices ranging from $55.01 to $60.26 per share,
with exercise dates through April 2002. The company has the option of net
share settlement on these contracts. As of December 31, 2001, approximately
$452.8 million remained under board authorization for share repurchases,
after reserving for the possible exercise of outstanding puts.
Cash provided by operations in 2001 was $341.7 million, down $104.7 million,
or 23%, from 2000's $446.4 million. The decrease in 2001 from 2000 was
primarily due to lower operating profits, mitigated by lower income tax
payments, in part due to the deferral of tax payments to 2002, and
improvements in collections in receivables. Cash and cash equivalents were
$21 million as of December 31, 2001 versus $49.3 million at year-end 2000.
In addition to the share repurchases in 2001, the company also funded
capital expenditures of $129 million (including $41 million for The Wall
Street Journal color print expansion project and $19 million for the Online
Journal redesign), paid dividends of $85.8 million and invested $52.6
million in various affiliated strategic alliances, while only increasing its
debt balance slightly, from $151 million to $174 million.
In 2000, in addition to buying back $221 million in the company's stock, the
company funded capital expenditures of $187 million (including $71 million
for The Wall Street Journal color and print expansion project), paid
dividends of $88.1 million and invested $50.4 million in various affiliated
-27-
companies. In 1999, the company repurchased shares totaling $142 million,
funded capital expenditures of $190.7 million, paid dividends of $87.2
million and invested $52.2 million in various investments.
In 2002, the company expects its beginning cash balance and cash provided by
operations to be sufficient to meet its normal recurring operating
commitments, fund capital expenditures and pay dividends. If necessary, the
company's liquidity requirements may be funded through the issuance of
commercial paper, which is supported by a $430 million revolving credit
agreement with several banks, $290 million through June 24, 2002, and $140
million through June 24, 2006. The company plans to extend the credit
agreement prior to its expiration. Borrowings may be in the form of
commercial paper, bank loans or long-term notes under a $300 million shelf
registration statement filed with the Securities and Exchange Commission.
Commercial paper, amounting to $174 million at December 31, 2001, is
classified as long-term, as it is the company's intent to refinance such
obligations on a long-term basis. The company's borrowing capacity is
limited by certain debt covenants, based on cash flow measures. As of year-
end 2001, the company may borrow up to an additional $186 million. The
company's debt ratings, which affects the amount of debt-related fees, are
'AA-/Aa3.' Additional sources of liquidity in 2002 will likely result from
the sale of certain Ottaway newspapers.
The company expects capital expenditures to be $90 million in 2002,
including $29 million in remaining spending for the color print expansion
project, compared with $129 million in 2001 and $187 million in 2000.
MARKET RISK
In January 2002, the company entered into forward foreign currency exchange
contracts to exchange $22.4 million for 15.6 million British pounds and to
exchange $20.7 million for 23.4 million euro. These contracts, which expire
ratably over 2002, are designated as cash flow hedges of anticipated
operating expenses that are denominated in these foreign currencies.
These contracts are entered into to protect against the risk that such
expenses will be adversely affected by changes in exchange rates. Such
losses could be significant if a major devaluation were to occur. By using
these derivative instruments the company is exposed to the adverse effect
that a change in currency has on the value of a financial instrument. The
company manages this market risk by establishing and monitoring limits as to
the degree of risk that may be undertaken. The company's derivative
activities are monitored by its treasury and finance functions. Realized
gains or losses on foreign currency forward contracts are recognized
currently through income and generally offset the transaction losses or
gains on the foreign currency cash flows which they are intended to hedge.
The company's commercial paper outstanding of $174 million at December 31,
2001, is also subject to market risk as the debt reaches maturity and is
reissued at prevailing interest rates. At December 31, 2001, interest rates
outstanding ranged from 2.03% to 3.38%, with a weighted-average of 3.24%.
The bulk of this debt matures in the first quarter of 2002.
OUTLOOK - 2002
The slowing of the U.S. economy and global advertising market began in late-
2000 and continues into 2002. This, together with the prevailing
uncertainty concerning when a business recovery might take hold, makes
-28-
forecasting the company's financial outlook for 2002 quite difficult.
In building our 2002 plans, we have assumed modest economic improvement off
of the depressed levels of 2001, with this improvement starting quite slowly
in the first quarter but building as the year progresses. More
specifically, we assume that we are currently at the bottom of this economic
and advertising cycle and that the first half of 2002 improves over current
levels, but does not get back to first half 2001 levels. We further assume
that the environment further improves in the second half of 2002, rising
above the depressed second half of 2001. The result of this scenario would
be modest improvement for the full year, but an advertising environment
still well below normal.
Our Journal linage expectations track these assumptions, and also include
the benefits of our color print expansion project such that, for the full-
year 2002, we assume mid-single-digit linage growth at The Wall Street
Journal. Adding in modest improvement elsewhere in the portfolio derives
mid-single-digit total revenue growth for the year.
We will again aggressively control expenses. Total 2002 operating expenses
are planned up in the range of 2%. We also project about breakeven
performance at our equity investments which, together with modestly higher
interest expense, yields an EPS estimate around the year-end 2001 $1.57
consensus estimate for 2002, not factoring in a possible gain from the sale
of Ottaway properties (see Note 19 to the consolidated financial
statements).
We project our depreciation and amortization expense to be about $120
million, reflecting increased depreciation from the color print expansion
project and net of about $4 million in savings from SFAS 142.
For the first quarter 2002, we are projecting a linage decline of 20% to
30%. Together with advertising softness at Barron's, the Online Journal and
in our International Print businesses and flat performance at Ottaway, this
implies a low-to mid-teens percentage revenue decline in the first quarter.
We will continue to control expenses, which will be about 7% to 8% below
year-ago levels in the quarter. These assumptions would result in estimated
diluted EPS in the $.01 to $.10 per share range, compared to reported
earnings of $.07 per share last year, which included $.10 per share of net
special charges.
CRITICAL ACCOUNTING POLICIES
The company's discussion and analysis of its financial condition and results
of operations are based upon the company's consolidated financial
statements, which have been prepared in accordance with accounting
principles generally accepted in the United States of America. The
preparation of these financial statements requires the company to make
estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent
assets and liabilities. The company's accounting policies affect its more
significant judgements and estimates used in the preparation of its
financial statements. Refer to Note 1 of the company's consolidated
financial statements for the company's significant accounting policies.
INFORMATION RELATING TO FORWARD-LOOKING STATEMENTS
This document contains forward-looking statements that involve risks and
uncertainties that could cause actual results to differ materially from
those anticipated. Such risks and uncertainties include, but are not limited
-29-
to: the cyclical nature of the company's business and the strong negative
impact of economic downturns on advertising revenues; the possibility that
the current weak advertising market, particularly in the financial and
technology segments, will not improve or will improve more slowly than
anticipated, and if it does improve, the possibility that the company will
be unable to capitalize on the improvement in the face of competition for
the advertising revenues from other publications and services; the company's
ability to limit and manage expense growth, especially in light of its new
planned growth initiatives, without harming its growth prospects; the extent
to which the company is required to perform under the guarantee to Cantor
Fitzgerald Securities and Market Data Corporation, and other uncertainties
relating to liability under this guarantee; the intense competition the
company's existing products and services face in the markets for financial
news and information and advertising revenues from newspapers, specialized
magazines, free and paid Internet publications and services, financial
television programming and other new media, and the impact this will have on
the company's initiatives to expand its existing market presence as well as
to extend its consumer reach; the company's ability to expand and diversify
its market segment focus beyond financial and technology and the challenge
it will face in attempting to become a leading presence in new market
segments, such as health care, automotive, telecom, and high-end consumer
goods, where competing publications and services, such as specialty and
trade magazines, have already established themselves; the competition the
company will face in introducing new products and services in the business-
to-business market from already existing newsletters, trade publications,
research reports and services; with respect to Newswires, the challenges the
company will face in attempting to expand its coverage to the investment
market, in the face of competing resources for in-depth news analysis; with
respect to Newswires and other subscription-based products and services, the
negative impact of economic downturns and consolidation on sales of the
company's products and services; the company's ability to find strategic and
financially attractive core-business acquisition opportunities; the
company's ability to leverage its brands to develop new business
opportunities and to generate advertising and other revenues from these
products; the company's ability to achieve strategic alliances and to
improve the growth and profitability of existing strategic alliances; with
respect to the company's community newspapers business, its ability to
maintain or grow margins and to strengthen its portfolio of newspaper
properties, particularly given the difficulty of finding quality newspaper
properties to acquire; the degree to which the company's new Personal
Journal is able to generate new advertising revenues from diversified
markets, such as health care and consumer goods; the extent to which the
new enhancements to The Wall Street Journal will attract a broader base of
readers, subscribers, and advertisers; in light of the weak advertising
market and competition, the company's ability to attract advertisers to its
new color printing capacity; the company's ability to increase its
circulation and advertising revenues from its international print
publications and to further penetrate overseas markets through print and
television products, given the competition from local language publications
and television networks and other international publications and television
ventures; the Online Journal ability to continue to increase revenues
through building subscriber and advertiser numbers and to limit expenses;
the amount of user traffic on the company's Internet sites and the pricing
of advertising on Internet sites generally; potential increased regulation
of online businesses; adverse developments relating to the company's
commitments, contingencies and equity investments; cost of newsprint; and
such other risk factors as may have been or may be included from time to
time in the company's reports filed with the Securities and Exchange
Commission.
-30-
ITEM 8. Financial Statements and Supplementary Data
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
Dow Jones & Company
For the years ended December 31, 2001, 2000 and 1999
=============================================================================
(in thousands, except per share amounts) 2001 2000 1999
- -----------------------------------------------------------------------------
REVENUES:
Advertising $1,052,322 $1,467,244 $1,230,412
Information services 289,321 281,366 315,110
Circulation and other 431,440 454,008 456,313
- -----------------------------------------------------------------------------
Total revenues 1,773,083 2,202,618 2,001,835
- -----------------------------------------------------------------------------
EXPENSES:
News, operations and development 531,584 542,959 553,800
Selling, administrative and general 607,145 674,687 619,908
Newsprint 150,791 182,359 150,899
Print delivery costs 194,432 196,502 181,263
Depreciation and amortization 105,713 107,885 103,669
Restructuring and other
special charges 73,219 2,755
- -----------------------------------------------------------------------------
Operating expenses 1,662,884 1,704,392 1,612,294
- -----------------------------------------------------------------------------
Operating income 110,199 498,226 389,541
OTHER INCOME (DEDUCTIONS):
Investment income 1,441 8,116 9,861
Interest expense (500) (2,037) (5,269)
Equity in losses of associated
companies (17,181) (17,182) (27,907)
Gain on sale of
businesses and investments 24,053 51,945
Contract guarantee, net 17,136 (255,308)
Write-down of investments (8,827) (178,499)
Other, net (2,580) (991) (125)
- -----------------------------------------------------------------------------
Income before income taxes
and minority interests 99,688 76,378 418,046
Income taxes 10,794 196,957 145,501
- -----------------------------------------------------------------------------
Income (loss) before minority interests 88,894 (120,579) 272,545
Minority interests in losses (earnings)
of subsidiaries 9,326 1,617 (116)
- -----------------------------------------------------------------------------
NET INCOME (LOSS) $ 98,220 $ (118,962) $ 272,429
=============================================================================
PER SHARE:
Net income (loss):
Basic $1.15 $(1.35) $3.01
Diluted 1.14 (1.35) 2.99
Cash dividends 1.00 1.00 .96
Weighted-average shares outstanding:
Basic 85,691 87,854 90,450
Diluted 86,258 87,854 91,151
=============================================================================
The accompanying notes are an integral part of the financial statements.
-31-
CONSOLIDATED STATEMENTS OF CASH FLOWS
Dow Jones & Company
For the years ended December 31, 2001, 2000 and 1999
=============================================================================
(in thousands) 2001 2000 1999
- -----------------------------------------------------------------------------
OPERATING ACTIVITIES:
Consolidated net income (loss) $ 98,220 $(118,962) $272,429
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Write-down of plant and property 22,936
Write-down of investments 8,827 178,499
Contract guarantee, net (17,136) 255,308
Depreciation 102,597 105,064 100,214
Amortization of intangibles 3,116 2,821 3,455
Gain on sale of businesses
and investments (24,053) (51,945)
Gain on disposition of plant and property (749) (1,235) (433)
Equity in losses of associated
companies, net of distributions 26,099 29,343 34,118
Changes in assets and liabilities:
Accounts receivable 74,220 56,085 (67,254)
Other current assets 22,063 (23,206) (3,178)
Unearned revenue (8,737) (11,801) (12,156)
Accounts payable and accrued liabilities (18,584) 2,446 (13,406)
Income and deferred taxes 10,904 (3,080) 23,764
Deferred compensation 23,149 11,733 19,523
Other, net (5,192) (12,515) (8,104)
- -----------------------------------------------------------------------------
Net cash provided by operating
activities 341,733 446,447 297,027
- -----------------------------------------------------------------------------
INVESTING ACTIVITIES:
Additions to plant and property (128,759) (187,035) (190,739)
Disposition of plant and property 2,239 1,535 2,664
Businesses and investments acquired (11,179) (627) (3,106)
Funding of equity investees (41,419) (49,757) (49,109)
Disposition of businesses and investments 1,176 28,760 80,692
Other, net 5,770 4,331 2,205
- -----------------------------------------------------------------------------
Net cash used in
investing activities (172,172) (202,793) (157,393)
- -----------------------------------------------------------------------------
FINANCING ACTIVITIES:
Cash dividends (85,789) (88,123) (87,151)
Increase in long-term debt 82,556 149,988
Reduction of long-term debt (59,463) (150,000)
Proceeds from sales under stock
compensation plans 15,156 28,644 33,367
Purchase of treasury stock, net of
put premiums (154,272) (221,204) (142,339)
Contribution from minority partner 3,930
- -----------------------------------------------------------------------------
Net cash used in financing activities (197,882) (280,695) (196,123)
- -----------------------------------------------------------------------------
Decrease in cash
and cash equivalents (28,321) (37,041) (56,489)
Cash and cash equivalents at
beginning of year 49,347 86,388 142,877
- -----------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 21,026 $ 49,347 $ 86,388
=============================================================================
The accompanying notes are an integral part of the financial statements.
-32-
CONSOLIDATED BALANCE SHEETS
Dow Jones & Company
December 31, 2001 and 2000
=============================================================================
(dollars in thousands) 2001 2000
- -----------------------------------------------------------------------------
ASSETS:
Current Assets:
Cash and cash equivalents $ 21,026 $ 49,347
Accounts receivable - trade, net of
allowance for doubtful accounts of
$5,610 in 2001 and $6,377 in 2000 162,559 236,284
Accounts receivable - other 27,039 43,649
Newsprint inventory 10,810 13,109
Prepaid expenses 13,877 18,105
Deferred income taxes 10,648 7,749
- -----------------------------------------------------------------------------
Total current assets 245,959 368,243
- -----------------------------------------------------------------------------
Investments in associated companies,
at equity 78,985 65,871
Other investments 6,700 11,219
Plant and property, at cost:
Land 21,638 21,880
Buildings and improvements 395,270 415,297
Equipment 993,677 969,365
Construction in progress 262,608 218,937
- -----------------------------------------------------------------------------
1,673,193 1,625,479
Less, accumulated depreciation 911,844 864,616
- -----------------------------------------------------------------------------
761,349 760,863
Intangible assets, principally goodwill,
less accumulated amortization of $42,278
in 2001 and $39,162 in 2000 81,583 73,840
Deferred income taxes 99,919 71,316
Other assets 23,845 10,704
- -----------------------------------------------------------------------------
Total assets $1,298,340 $1,362,056
=============================================================================
-33-
=============================================================================
(dollars in thousands) 2001 2000
- -----------------------------------------------------------------------------
LIABILITIES:
Current Liabilities:
Accounts payable - trade $ 61,579 $ 66,699
Accrued wages, salaries and commissions 67,532 73,119
Retirement plan contributions payable 23,614 21,333
Other payables 177,920 185,138
Income taxes 66,260 27,658
Unearned revenue 204,988 213,277
- -----------------------------------------------------------------------------
Total current liabilities 601,893 587,224
Long-term debt 173,958 150,865
Deferred compensation, principally
postretirement benefit obligation 247,915 227,948
Other noncurrent liabilities 228,928 228,658
- -----------------------------------------------------------------------------
Total liabilities 1,252,694 1,194,695
- -----------------------------------------------------------------------------
Commitments and contingent liabilities (Note 14)
Minority interests in subsidiaries 3,869 8,593
STOCKHOLDERS' EQUITY:
Common stock, par value $1 per share; authorized
135,000,000 shares; issued 81,286,732 shares
in 2001 and 81,135,653 shares in 2000 81,287 81,136
Class B common stock, convertible, par value $1
per share; authorized 25,000,000 shares; issued
20,894,289 shares in 2001 and 21,045,368 shares
in 2000 20,894 21,045
- -----------------------------------------------------------------------------
102,181 102,181
Additional paid-in capital 127,846 137,481
Retained earnings 614,863 602,432
Accumulated other comprehensive income:
Unrealized gain (loss) on investments 1,128 (4,960)
Unrealized gain on hedging 2,360
Foreign currency translation adjustment (2,427) (1,955)
- -----------------------------------------------------------------------------
843,591 837,539
Less, treasury stock, at cost; 17,549,237 shares
in 2001 and 15,351,872 shares in 2000 801,814 678,771
- -----------------------------------------------------------------------------
Total stockholders' equity 41,777 158,768
- -----------------------------------------------------------------------------
Total liabilities and stockholders' equity $1,298,340 $1,362,056
=============================================================================
The accompanying notes are an integral part of the financial statements.
-34-
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Dow Jones & Company
For the years ended December 31, 2001, 2000 and 1999
==========================================================================================================================
Accumulated
Class B Additional Other Com- Treasury Stock
(in thousands, except Common Common Paid-in Retained prehensive -----------------
per share amounts) Stock Stock Capital Earnings Income (loss) Shares Amount Total
==========================================================================================================================
Balance, December 31, 1998 $80,899 $21,282 $137,479 $624,239 $35,813 (10,211,733) $(390,372) $509,340
Net income - 1999 272,429 272,429
Unrealized gain on investments 2,124 2,124
Translation adjustment (1,295) (1,295)
Adjustment for realized
gain included in net income (38,840) (38,840)
-------
Comprehensive income 234,418
Dividends, $.96 per share (87,151) (87,151)
Conversion of class B common
stock into common stock 105 (105)
Capital changes of investee (322) (322)
Premiums on puts 4,869 4,869
Sales under stock
compensation plans (4,539) 895,989 43,604 39,065
Purchase of treasury stock (3,044,534) (146,729) (146,729)
- --------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 81,004 21,177 137,487 809,517 (2,198) (12,360,278) (493,497) 553,490
Net loss - 2000 (118,962) (118,962)
Unrealized loss on investments (4,019) (4,019)
Unrealized gain on hedging 2,360 2,360
Translation adjustment (698) (698)
-------
Comprehensive loss (121,319)
Dividends, $1.00 per share (88,123) (88,123)
Conversion of class B common
stock into common stock 132 (132)
Capital changes of investee (989) (989)
Premiums on puts 8,943 8,943
Sales under stock
compensation plans (7,960) 723,606 44,873 36,913
Purchase of treasury stock (3,715,200) (230,147) (230,147)
- --------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2000 $81,136 $21,045 $137,481 $602,432 $(4,555) (15,351,872) $(678,771) $158,768
-35-
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CONT.)
Dow Jones & Company
For the years ended December 31, 2001, 2000 and 1999
==========================================================================================================================
Accumulated
Class B Additional Other Com- Treasury Stock
(in thousands, except Common Common Paid-in Retained prehensive -----------------
per share amounts) Stock Stock Capital Earnings Income (loss) Shares Amount Total
==========================================================================================================================
Balance, December 31, 2000 $81,136 $21,045 $137,481 $602,432 $(4,555) (15,351,872) $(678,771) $158,768
Net income - 2001 98,220 98,220
Unrealized loss on investments (118) (118)
Translation adjustment (472) (472)
Adjustment for realized
loss included in net income 3,846 3,846
-------
Comprehensive income 101,476
Dividends, $1.00 per share (85,789) (85,789)
Conversion of class B common
stock into common stock 151 (151)
Sales under stock
compensation plans (3,624) 451,640 25,218 21,594
Purchase of treasury stock (6,011) (2,649,005) (148,261) (154,272)
- --------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2001 $81,287 $20,894 $127,846 $614,863 $(1,299) (17,549,237) $(801,814) $ 41,777
==========================================================================================================================
The accompanying notes are an integral part of the financial statements.
-36-
NOTES TO FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE CONSOLIDATED FINANCIAL STATEMENTS include the accounts of the company
and its majority-owned subsidiaries. All significant intercompany
transactions are eliminated in consolidation. The equity method of
accounting is used for investments in other companies in which the company
has significant influence; generally this represents common stock ownership
or partnership equity of at least 20% and not more than 50% (see Note 7).
RECLASSIFICATIONS of certain amounts for prior years have been recorded to
conform to the current year presentation.
CASH EQUIVALENTS are highly liquid investments with a maturity of three
months or less when purchased.
NEWSPRINT INVENTORY is stated at the lower of cost or market. The cost of
newsprint is computed by the last-in, first-out (LIFO) method. If newsprint
inventory had been valued by the average cost method, it would have been
approximately $7.5 million and $9.7 million higher in 2001 and 2000,
respectively.
INVESTMENTS in marketable equity securities, all of which are classified as
available for sale, are carried at their market value in the consolidated
balance sheets. The unrealized gains or losses from these investments are
recorded directly to Stockholders' Equity. Any decline in market value
below the investment's original cost that is determined to be other than
temporary as well as any realized gains or losses would be recognized in
income (see Notes 3 and 17).
PLANT AND PROPERTY are recorded at cost and depreciation is computed using
straight-line or declining-balance methods over the estimated useful lives:
10 to 40 years for building and improvements, 3 to 25 years for machinery
and equipment and 3 to 5 years for software. The cost of leasehold
improvements is amortized over the lesser of the useful lives or the terms
of the respective leases. Upon retirement or sale, the cost of disposed
assets and the related accumulated depreciation are deducted from the
respective accounts and the resulting gain or loss is included in income.
The cost of construction of certain long-term assets includes capitalized
interest, which is amortized over the life of the related assets. Interest
capitalized in 2001, 2000 and 1999 totaled $8.9 million, $8.4 million and
$4.5 million, respectively. Maintenance and repairs are charged to expense
as incurred. Major renewals, betterments and additions are capitalized.
LONG-LIVED ASSETS are comprised of plant and property, intangible assets and
investments. Long-lived assets are reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of the asset
may not be recoverable. An estimate of undiscounted future cash flows
produced by the asset is compared to the carrying value to determine whether
an impairment exists. If an asset is determined to be impaired, the loss is
measured based on quoted market prices in active markets, if available. If
quoted market prices are not available, the estimate of fair value is based
on various valuation techniques, including discounted value of estimated
future cash flows. Assets to be disposed are recorded at the lower of
carrying value or estimated net realizable value.
INTANGIBLE ASSETS consist principally of goodwill, which is the excess of
purchase price over the net assets of businesses acquired. Prior to January
1, 2002, goodwill was amortized using the straight-line method over various
-37-
periods, principally 40 years. At December 31, 2001, other intangible
assets totaled $6 million, which include Newswire subscriber contracts,
which are amortized over 5 years and other intangibles, principally acquired
advertising accounts for community newspapers, which are amortized over 12
years. In June 2001, the FASB issued Statement of Financial Accounting
Standards No. 142 (SFAS 142) "Goodwill and Other Intangible Assets." SFAS
142 requires that an intangible asset that is acquired either individually
or with a group of other assets be initially recognized and measured based
on fair value. An intangible with a finite life is amortized over its
useful life, while an intangible with an indefinite life, including
goodwill, is not amortized. All intangible assets, including goodwill, are
tested at least annually for impairment. SFAS 142 is effective for fiscal
years beginning after December 15, 2001. The company will adopt the
provisions of SFAS 142 as of January 1, 2002, and expects a reduction in
expenses of approximately $4 million in 2002, with respect to businesses
held at the end of 2001.
DEFERRED INCOME TAXES are provided for temporary differences in bases
between financial statement and income tax assets and liabilities. Deferred
income taxes are recalculated annually at tax rates then in effect. The
company records a valuation allowance to reduce its deferred tax assets to
the amount that is more likely than not to be realized. Currently, the
company maintains a valuation allowance on deferred tax assets related to
capital loss carryforwards. While the company has considered ongoing
prudent and feasible tax planning strategies in assessing the need for the
valuation allowance, in the event the company were to determine that it
would be able to realize all or a portion of its net deferred tax assets, an
adjustment to the deferred tax asset would increase income in the period
such determination was made. Likewise, should the company determine that it
would not be able to realize all or a portion of its net deferred tax asset
in the future, an adjustment to the deferred tax asset would be charged to
income in the period such determination was made (see Note 9).
FOREIGN CURRENCY TRANSLATION of assets and liabilities is determined at the
appropriate year-end exchange rates, while results of operations are
translated at the average rates of exchange in effect throughout the year.
The resultant translation adjustments for subsidiaries whose functional
currency is not the U.S. dollar are recorded directly to comprehensive
income in Stockholders' Equity. Gains or losses arising from translation of
financial statements for foreign subsidiaries where the U.S. dollar is the
functional currency as well as from all foreign currency transactions are
included in income. Foreign exchange included in Other, net in the income
statement totaled a loss of $.9 million in 2001, a loss of $.8 million in
2000 and a gain of $.3 million in 1999.
FOREIGN-EXCHANGE CONTRACTS are designated as cash flow hedges of anticipated
operating expenses that are denominated in foreign currencies. These
contracts are entered into to protect against the risk that such expenses
will be adversely affected by changes in exchange rates. Such losses could
be significant if a major devaluation were to occur. By using these
derivative instruments the company is exposed to the adverse effect that a
change in currency has on the value of a financial instrument. The company
manages this market risk by establishing and monitoring limits as to the
degree of risk that may be undertaken. The company's derivative activities
are monitored by its treasury and finance functions. Realized gains or
losses on foreign currency forward contracts are recognized currently
through income and generally offset the transaction losses or gains on the
foreign currency cash flows which they are intended to hedge (see Note 17).
REVENUE from subscriptions to the company's print publications and
information services is recognized in income as earned, pro rata on a per-
-38-
issue basis, over the subscription period. Costs in connection with the
procurement of subscriptions are charged to expense as incurred.
Advertising revenue, net of commissions, is recognized in the period in
which the advertisement is displayed. Advertising revenue based on a
minimum number of "impressions" is recognized as impressions occur. Revenue
from licensing the Dow Jones Averages includes both upfront one-time fees
and ongoing revenue. Both upfront fees and ongoing licensing revenue are
recognized in income as earned over the license period.
RESEARCH AND DEVELOPMENT expenditures are charged to expense as incurred.
Research and development (R&D) expenses were $27 million in 2001, $30.6
million in 2000 and $30.5 million in 1999.
USE OF ESTIMATES: The financial statements are prepared in accordance with
generally accepted accounting principles which require certain reported
amounts to be based on estimates. Actual results could differ from these
estimates.
NOTE 2. CONTRACT GUARANTEE
In 1998, the company completed the sale of Telerate to Bridge. The purchase
price consisted of $150 million aggregate par value of 5 year, redeemable,
convertible, 4% preferred stock of Bridge, which was included in other
investments, and cash of $360 million. Under the terms of the sale, Dow
Jones retained its guarantee of payments under certain circumstances of
certain annual minimum payments for data acquired by Telerate from Cantor
Fitzgerald Securities and Market Data Corporation (MDC) under contracts
entered into during the period when Telerate was a subsidiary of Dow Jones
(contract guarantee). The annual minimum payments average approximately $50
million per year through October 2006 under certain conditions. Bridge
agreed to indemnify Dow Jones for any liability Dow Jones incurred under the
contract guarantee with respect to periods subsequent to Bridge's purchase
of Telerate. However, Bridge filed for bankruptcy protection on February
15, 2001 after unsuccessful attempts to reorganize its operations and
arrange for additional financing.
Dow Jones believes that MDC and Cantor Fitzgerald 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. MDC
and Cantor deny that they have this obligation. Dow Jones believes that any
and all amounts which are received by MDC and/or Cantor Fitzgerald in
respect of such data would reduce any liability that Dow Jones 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 will be reached by MDC and/or Cantor
Fitzgerald 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 Dow Jones 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 the amount of $255 million
representing the present value of the total estimated annual minimum
payments over the remainder of the contract (through October 2006) using a
discount rate of approximately 6%.
At December 31, 2001, the company's reserve for the contract guarantee was
$232.4 million. Earnings in 2001 included income of $31.1 million resulting
from Bridge fulfilling its payment obligation to Cantor during its post-
-39-
petition bankruptcy phase, which was partially offset by the amortization of
discount on the reserve balance of $14 million. Dow Jones made one payment
under its guarantee of $5.8 million for amounts not paid by Bridge prior to
its bankruptcy.
In October 2001, the bankruptcy court granted Bridge's motion to reject
Telerate's contracts with Cantor and MDC. Telerate has indicated that it
has ceased operations and is no longer receiving the government securities
data from Cantor and MDC and will not be making payments to Cantor and MDC.
Cantor and MDC advised the company that they would be seeking payment from
Dow Jones of an amount they allege was due on November 15 under the contract
guarantee and future payments due through 2006. The company has various
substantial defenses to these claims.
On November 13, 2001, the company instituted a lawsuit in the Supreme Court
of the State of New York seeking a declaratory judgment with respect to the
contract guarantee and the claims of Cantor and MDC. 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 and Cantor
Fitzgerald have filed motions to dismiss, counterclaims, and an additional
lawsuit against the company disagreeing with the company's position and
asserting damages of approximately $250 million.
Due to the stage of the lawsuit at December 31, 2001, 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.
NOTE 3. WRITE-DOWNS OF INVESTMENTS
Write-downs in 2001
In the third quarter of 2001, the company realized a loss of $8.8 million,
or $.11 per diluted share, from the impairment in the value of the company's
investments in Nation Multimedia Group Public Co.($4.8 million, or $.06 per
share), and iBEAM Broadcasting Corp.($4 million, or $.05 per share). These
investments are marketable equity securities, which are carried at their
market price. Prior to the realization of losses for these investments in
the third quarter of 2001, the company recorded the unrealized losses
associated with these investments directly to other comprehensive income in
Stockholders' Equity.
Nation Multimedia Group Public Company
The company holds a less than 10% interest in Nation Multimedia Group Public
Company, a diversified media company based in Thailand, which is publicly
traded on the Bangkok Exchange. Prior to and during 2000 there had been
volatility in the market price of Nation Multimedia. At December 2000 the
company's investment in Nation Multimedia was valued at $3.9 million and the
company had recorded $3.4 million of unrealized losses through other
comprehensive income. The company's investment continued to decline in
2001, and in the third quarter the company determined the impairment of the
investment was other than temporary. This determination was based on the
investment's declining market price in 2001, approximately a 37% decline
through September 30, 2001, combined with increased economic uncertainty in
Southeast Asia, which was significantly heightened after the September 11
terrorist attacks.
-40-
iBEAM Broadcasting Corporation
In October 2000, the company received shares of iBEAM Broadcasting
Corporation (iBEAM) in exchange for the company's shares of NextVenue Inc.
The company valued the consideration based on the market value of the shares
it received on the date the purchase of NextVenue was consummated in October
2000. The market value of iBEAM began to deteriorate in the fourth quarter
2000 and continued to deteriorate throughout 2001. As of December 31, 2000,
the company had recorded $3.3 million of unrealized losses in other
comprehensive income. In March 2001, iBEAM's 10-K public filing included a
going concern opinion. In April 2001, iBEAM announced it would restructure
its operations and was considering selling the company. In May 2001, Nasdaq
notified iBEAM that it may be delisted because its stock was trading below
the $1.00 minimum. iBEAM received an extension and in September, its
shareholders approved a one-for-ten reverse stock split, which was expected
to raise the market value. The reverse stock split failed to increase the
market value and the stock continued to trade below the minimum trading
level, and a delisting was likely. Considering the impact of the September
11 terrorist attacks on the economy, a near term rebound was not likely.
Therefore, the company realized a loss of its full $4 million investment in
September 2001. Subsequent to the company's write-down, iBEAM announced it
was filing for bankruptcy and selling its assets.
Write-downs in 2000
The company wrote off the carrying value of its investments in Bridge
Information Systems, Inc. and SAVVIS Communications Corp. (in aggregate,
$166.4 million, or $1.90 per share) and OptiMark Technologies, Inc. ($12.1
million, or $.14 per share). The write-down of Bridge was recorded over the
third and fourth quarters of 2000 with $82.3 million, or $.94 per share,
recorded in the third quarter and the remainder in the fourth.
Dow Jones accounted for these investments under the cost method; therefore,
changes in the value of the investment are not recognized unless there is
impairment in value of the investment that is deemed to be "other than
temporary."
Bridge Information Systems, Inc. and SAVVIS Communications Corporation
As previously mentioned, the purchase price for the sale of Telerate in 1998
to Bridge consisted of $150 million aggregate par value of 5 year,
redeemable, convertible, 4% preferred stock of Bridge, which was included in
other investments, and cash of $360 million. In 1999, Dow Jones acquired
approximately 1.78 million shares of SAVVIS Communications Corp. at 50 cents
per share for an aggregate cost of $.9 million and issued subordinated debt
to Bridge which had a carrying value (including interest) of $2.9 million.
Bridge was SAVVIS' largest customer and shareholder and a significant vendor
for technical support services.
Throughout 2000, Bridge experienced continued operating shortfalls from plan
and experienced a need for substantial relief from its bank lenders and
additional financing. In the judgment of Dow Jones management, these
developments, when combined with the pricing of its third quarter issuance
of convertible notes, clearly demonstrated that there was a decline in value
of the company's preferred stock holdings. In addition, Bridge notified its
lenders that as of September 30, 2000, it was not in compliance with certain
financial covenants under its outstanding credit agreement. Bridge's
principal shareholder had taken over management of the company and launched
several initiatives focused on improving operations, increasing revenues and
-41-
raising additional capital. However, there was no assurance that these
efforts would be successful. These factors, combined with the lack of
updated long-term forward projections, left Dow Jones management with
insufficient objective evidence to determine that the decline in value of
the company's preferred stock holdings was temporary. Using the third
quarter convertible notes financing transaction as a benchmark, Dow Jones
recorded a charge to earnings in the third quarter of 2000 of $82.3 million
on this investment (there was no tax benefit as this was a capital loss).
Also, the company discontinued accruing dividends on its preferred stock
holdings effective with the third quarter of 2000. The revised carrying
value for this investment at September 30, 2000, was $80.3 million.
Bridge's financial position continued to deteriorate during the fourth
quarter of 2000, and it continued to experience severe operational
difficulties. In December 2000, Bridge informed Dow Jones that Telerate
might be late in paying the February 15, 2001 quarterly installment under
the data supply contracts described above. Subsequently MDC notified Dow
Jones that if Telerate failed to pay the installment (amounting to
approximately $12 million), MDC would seek to recover such amount from Dow
Jones under the contract guarantee.
During the fourth quarter and continuing into January and early February
2001, Bridge's primary investor, Welsh Carson Anderson & Stowe, engaged in
negotiations with Bridge and its lenders in an effort to reach an agreement
to restructure Bridge's debt, arrange additional financing and significantly
reorganize its operations. However, those negotiations did not reach a
successful conclusion and on February 15, 2001, Bridge filed a petition
under Chapter 11 of the Bankruptcy Code with a view to seeking a sale of its
assets in order to repay its creditors in whole or in part. (Bridge's
Chapter 11 filing had been preceded by an involuntary bankruptcy petition
filed on February 1, 2001 by one of its creditors, but Bridge's Chapter 11
filing rendered the earlier filing moot.)
In light of the foregoing events, Dow Jones concluded that its Bridge-
related investments had been further impaired, and were now worthless. As a
result, in the fourth quarter of 2000, the company wrote off $84.1 million
representing the entire remaining carrying value of the Bridge preferred
stock, the Bridge subordinated debt and the SAVVIS stock.
OptiMark Technologies, Inc.
The company holds a minority interest in OptiMark Technologies, Inc.
consisting of preferred and common shares with an aggregate cost of $12.1
million. The company's interest in OptiMark was accounted for as a cost
investment. During the second quarter of 2000, OptiMark began experiencing
operating difficulties which resulted in negative operating cashflows. The
conditions continued to worsen during the third quarter 2000 which prompted
OptiMark to institute a short-term restructuring plan and seek additional
financing to sustain its operations. The company had confidence in the
restructuring plan and believed that with additional financing that any
impairment in this investment was only temporary. In the fourth quarter
2000, the company was advised that the additional financing had been
delayed. In addition, OptiMark's short-term restructuring plan was not
successful in generating sufficient cashflow indicating that their new
business plan had not proved feasible in the short term. This, along with
public filings indicating that there was question of OptiMark's ability to
continue as a going concern, principally because of negative cash flow,
caused management to believe that the carrying value of the company's
investment in OptiMark was impaired and that the impairment was other than
temporary. As a result, the company recorded a charge in the fourth quarter
-42-
of 2000 to write off the full carrying value of its $12.1 million
investment.
NOTE 4. RESTRUCTURING AND OTHER SPECIAL CHARGES
In 2001, the company recorded restructuring and other special charges to
operating income totaling $73.2 million ($43.8 million after taxes). These
charges consist of employee severance related to workforce reductions of
$33.5 million, loss on lease terminations of $28.5 million, asset write-
downs of $8.1 million, expenses of $1.7 million in the third quarter related
to September 11 terrorist attacks on the World Trade Center, and other exit
costs of $1.4 million. In addition to these charges, equity in losses of
associated companies included special net charges of $4.8 million (see Note
7).
Restructuring charges
In 2001, the company initiated three separate restructurings resulting in
total severance charges in operating expenses of $33.5 million related to a
general workforce reduction in all segments. With these restructurings, the
company reduced its workforce by about 550 employees, or 6%. As of December
31, 2001, 91% of the employees that were part of the workforce reduction
were terminated and the remaining separations will be completed in the first
half of 2002. In addition to the workforce reductions in 2001,
restructuring charges included a $4.4 million write-down of assets
associated with the company's online and international businesses which were
made obsolete or were redundant and abandoned as a result of the
restructuring plan.
The following table displays the activity and balances of the restructuring
reserve account for the year ended December 31, 2001:
==========================================================================
December 31,
(in thousands) Total Net Cash Non Cash 2001
Charge Payments Adjustments Reserve
- --------------------------------------------------------------------------
Employee severance $33,453 $20,912 $12,541
Asset write-downs 4,399 $4,399
Other exit costs 1,377 1,041 336
==========================================================================
In 1999's second quarter, the company recorded severance associated with the
conversion to electronic pagination of The Wall Street Journal of $2.8
million, or $1.6 million after taxes, which applied to approximately 70
employees. The layoffs and related payments were substantially completed by
the second quarter of 2000.
World Financial Center
The company's corporate headquarters is located at the World Financial
Center, which was adjacent to the World Trade Center. While the building
was determined to be structurally sound, our office space sustained damage
from debris and dust. Approximately 60% of the floor space, including
furniture and related equipment, has been determined a total loss. The
company has insurance policies that cover property damage, extra expenses
and business interruption related to the September 11 disaster. The company
is currently in discussions with its insurance providers in assessing the
amount of the claim. Based on these discussions the company believes it
will recover the book value of $15 million in assets that were destroyed in
-43-
addition to costs incurred of $2 million related to the clean-up and waste
removal from this office space. The company has written off the book value
of these assets and has recorded a receivable from insurance, which is
included in other non-current assets on the balance sheet.
The third quarter of 2001 included charges to operating income of $1.7
million ($1 million after taxes, or $.01 per diluted share) related to the
September 11 World Trade Center disaster. The charge included temporary
relocation related costs and a charitable donation of $1 million to the
September 11 Fund, which were partly offset by savings from World Financial
Center rent abatement. In the fourth quarter of 2001, additional costs
related to the temporary relocation were offset by savings related to the
abatement of rent at WFC.
The company announced in October 2001 that it intended to permanently
relocate various personnel housed at the World Financial Center to other
available office space in the surrounding area, including company-owned
facilities in South Brunswick, New Jersey. Dow Jones will permanently
vacate four of its existing seven floors (165,000 sq ft of its over 300,000
sq ft) of leased office space at World Financial Center. The lease is due
to expire in 2005. The staff that will remain at World Financial Center
will return once it is determined the space is suitable for occupancy.
As a result of its decision to permanently re-deploy its personnel at this
location, Dow Jones has recorded a charge of $32.2 million in the fourth
quarter of 2001, primarily reflecting its obligation to the landlord on the
vacated space. This amount is undiscounted and includes a $3.7 million
write-down of undamaged leasehold improvements on the floors the company is
vacating.
NOTE 5. BUSINESSES ACQUIRED
In the second quarter of 2001, the company acquired the assets of the York
County Coast Star and the York Weekly for $6.7 million and combined these
operations with Seacoast Newspapers, Inc. in Portsmouth, New Hampshire.
This acquisition was accounted for by the purchase method and resulted in
other intangibles of $1.8 million, tangible net assets of $.4 million and
the balance as goodwill.
In September 2001, the company purchased newswire subscriber contracts from
Bridge Information Systems for $4.5 million.
NOTE 6. SALE OF BUSINESSES AND INVESTMENTS
The first quarter of 2000 included a gain of $13.8 million ($9.5 million
after taxes) from the sale of the company's subsidiary, Dow Jones Financial
Publishing Corp., which published Investment Advisor, Asset Management,
Property and Realty Stock Review. In the second quarter of 2000, the
company sold its minority interest in SportsTicker Enterprises L.P., a
leading supplier of real-time sports news and information, for a gain of
$6.4 million ($4.8 million after taxes). The fourth quarter of 2000
included a net gain of $3.8 million resulting from the exchange of the
company's holdings in NextVenue Inc. for shares issued through a merger of
iBEAM Broadcasting Corp., an Internet broadcast network that delivers
streaming media.
In the first quarter of 1999, the company realized a net gain of $10.6
million from the sale of a portion of its minority interest in OptiMark
Technologies, Inc. In the third quarter, a net gain of $57.3 million was
-44-
recorded from the disposition of the company's holdings in United States
Satellite Broadcasting, Inc. The fourth quarter included a loss of $16.3
million from the sale of the company's subsidiary, IDD Enterprises L.P.
No federal tax was provided on the 2000 NextVenue Inc. exchange and the 1999
gains as the company utilized a portion of its capital loss carryforward
(see Note 9).
NOTE 7. INVESTMENTS IN ASSOCIATED COMPANIES, AT EQUITY
At December 31, 2001, the principal components of Investments in Associated
Companies, at Equity were the following:
============================================================================
Investment Ownership Description of business
- ----------------------------------------------------------------------------
Business News (Asia) Private 50% Business and financial news
television company broadcasting as
CNBC Asia Pacific, in partnership
with NBC
Business News (Europe) L.P. 50 Business and financial news
television company broadcasting as
CNBC Europe, in partnership with NBC
Dow Jones Reuters Business 50 Provides electronic-delivery of
Interactive LLC (Factiva) business news and online research,
in partnership with Reuters Group
Plc.
F.F. Soucy, Inc. & Partners, L.P. 40 Newsprint mill in Quebec, Canada
Handelsblattgruppe-Zeitung GmbH 22 Publisher of Handelsblatt, Germany's
leading business newspaper
HB-Dow Jones S.A. 42 A part-owner of a publishing company
in the Czech Republic
SmartMoney 50 Publisher of SmartMoney magazine and
SmartMoney.com, serving the private-
investor market throughout the U.S.
and Canada, in partnership with
Hearst Corp.
============================================================================
The fourth quarter of 2001 included a charge of $3.6 million ($2.2 million
after taxes) related to a loss on an office lease that was abandoned by
SmartMoney. The third quarter of 2001 included a $1.2 million ($.7 million
after taxes) gain relating to the early extinguishment of debt for CNBC
Europe. In the first quarter 2001, the company recorded a charge of $2.4
million ($1.6 million after taxes) for costs related to the shut-down of
Work.com, a joint venture with Excite@Home. These costs were included in
equity in losses of associated companies.
The second quarter of 2000 included a reversal of a 1998 restructuring
charge of $3.2 million ($2.1 million after taxes) relating to an equity
investee, resulting from the favorable disposition of a satellite lease in
Europe.
On January 1, 2000, Dow Jones exchanged 49% of its ownership in The Wall
Street Journal Europe, which it wholly owned, and 49% of its interests in
-45-
HB-Dow Jones S.A. and VWD for a 22% interest in Handelsblatt, Germany's
leading business newspaper and a subsidiary of von Holtzbrinck Group. After
the exchange transaction, the company continues to record the equity results
of VWD and HB-Dow Jones with an offsetting 49% minority interest reflected
in net income. Minority interests largely represent von Holtzbrinck Group's
49% share of The Wall Street Journal Europe, HB-Dow Jones and VWD.
Dow Jones & Company has entered a long-term contract with F.F. Soucy, Inc. &
Partners, L.P. covering a substantial portion of its annual newsprint
requirements. Operating expenses of the company include the cost of
newsprint supplied by F.F. Soucy of $21.5 million in 2001, $21.3 million in
2000 and $19 million in 1999.
Dow Jones performs several services on behalf of Factiva, including the
billing and collections of receivables and payroll services, in addition to
leasing Factiva office space. At December 31, Other Receivables included
net amounts due from Factiva and Factiva customers of $11 million in 2001
and $23.1 million in 2000.
Summarized financial information for the company's equity-basis investments
in associated companies, combined, was as follows (these amounts are in
aggregate at 100% levels and are unaudited). The majority of these
investments are partnerships, which require the associated tax benefit or
expense to be recorded by the parent.
===========================================================================
(in thousands) 2001 2000 1999
- ---------------------------------------------------------------------------
Income statement information:
Revenues $637,809 $669,887 $339,799
Operating loss (13,184) (13,624) (35,592)
Net loss (22,464) (15,487) (39,537)
Financial position information:
Current assets $212,631 $255,701 $149,107
Noncurrent assets 193,207 182,236 160,346
Current liabilities 169,348 200,211 120,920
Noncurrent liabilities 72,840 62,481 80,247
Net worth 163,650 175,245 108,286
===========================================================================
NOTE 8. LONG-TERM DEBT
Long-term debt at December 31 was as follows:
===========================================================================
(in thousands) 2001 2000
- ---------------------------------------------------------------------------
Commercial paper,
2.03% to 3.38% at December 31, 2001 $173,958 $150,865
===========================================================================
The company can borrow up to $430 million, $290 million through June 24,
2002 and $140 million through June 24, 2006, under a revolving credit
agreement with a consortium of banks. 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. An annual fee is
payable on the commitment which the company may terminate or reduce at any
time. The annual fee, which is dependant on the current rating of the
company's debt rating issued by S&P and Moody's, ranges from .06% to .08%.
-46-
Prepayment of borrowings may be made without penalty. The company intends
to extend the revolving credit agreement prior to its expiration.
The revolving credit agreement contains certain restrictive covenants,
including restrictions on consolidated indebtedness and a minimum cash flow
requirement. At December 31, 2001, with respect to restrictive covenants
then in effect, consolidated indebtedness was within the required ratio and
approximately $186 million less than the maximum borrowing allowed and the
company's cash flow, as defined in the agreement, exceeded that required.
In December 2000, the company repaid $150 million of 5.75% notes due
December 1, 2000. The notes were refinanced through the issuance of
commercial paper supported by the company's revolving credit agreement; as
such, these notes have been classified as long-term (the company had the
ability to draw down funds under the revolving credit agreement prior to
June 25, 2001, which would not be payable until one year from the date
drawn).
Interest payments were $9.5 million in 2001, $10.3 million in 2000 and $9.7
million in 1999.
NOTE 9. INCOME TAXES
The components of consolidated income before income taxes and minority
interests were as follows:
==========================================================================
(in thousands) 2001 2000 1999
- --------------------------------------------------------------------------
Domestic $168,475 $109,441 $469,085
Foreign (68,787) (33,063) (51,039)
- --------------------------------------------------------------------------
$ 99,688 $ 76,378 $418,046
==========================================================================
The following is a reconciliation of income tax expense to the amount
derived by multiplying income before income taxes and minority interests by
the statutory federal income tax rate of 35%.
==============================================================================
% of % of % of
Income Income Income
Before Before Before
(in thousands) 2001 Taxes 2000 Taxes 1999 Taxes
- ------------------------------------------------------------------------------
Income before income
taxes and minority
interests multiplied
by statutory federal
income tax rate $34,891 35.0 $ 26,732 35.0 $146,316 35.0
State and foreign taxes,
net of federal income
tax effect 8,036 8.1 24,788 32.5 20,074 4.8
Nondeductible capital loss 3,089 3.1 151,833 198.8
Utilization of capital
loss carryforward (5,997) (6.0) (3,592) (4.7) (18,181) (4.4)
Research and development
credits (2,630) (2.6) (1,491) (2.0) (1,824) (0.4)
Tax valuation allowance (30,000) (30.1)
Other, net 3,405 3.3 (1,313) (1.7) (884) (0.2)
- -------------------------------------------------------------------------------
$10,794 10.8 $196,957 257.9 $145,501 34.8
===============================================================================
-47-
Excluding the effects of special items, which are identified in the table on
page 20, the effective tax rate, net of minority interests, was 40% in 2001,
39.2% in 2000 and 39.7% in 1999.
Consolidated income tax expense was as follows:
============================================================================
(in thousands) Federal State Foreign Total
- ---------------------------------------------------------------------------
2001
Currently payable $ 29,079 $ 4,953 $ 8,264 $ 42,296
Deferred 287 (924) (865) (1,502)
Change in tax valuation
allowance (30,000) (30,000)
- ---------------------------------------------------------------------------
Total $ (634) $ 4,029 $ 7,399 $ 10,794
===========================================================================
2000
Currently payable $156,915 $24,927 $10,742 $192,584
Deferred 1,975 2,727 (329) 4,373
- ---------------------------------------------------------------------------
Total $158,890 $27,654 $10,413 $196,957
===========================================================================
1999
Currently payable $113,147 $26,393 $ 8,235 $147,775
Deferred 809 572 (3,655) (2,274)
- ---------------------------------------------------------------------------
Total $113,956 $26,965 $ 4,580 $145,501
===========================================================================
The company's combined current and non-current deferred taxes at December
31, 2001 and 2000 consisted of the following deferred tax assets and
liabilities:
===========================================================================
Deferred Tax Deferred Tax
Assets Liabilities
(in thousands) 2001 2000 2001 2000
- ---------------------------------------------------------------------------
Depreciation $62,329 $48,840
Employee benefit plans, including
deferred compensation $106,405 $ 98,963
Foreign tax credits 5,787 7,375
Investments 14,302 15,369
Leases 16,942 6,283
Capital loss carryforward 183,167 182,045
Unrecognized capital loss carryforward 152,730 158,662
Valuation allowance (305,897) (340,707)
All other 6,428 5,539 6,968 5,624
- ---------------------------------------------------------------------------
Total deferred taxes $179,864 $133,529 $69,297 $54,464
===========================================================================
The company may utilize the capital loss carryforward for up to two more
years. The company will be able to utilize the unrecognized capital loss
carryforward for a period of five years from the year it is recognized for
tax purposes.
-48-
In 2001, based on a plan to utilize existing capital loss carryforwards
prior to their expiration, the company has reduced its tax valuation
allowance by $30 million ($.35 per share). These capital loss
carryforwards, which largely related to the sale of Telerate, had been
previously fully reserved. Sales of certain Ottaway newspapers, which will
generate capital gains, are pending and the company believes that it is more
likely than not that it will be able to realize net tax savings of $30
million on future sales of these properties. As of the end of 2001, the
company could not conclude it was more likely than not it would realize any
additional net tax savings from capital loss carryforwards prior to their
expiration and believes the valuation allowance is appropriate at December
31, 2001.
Income tax refunds were $.1 million in 2001. In 2000 and 1999, income tax
payments were $200 million and $141.9 million, respectively. The company's
federal income taxes that were normally due on September 15, and December
15, 2001 were deferred to January 15, 2002 as the Internal Revenue Service
offered relief of these payments for taxpayers that were affected by the
September 11 terrorist attacks on the World Trade Center.
NOTE 10. CAPITAL STOCK
Common stock and class B common stock have the same dividend and liquidation
rights. Class B common stock has ten votes per share, free convertibility
into common stock on a one-for-one basis and can be transferred in class B
form only to members of the stockholder's family and certain others
affiliated with the stockholder.
In September 2000, the company's Board of Directors authorized the
repurchase of up to an additional $500 million of the company's common stock
over the balance remaining from prior authorizations. Since initial
approval in 1998, the company has repurchased 15.6 million shares at an
aggregate cost of $821.1 million. Additionally, as part of the company's
stock repurchase program, the company has sold put options. As of December
31, 2001, 667,000 shares under puts were outstanding, with exercise dates
through April 2002. The strike prices of the puts outstanding range from
$55.01 to $60.26 per share. The company has the option of net share
settlement on these contracts. As of December 31, 2001, approximately
$452.8 million remained under board authorization for share repurchases,
after reserving for the possible exercise of outstanding puts.
NOTE 11. EMPLOYEE STOCK COMPENSATION PLANS
STOCK PURCHASE PLAN:
Under the terms of the Dow Jones 1998 Employee Stock Purchase Plan, eligible
employees may purchase shares of the company's common stock based on
compensation through payroll deductions or lump-sum payment. The purchase
price for payroll deductions is the lower of 85% of the fair market value of
the stock on the first or last day of the purchase period. Lump-sum
purchases are made during the offering period at the lower of 85% of the
fair market value of the stock on the first day of the purchase period or
the payment date.
-49-
The activity in the plan was as follows:
===========================================================================
Shares Subscribed
Stock Purchase --------------------------------
Prices 2001 2000 1999
- ---------------------------------------------------------------------------
Balance, January 1 69,237 86,773 98,778
Shares subscribed 113,829 127,071 149,681
Purchases $48.08 to $50.99 (103,256) (133,998) (149,202)
Terminated/canceled (9,099) (10,609) (12,484)
- ---------------------------------------------------------------------------
Balance, December 31 70,711 69,237 86,773
===========================================================================
At December 31, 2001, there were 1,459,171 shares available for future
offerings.
STOCK INCENTIVE PLANS:
In 2001 stockholders approved the Dow Jones 2001 Long-Term Incentive Plan
("the 2001 plan") as the successor to the Dow Jones 1997 Long-Term Incentive
Plan, which provided benefits to key senior executives, and the Dow Jones
1998 Stock Option Plan, which primarily provided benefits for middle
management. Both the 1997 and 1998 plans will remain in effect until the
shares available under those plans have been exhausted or upon the
expiration of the plan. The 2001 plan provides for the grant of contingent
stock rights, stock options, restricted stock, restricted stock units and
other stock-based awards (collectively, "plan awards"). The company
anticipates that awards under the 2001 plan may be made to approximately
1,500 employees (including employee directors) of the company and to all
non-employee directors of the company. The Compensation Committee of the
Board of Directors administers the plan. Under the 2001 incentive plan, up
to seven million shares of common stock may be granted for plan awards
through March 31, 2011.
Options for shares of common stock may be granted under existing plans at
not less than the fair market value of the common stock on the date of
grant. The majority of options granted since 1998 become exercisable in
equal annual installments over three years from the date of grant. All
other options outstanding at December 31, 2001 were exercisable. Options
expire 10 years from the date of grant.
The activity with respect to options under existing stock option plans was
as follows:
===========================================================================
(shares in thousands) 2001 2000 1999
--------------- ---------------- ----------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
- ---------------------------------------------------------------------------
Balance, January 1 4,587 $48.62 3,966 $42.33 4,677 $40.97
Granted * 2,225 59.45 1,317 64.27 94 52.07
Exercised (338) 35.01 (553) 38.65 (735) 34.18
Terminated/canceled (298) 60.30 (143) 56.85 (70) 49.71
- ---------------------------------------------------------------------------
Balance, December 31 6,176 $52.70 4,587 $48.62 3,966 $42.33
===========================================================================
Options exercisable
at December 31 3,337 $45.97 2,927 $41.95 2,792 $39.20
===========================================================================
-50-
* The company has granted the vast majority of stock options and contingent
stock rights in the fourth quarter of each year. In 1999 no such grants
were awarded. Commencing in 2000 these grants were awarded in the first
quarter of the year.
Options outstanding at the end of 2001 are summarized as follows:
===========================================================================
(shares in thousands) Options Outstanding Options Exercisable
-------------------------------- -------------------
Weighted-
Weighted- Average Weighted-
Average Remaining Average
Range of Exercise Contractual Exercise
Exercise Prices Shares Price Life Shares Price
- ---------------------------------------------------------------------------
$28.38 to $34.38 725 $32.63 3.5 years 725 $32.63
$35.13 to $44.00 488 37.50 2.5 488 37.50
$45.31 to $54.88 1,770 49.75 6.5 1,710 49.64
$55.50 to $62.75 2,079 59.55 9.1 14 60.70
$64.00 to $72.19 1,114 64.36 8.1 400 64.34
- ---------------------------------------------------------------------------
Balance,
December 31, 2001 6,176 $52.70 7.0 years 3,337 $45.97
===========================================================================
Contingent stock rights, granted under the Long-Term Incentive Plan, entitle
the participant to receive future payments in the form of common stock, cash
or a combination of both. The compensation ultimately received will depend
on the extent to which specific performance criteria are achieved during the
four-year performance period, the participant's individual performance and
other factors, as determined by the compensation committee. Compensation
received could be less than or equal to that specified in the right, but
cannot exceed the right.
===========================================================================
2001 2000 1999
- ---------------------------------------------------------------------------
Balance, January 1 465,356 476,612 581,587
Granted* 239,900 159,700 9,250
Awarded (97,457) (67,432) (41,900)
Terminated/canceled (23,497) (103,524) (72,325)
- ---------------------------------------------------------------------------
Balance, December 31 584,302 465,356 476,612
===========================================================================
Year of Grant
-----------------------------------------
1997 1998 1999 2000 2001 Balance
- ---------------------------------------------------------------------------
Rights outstanding 75,160 116,542 9,250 143,450 239,900 584,302
===========================================================================
* The company has granted the vast majority of stock options and contingent
stock rights in the fourth quarter of each year. In 1999 no such grants
were awarded. Commencing in 2000 these grants were awarded in the first
quarter of the year.
At December 31, 2001, there were 6,975,150 shares available for future
grants under the 2001 plan and 300,794 shares available under the 1998 stock
option plan. Remaining shares under the 1997 plan expired at December 31,
2001.
In 2001, 8,600 shares of the restricted stock were granted. The vesting of
restricted stock may be conditioned upon the completion of a specified
period of employment, upon attainment of specified performance goals, and
/or any other such criteria as the Compensation Committee may determine.
-51-
The company accounts for its stock-based compensation in accordance with
Accounting Principles Board Opinion No. 25 (APB 25) and its related
interpretations. Under APB 25, stock-based compensation charged to income
was $5.6 million in 2001, $3.4 million in 2000 and $6.9 million in 1999.
Had the company's stock-based compensation been determined by the fair-value
based method of SFAS 123, "Accounting for Stock-Based Compensation," the
company's net income (loss) and earnings (loss) per share would have been
the following adjusted amounts:
===========================================================================
(in thousands, except per share amounts) 2001 2000 1999
- ---------------------------------------------------------------------------
Net income (loss):
Consolidated as reported $ 98,220 $(118,962) $272,429
Consolidated adjusted for SFAS 123 84,496 (128,394) 266,896
Per share - diluted:
Consolidated as reported $ 1.14 $ (1.35) $ 2.99
Consolidated adjusted for SFAS 123 .98 (1.46) 2.93
===========================================================================
The following table provides the estimated fair value under the Black-
Scholes option-pricing model of each option and stock-purchase right granted
in years 1999 through 2001, and the significant weighted-average assumptions
used in their determination.
===========================================================================
Risk-Free
Interest Dividend Expected
Fair Value Rate Yield Life Volatility
- ---------------------------------------------------------------------------
Stock Purchase
Plan Right
2001 $13.17 3.6% 1.9% 0.6 years 26.3%
2000 15.79 5.7 2.1 0.6 26.8
1999 11.09 5.1 2.3 0.6 22.7
Options under Stock
Option Plans
2001 $15.66 5.0% 1.9% 5.0 years 25.7%
2000 18.37 6.7 2.1 5.0 25.5
1999 12.63 5.6 2.3 5.0 23.0
===========================================================================
NOTE 12. RETIREMENT AND PENSION PLANS
The company provides retirement plans for a majority of its employees who
meet specific length of service requirements. Effective January 1, 2000,
the company's Profit Sharing Retirement Plan was renamed the Dow Jones
401(k) Savings Plan. Also, the plan, which was based on a combination of
compensation and consolidated net income, was modified to be based on a
fixed percentage of compensation and to allow an employer matching
opportunity. The contribution for each employee is limited to the amount
deductible for income tax purposes. The annual cost of the plan is funded
currently.
Substantially all employees who are not covered by the above plans are
covered by noncontributory defined benefit pension plans. These plans are
not material in respect to charges to operations.
-52-
Total retirement and pension plan expenses amounted to $43 million, $38.9
million and $47.5 million in 2001, 2000 and 1999, respectively.
NOTE 13. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
For a majority of its full-time employees, the company sponsors a defined
benefit postretirement medical plan which provides lifetime health care
benefits to retirees who meet specified length of service and age
requirements, and their eligible dependents. The plan is unfunded. The
company sponsors no additional postretirement benefit plans other than its
retirement plans (see Note 12).
The following sets forth the plan's status reconciled with amounts reported
in the company's consolidated balance sheets at December 31.
===========================================================================
(in thousands) 2001 2000
- ---------------------------------------------------------------------------
Benefit obligation at January 1 $163,203 $148,479
Service cost 6,451 6,618
Interest cost 10,776 11,073
Plan participant contributions 665 603
Plan amendments (2,900)
Actuarial (gain) loss (11,105) 5,637
Benefits paid (6,413) (6,307)
- ---------------------------------------------------------------------------
Benefit obligation at December 31 163,577 163,203
Unrecognized prior service cost (2,000) (2,228)
Unrecognized net actuarial gain 16,101 5,454
- ---------------------------------------------------------------------------
Accrued postretirement benefit
liability at December 31 $177,678 $166,429
===========================================================================
Pretax postretirement benefit expense included the following components:
===========================================================================
(in thousands) 2001 2000 1999
- ---------------------------------------------------------------------------
Service cost $ 6,451 $ 6,618 $ 6,452
Interest cost 10,776 11,073 9,631
Amortization of prior service cost 361 366 603
Recognized actuarial gain (600)
- ---------------------------------------------------------------------------
Net periodic postretirement benefit cost $16,988 $18,057 $16,686
===========================================================================
An 8.25% annual rate of increase in the per capita costs of covered health
care benefits was assumed for 2002, gradually decreasing to 5% by the year
2009 and remaining at that rate thereafter. Increasing the assumed health
care cost trend rates by one percentage point in each year would increase
the accumulated postretirement benefit obligation as of December 31, 2001 by
$27.2 million and increase the aggregate of the service cost and interest
cost components of net periodic postretirement benefit cost for 2001 by $3.6
million. Conversely, a one percentage point decline in the assumed health
care cost trend rates would lower the benefit obligation at the end of 2001
by $22.6 million and reduce the aggregate of the service and interest cost
by $2.9 million. A discount rate of 7.25% was used to determine the
accumulated postretirement benefit obligation as of December 31, 2001.
At December 31, 2000, the company's accumulated postretirement benefit
obligation was calculated using a discount rate of 7.5% and a health care
cost trend rate of 7.75% for 2000 decreasing to 5.25% by the year 2006.
-53-
NOTE 14. COMMITMENTS AND CONTINGENCIES
Commitments for capital expenditures amounted to $23 million at December 31,
2001.
Noncancelable leases require minimum rental payments through 2014 totaling
$197.8 million. Payments required for the years 2002 through 2006 are as
follows:
===========================================================================
(in thousands) 2002 2003 2004 2005 2006
- ---------------------------------------------------------------------------
$43,953 $38,415 $33,337 $19,769 $13,042
===========================================================================
These leases are principally for office space and equipment and contain
renewal and escalation clauses. Total rental expense amounted to $67.5
million in 2001, $70.2 million in 2000 and $70.1 million in 1999.
The company has guaranteed payment for office space occupied by certain of
its joint ventures. The company's partners 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. Dow Jones' share of
this obligation totals $24 million through 2011.
Various libel actions, environmental and other legal proceedings that have
arisen in the ordinary course of business are pending against the company
and its subsidiaries. In the opinion of management, the ultimate outcome to
the company and its subsidiaries as a result of legal proceedings will not
have a material effect on the company's financial statements. In addition
the company has insurance coverage for many of these matters.
NOTE 15. PER SHARE AMOUNTS
Basic earnings (loss) per share were $1.15 in 2001, $(1.35) in 2000 and
$3.01 in 1999. The per share amounts have been computed on the basis of the
weighted-average number of shares outstanding (85,691,000 shares in 2001,
87,854,000 shares in 2000 and 90,450,000 shares in 1999).
Diluted earnings (loss) per share have been computed as follows:
=========================================================================
(in thousands, except
per share amounts) 2001 (2) 2000 (3) 1999
- -------------------------------------------------------------------------
Net income (loss) $98,220 $(118,962) $272,429
Weighted-average shares
outstanding - basic 85,691 87,854 90,450
Stock options 371 559
Other, principally contingent
stock rights 196 142
------- --------- --------
Weighted-average shares
outstanding - diluted (1) 86,258 87,854 91,151
Diluted earnings (loss) per share $ 1.14 $(1.35) $2.99
=========================================================================
-54-
(1) The diluted average shares outstanding have been determined by assuming
the proceeds from the exercise of outstanding options were used to acquire
treasury stock at the average market value of the stock during the year.
(2) Options to purchase 3,193,000 shares in 2001 at an average price of
$61.26 were excluded from the diluted earnings per share calculation because
the options' exercise prices were greater than the average market price for
2001 and to include such securities would be antidilutive.
(3) Options and contingent stock rights outstanding at December 31, 2000 as
shown in Note 11 to the financial statements, have been excluded from the
diluted loss per share in 2000 because to include such securities would be
antidilutive. Including the dilution from outstanding options and
contingent stock rights would have resulted in weighted-average diluted
shares outstanding of 88,755,000 for the year 2000.
NOTE 16. BUSINESS SEGMENTS
Print publishing includes the operations of The Wall Street Journal and its
international editions, Barron's and other periodicals, as well as U.S.
television operations. Electronic publishing includes the operations of Dow
Jones Newswires, Dow Jones Indexes, the Online Journal, dowjones.com (up to
April 1, 2000 when it was contributed to Work.com) and other. Results in
1999 included Dow Jones Interactive, a significant portion of which was
contributed to Factiva on July 1, 1999. Ottaway Newspapers, the community
newspapers segment, publishes 19 daily papers, 14 Sunday papers and more
than 30 weeklies and shoppers in communities throughout the U.S.
The company's operations by business segment and geographic area were as
follows:
Financial Data by Business Segment
===========================================================================
(in thousands) 2001 2000 1999
- ---------------------------------------------------------------------------
REVENUES (1)
Print publishing $1,106,934 $1,518,946 $1,320,797
Electronic publishing (2) 317,986 327,569 349,998
Community newspapers 348,163 356,103 331,040
---------- ---------- ----------
Consolidated revenues $1,773,083 $2,202,618 $2,001,835
- ---------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES
AND MINORITY INTERESTS (3)
Print publishing $ 42,021 $ 400,157 $ 307,037
Electronic publishing (2) 26,921 40,297 35,110
Community newspapers 84,826 94,482 84,959
Corporate (43,569) (36,710) (37,565)
---------- ---------- ----------
Consolidated operating income 110,199 498,226 389,541
Equity in losses
of associated companies (17,181) (17,182) (27,907)
Gain on sale of
businesses and investments 24,053 51,945
Contract guarantee, net 17,136 (255,308)
Write-down of investments (8,827) (178,499)
Other income, net (1,639) 5,088 4,467
---------- ---------- ----------
Income before income taxes and
minority interests $ 99,688 $ 76,378 $ 418,046
- ---------------------------------------------------------------------------
-55-
===========================================================================
(in thousands) 2001 2000 1999
- ---------------------------------------------------------------------------
DEPRECIATION AND AMORTIZATION EXPENSE
Print publishing $ 65,668 $ 64,965 $ 62,562
Electronic publishing 22,421 25,261 23,262
Community newspapers 16,450 17,234 17,845
Corporate 1,174 425
---------- ---------- ----------
Consolidated depreciation and
amortization expense $ 105,713 $ 107,885 $ 103,669
- ---------------------------------------------------------------------------
ASSETS AT DECEMBER 31
Print publishing $ 823,861 $ 869,618 $ 813,623
Electronic publishing 148,963 171,224 183,379
Community newspapers 218,805 194,777 203,637
---------- ---------- ----------
Segment assets 1,191,629 1,235,619 1,200,639
Cash and investments 106,711 126,437 312,074
---------- ---------- ----------
Consolidated assets $1,298,340 $1,362,056 $1,512,713
- ---------------------------------------------------------------------------
CAPITAL EXPENDITURES
Print publishing $ 91,628 $ 157,553 $ 161,414
Electronic publishing 29,139 22,068 21,243
Community newspapers 7,992 7,414 8,082
---------- ---------- ----------
Consolidated capital expenditures $ 128,759 $ 187,035 $ 190,739
===========================================================================
Financial Data by Geographic Area
===========================================================================
(in thousands) 2001 2000 1999
- ---------------------------------------------------------------------------
REVENUES
United States $1,604,455 $2,008,987 $1,840,716
International 168,628 193,631 161,119
---------- ---------- ----------
Consolidated revenues $1,773,083 $2,202,618 $2,001,835
- ---------------------------------------------------------------------------
PLANT AND PROPERTY, NET OF
ACCUMULATED DEPRECIATION
United States $ 744,943 $ 743,660 $ 661,113
International 16,406 17,203 15,299
---------- ---------- ----------
Consolidated plant and property, net $ 761,349 $ 760,863 $ 676,412
===========================================================================
Notes:
(1) Revenues shown represent revenues from external customers. Transactions
between segments are not significant.
(2) The company's share of Factiva's results is included in equity in losses
of associated companies in the consolidated financial statements. Prior to
July 1, 1999, results of the interactive business were included in the
company's electronic publishing revenue, expenses and operating income.
-56-
(3) Excluding restructuring and other special charges, segment operating
income was as follows:
(in thousands) 2001 2000 1999
---- ---- ----
Print publishing $ 91,468 $400,157 $309,792
Electronic publishing 45,717 40,297 35,110
Community newspapers 85,147 94,482 84,959
Corporate (38,914) (36,710) (37,565)
-------- -------- --------
$183,418 $498,226 $392,296
Included within segment operating income in 2001 and 1999 were restructuring
and other special charges as follows:
(in thousands) 2001 1999
---- ----
Print publishing $49,447 $2,755
Electronic publishing 18,796
Community newspapers 321
Corporate 4,655
------ ------
Total restructuring and
other special charges $73,219 $2,755
NOTE 17. FINANCIAL INSTRUMENTS
Fair Value of Financial Instruments
The carrying values of the company's cash and cash equivalents, accounts
receivable and accounts payable approximate fair value. The fair value of
the following financial instruments, as of December 31, 2001 and 2000, was
determined primarily by reference to dealer markets and market prices.
===========================================================================
(in thousands) Fair Value Carrying Value
- ---------------------------------------------------------------------------
2001
Other investments $ 6,700 $ 6,700
Long-term debt 173,958 173,958
- ---------------------------------------------------------------------------
2000
Other investments $ 11,219 $ 11,219
Long-term debt 150,865 150,865
===========================================================================
Other investments includes marketable equity securities which are carried at
their market value. As of December 31, 2001, the market value of these
shares was $3.6 million reflecting a gross unrealized gain of $1.1 million.
See Note 3 regarding the realization of losses related to these investments
in 2001. As of December 31, 2000, the market value of shares outstanding
was $6.7 million reflecting a gross unrealized gain of $1.7 million and a
gross unrealized loss of $6.7 million. The balance of the other investments
is carried at original cost.
Foreign Currency Forward Exchange Contracts
The forward contracts establish the exchange rates at which the company will
purchase the contracted amount of local currencies for specified foreign
currencies at a future date. Forward exchange contracts mature at the
-57-
anticipated cash requirement date of the hedged transaction, within one
year. At December 31, 2001, there were no foreign currency forward
contracts outstanding. At December 31, 2000, the company had foreign
currency forward contracts outstanding to exchange $29.5 million for 20.2
million British pounds and $29 million for 32.5 million euro. As of
December 31, 2000, the unrealized gain on these contracts was $2.4 million.
Concentrations of Credit Risk
Financial instruments that potentially could subject the company to
concentrations of credit risk consist largely of trade accounts receivable.
The company sells print and electronic information products worldwide to a
wide variety of customers in the financial, business and private investor
marketplaces. The concentration of credit risk with respect to trade
receivables is slight due to the large number and geographic dispersion of
customers that comprise the company's customer base.
NOTE 18. SUMMARY OF QUARTERLY FINANCIAL DATA (UNAUDITED)
The summary of unaudited 2001 and 2000 quarterly financial data was as
follows:
===========================================================================
(in thousands, except Quarters
per share amounts) --------------------------------------
First Second Third Fourth Year
- ---------------------------------------------------------------------------
2001
Revenues $459,868 $484,126 $397,560 $431,529 $1,773,083
Operating income 15,656 55,759 28,667 10,117 110,199
Net income (1) 6,179 43,244 16,668 32,129 98,220
Per share:
Basic .07 .50 .20 .38 1.15
Diluted .07 .50 .19 .38 1.14
- ---------------------------------------------------------------------------
2000
Revenues $550,752 $593,157 $500,290 $558,419 $2,202,618
Operating income 135,509 157,905 83,267 121,545 498,226
Net income (2) 88,670 100,563 (33,896) (274,299) (118,962)
Per share*:
Basic .99 1.15 (.39) (3.15) (1.35)
Diluted .98 1.13 (.39) (3.15) (1.35)
===========================================================================
(1) In 2001, the company recorded the following after-tax items: a $23.5
million charge as a result of workforce reductions and related asset
writedowns ($9.1 million in the first quarter, $10.4 million in the second
quarter and $4 million in the fourth quarter); $19.3 million to record
losses related to the permanent relocation of certain personnel from the
company's World Financial Center headquarters (fourth quarter); $1 million
of expenses related to the September 11 terrorist attacks on The World Trade
Center (third quarter); and net special charges included in equity in losses
of $3.1 million ($1.6 million charge related to the shut-down of Work.com
(first quarter), a $.7 million gain due to the early extinguishment of debt
for CNBC Europe (third quarter) and a charge of $2.2 million on a lease
abandoned by SmartMoney (fourth quarter)). The company realized a loss of
$8.8 million in the third quarter related to the impairment in the value of
certain investments. In addition, the company recorded a net reversal of
losses from a contract guarantee of $17.1 million (income of $2.2 million in
the first quarter, $8.1 million in the second quarter and $8.4 million in
the third quarter offset by a $1.6 million charge in the fourth quarter).
-58-
The fourth quarter included a net tax savings of $30 million from the
adjustment of an income tax valuation allowance as a result of the expected
utilization of capital loss carryforwards.
(2) In 2000, the company recorded a net gain of $18.1 million on the sales
of businesses and investments: $9.5 million on the sale of its subsidiary,
Dow Jones Financial Publishing Corp. (first quarter); $4.8 million on the
sale of its minority interest in SportsTicker Enterprises L.P. (second
quarter); and $3.8 million on the exchange of the company's holdings in
NextVenue Inc. for shares issued through a merger of iBEAM Broadcasting
Corp. (fourth quarter). The company recorded write-downs totaling $178.5
million on its investments in 2000: $82.3 million on its Bridge Information
Systems, Inc. preferred stock in the third quarter; and $84.1 million on the
remaining value of its Bridge-related investments and $12.1 million on its
OptiMark Technologies, Inc. investment in the fourth quarter. In addition,
the company recorded a fourth quarter reserve of $255 million for a contract
guarantee related to the Telerate sale. Also, the company recorded a
reversal of a 1998 restructuring charge of $3.2 million ($2.1 million after
taxes) relating to an equity investee, in the second quarter.
* Per share amounts for the quarters and full years have each been
calculated separately. Accordingly, quarterly amounts may not add to the
annual amounts because of differences in the average common shares
outstanding during each period and, with regard to diluted per share amounts
only, because of the inclusion of the effect of potentially dilutive
securities only in the periods in which such effect would have been
dilutive.
NOTE 19. SUBSEQUENT EVENT (PENDING SALES)
On February 21, 2002, the company announced that it had reached an agreement
to sell four of its Ottaway Newspapers, Inc. properties to Community
Newspaper Holdings, Inc. for approximately $182 million, in cash. The
transaction is subject to regulatory approval and customary closing
conditions and is expected to be finalized by the end of the first quarter
of 2002. The properties to be sold are The Joplin Globe, Joplin, MO; The
Daily Independent, Ashland, KY; The Free Press, Mankato, MN; and The Herald,
Sharon, PA. The combined revenue for the four newspapers was $47 million
and operating income was $12 million in 2001.
While the tax implications of the sale have not yet been finalized, the
company expects a gain on the sale of these properties of about $156 million
($118 million after taxes, or $1.39 per diluted share), upon consummation of
the sale.
-59-
STATEMENT OF MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
To the Stockholders of Dow Jones & Company, Inc.:
Management has prepared and is responsible for the consolidated financial
statements and related information in the Annual Report. The financial
statements, which include amounts based on judgment, have been prepared in
conformity with generally accepted accounting principles consistently
applied.
Management has developed and continues to maintain a system of internal
accounting and other controls for the company and its subsidiaries.
Management believes these controls provide reasonable assurance that assets
are safeguarded from loss or unauthorized use and that the company's
financial records are a reliable basis for preparing the financial
statements. The company's system of internal controls is supported by
written policies, including a code of conduct, a program of internal audits,
and by a program of selecting and training qualified staff. Underlying the
concept of reasonable assurance is the premise that the cost of control
should not exceed the benefit derived.
PricewaterhouseCoopers LLP, independent accountants, have audited the
consolidated financial statements as described in their report. The report
expresses an independent opinion on the fairness of presentation of the
financial statements and, in so doing, provides an independent objective
assessment of the manner in which management meets its responsibility for
fairness and accuracy in financial reporting.
The Board of Directors, through its audit committee consisting solely of
outside directors, is responsible for reviewing and monitoring the company's
financial reporting and accounting practices. The audit committee meets
regularly with management, internal auditors and independent accountants - -
both separately and together. The internal auditors and the independent
accountants have free access to the audit committee to review the results of
their audits, the adequacy of internal accounting controls and the quality
of financial reporting.
-60-
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Dow Jones & Company, Inc.:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income (loss), stockholders' equity and cash
flows present fairly, in all material respects, the financial position of
Dow Jones & Company, Inc. and subsidiaries at December 31, 2001 and 2000,
and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 2001, in conformity with
accounting principles generally accepted in the United States of America.
These financial statements are the responsibility of the company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements
in accordance with auditing standards generally accepted in the United
States of America which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
New York, New York
January 24, 2002, except as to Note 19, which is dated February 21, 2002
-61-
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not applicable.
PART III.
ITEM 10. Directors and Executive Officers of the Registrant.
The information required by this item with respect to directors of the
company is incorporated by reference to the tables, including the footnotes
thereto, titled "Nominees for Election at the Annual Meeting," "Incumbent
Directors (Class of 2003)" and "Incumbent Directors (Class of 2004)" in the
2002 Proxy Statement and to the material in footnote 4 to the table under
the caption "Security Ownership of Directors and Management" in the 2002
Proxy Statement. The information required by this item with respect to
compliance with Section 16(a) of the Securities Exchange Act of 1934 is
incorporated by reference to the material under the caption "Section 16(a)
Beneficial Ownership Reporting Compliance" in the 2002 Proxy Statement. For
the information required by this item relating to executive officers, see
Part I, page 11 of this 2001 Form 10-K.
ITEM 11. Executive Compensation.
The information required by this item is incorporated by reference to the
tables, including the footnotes thereto, appearing under the captions
"Executive Compensation," "Separation Plan for Senior Management" and
"Jerome H. Bailey Retirement Agreement" in the 2002 Proxy Statement, and to
the material in the fifth through eighth paragraphs preceding the "Executive
Compensation" section in the 2002 Proxy Statement.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management.
The information required by this item is incorporated by reference to the
tables, including the footnotes thereto, appearing under the captions
"Security Ownership of Certain Beneficial Owners" and "Security Ownership of
Directors and Management" in the 2002 Proxy Statement.
ITEM 13. Certain Relationships and Related Transactions.
The information required by this item is incorporated by reference to
footnotes 1, 4 and 7 to the tables titled "Nominees for Election at the
Annual meeting," "Incumbent Directors (Class of 2003)" and "Incumbent
Directors (Class of 2004)" in the 2002 Proxy Statement.
-62-
PART IV.
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
14(a)(1)Financial Statements: Page Reference
--------------
Included in Part II, Item 8 of this report:
Consolidated statements of income (loss) for the
years ended December 31, 2001, 2000 and 1999 31
Consolidated statements of cash flows for the
years ended December 31, 2001, 2000 and 1999 32
Consolidated balance sheets, December 31, 2001
and 2000 33 - 34
Consolidated statements of stockholders' equity
for the years ended December 31, 2001, 2000 and 1999 35 - 36
Notes to financial statements 37 - 59
Statement of management's responsibility for
financial statements 60
Report of independent accountants 61
(a)(2) Financial Statement Schedule:
Included in Part IV of this report:
Report and consent of independent accountants 68
Schedule II - Valuation and qualifying accounts and reserve 69
Other schedules have been omitted since they are either not required or not
applicable.
-63-
(a) (3) Exhibits
Exhibit
Number Document
------- --------
3.1 The Restated Certificate of Incorporation of the company, as
amended April 25,1989, is hereby incorporated by reference to
Exhibit 10.15 to its Form 10-Q for the quarter ended June 30, 1999.
3.2 The By-laws of the company restated as of May 17, 1989 is hereby
incorporated by reference to Exhibit 10.16 to its Form 10-Q for the
quarter ended June 30, 1999.
4.1 Form of promissory note for commercial paper is hereby
incorporated by reference to Exhibit 4.1 to its Form 10-Q for the
quarter ended September 30, 1985.
4.2 Dow Jones 2001 Long-term incentive plan is hereby incorporated by
reference to Exhibit 4 to its form S-8 on May 17, 2001.
10.1 Deferred Compensation Contracts between the Company and various
officers and directors are hereby incorporated by reference to
Exhibit 20 to its Form 10-K for the year ended December 31, 1980.
10.2 Dow Jones 1981 Stock Option Plan, as amended, is hereby
incorporated by reference to Exhibit 20.2 to its Form 10-Q for
the quarter ended June 30, 1981.
10.3 Lease, as amended, between the Company and Olympia and York
Battery Park Company, of space in The World Financial Center, New
York City, is hereby incorporated by reference to Exhibit 10.9 to
its Form 10-K for the year ended December 31, 1983.
10.4 Dow Jones 1988 Executive Incentive Plan, as amended, is hereby
incorporated by reference to Exhibit 19 to its Form 10-Q for the
quarter ended June 30, 1988.
10.5 Lease, as amended, between the Company and Waterfront Associates,
of space at Harborside Plaza Two, Jersey City, N.J. is hereby
incorporated by reference to Exhibit 10.15 to its Form 10-K for
the year ended December 31, 1989.
10.6 Dow Jones 1991 Stock Option Plan, as amended, is hereby
incorporated by reference to Exhibit 19.2 to its Form 10-Q for
the quarter ended September 30, 1991.
10.7 Dow Jones 1992 Long term Incentive Plan is hereby incorporated by
reference to Exhibit 10 to its Form 10-Q for the quarter ended
March 31, 1992.
10.8 Dow Jones 1997 Long Term Incentive Plan is hereby incorporated
by reference to Exhibit 10 to its Form 10-Q for the quarter ended
March 31, 1997.
-64
Exhibit
Number Document
------- --------
10.9 Dow Jones 1998 Stock Option Plan is hereby incorporated by
reference to Exhibit 10.12 to its Form 10-Q for the quarter
ended March 31, 1998.
10.10 Separation Plan for Senior Management is hereby incorporated by
reference to Exhibit 10.13 to its Form 10-K for the year ended
December 31, 1998.
10.11 Retirement Agreement dated October 30, 2000 between the company
and Mr. Bailey is hereby incorporated by reference to
Exhibit 10.14 to its Form 10-K for the year ended
December 31, 2000.
10.12 364-Day Credit Agreement dated June 25, 2001 is hereby
incorporated by reference to Exhibit 10.1 to its Form 10-Q for
the quarter ended June 30, 2001.
10.13 5-Year Credit Agreement dated June 25, 2001 is hereby
incorporated by reference to Exhibit 10.2 to its Form 10-Q for
the quarter ended June 30, 2001.
21 List of Subsidiaries
23 Consent of PricewaterhouseCoopers LLP, independent accountants,
is contained on page 68 of this report.
(b) Reports on Form 8-K
Form 8-K, dated October 11, 2001
Form 8-K, dated December 6, 2001
-65-
Pursuant to the requirements of Section 13 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.
Dated: March 4, 2002 By: /s/ Christopher W. Vieth
-------------------------
Christopher W. Vieth
Vice President, Finance
and Corporate Controller
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
Peter R. Kann
- -------------------------- Chairman of the Board March 4, 2002
Chief Executive Officer
Richard F. Zaninno
- -------------------------- Executive Vice President March 4, 2002
Chief Financial Officer
Harvey Golub
- -------------------------- Director March 4, 2002
Roy Hammer
- -------------------------- Director March 4, 2002
Irvine O. Hockaday, Jr.
- -------------------------- Director March 4, 2002
Frank N. Newman
- -------------------------- Director March 4, 2002
-66-
Signature Title Date
--------- ----- ----
Christopher Bancroft
- -------------------------- Director March 4, 2002
James H. Ottaway, Jr.
- -------------------------- Director March 4, 2002
M. Peter McPherson
- -------------------------- Director March 4, 2002
Elizabeth Steele
- -------------------------- Director March 4, 2002
David K. P. Li
- -------------------------- Director March 4, 2002
Rand V. Araskog
- -------------------------- Director March 4, 2002
Leslie Hill
- -------------------------- Director March 4, 2002
Vernon E. Jordan, Jr.
- -------------------------- Director March 4, 2002
Dieter von Holtzbrinck
- -------------------------- Director March 4, 2002
-67-
INDEPENDENT ACCOUNTANTS' REPORT ON FINANCIAL STATEMENT SCHEDULE
---------------------------------------------------------------
To the Board of Directors and Stockholders of Dow Jones & Company, Inc.:
Our audits of the consolidated financial statements referred to in our
report dated January 24, 2002, except as to Note 19, which is dated February
21, 2002, appearing in the 2001 Annual Report to Stockholders of Dow Jones &
Company, Inc. (which report and consolidated financial statements are
incorporated in this Annual Report on Form 10-K) also included an audit of
the Financial Statement Schedule listed in Item 14(a)(2) of this Form 10-K.
In our opinion, this Financial Statement Schedule presents fairly, in all
material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.
PRICEWATERHOUSECOOPERS LLP
New York, New York
January 24, 2002
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We consent to the incorporation in the Registration Statements on Form S-3
(File No. 333-02071) and Form S-8 (File Nos. 2-72684, 33-45962, 33-45963,
33-49311, 33-55079, 333-57175, 333-70921, 333-67523 and 333-61138) of Dow
Jones & Company, Inc. of our report dated January 24, 2002, except as to
Note 19, which is dated February 21, 2002, which appears in the Annual
Report to Stockholders, which is incorporated in this Annual Report on Form
10-K. We also consent to the incorporation of our report dated January 24,
2002 relating to the financial statement schedule, which appears above.
PRICEWATERHOUSECOOPERS LLP
New York, New York
March 4, 2002
-68-
Schedule II
DOW JONES & COMPANY, INC.
and its Subsidiaries
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
for the years ended December 31, 2001, 2000 and 1999
(in thousands)
Additions
-------------------------
Balance at Charged to Charged Balance
Beginning Cost and to Other at End
Description of Period Expenses Accounts(A) Deductions of Period
- ----------- ---------- ---------- ---------- ---------- ---------
Year ended December 31, 2001:
Reserves deducted from assets -
Allowance for doubtful accounts $ 6,377 $ 6,395 $1,055 $ 8,217 (B) $ 5,610
======== ======== ====== ======= ========
Tax valuation allowance $340,707 $ 3,614 - 38,424 $305,897
======== ======== ====== ======= ========
Year ended December 31, 2000:
Reserves deducted from assets -
Allowance for doubtful accounts $ 5,919 $ 6,917 $1,213 $ 7,672 (B) $ 6,377
======== ======== ====== ======= ========
Tax valuation allowance $185,824 $158,662 - 3,779 $340,707
======== ======== ====== ======= ========
Year ended December 31, 1999:
Reserves deducted from assets -
Allowance for doubtful accounts $ 6,641 $ 3,228 $ 767 $ 4,717 (B) $ 5,919
======== ======== ====== ======= ========
Tax valuation allowance $222,504 - - $36,680 $185,824
======== ======== ====== ======= ========
Notes:
(A) Recoveries of accounts previously written off and reductions of revenue.
(B) Accounts written off as uncollectible and credits issued to customers.
-69-