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PAGE 1
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, 1997
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. ( )
Aggregate market value of common stock held by non-affiliates of the
registrant at January 30, 1998 was approximately $2,480,000,000.
The number of shares outstanding of each of the registrant's classes of
common stock on January 30, 1998: 75,203,827 shares of Common Stock and
21,550,889 shares of Class B Common Stock.
PAGE 2
PART I.
ITEM 1. Business.
Dow Jones & Company, Inc. (the company) is a global provider of
business news and information. Its operations are divided into three
industry segments: business publishing, financial information services and
general-interest community newspapers. Financial information about industry
segments and geographic areas is incorporated by reference to Note 16 to
the Financial Statements on pages 45 and 46 of this report.
The company currently has approximately 12,300 full-time employees.
About one-quarter of these employees are based outside the United States.
The company's principal executive offices are located at 200 Liberty Street,
New York, New York, 10281.
As discussed further in Management's Discussion and Analysis and shown
in the financial statements and related footnotes, the company recorded a
charge of $1.03 billion ($955.8 million after taxes) for the restructurings
of Dow Jones Markets, IDD Enterprises, L.P. and television operations. The
bulk of the charge represented a noncash write-down of goodwill and plant
and property of Dow Jones Markets.
During the fourth quarter of 1997, the company determined that the
previously announced $650 million investment program of Dow Jones Markets
would be substantially scaled back, while the company continued to review
other alternatives for Dow Jones Markets. The company initiated a cost
reduction program, which included the severance of 200-300 employees.
Additionally, the company determined its carrying value of Dow Jones Markets
was impaired and a write-down was necessary. At the time of this filing the
company expects to sell its Dow Jones Markets subsidiary shortly.
Separately in December 1997, the company and National Broadcasting
Company (NBC) agreed to a worldwide business television alliance. As part
of the agreement, the company's and CNBC's overseas operations merged,
resulting in equally-owned ventures in Europe and Asia. In the U.S., Dow
Jones entered into a multiyear license agreement to supply business news
programming to CNBC.
The company sold in 1997 its 35% interests in Bear Island Paper
Company, L.P., a newsprint mill, and Bear Island Timberlands Company, L.P.;
and the company's American Demographics subsidiary, a publisher of
information products serving the marketing industry. In the latter half of
1997, the company and its partner in DJA Partners discontinued its
commercial real estate online service. Also, in the first quarter of 1998,
the company completed the sales of its half-owned New York City television
station, WBIS+, and its minority interest in Mediatex Communications Corp.,
publisher of Texas Monthly magazine.
In 1997, Dow Jones began licensing the Dow Jones Industrial Average as
well as other indexes as the basis for the trading of options, futures, unit
trusts, annuities, mutual funds and specialized structured products. In
1998, Dow Jones and the leading exchanges of France, Germany and Switzerland
launched a series of indexes that will track the performance of certain
European equities, including broad-based measures as well as gauging the
market performance of countries that are expected to join the European
Monetary Union.
PAGE 3
Business Publishing
- -------------------
The business publishing segment contains the operations of the
company's Print Publications, which include The Wall Street Journal as well
as its international editions in Europe and Asia; Dow Jones Interactive
Publishing and some of the company's television operations.
Dow Jones' flagship publication, the domestic Wall Street Journal, is
the country's largest daily newspaper with average circulation for 1997 of
1,802,000. The Wall Street Journal is edited in New York City at the
company's executive offices. The Journal's three major regional editions
are printed at 17 plants located across the United States. The Wall Street
Journal offers advertisers the opportunity to focus their messages on
readers served by 17 localized editions and the option of advertising in
full color.
Since 1993, the Journal has been expanding its business and economic
trend regional coverage to select parts of the United States, including
Texas, Florida, California and the Southeast. In 1997, the Journal launched
specialized regional coverage for its readers in the New England market.
These Journal editions appear as a four-page weekly section included in
copies of The Wall Street Journal distributed in their respective markets
each Wednesday. The Journal also provides weekend-oriented coverage every
Friday, including Your Money Matters Weekend Report (an expanded personal-
finance column), a sports page, a travel page and a residential real estate
page. In 1998, this weekend-oriented coverage will be launched as a new
fourth section of the Journal on Fridays. "Weekend Journal" will provide
new editorial features and advertising. The Journal also publishes special
reports coverage of specific business and consumer topics such as executive
compensation, technology and personal finance.
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. The Wall Street Journal is delivered principally in two
ways: by second-class postal service and through the company's National
Delivery Service, Inc. subsidiary. In 1997 National Delivery Service on
average delivered over one million of the Journal's subscription copies each
publishing day. This system provides delivery earlier and more reliably
than the Postal Service. Approximately 224,000 copies of the Journal are
sold each business day at newsstands.
The Wall Street Journal Europe is headquartered in Brussels and printed
in Belgium, Switzerland, England and Germany. It is available on the day of
publication in continental Europe, the United Kingdom, the Middle East and
North Africa. The newspaper had average circulation in 1997 of 65,000. In
February 1998, the Journal Europe introduced an edition tailored especially
for the United Kingdom market.
PAGE 4
The Central European Economic Review is distributed as an insert in The
Wall Street Journal Europe and also sold separately by subscription. This
magazine, which covers political and business developments in the former
Soviet bloc, is published monthly. Convergence, which is a quarterly
magazine that reports on multimedia industries in Europe, also is delivered
as an insert in The Wall Street Journal Europe.
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 and beginning in 1997 to printing sites in Korea
and Taiwan. The Asian Wall Street Journal had average circulation of 56,000
in 1997.
All three print editions of the Journal draw on the resources of The
Wall Street Journal's worldwide news staff. 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.
The company began expanding its readership of 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
Wall Street Journal news content to other parts of the world. These Special
Editions are part of 34 newspapers in 29 countries. They are published in
11 different languages and serve a combined circulation in excess of seven
million.
Barron's, the Dow Jones Business and Financial Weekly, is a magazine
that specializes in reporting and commentary on financial markets. The
magazine, which had average circulation of 296,000 in 1997, uses some of
the facilities employed in the production of the domestic Wall Street
Journal. Barron's is edited in New York City and is delivered by second-
class postal service and through National Delivery Service. About 130,000
copies are sold at newsstands weekly.
Other business publications include the Far Eastern Economic Review,
Asia's leading English-language newsweekly; the National Business Employment
Weekly (NBEW), which contains career-related news features, job-related ads
from the Journal's regional editions and NBEW-specific advertising; and The
Wall Street Journal Classroom Edition, which is published nine times during
the school year and is used in more than 3,600 schools nationwide.
In early 1995 the company purchased Charter Financial Publishing Corp.
of Shrewsbury, New Jersey. Renamed Dow Jones Financial Publishing, the unit
is publisher of Dow Jones Investment Advisor and Dow Jones Asset Management
magazines and the Realty Stock Review.
SmartMoney, The Wall Street Journal Magazine of Personal Business, is
published jointly with Hearst Corp. SmartMoney increased its advertising
rate base to 700,000 copies effective with its January 1998 issue.
PAGE 5
Dow Jones Interactive Publishing is recognized as one of the nation's
leading publishers of electronic business and financial news and information
to financial professionals, private investors, corporate executives and
managers, as well as to information specialists in corporate libraries.
This business unit serves its customers' needs by delivering its information
products and services in a wide range of electronic media, including
personal computers, facsimile machines and radio. This group's products
include Dow Jones Interactive (the successor to Dow Jones News/Retrieval and
DowVision), The Wall Street Journal Interactive Edition and two radio
services. Also included in this unit are the operations of IDD Enterprises,
L.P. (IDD).
Dow Jones Interactive is available over the World Wide Web or through
Windows or Macintosh software interfaces. Dow Jones Interactive provides
its subscribers with a vast news library of over 5,000 publications,
including the full-text archive of The Wall Street Journal and Dow Jones
Newswires and roughly 1,200 non-U.S. sources. Additionally, Dow Jones
Interactive provides access to all of the 50 largest U.S. newspapers, as
well as the leading business magazines. World Reporter, a new online news
database launched in 1997 in conjunction with the Financial Times and Dialog
Corp., is available through Dow Jones Interactive and provides local and
regional coverage from multiple sources around the world.
Dow Jones Interactive Publishing has an alliance with Thomson Corp., in
which Thomson's WESTLAW is the exclusive computer-assisted legal research
service to offer integrated access to Dow Jones Interactive.
The Wall Street Journal Interactive Edition was introduced in April
1996 on the Internet's World Wide Web. The Interactive Journal offers
continuously updated news and market information from The Wall Street
Journal's global editions and Dow Jones Newswires, supplemental information
and access to Dow Jones Interactive's Publications Library. In 1997, the
Interactive Journal also added the contents of Barron's Online and
SmartMoney Interactive. The Interactive Journal began charging subscribers
in the latter part of 1996. At the end of 1997, this edition had over
150,000 subscribers, compared with roughly 50,000 at the end of 1996.
Dow Jones' radio products include two radio programs -- "The Wall
Street Journal Report" on AM stations and "The Dow Jones Report" on FM
stations. Together these programs are carried on about 145 stations and
reach roughly 80% of the United States.
At the end of 1997, IDD Enterprises' principal product was Tradeline, a
historical equity database. As part of the company's restructuring of
operations in 1997, IDD's print publishing business was sold and the company
initiated a plan to dispose of other nonstrategic assets of IDD.
PAGE 6
Also included in this business 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 will supply 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, will
be included as part of Equity in Associated Companies. In early 1998, NBC
and Dow Jones launched their business information channels in Europe and
Asia as CNBC, a service of NBC and Dow Jones. The new overseas services are
expected to reach in total nearly 25 million households on a full-time basis
and over 80 million households on a part-time basis.
Additionally as part of the television alliance with NBC, Dow Jones
will join Microsoft Corp. and NBC in certain interactive initiatives,
including supplying highlights of The Wall Street Journal Interactive
Edition 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 Internet's World Wide Web. In January 1997,
the company discontinued its business video service, the Dow Jones Investor
Network.
Financial Information Services
- ------------------------------
The financial information services segment of Dow Jones comprises the
operations of Dow Jones Markets, Dow Jones Newswires and the Dow Jones
Indexes group. This segment primarily serves the global financial services
industry.
In 1997, Dow Jones Markets revenue fell 8.7%, after a 1% percent rise
in 1996 and a 10% gain in 1995. This business has lost market share over
recent years largely due to strong competitive pressures. A review of
strategic alternatives for Dow Jones Markets has been under consideration.
Dow Jones expects to sell its Dow Jones Markets subsidiary shortly.
In 1997, as part of the investment program in Dow Jones Markets, the
company acquired Indepth Data, Inc., a provider of comprehensive historical
and real-time information on fixed-income instruments; entered into an
exclusive license of "The Beast" analytics software from CastleNet LLC; and
developed in cooperation with Microsoft Corp. the Active1 Workstation,
which provides traders with a more flexible workstation environment,
allowing customers to integrate their own programs and run multiple
applications simultaneously. Also, Dow Jones Markets significantly enhanced
its digital feed, delivering more individual data items.
In the second quarter of 1997, the company forged an alliance with
Nihon Keizai Shimbun, Inc. and Quick Corp. to develop Japan's largest and
most comprehensive equities service. This joint venture expands on Dow
Jones' global equities strategy, which includes a similar alliance with
Primark Corp. in Europe in 1996.
PAGE 7
Dow Jones Markets is one of the largest suppliers of real-time market
information and related services to financial professionals in over 90
countries around the world. Over two-thirds of Dow Jones Markets' revenues
are generated by its foreign operations.
The current foundation of the service rests on providing prices of U.S.
Treasury securities as well as information on foreign exchange,
international government bonds, global equities, energy, mortgage-backed
securities and a variety of money market instruments. In addition, Dow
Jones Markets provides global news coverage of the world's financial markets
and an array of services from outside information providers, ranging from
informed commentary on U.S. Federal Reserve actions to analysis of the
commodities markets. Dow Jones Markets offers the widest coverage available
of U.S. Treasury securities and provides value-added analytics in addition
to the price information distributed through its long-standing, exclusive
agreement with Cantor Fitzgerald Securities Corp. Dow Jones Markets is also
the exclusive distributor of real-time foreign exchange and money market
prices from M. W. Marshall & Company and Exco International, two of the
world's foremost foreign exchange brokers. Dow Jones Markets provides
products and software to help users analyze its live-market data.
The Dow Jones Platform, formerly Trading Room Systems, provides
advanced decision-support tools. Designed to serve the needs of large
trading rooms, the Dow Jones Platform has networking capabilities which
enable customers to link trading rooms worldwide. Running on powerful
desktop workstations using software compatible with Microsoft Windows, the
Dow Jones Platform consolidates several information, transaction and
analytic services into a single platform at a trader's desk.
The Dow Jones Workstation, introduced in early 1995, provides the
entire breadth of Dow Jones Markets' real-time market data and decision-
support products on a single, Windows-based platform. The Dow Jones
Workstation can be delivered as a stand-alone product or incorporated into a
customized trading room system.
The Dow Jones Tradestation, which is technical analysis software
designed to run on the Workstation, was introduced in January 1996. It
offers advanced charting and analytical power combined with access to all
Dow Jones Markets news, commentary and price information.
The Dow Jones Digital Page Feed fills the needs of customers who prefer
to receive any or all of Dow Jones Markets' data in the form of an
electronic feed that can be incorporated into their own information systems.
The digital feed offers these customers a highly reliable, timely and
selective information feed which can be integrated with their internal
distribution systems.
Matrix is a DOS-based product which helps customers to build
customized, full-color, market-specific pages using Dow Jones Markets data.
Matrix has modules to analyze the fixed income and foreign exchange markets.
This product is largely being phased out in favor of the Dow Jones
Workstation or a direct digital feed.
PAGE 8
The Dow Jones Indexes group develops, maintains and markets Dow Jones'
various index products. In 1997, the company began licensing the Dow Jones
Industrial Average as well as other indexes as the basis for the trading of
options, futures, unit trusts, annuities, mutual funds and specialized
structured products. In 1998, Dow Jones and the leading exchanges of
France, Germany and Switzerland launched a series of indexes that will track
the performance of certain European equities, including broad-based measures
as well as gauging the market performance of countries that are expected to
join the European Monetary Union.
In late 1996, the company and Primark Corp. formed a joint venture to
establish a comprehensive equity service. The Primark/Dow Jones Equities
service, which will be marketed to traders and investors in the United
Kingdom and Ireland, will combine Primark's equities information on British
companies with Dow Jones' global news and data.
Dow Jones News Service, which was expanded to a 24-hour service in
January 1997, 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, which is
incorporated into Dow Jones Markets' basic information package, is the
company's newswire that covers fixed income and financial futures markets
around the world.
The Dow Jones Newswires, produced outside the United States in
partnership with the Associated Press (AP), provide international economic,
business and financial news to subscribers in 65 countries. In addition to
two broad international newswires, the company and AP offer specialized
wires dedicated to the coverage of European equities, banking and the
markets in foreign exchange. Also other newswires provided in partnership
with the AP include the World Equities Report newswire, which serves
domestic institutions investing in international markets and State/Local
Alert, which provides exclusive news about municipal bond markets.
Dow Jones Markets' Emerging Markets Report provides information on the
emerging capital markets of developing countries, with particular emphasis
on Latin America, by combining Dow Jones Markets' live market prices with
news from Dow Jones and the Associated Press, plus market commentary from
Thomson Financial Services.
The Dow Jones Asian Equities Report, launched in 1994, covers 15 Asian-
Pacific stock markets and news of the companies traded on them.
Headquartered in Singapore, the service draws on the staffs of the Dow Jones
Newswires, The Asian Wall Street Journal and Far Eastern Economic Review, as
well as its own editors and reporters.
Washington-based Federal Filings publishes newswires, newsletters and
investment research based on its coverage of federal regulatory agencies,
Capitol Hill and bankruptcy courts nationwide. Federal Filings' products
include Federal Filings Business News, a real-time newswire covering SEC
filings; Daily Bankruptcy Review, a compendium of large bankruptcy filings
throughout the U.S.; and 13F Advance, which analyzes the equity portfolio
changes of prominent money managers. Federal Filings also offers Edgar
Direct, which provides real-time access to the full text of SEC filings.
PAGE 9
Community Newspapers
- --------------------
Community newspapers published at year-end 1997 by Ottaway Newspapers,
Inc., a wholly-owned subsidiary, include 19 general-interest dailies in
California, Connecticut, Kentucky, Massachusetts, Michigan, Minnesota,
Missouri, New Hampshire, New York, Oregon and Pennsylvania. Average
circulation of the dailies during 1997 was approximately 572,000; Sunday
circulation for 13 newspapers was approximately 524,000. The principal
administrative office of Ottaway Newspapers is in Campbell Hall, New York.
The primary delivery method for the newspapers is private delivery.
Other
- -----
Dow Jones' investments include a minority interest in United States
Satellite Broadcasting Company, Inc., a provider of direct satellite
programming; Nation Multimedia Group Public Co., Ltd., a Bangkok, Thailand,
publisher of English and Thai-language magazines and newspapers;
AmericaEconomia, a Spanish-language business magazine in South America; VWD-
Vereinigte Wirtschaftsdienste GmbH, a German news agency specializing in
business and economic news and information; Minex Corporation, a minority-
owner of Electronic Broking Service, a provider of a foreign exchange
trading service; HB-Dow Jones S.A., a part-owner of a publishing company in
the Czech Republic; Optimark Technologies, Inc, a developer of trading
systems for equities; Delta Clearing Corp., an option clearing service; and
a newsprint mill in Canada.
Raw Materials
- -------------
The primary raw material used by the company is newsprint. In 1997
approximately 270,000 metric tons were consumed. Newsprint was purchased
principally from 14 suppliers. F.F. Soucy, Inc. & Partners, L.P., Riviere
du Loup, Quebec, Canada, and Bear Island Paper Company, Richmond, Virginia,
furnished 14.5% and 17.1%, respectively, of total newsprint requirements.
The company has signed long-term contracts with certain newsprint suppliers,
including F.F. Soucy and Bear Island Paper Company, for a substantial
portion of its annual newsprint requirements. The company is a limited
partner in F.F. Soucy and was formerly a limited partner in Bear Island
Paper Company. In December 1997, the company sold its 35% interest in Bear
Island Paper Company. For many years the available sources of newsprint
have been adequate to supply the company's needs.
Research and Development
- ------------------------
Research and development expenses were $116,420,000 in 1997,
$73,974,000 in 1996 and $66,710,000 in 1995.
PAGE 10
Year 2000
- ---------
The "Year 2000" presents significant issues for Dow Jones, because of
the technology-intensive nature of its operations. In 1996, the company
established a project team responsible for identifying and resolving Year
2000 issues. These efforts include, but are not limited to, identification
and review of internal operating systems and applications, and customer
products and services, as well as discussions with information providers and
other key suppliers to the business. Remediation costs for problems
identified thus far are not material to the financial statements taken as a
whole. In some cases, modifying existing computer software is not cost
beneficial, and the systems themselves are being replaced. The company has
established a timetable for resolving Year 2000 issues so as not to
interrupt ongoing operations.
Competition
- -----------
The business publications of the company remain 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. In addition,
specialized magazines in the economics field, as well as general news
magazines, publish substantial amounts of business 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
company's business publications also compete with television and radio for
advertisers.
The Dow Jones Interactive Publishing group competes with various
business information services, including Dialog Corp. and divisions of Reed
Elsevier PLC which have greater market share. The Interactive Publishing
group 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.
The company believes that Reuters Holdings PLC ("Reuters"), a company
headquartered in London, whose shares are publicly traded in the United
States and the UK, is its most significant competitor currently providing,
on a worldwide basis, financial information display services closely
comparable to those furnished by Dow Jones Markets although other companies,
primarily Bloomberg L.P., Bridge Information Systems, Inc., Automated Data
Processing Corporation, ILX Systems, Inc., McGraw-Hill, Inc. and Quick
Corporation of Japan are also in the business of providing financial
information displayed on video screens to customers. The company believes
that Reuters has more subscribers and video screens displaying its
information than the company on a worldwide basis. The company believes
that Bloomberg L.P. is its primary competitor in the fixed income segment of
the financial services market, particularly in the United States.
PAGE 11
Dow Jones' nascent index-licensing business competes with various
organizations that develop and license indexes, including McGraw-Hill, Inc.,
Financial Times, Morgan Stanley and Capital International. Dow Jones
competes with these organizations in developing benchmarks of equity market
performance to which investable products may be linked.
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.
All of the community newspapers operating under Ottaway Newspapers,
Inc. compete with metropolitan general interest newspapers, and most compete
with other newspapers available in their respective sales areas.
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, research, computer and
operations staff. These facilities are located in South Brunswick, New
Jersey, and Chicopee Falls, Massachusetts.
Dow Jones occupies two major leased facilities in New York City,
including 400,000 square feet at the World Financial Center, which primarily
houses editorial and executive staff, and 89,000 square feet at a separate
location for advertising sales staff. The company also leases other
business and editorial offices in numerous locations around the world,
including 50,000 square feet in two locations in Hong Kong.
Dow Jones Markets leases approximately 160,000 square feet at five
locations in New York City, 375,000 in Jersey City, New Jersey, 140,000 at
five locations in London, England, 94,000 at three locations in Toronto,
Ontario, 53,000 at three locations in Singapore and 40,000 at five locations
in Hong Kong. In addition, Dow Jones Markets leases space around the world
for its operations.
PAGE 12
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; Beverly, Hyannis, New Bedford, Gloucester, Nantucket,
Peabody, Salem and Newburyport, Massachusetts; Traverse City, Michigan;
Mankato, Minnesota; Joplin, Missouri; Exeter and Portsmouth, New Hampshire;
Middletown, Oneonta, Plattsburgh and Port Jervis, New York; Medford, Oregon;
and Grove City, Sharon, Stroudsburg and Sunbury, Pennsylvania. Local
printing facilities, which include office space, total approximately 1.2
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. It is
estimated that between 74% and 87% of the capacity of the company's existing
production facilities is being utilized.
Item 3. Legal Proceedings
Not applicable.
ITEM 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
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 30, 1998, was 12,100 for common stock
and 4,600 for class B common stock. The company paid $.96 per share in
dividends in 1997 and in 1996.
============================================================================
Market Price 1997 Market Price 1996
----------------- -----------------
Quarters Dividends Dividends
Ended High Low Paid 1997 High Low Paid 1996
- ----------------------------------------------------------------------------
March 31 $46 1/8 $33 3/8 $.24 $41 $38 $.24
June 30 42 1/4 37 5/8 .24 41 7/8 34 3/4 .24
September 30 50 3/8 40 1/16 .24 41 7/8 37 .24
December 31 55 7/8 42 13/16 .24 37 3/4 31 7/8 .24
============================================================================
PAGE 13
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) 1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------
Revenues $2,572,518 $2,481,592 $2,283,761 $2,090,977 $1,931,816
(Loss) income
before
cumulative
effect of
accounting
changes $(802,132) $189,969 $189,572 $181,180 $147,547
Net (loss) income $(802,132) $189,969 $189,572 $178,173 $147,547
- ----------------------------------------------------------------------------
Per Share Amounts:
Basic:
(Loss) income before
cumulative effect
of accounting
changes $(8.36) $1.96 $1.96 $1.83 $1.48
Net (loss) income $(8.36) $1.96 $1.96 $1.80 $1.48
Diluted:
(Loss) income before
cumulative effect
of accounting
changes $(8.36) $1.95 $1.94 $1.82 $1.47
Net (loss) income $(8.36) $1.95 $1.94 $1.79 $1.47
Dividends $ .96 $ .96 $ .92 $ .84 $ .80
- ----------------------------------------------------------------------------
Total assets $1,919,734 $2,759,631 $2,598,700 $2,445,766 $2,349,539
Long-term debt,
including
current portion $234,124 $337,618 $259,253 $300,870 $266,391
============================================================================
PAGE 14
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
In 1997, the company incurred a net loss of $802.1 million, or $8.36
per common share, compared with earnings in 1996 of $190 million, or $1.96
per common share. The loss in 1997 included charges totaling $1.03 billion
($955.8 million after taxes) for the impairment of value of Dow Jones
Markets and other ("restructuring") charges. Gains of $52.6 million ($31.3
million after taxes) from the disposal of certain businesses and investments
were also recorded in 1997. Net income in 1996 included a gain of nine
cents per share from the sale of the company's interest in Press-Enterprise
Company. Excluding the above nonrecurring items, earnings in 1997 fell 32%,
to $122.4 million, or $1.27 per common share. A sharp decline in Dow Jones
Markets operating results outweighed strong operating gains by the business
publishing and community newspaper segments and initial licensing fees for
the Dow Jones Averages.
The restructuring charges of $1.03 billion included a $1 billion charge
to operating expenses to reflect the impairment of value and restructuring
at Dow Jones Markets and for the restructurings of IDD Enterprises, L.P. and
domestic television operations. Additionally, the company recorded a $29.7
million charge to Equity in Losses of Associated Companies for the
company's share of restructuring costs of its overseas television ventures.
The charge to operating expenses, of which roughly 98% related to Dow Jones
Markets, was composed of noncash write-downs of goodwill of $868.3 million
and plant and property of $104 million, severance costs of $22.2 million and
other costs totaling $6.7 million.
In the first quarter of 1997, the company began a $650 million
multiyear investment program to revitalize and expand its Dow Jones Markets
business unit. The intent was to build a more flexible distribution
infrastructure and add historical databases as well as broaden the number of
products and services. In January 1997, the company's Board of Directors
approved spending for 1997. As the project progressed, spending for
subsequent years would be reviewed on an ongoing basis. During the year,
management provided the Board of Directors with progress reports for its
review. Spending on the investment program in 1997 totaled roughly $170
million, which included the acquisition of Indepth Data, Inc. and the
licensing of "The Beast" analytics software from CastleNet LLC as well as
the development of the Active1 Workstation and other non-product
initiatives.
During the fourth quarter of 1997, the company determined that while it
had made progress in areas of product development, content enhancement and
customer service, Dow Jones Markets' existing product revenues were
declining at a faster pace than had been anticipated. Additionally,
expected revenues in 1998 from Dow Jones Markets' new and emerging products
were more modest than had been expected at the outset of the revitalization
plan. Based on revised estimates, the long-term return on the
revitalization plan was less compelling than at its outset, and the company
decided to substantially scale back the plan, while continuing to review
other alternatives for Dow Jones Markets. In the fourth quarter, the
company initiated a cost reduction program, which included the reduction of
200-300 employees by early 1998.
PAGE 15
Additionally, in accordance with the company's accounting policies and
practices, the company determined its carrying value in Dow Jones Markets
was impaired and a write-down was necessary. The write-down, which reduced
Dow Jones Markets carrying value to approximately $550 million, reflected
the company's estimate of Dow Jones Markets' fair market value as of the
date of the determination. Whether or not any additional write-down will be
taken with respect to Dow Jones Markets will depend largely on the price and
terms obtained in any sale of Dow Jones Markets. At the time of this
filing, Dow Jones expects to sell its Dow Jones Markets subsidiary shortly.
Separately in December 1997, the company and National Broadcasting
Company (NBC) agreed to a worldwide business television alliance. As part
of the agreement, the company's and CNBC's overseas television operations
merged, resulting in equally-owned ventures in Europe and Asia. In the
U.S., Dow Jones entered into a multiyear license agreement to supply
business news programming to CNBC. The company's share of overseas
television restructuring charges of $29.7 million comprised the bulk of its
total television restructuring cost. This charge primarily related to
certain operating lease redundancies.
At the end of 1997, IDD Enterprises' principal product was Tradeline, a
historical equity database. As part of the company's restructuring of
operations in 1997, IDD's print publishing business was sold and the company
initiated a plan to dispose of other nonstrategic assets of IDD. The
restructuring charge for IDD principally reflected the write-down of
goodwill.
The consolidated operating loss in 1997 was $742 million, compared with
operating income of $337 million a year ago. Excluding restructuring
charges, operating income fell 23.1% from 1996. Revenues in 1997 grew $90.9
million, or 3.7%, to $2.57 billion, as higher advertising revenue from The
Wall Street Journal and upfront licensing revenue from the Dow Jones
Averages were tempered by an 8.7% decline in Dow Jones Markets revenue.
Wall Street Journal advertising linage was up 13.4% in 1997, which followed
a 13.9% increase a year earlier. On a consolidated basis, domestic
revenues, which composed 73% of total revenues, climbed 8.1%, while revenues
from foreign operations fell 6.9%. Expenses, excluding restructuring costs,
increased $168.6 million, or 7.9%, largely as a result of spending on the
revitalization plan at Dow Jones Markets, and increased content acquisition
and advertising-volume related costs.
Net income in 1996 of $190 million was flat compared with 1995
earnings. In 1995, net income included a net enhancement of one cent per
share consisting of a six-cents-per-share gain on the sale of 80% of
SportsTicker and a five-cents-per-share loss on an operating lease.
Excluding nonrecurring items, net income in 1996 dropped 4% from 1995 as a
downturn at Dow Jones Markets, continued investments in television, and a
fall-off in equity results from newsprint mill partnerships more than offset
earnings gains from Print Publications. Operating income of $337 million
in 1996 advanced $32.9 million, or 10.8%. Revenues in 1996 of $2.48 billion
rose $197.8 million, or 8.7%, with roughly two-thirds of the increase
attributable to higher advertising revenue. Expenses of $2.14 billion
increased $164.9 million, or 8.3%, in part due to enhanced news content,
additional selling efforts and continued investment in product initiatives
at the company's Dow Jones Markets, Dow Jones Interactive Publishing and
Television units.
PAGE 16
In 1995, net income of $189.6 million increased $11.4 million, or 6.4%,
from 1994. Operating income in 1995 declined $54.3 million, or 15.1%,
reflecting a drop-off in business publishing segment profits, which were
negatively affected by a sharp rise in newsprint prices and the start-up of
the company's television operation in Europe.
SEGMENT DATA
A summary of the results of operations for each of the company's
principal business segments as well as financial data by geographic area is
displayed in Note 16 to the financial statements.
Dow Jones' business operations are aligned into the following three
segments: business publishing, financial information services and community
newspapers.
Business publishing contains the company's Print Publications, Dow
Jones Interactive Publishing and some television operations. Business
publishing, which serves the business consumer marketplace, accounted for
over half of the company's revenue in 1997.
Financial information services includes Dow Jones Markets, Dow Jones
Newswires and the Dow Jones Indexes group. This segment primarily serves
the worldwide financial services industry -- including traders and brokers
- -- with real-time business and financial news, quotes, trading systems and
analytical tools. Financial information services comprised about 37% of the
company's revenue in 1997.
The community newspapers segment consists of the company's Ottaway
Newspapers, Inc. subsidiary, which publishes 19 daily newspapers as well as
various weekly publications in communities throughout the United States.
The community newspapers segment contributed about 12% of companywide
revenues.
BUSINESS PUBLISHING
Operating income of $218.6 million in 1997 increased $59.2 million, or
37.1%. This segment's operating margin increased to 16.6% in 1997, from
13.1% in 1996 and 9.1% in 1995. Excluding restructuring charges of $21.8
million for IDD Enterprises, L.P. and domestic television operations, 1997
operating income advanced $81 million, or 51%. The strong rise in operating
profits followed a $63.9 million, or 67%, gain in 1996 and a $61.9 million,
or 39%, decline in 1995. This segment's growth in 1997 and 1996 was largely
driven by double-digit advertising volume gains at The Wall Street Journal
coupled with lower newsprint prices. In 1995, the segment was negatively
affected by a substantial rise in the price of newsprint, the start-up of
the company's television operation in Europe and an $8.4 million loss on an
operating lease.
In 1997, business publishing segment revenues grew $105.9 million, or
8.7%, to $1.32 billion, while expenses increased $46.7 million, or 4.4%, to
$1.1 billion.
PAGE 17
Print Publications, which is the largest component of this segment and
includes the results of The Wall Street Journal and its international
editions in Europe and Asia, Barron's and other periodicals, had a revenue
increase of 9.4% in 1997. The revenue increase was principally from
increased advertising volume. Wall Street Journal advertising linage
increased 13.4% in 1997, which followed gains of 13.9% in 1996 and 2.2% in
1995.
All three principal Journal advertising categories achieved linage
gains in 1997. General advertising, which composed 57% of total Journal
linage, grew 17%, benefitting from increased advertising from technology
companies and the automotive industry. General linage advanced 6.1% in 1996
and 5.1% in 1995. Financial advertising, which represented 30% of Journal
linage and includes advertising from investment and trading firms and
security offerings, grew 6.4% in 1997, after a 34% increase in 1996 and a
decline of 3.1% in 1995. Classified and other linage rose 13% in 1997,
after gains of 2.2% in 1996 and 2.7% in 1995.
Advertising linage for the European and Asian Wall Street Journals grew
10.7% and 5.6% in 1997, respectively. Barron's national advertising pages,
which are largely dependent on financial advertising, rose 6.8% in 1997,
after a sharp rise of 31.6% in 1996 and a drop-off of 17.5% in 1995. The
Far Eastern Economic Review's advertising volume fell 7.8% in 1997,
following a decrease of 4.7% in 1996 and an increase of 15.3% in 1995.
Average circulation for the domestic Wall Street Journal declined
slightly to 1,802,000 in 1997 from 1,807,000 in 1996, but was up from
circulation of 1,796,000 in 1995. Circulation for the international
editions of The Wall Street Journal continued to grow with Europe and Asia,
combined, posting average 1997 circulation of 121,000, up about 4% from a
year earlier and up roughly 8% from 1995. Barron's average circulation in
1997 was 296,000, up from 294,000 in 1996 and 281,000 in 1995.
Expenses for the Print Publications group rose just 2.5% in 1997, as
higher costs related to advertising volume and increased selling efforts
were somewhat mitigated by lower newsprint prices. Newsprint expense was
down about 6.5% in 1997, reflecting a 13% decrease, on average, in prices
and a 7% rise in tons consumed. In 1996, Print Publications expenses
climbed 8%, in part the result of higher advertising-volume related
expenses. Newsprint expense in 1996 was up 7%, due to a 10% increase in
tons consumed with a 3% dip in prices.
Dow Jones Interactive Publishing, which includes the results of Dow
Jones Interactive (formerly, Dow Jones News/Retrieval), The Wall Street
Journal Interactive Edition and IDD Enterprises, L.P. (IDD), had a revenue
increase of 3.9% in 1997, largely due to increased advertising and
subscription revenue from the Interactive Journal. At December 31, 1997,
subscribers to the Interactive Journal totaled over 150,000, compared with
roughly 50,000 a year earlier. Dow Jones Interactive Publishing operating
expenses climbed 22%, largely reflecting the write-down of IDD's assets,
principally goodwill, higher content acquisition costs and increased
expenses from Interactive Journal operations. Excluding the IDD
restructuring charge, expenses for Dow Jones Interactive Publishing rose
10.9%.
PAGE 18
Operating losses of the Television group contained within the business
publishing segment were roughly 25% lower in 1997 compared with 1996.
Excluding restructuring costs, the operating loss was 36% better than a year
before. The improvement was largely the result of the discontinuation in
January 1997 of the Dow Jones Investor Network and improved operating
results of European Business News.
Pretax losses from the company's worldwide television ventures,
excluding restructuring costs, totaled $48 million in 1997, which
approximated the loss incurred in 1996, but exceeded the $38 million loss in
1995.
The number of full-time employees for the business publishing segment
at the end of 1997 was down 2% from a year earlier, as expansion in Wall
Street Journal staff was more than offset by reductions in television
operations.
FINANCIAL INFORMATION SERVICES
The restructuring charge for Dow Jones Markets was $979.5 million, of
which 97% constituted a noncash write-down of goodwill and plant and
property. After comparing the expected cash inflows attributable to Dow
Jones Markets in relation to its carrying value, the company determined its
carrying value in Dow Jones Markets was impaired and a write-down was
necessary. The write-down reduced Dow Jones Markets carrying value to
approximately $550 million. The remaining portion of the charge was
principally composed of accrued severance costs. Including the
restructuring charge, the financial information services segment recorded an
operating loss of $993 million in 1997, compared with operating profits of
$155.8 million in 1996. Excluding the restructuring charge, the segment
posted a $13.5 million loss in 1997, largely resulting from an 8.7% decline
in Dow Jones Markets revenue and increased costs from the revitalization
program.
Segment revenues in 1997 fell $28 million, or 2.9%, to $951.7 million.
Dow Jones Markets revenue declined 8.7%, or 4.4% excluding foreign exchange,
in part the result of price reductions of its products due to intensifying
competitive pressures over recent years. The number of Dow Jones Markets
terminals in the marketplace remained relatively unchanged from recent
years, at about 94,000 terminals. Somewhat offsetting the Dow Jones Markets
revenue decline in 1997 was a revenue increase of 7.6% for the company's
newswires and $31 million in upfront one-time fees for licensing the Dow
Jones Averages. Segment revenues from foreign operations were down 9.8%, or
3.8% excluding foreign exchange, with revenue declines in both Europe and
Asia. Domestic revenues, including the upfront licensing revenue, were up
8.4%. Excluding the restructuring charge, financial information services
expenses increased $141.3 million, or 17.1% with roughly half of the
increase attributable to expenses for the Dow Jones Markets revitalization
program.
In 1996, operating income for the financial information services
segment fell $41.2 million, or 20.9%, to $155.8 million. Revenues of $979.7
million increased $18.3 million, or 1.9%, while expenses of $823.9 million
climbed $59.5 million, or 7.8%. Excluding the effect of foreign exchange
rate fluctuations, revenues and expenses were up 1.4% and 8.2%,
respectively; and operating income declined $48.8 million, or 24.8%.
PAGE 19
Dow Jones Markets posted a 1% revenue increase in 1996, while Dow Jones
Newswires generated 7% revenue growth. Segment revenues from foreign
operations rose 2.6%, while domestic revenues were up just 0.8%. Modest
revenue gains for European operations, achieved from sales of trading room
systems, were partially offset by a slight revenue decline in the Asia/
Pacific region. Financial information services expenses increased as a
result of additional spending on acquiring third-party content, heightened
sales efforts and higher costs for trading room systems.
The number of full-time employees in the financial information services
segment at December 31, 1997 was up 13.6% from a year earlier, largely due
to expanded staffs for the company's newswires, staffing for the Dow Jones
Markets revitalization program and the acquisition of Indepth Data Inc., a
provider of comprehensive historical and real-time information on fixed-
income instruments.
COMMUNITY NEWSPAPERS
In 1997, community newspapers operating income of $50.6 million rose
$6.8 million, or 15.6%, from $43.8 million earned a year earlier. Revenues
of $300.6 million advanced $13.1 million, or 4.6%, largely as a result of
rate increases. Advertising revenue grew 5%, with an advertising linage
increase of 0.7%. Circulation revenue advanced 2.6%. Average daily
circulation declined to 572,000, from 574,000 in 1996 and 576,000 in 1995.
Segment expenses rose $6.3 million, or 2.6%, as increased employee
compensation was softened by a 10.5% decline in newsprint expense.
Community newspapers 1996 operating income increased $10.8 million, or
32.7%, to $43.8 million. Revenues of $287.5 million advanced $14.6 million,
or 5.4%. Advertising revenue grew 5%, despite a 1.2% drop in advertising
linage, and circulation revenue climbed 6.4%. Expenses increased just $3.8
million, or 1.6%, as the segment benefitted from a decline in newsprint
prices, strict cost controls and efficiencies achieved from consolidating
three operations in Essex County, Massachusetts in the second half of 1995.
Newsprint expense for this segment was down roughly 2% in 1996.
STAFFING COSTS
At December 31, 1997, the company employed 12,309 full-time employees,
up 3.9% from 11,844 at year-end 1996 and up 9.6% from the 11,232 employees
at year-end 1995. As previously stated, as part of the restructuring of
operations in 1997, the company incurred severance costs of $22.2 million,
principally associated with the work force reduction at Dow Jones Markets.
Salaries and wages, including severance costs, increased 12.9% in 1997 (9.7%
without severance), following increases of 9.5% and 12.3% in 1996 and 1995,
respectively.
PAGE 20
OTHER INCOME/DEDUCTIONS
Equity in Losses of Associated Companies was $49.3 million in 1997,
compared with a loss of $5.4 million in 1996 and earnings of $14.2 million
in 1995. The loss in 1997 included a $29.7 million charge from
restructuring overseas television ventures as a result of the global
television alliance with NBC. Additionally, equity results since the end of
1995 have been adversely affected by an annual decline in earnings at the
company's newsprint mill affiliates as well as incremental losses from
television partnerships, including ITT-Dow Jones Television and Asia
Business News; and from DJA Partners, a commercial online real estate
service venture.
On May 12, 1997, Dow Jones and ITT Corp. entered into an agreement to
sell their television station, WBIS+, to Paxson Communications Corp. The
sale of the station was completed on March 6, 1998. The company recorded a
modest gain upon the sale. Additionally in the latter half of 1997, the
company and its partner in DJA Partners discontinued the commercial real
estate online service.
Gains on the disposition of businesses and investments were $52.6
million in 1997, $14.3 million in 1996 and $13.6 million in 1995. Results
in 1997 included a $6.2 million gain in the first quarter on the sale of the
company's American Demographics subsidiary, a publisher of information
products serving the marketing industry; and a $46.4 million gain in the
fourth quarter from the sale of its interest in Bear Island Paper Company,
L.P., a newsprint mill, and Bear Island Timberlands Company, L.P. In 1996,
the $14.3 million gain resulted from the sale of the company's minority
interest in Press-Enterprise Company, a general-interest newspaper in
Riverside, California; while in 1995 the $13.6 million gain was largely the
result of the sale of 80% of the company's interest in SportsTicker, a real-
time sports news and information company.
Included in Other, net in 1997 was a $6.4 million loss on foreign
exchange, compared with foreign exchange losses of $78,000 in 1996 and
$358,000 in 1995.
INCOME TAXES
In 1997, the company recorded tax expense of $37.8 million on pretax
losses of $763.9 million. The bulk of the restructuring charge in 1997
comprised a write-down of goodwill, which was largely nondeductible for tax
purposes. In 1996, the effective income tax rate edged up to 44.6% from
43.3% in 1995. Excluding the effect of nondeductible goodwill in each year,
the effective tax rate was 37.6% in 1997, 39.7% in 1996 and 38.4% in 1995.
The lower 37.6% effective rate was in part due to the favorable settlement
of certain tax issues.
PAGE 21
INVESTMENTS
The company invested a total of $79.6 million in businesses and
investments in 1997, which included the purchase of Indepth Data, Inc.,
additional investments in television ventures in the U.S. and Asia, as well
as investments in OptiMark Technologies, Inc., a developer of trading
systems for equities.
During 1996, businesses and investments acquired totaled $145.1
million. Investments mainly consisted of the acquisition with partner ITT
Corp. of WNYC-TV, renamed WBIS+, from the city of New York. Also, the
company made additional investments in Asia Business News, DJA Partners and
Minex, a minority-partner in Electronic Broking Service, a provider of a
foreign exchange trading service.
FINANCIAL POSITION
Cash provided by operations was $459.8 million in 1997, up $54.6
million from 1996's $405.2 million, and $87.9 million more than the
$371.9 million generated in 1995. The increase in cash from operations in
1997 versus 1996 was in part due to improved collections of accounts
receivable. During 1997, principally using cash provided by operations, the
company paid dividends of $92 million and funded capital expenditures of
$348 million. Also in 1997, the company received $128.6 million from the
disposal of certain investments and paid down debt by $103.5 million. At
December 31, 1997 debt outstanding, including the current portion, was
$234.1 million. At the end of 1997, the debt-to-equity ratio was 30%,
versus 20.5% at the end of 1996. Stockholders' equity dropped to $781
million at December 31, 1997 from $1.64 billion at the end of 1996.
In 1998, the company expects cash provided by operations to be
sufficient to meet its normal recurring operating commitments, fund capital
expenditures of approximately $175 million and pay dividends of roughly $92
million. Capital spending in 1998 will include upgrading printing
facilities and electronic publishing infrastructure and continued
construction of office space. Additionally in the first quarter of 1998,
the company received about $127 million from investment sales, namely WBIS+
and Mediatex Communications Corp., publisher of Texas Monthly magazine.
The company can repurchase 2.1 million shares under the current
authorization from the company's Board of Directors. These additional
shares may be acquired as market and other conditions warrant.
The company's liquidity requirements that exceed cash provided by
operations are regularly funded through the issuance of commercial paper,
which is supported by a $400 million revolving credit agreement with several
banks through November 1999. Currently, the company has authorization from
its Board of Directors to borrow up to $700 million. Borrowings may be in
the form of commercial paper, bank borrowings, or notes under a $300 million
shelf registration statement filed with the Securities and Exchange
Commission. At December 31, 1997, commercial paper of $63 million and long-
term notes of $150 million due December 1, 2000 were outstanding.
PAGE 22
OUTLOOK
The company has been exploring strategic alternatives for its Dow Jones
Markets business unit and expects to sell that unit shortly. At this time,
the company cannot determine with any certainty the effect of such a sale on
consolidated results. Any additional write-down with respect to Dow Jones
Markets will depend on the price and terms obtained in any sale, but it is
likely that a significant additional write-down will be taken. However,
earnings after such a sale will improve as losses from this business unit
will be eliminated. Earnings exclusive of nonrecurring items are expected
to improve moderately in 1998.
The company anticipates an earnings enhancement from the business
publishing segment and lower interest expense, due to a lower average debt
level in 1998 relative to 1997. Additionally, 1998 results will benefit
from the realignment of television operations and IDD Enterprises as well as
discontinuing DJA Partners. Dow Jones Indexes licensing revenue, which
included significant upfront fees in 1997, is expected to decline in 1998,
as the fees earned become more dependent on the volume of transactions of
products based on the Dow Jones Indexes.
Business publishing revenues are expected to be up modestly in 1998.
Revenue growth is anticipated to come mainly from advertising rate increases
and volume gains at Dow Jones Interactive Publishing. On January 1, 1998,
advertising rates at The Wall Street Journal and Barron's were raised about
4%. The overseas Journal editions raised ad rates by an average of 6%.
Changes in the domestic Journal's advertising volume are unpredictable and
are in large part dependent on the U.S. economy and specifically, on the
activity in financial markets. Expenses in 1998 for this segment are
expected to increase modestly over its 1997 level, as higher Print
Publications expenses due to newsprint rate hikes are expected to be
cushioned by lower television operating expenses. As part of the business
television alliance with NBC, the company's European television venture, in
which the company held a majority interest, became a 50/50 partnership and
will be included as part of Equity in Associated Companies in 1998.
Newsprint prices at the end of 1997 were roughly 18% higher than at 1996's
year-end.
Global television pretax losses are expected to fall significantly from
1997's television loss of $48 million, excluding restructuring costs. The
company expects to benefit from the television alliance with NBC as well as
a favorable comparison with 1997. The first half of 1997 included start-up
losses from Dow Jones' and ITT Corp.'s New York television station, WBIS+,
which has been sold.
Operating earnings from the community newspapers segment are expected
to be constrained in 1998, as the segment is adversely affected by higher
newsprint prices. Revenues are anticipated to rise in line with increases
seen in recent years due to advertising and circulation rate increases.
PAGE 23
The "Year 2000" presents significant issues for Dow Jones, because of
the technology-intensive nature of its operations. In 1996, the company
established a project team responsible for identifying and resolving Year
2000 issues. These efforts include, but are not limited to, identification
and review of internal operating systems and applications, and customer
products and services, as well as discussions with information providers and
other key suppliers to the business. Remediation costs for problems
identified thus far are not material to the financial statements taken as a
whole. In some cases, modifying existing computer software is not cost
beneficial, and the systems themselves are being replaced. The company has
established a timetable for resolving Year 2000 issues so as not to
interrupt ongoing operations.
INFORMATION RELATING TO FORWARD-LOOKING STATEMENTS
Management's Discussion and Analysis and other sections of this Form
10-K include forward-looking statements that reflect the company's current
expectations or beliefs concerning future results and events. The words
"expects," "intends," "believes," "anticipates," "likely," "will," and
similar expressions identify forward-looking statements. These forward-
looking statements are subject to certain risks and uncertainties which
could cause actual results and events to differ materially from those
anticipated in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, the timing, price and
terms of any sale of Dow Jones Markets; rapid technological changes and
frequent new product introductions prevalent in the financial information
services and electronic publishing industries; product obsolescence due to
advances in technology and shifts in market demand; competition from
increased availability of financial information, including through the
Internet, and resulting price pressures; business conditions (growth or
consolidation) in the financial services and banking industries; economic
and stock market conditions, particularly in the U.S., Asia and Europe, and
their impact on advertising sales and sales of the company's products and
services; cost of newsprint; adverse verdicts in legal proceedings,
including libel actions; adverse decisions by federal regulators; risks
associated with the development of television channels in competitive
foreign markets, including the ability to produce or obtain desired
programming, to sell advertising time at desired rates, to achieve
sufficient distribution and to attract audiences; risks associated with
foreign operations, including currency and political risks; the cost of
resolving the company's Year 2000 software issues or untimely resolution of
its Year 2000 issues; 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.
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk.
The company believes that its financial instruments as shown in
Footnote 17 on page 47 of this Form 10-K are not subject to material market
risk.
PAGE 24
ITEM 8. Financial Statements and Supplementary Data
CONSOLIDATED STATEMENTS OF (LOSS) INCOME
Dow Jones & Company, Inc.
For the years ended December 31, 1997, 1996 and 1995
==============================================================================
(in thousands except per share amounts) 1997 1996 1995
- ------------------------------------------------------------------------------
REVENUES:
Information services $1,101,696 $1,125,625 $1,092,002
Advertising 1,011,864 896,981 771,779
Circulation and other 458,958 458,986 419,980
- ------------------------------------------------------------------------------
Total revenues 2,572,518 2,481,592 2,283,761
- ------------------------------------------------------------------------------
EXPENSES:
News, operations and development 899,868 820,564 748,945
Selling, administrative and general 895,707 831,270 764,161
Newsprint 152,478 164,766 157,047
Second class postage and carrier delivery 114,442 110,256 103,497
Depreciation and amortization 250,734 217,756 206,070
Restructuring (Note 2) 1,001,263
- ------------------------------------------------------------------------------
Operating expenses 3,314,492 2,144,612 1,979,720
- ------------------------------------------------------------------------------
Operating (loss) income (741,974) 336,980 304,041
OTHER INCOME (DEDUCTIONS):
Investment income 3,473 4,249 5,379
Interest expense (19,367) (18,755) (18,345)
Equity in (losses) earnings of
associated companies (Notes 2 & 4) (49,311) (5,408) 14,193
Gain on disposition of businesses and
investments (Note 3) 52,595 14,315 13,557
Other, net (9,300) (121) 4,075
- ------------------------------------------------------------------------------
(Loss) income before income taxes and
minority interests (Note 8) (763,884) 331,260 322,900
Income taxes (Note 8) 37,796 147,728 139,878
- ------------------------------------------------------------------------------
(Loss) income before minority interests (801,680) 183,532 183,022
Minority interests in (earnings) losses
of subsidiaries (452) 6,437 6,550
- ------------------------------------------------------------------------------
NET (LOSS) INCOME $ (802,132) $ 189,969 $ 189,572
==============================================================================
PER SHARE (Note 13):
Basic:
Net (loss) income $(8.36) $1.96 $1.96
Weighted-average shares outstanding 95,993 96,703 96,907
- ------------------------------------------------------------------------------
Diluted:
Net (loss) income $(8.36) $1.95 $1.94
Weighted-average shares outstanding 95,993 97,371 97,675
- ------------------------------------------------------------------------------
Cash Dividends $ .96 $ .96 $ .92
==============================================================================
The accompanying notes are an integral part of the financial statements.
PAGE 25
CONSOLIDATED BALANCE SHEETS
Dow Jones & Company, Inc.
December 31, 1997 and 1996
===============================================================================
(dollars in thousands) 1997 1996
-------------------------------------------------------------------------------
ASSETS:
Current Assets:
Cash and cash equivalents $ 23,763 $ 6,769
Accounts receivable -- trade, net of
allowance for doubtful accounts of
$16,445 in 1997 and $16,234 in 1996 295,250 313,205
Inventories (Note 5) 13,104 10,840
Deferred income taxes (Note 8) 16,565 18,369
Prepaid expenses 25,991 26,442
Other current assets 29,091 28,060
Investment in associated company,
held for disposal (Note 4) 102,789
-------------------------------------------------------------------------------
Total current assets 506,553 403,685
-------------------------------------------------------------------------------
Investments in associated companies, at equity (Note 4) 46,064 215,478
Other investments (Notes 6 & 17) 85,290 99,587
Plant and property, at cost (Note 2):
Land 26,234 26,319
Buildings and improvements 394,646 370,616
Equipment 1,970,903 1,780,990
Construction in progress 59,806 41,565
-------------------------------------------------------------------------------
2,451,589 2,219,490
Less, accumulated depreciation 1,667,552 1,480,090
-------------------------------------------------------------------------------
784,037 739,400
Excess of cost over net assets of businesses
acquired, less write-down of $868,333 in 1997 and
accumulated amortization of $407,405 in 1997
and $368,873 in 1996 (Note 2) 387,787 1,272,489
Deferred income taxes (Note 8) 93,045 7,914
Other assets 16,958 21,078
-------------------------------------------------------------------------------
Total assets $1,919,734 $2,759,631
===============================================================================
The accompanying notes are an integral part of the financial statements.
PAGE 26
===============================================================================
(dollars in thousands) 1997 1996
-------------------------------------------------------------------------------
LIABILITIES:
Current liabilities:
Accounts payable -- trade $ 147,378 $ 104,491
Accrued wages, salaries and commissions 70,011 70,453
Profit sharing and other retirement plan
contributions payable (Note 10) 45,913 40,815
Other payables 97,048 76,021
Income taxes (Note 8) 53,895 63,868
Unearned revenue 252,832 240,239
Current maturities of long-term debt (Note 6) 5,318 5,318
-------------------------------------------------------------------------------
Total current liabilities 672,395 601,205
Long-term debt (Notes 6 & 17) 228,806 332,300
Deferred compensation, principally postretirement
benefit obligation (Note 11) 179,798 164,006
Other noncurrent liabilities 57,913 18,127
-------------------------------------------------------------------------------
Total liabilities 1,138,912 1,115,638
-------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY:
Common stock, par value $1 per share; authorized
135,000,000 shares; issued 80,621,254 shares
in 1997 and 80,514,161 shares in 1996 80,621 80,514
Class B common stock, convertible, par value $1
per share; authorized 25,000,000 shares; issued
21,559,767 shares in 1997 and 21,666,860 shares
in 1996 21,560 21,667
-------------------------------------------------------------------------------
102,181 102,181
Additional paid-in capital 136,398 134,434
Retained earnings 707,539 1,601,787
Unrealized gain on investments (Note 17) 3,396 12,353
Cumulative translation adjustment (9,540) (5,896)
-------------------------------------------------------------------------------
939,974 1,844,859
Less, treasury stock, at cost; 5,511,285 shares in
1997 and 6,735,782 shares in 1996 159,152 200,866
-------------------------------------------------------------------------------
Total stockholders' equity 780,822 1,643,993
-------------------------------------------------------------------------------
Total liabilities and stockholders' equity $1,919,734 $2,759,631
===============================================================================
PAGE 27
CONSOLIDATED STATEMENTS OF CASH FLOWS
Dow Jones & Company, Inc.
For the years ended December 31, 1997, 1996 and 1995
======================================================================================
(in thousands) 1997 1996 1995
--------------------------------------------------------------------------------------
OPERATING ACTIVITIES:
Net (loss) income $(802,132) $189,969 $189,572
Adjustments to reconcile net (loss) income to
net cash provided by operating activities:
Write-down of goodwill 868,333
Write-down of plant and property 104,040
Depreciation 205,525 174,189 163,051
Amortization of excess of cost over net
assets of businesses acquired 45,209 43,567 43,019
Gain on disposition of businesses and investments (52,595) (14,315) (13,557)
Gain on disposition of plant and property (840) (1,696) (1,827)
Loss on operating lease 8,412
Minority interests in earnings (losses)
of subsidiaries 452 (6,437) (6,550)
Equity in losses (earnings) of associated
companies, net of distributions 55,525 21,289 (1,714)
Changes in assets and liabilities:
Accounts receivable - trade 15,132 (40,099) (36,423)
Unearned revenue 20,329 6,808 7,863
Inventories (2,409) 1,912 (2,180)
Other current assets 2,216 (2,998) (8,563)
Accounts payable and accrued liabilities 63,519 17,214 16,168
Income taxes (5,470) (2,283) 952
Deferred taxes (76,111) (3,994) (1,377)
Deferred compensation 15,792 14,484 15,271
Other noncurrent liabilities 2,279 7,900 115
Other, net 969 (353) (345)
--------------------------------------------------------------------------------------
Net cash provided by operating activities 459,763 405,157 371,887
--------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Additions to plant and property (347,797) (232,178) (218,765)
Disposition of plant and property 9,580 13,549 13,451
Businesses and investments acquired, net of
cash received (79,616) (145,145) (74,186)
Disposition of businesses and investments 128,621 23,877 22,066
Return of capital by investees 1,448 20
Proceeds from guaranteed investment contract 5,318 5,318 5,318
Loans to investees (1,047) (649) (10,402)
--------------------------------------------------------------------------------------
Net cash used in investing activities (284,941) (333,780) (262,498)
--------------------------------------------------------------------------------------
PAGE 28
FINANCING ACTIVITIES:
Cash dividends (92,116) (92,969) (89,131)
Increase in long-term debt 32,310 144,129 172,285
Reduction of long-term debt (135,854) (65,811) (214,544)
Proceeds from sales under stock purchase plans 38,100 21,259 17,430
Purchase of treasury stock (88,704)
Contributions from minority partner 5,416 9,142
--------------------------------------------------------------------------------------
Net cash used in financing activities (157,560) (76,680) (104,818)
--------------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (268) (1,595) (1,792)
--------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 16,994 (6,898) 2,779
Cash and cash equivalents at beginning of year 6,769 13,667 10,888
--------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 23,763 $ 6,769 $ 13,667
======================================================================================
The accompanying notes are an integral part of the financial statements.
PAGE 29
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Dow Jones & Company, Inc.
For the years ended December 31, 1997, 1996 and 1995
======================================================================================================================
Class B Additional Treasury Stock
(in thousands Common Common Paid-in Retained Other -------------------
except shares) Stock Stock Capital Earnings Adjustments Shares Amount Total
- ----------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 $80,162 $22,019 $134,017 $1,404,346 $(6,219) (5,556,839) $(152,714) $1,481,611
Net income - 1995 189,572 189,572
Dividends, $.92 per share (89,131) (89,131)
Translation adjustment 633 633
Conversion of class B common
stock into common stock 104 (104)
Capital changes of investee (242) (242)
Sales under stock purchase
plans 1,123 624,698 18,185 19,308
- ----------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 80,266 21,915 134,898 1,504,787 (5,586) (4,932,141) (134,529) 1,601,751
Net income - 1996 189,969 189,969
Dividends, $.96 per share (92,969) (92,969)
Unrealized gain on
investments 12,353 12,353
Translation adjustment (310) (310)
Conversion of class B common
stock into common stock 248 (248)
Capital changes of investee (37) (37)
Sales under stock purchase
plans (427) 666,459 22,367 21,940
Purchase of treasury stock (2,470,100) (88,704) (88,704)
- ----------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 80,514 21,667 134,434 1,601,787 6,457 (6,735,782) (200,866) 1,643,993
Net loss - 1997 (802,132) (802,132)
Dividends, $.96 per share (92,116) (92,116)
Unrealized loss on
investments (Note 17) (8,957) (8,957)
Translation adjustment (3,644) (3,644)
Conversion of class B common
stock into common stock 107 (107)
Capital changes of investee (223) (223)
Sales under stock purchase
plans (Note 9) 2,187 1,224,497 41,714 43,901
- ----------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 $80,621 $21,560 $136,398 $ 707,539 $(6,144) (5,511,285) $(159,152) $ 780,822
======================================================================================================================
The accompanying notes are an integral part of the financial statements.
PAGE 30
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. The equity method of
accounting is used for companies and other investments in which the
company's common stock ownership or partnership equity is at least 20% and
not more than 50% (see Note 4). All significant intercompany transactions
are eliminated in consolidation and all earnings or losses of subsidiaries
that are attributable to minority owners are removed from consolidated
earnings.
CASH EQUIVALENTS are highly liquid investments with a maturity of three
months or less when purchased.
INVENTORIES are stated at the lower of cost or market. The cost of
newsprint, which is the principal component of inventories, is computed by
the last-in, first-out (LIFO) method. Remaining inventories include
equipment purchased for resale to customers, which is based on specific
identification, and other inventories, primarily spare parts to service
maintenance contracts which are stated at average cost (see Note 5).
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 of these
investments are recorded directly to Stockholders' Equity, net of deferred
taxes. 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 Note 17).
DEPRECIATION is computed using straight-line or declining-balance
methods over the estimated useful lives of the respective assets or terms of
the related 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.
MAINTENANCE AND REPAIRS are charged to expense as incurred. Major
renewals, betterments and additions are capitalized.
THE EXCESS OF COST OVER NET ASSETS OF BUSINESSES ACQUIRED (GOODWILL) is
amortized using the straight-line method over various periods, principally
forty years. The company evaluates annually whether there has been a
permanent impairment in the value of goodwill. Any impairment would be
recognized when the sum of expected undiscounted cash flows derived from the
acquired business is less than its carrying value. If such an impairment
occurred, the amount of the impairment would be based on the fair value of
the acquired business as determined by the market value of comparable
companies or the present value of expected cash flows. In the fourth
quarter of 1997, the company determined the carrying value of goodwill
attributable to its Dow Jones Markets subsidiary was impaired and recorded a
significant charge to consolidated results of operations. (see Note 2)
PAGE 31
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 (see Note
8).
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 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 losses included in Other, net in the income statement
totaled $6,391,000 in 1997, $78,000 in 1996 and $358,000 in 1995.
FORWARD EXCHANGE CONTRACTS are entered into to hedge contractual
revenue streams from foreign currency exchange rate fluctuations. As such,
these nonspeculative forward exchange contracts are not recorded on the
company's balance sheets. Also, unrealized gains and losses on these
forward exchange contracts are deferred and recognized upon settlement of
the related transactions. Accordingly, cash flows resulting from forward
exchange contract settlements are classified as cash provided by operations
as are the corresponding cash flows from the revenue streams being hedged
(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
monthly basis, over the subscription period. Costs in connection with the
procurement of subscriptions are charged to expense as incurred. Revenue
from licensing the Dow Jones Averages includes both certain upfront one-time
fees and ongoing revenues. The one-time fees, which totaled $31 million in
1997, are recorded to income when received. Ongoing licensing revenue is
recognized in income as earned over the license period.
RESEARCH AND DEVELOPMENT expenditures are charged to expense as
incurred. Research and development expenses were $116,420,000 in 1997,
$73,974,000 in 1996 and $66,710,000 in 1995.
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.
PAGE 32
NOTE 2. RESTRUCTURING CHARGES
The company recorded a charge to operating expenses of $1 billion
($936.5 million after taxes) in 1997's fourth quarter, reflecting the write-
down of goodwill and plant and property, severance and other costs.
Substantially all of the charge related to restructuring Dow Jones Markets;
however, a small portion of the charge, roughly 2%, was attributable to
restructurings of IDD Enterprises, L.P. and certain television operations in
the U.S.
During the fourth quarter of 1997, the company reviewed its previously
announced $650 million multiyear revitalization plan of Dow Jones Markets.
It was concluded that the plan would be substantially scaled back, while the
company continued to review other alternatives for Dow Jones Markets. The
company further concluded that the carrying value of its investment in Dow
Jones Markets was impaired and a write-down should be recorded.
Additionally, the company commenced a plan to reduce its Dow Jones Markets
work force by 200-300 employees by early 1998. The reduction of staff will
be largely in worldwide Dow Jones Markets technical, administrative and
sales positions.
As the table below indicates, the main component of the restructuring
charge was a noncash write-down of goodwill and plant and property. After
measuring the carrying value of Dow Jones Markets against its projected cash
inflows, it was determined the aggregate of future cash inflows was
insufficient to recover the company's carrying value of Dow Jones Markets.
The write-down reflects the company's assessment of Dow Jones Markets' fair
market value.
The restructuring charge was composed of the following:
============================================================================
(in thousands)
- ----------------------------------------------------------------------------
Write-down of goodwill $ 868,333
Write-down of plant and property 104,040
Severance 22,154
Other 6,736
- ----------------------------------------------------------------------------
Total restructuring $1,001,263
============================================================================
Separately in December 1997, the company and National Broadcasting
Corp. (NBC) agreed to a worldwide business television alliance. As part of
the agreement, the company's and CNBC's overseas television operations
merged, resulting in equally-owned ventures in Europe and Asia. In the
U.S., Dow Jones entered into a multiyear license agreement to supply
business news programming to CNBC.
In the fourth quarter of 1997, Dow Jones recorded a charge of $29.7
million ($19.3 million after taxes) for its share of restructuring costs for
its overseas television ventures. This charge, which principally related to
operating lease redundancies, was included in Equity in Losses of Associated
Companies.
PAGE 33
NOTE 3. ACQUISITIONS AND DISPOSITIONS
In the second quarter of 1997, the company purchased Indepth Data Inc.,
a provider of comprehensive historical and real-time information on fixed-
income instruments for $23.5 million in cash. The acquisition was accounted
for by the purchase method.
The first quarter of 1997 included a gain of $6.2 million ($3.6 million
after taxes) from the sale of the company's American Demographics
subsidiary, a publisher of information products serving the marketing
industry. In the fourth quarter of 1997, the company recognized a gain of
$46.4 million ($27.7 million after taxes) from the sale of its 35% interests
in Bear Island Paper Company, L.P., a newsprint mill, and Bear Island
Timberlands Company, L.P.
The third quarter of 1996 included a gain of $14.3 million ($8.8
million after taxes) from the sale of the company's minority interest in
Press-Enterprise Company, a newspaper publisher in Riverside, California.
In the first quarter of 1995, the company recognized a gain of $13.4
million ($5.8 million after taxes) from the sale of 80% of its interest in
SportsTicker, a real-time sports news and information company.
NOTE 4. INVESTMENTS IN ASSOCIATED COMPANIES, AT EQUITY
At December 31, 1997, the principal components of investments in
associated companies, at equity were the following: a 40% interest in F.F.
Soucy, Inc. & Partners, L.P., an operator of a newsprint mill located in
Quebec, Canada; a 31% interest in Mediatex Communications Corp., publisher
of Texas Monthly magazine; a 42% ownership in HB-Dow Jones S.A., a part-
owner of a publishing company in the Czech Republic; a 50% interest in
Business News (Asia) Private, a business and financial news television
company broadcasting in Asia; and a 50% interest in SmartMoney, a joint
venture with The Hearst Corporation to publish SmartMoney magazine, a
monthly publication serving the personal-investor market throughout the U.S.
and Canada.
In addition to the above investments held at December 31, 1997,
investments in associated companies at December 31, 1996 included 35%
interests in Bear Island Paper Company, L.P. and Bear Island Timberlands,
L.P., which were sold in 1997's fourth quarter (see Note 3); a 50% interest
in DJA Partners, a developer of an online real estate service which was
discontinued in the latter half of 1997; and a half-interest in ITT-Dow
Jones Television, which owns a television station in New York City. On May
12, 1997, Dow Jones and ITT Corp. entered into an agreement to sell the
station to Paxson Communications Corp. At year-end 1997, the sale of the
station was pending regulatory approval, which is expected in 1998.
Accordingly, the company's investment in this venture has been classified as
current on the consolidated balance sheet. The company expects to record a
modest gain upon consummation of the sale.
PAGE 34
Dow Jones & Company has entered long-term contracts with Bear Island
Paper Company, L.P. and 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 Bear
Island Paper of $25,095,000 in 1997, $29,509,000 in 1996 and $30,022,000 in
1995 and F.F. Soucy of $21,598,000 in 1997, $26,417,000 in 1996 and
$25,353,000 in 1995.
NOTE 5. INVENTORIES
Inventories as of December 31 were composed of the following:
============================================================================
(in thousands) 1997 1996
- ----------------------------------------------------------------------------
Newsprint inventory $11,590 $ 9,329
Other, principally equipment for resale 1,514 1,511
- ----------------------------------------------------------------------------
Total inventories $13,104 $10,840
============================================================================
Newsprint inventory was determined by the last-in, first-out (LIFO)
method. If newsprint inventory had been valued by the average cost method,
it would have been approximately $9,240,000 and $7,355,000 higher in 1997
and 1996, respectively.
NOTE 6. LONG-TERM DEBT
Long-term debt at December 31 was as follows:
============================================================================
(in thousands) 1997 1996
- ----------------------------------------------------------------------------
Commercial paper, 5.95% to 6.15% at December 31, 1997 $ 63,015 $161,242
Notes payable, 5.75%, due December 1, 2000 149,836 149,785
Note payable, Associated Press, 7.75% 21,273 26,591
- ----------------------------------------------------------------------------
234,124 337,618
Less: current portion 5,318 5,318
- ----------------------------------------------------------------------------
Total long-term debt $228,806 $332,300
============================================================================
Payments on long-term debt are due as follows: $5,318,000 in 1998,
$68,334,000 in 1999, $155,154,000 in 2000 and $5,318,000 in 2001. Interest
payments were $18,386,000 in 1997, $18,916,000 in 1996 and $16,679,000 in
1995.
PAGE 35
The company can borrow up to $400 million through November 16, 1999,
under a revolving credit agreement with several 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 C/D rate or the federal funds rate. An annual fee of
0.08% is payable on the commitment which the company may terminate or reduce
at any time. Prepayment of borrowings may be made without penalty.
Although there were no borrowings under the agreement as of December 31,
1997, the company intends to maintain the commitment at least through
December 31, 1998. Accordingly, commercial paper was classified as long-
term.
The company and the banks amended certain restrictive covenants
contained in the revolving credit agreement, including restrictions on net
worth. At December 31, 1997, with respect to restrictive covenants then in
effect, consolidated indebtedness was approximately $900 million less than
the maximum borrowing allowed and the company's cash flow, as defined in the
agreement, far exceeded that required.
In December 1995, the company sold $150 million of 5.75% notes due
December 1, 2000. The notes are general unsecured obligations of the
company and may not be redeemed prior to maturity.
The note payable to the Associated Press is owed by the company in
equal annual principal payments of $5,318,000 which commenced in 1991. The
company purchased a Guaranteed Investment Contract from an insurance company
which is included in Other Investments. The contract provides for payments
to the company of interest and principal that match the payments owed the
Associated Press.
NOTE 7. 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.
NOTE 8. INCOME TAXES
The components of (loss) income before income taxes and minority interests
were as follows:
============================================================================
(in thousands) 1997 1996 1995
- ----------------------------------------------------------------------------
Domestic $(118,627) $258,616 $208,173
Foreign (645,257) 72,644 114,727
- ----------------------------------------------------------------------------
$(763,884) $331,260 $322,900
============================================================================
PAGE 36
The following is a reconciliation of income tax expense (benefit) to the
amount derived by multiplying (loss) income before income taxes and minority
interests by the statutory federal income tax rate of 35%.
============================================================================
% of % of % of
Loss Income Income
Before Before Before
(in thousands) 1997 Taxes 1996 Taxes 1995 Taxes
- ----------------------------------------------------------------------------
(Loss) income before taxes
multiplied by statutory
federal income tax rate $(267,359) (35.0) $115,941 35.0 $113,015 35.0
Write-down of nondeductible
goodwill 326,807 42.8
State and foreign taxes,
net of federal income
tax effect (31,377) (4.1) 14,454 4.4 12,864 4.0
Amortization of
nondeductible goodwill 15,969 2.0 16,124 4.9 16,422 5.1
Research and development
credits (4,456) (0.6) (2,550) (0.8) (6,113) (1.9)
Other, net (1,788) (0.2) 3,759 1.1 3,690 1.1
- ----------------------------------------------------------------------------
$ 37,796 4.9 $147,728 44.6 $139,878 43.3
============================================================================
Income tax expense was as follows:
============================================================================
(in thousands) Federal State Foreign Total
- ----------------------------------------------------------------------------
1997
Currently payable $ 79,086 $ 21,405 $15,685 $116,176
Deferred (62,961) (12,120) (3,299) (78,380)
- ----------------------------------------------------------------------------
Total $ 16,125 $ 9,285 $12,386 $ 37,796
============================================================================
1996
Currently payable $ 98,366 $ 25,319 $30,186 $153,871
Deferred 750 (6,195) (698) (6,143)
- ----------------------------------------------------------------------------
Total $ 99,116 $ 19,124 $29,488 $147,728
============================================================================
1995
Currently payable $ 95,681 $ 19,126 $32,977 $147,784
Deferred (3,040) (3,845) (1,021) (7,906)
- ----------------------------------------------------------------------------
Total $ 92,641 $ 15,281 $31,956 $139,878
============================================================================
PAGE 37
The company's combined current and noncurrent deferred taxes at December 31,
1997 and 1996 consisted of the following deferred tax assets and liabilities:
============================================================================
Deferred Tax Deferred Tax
Assets Liabilities
------------------- ------------------
(in thousands) 1997 1996 1997 1996
- ----------------------------------------------------------------------------
Depreciation $59,418 $63,470
Employee benefit plans, including
deferred compensation $ 80,174 $ 81,121 4,312 4,987
Foreign tax credits 15,393 13,945
Restructuring charges 56,987
Sales and product allowances 3,799 3,524
Unrealized gain on investments 2,314 8,436
All other 22,582 10,170 3,281 5,584
- ----------------------------------------------------------------------------
Total deferred taxes $178,935 $108,760 $69,325 $82,477
============================================================================
The company has not established a deferred tax asset with respect to
certain foreign operating loss carryforwards which are not expected to be
realized. Income tax payments were $119,377,000 in 1997, $154,005,000 in
1996 and $140,303,000 in 1995.
NOTE 9. STOCK PURCHASE, STOCK OPTION AND EXECUTIVE INCENTIVE PLANS
STOCK PURCHASE PLAN: Under the terms of the Dow Jones 1990 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.
The activity in the plan was as follows:
============================================================================
Shares Subscribed
Stock Purchase -----------------------------
Prices 1997 1996 1995
- ----------------------------------------------------------------------------
Balance, January 1 137,107 141,855 145,410
Shares subscribed 258,635 220,306 231,341
Purchases $34.16 to $34.54 (241,243) (216,329) (224,663)
Terminated/canceled (13,042) (8,725) (10,233)
- ----------------------------------------------------------------------------
Balance, December 31 141,457 137,107 141,855
============================================================================
At December 31, 1997, there were 113,867 shares available for future
offerings.
PAGE 38
STOCK OPTION PLAN: Under the Dow Jones 1991 Stock Option Plan,
options for shares of common stock may be granted to key employees at not
less than the fair market value of the common stock on the date of grant.
Options granted in 1997 become exercisable in equal annual installments over
three years from the date of grant. All other options outstanding at
December 31, 1997 were exercisable. Options expire ten years from the date
of grant.
The activity in the stock option plan was as follows:
============================================================================
1997 1996 1995
---------------- ----------------- ----------------
Weighted- Weighted- Weighted-
Average Average Average
Shares Exercise Shares Exercise Shares Exercise
('000) Price ('000) Price ('000) Price
- ----------------------------------------------------------------------------
Balance, January 1 3,791 $32.98 3,360 $32.32 3,279 $31.33
Granted 1,019 50.19 888 34.54 548 36.25
Exercised (909) 32.08 (430) 30.85 (401) 29.72
Terminated/canceled (156) 44.58 (27) 35.38 (66) 31.80
- ----------------------------------------------------------------------------
Balance, December 31 3,745 $37.22 3,791 $32.98 3,360 $32.32
============================================================================
Options exercisable
at December 31 2,726 $32.41 2,903 $32.51 2,812 $31.55
============================================================================
At December 31, 1997, there were 256,393 shares available for
future grants.
EXECUTIVE INCENTIVE PLAN: In 1997 stockholders approved the Dow
Jones 1997 Long Term Incentive Plan which provides for the grant to key
executives of stock options and contingent stock rights (collectively, "plan
awards"). The plan is administered by the compensation committee of the
Board of Directors, the members of which may not participate in the plan.
Under the 1997 incentive plan, up to two million shares of common stock may
be granted for plan awards through December 31, 2001.
Options for shares of common stock may be granted at not less than
the fair market value of the common stock on the date of grant. Options
granted in 1992 through 1995 were granted at 125% of the fair market value of
the company's common stock on the date of grant, while options granted after
1995 were granted at the fair market value of the common stock on the date of
grant. In April 1997, the company rescinded all of the outstanding stock
appreciation rights of its plan participants. Options granted in 1997 become
exercisable in equal annual installments over three years from the date of
grant. Fifty percent of options granted in 1996 become exercisable in 1998.
All other options granted prior to 1997 and outstanding at December 31, 1997
were exercisable. Options expire ten years from the date of grant.
PAGE 39
The activity with respect to options under the executive incentive plan was
as follows:
============================================================================
1997 1996 1995
---------------- ----------------- ----------------
Weighted- Weighted- Weighted-
Average Average Average
Shares Exercise Shares Exercise Shares Exercise
('000) Price ('000) Price ('000) Price
- ----------------------------------------------------------------------------
Balance, January 1 1,224 $35.42 966 $35.60 886 $34.28
Granted 222 50.75 293 34.38 103 45.31
Exercised (135) 30.29 (27) 31.44 (12) 28.17
Terminated/canceled (24) 54.25 (2) 32.42 (1) 28.83
Surrendered upon
exercise of
stock appreciation
rights (1) 32.50 (6) 32.04 (10) 28.83
- ----------------------------------------------------------------------------
Balance, December 31 1,286 $38.30 1,224 $35.42 966 $35.60
============================================================================
Options exercisable
at December 31 919 $35.78 879 $35.19 814 $34.25
============================================================================
Options outstanding at the end of 1997 for both the stock option and
executive incentive plans are summarized as follows:
============================================================================
Options outstanding Options exercisable
---------------------------------- -------------------
Weighted- Weighted-Avg. Weighted-
Average Remaining Average
Range of Shares Exercise Contractual Shares Exercise
Exercise Prices ('000) Price life ('000) Price
- ----------------------------------------------------------------------------
$26.00 to $30.00 1,072 $28.09 4.4 years 1,072 $28.09
$32.00 to $35.47 1,909 34.10 6.6 1,762 34.07
$36.25 to $41.09 627 37.27 7.3 607 37.14
$43.91 to $50.75 1,423 49.61 9.5 203 44.62
- ----------------------------------------------------------------------------
Balance,
December 31, 1997 5,031 $37.60 7.0 years 3,644 $33.41
============================================================================
Contingent stock rights 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. With respect to 1993 grants, compensation
received could be less than or equal to that specified in the right, but not
greater than 125% of that amount. With respect to the grants issued after
1993, compensation received could be less than or equal to that specified in
the right, but cannot exceed the right.
PAGE 40
A summary of contingent stock right activity follows:
============================================================================
1997 1996 1995
- ----------------------------------------------------------------------------
Balance, January 1 558,600 522,900 417,100
Granted 88,600 117,000 124,100
Awarded (58,482) (80,300) (8,789)
Terminated/canceled (75,537) (1,000) (9,511)
- ----------------------------------------------------------------------------
Balance, December 31 513,181 558,600 522,900
============================================================================
Year of Grant
---------------------------------------------
1993 1994 1995 1996 1997 Balance
- ----------------------------------------------------------------------------
Rights outstanding 78,200 118,775 116,906 110,700 88,600 513,181
============================================================================
At December 31, 1997, there were 1,765,237 shares available for future
grants under the executive incentive plan.
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 $3,400,000 in 1997, $1,504,000 in 1996 and $6,218,000 in 1995.
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 (loss) income and (loss) earnings per share would have been the
following pro forma amounts:
============================================================================
1997 1996 1995
- ----------------------------------------------------------------------------
Net (loss) income (in thousands):
As reported $(802,132) $189,969 $189,572
Pro forma (807,509) 186,170 188,635
- ----------------------------------------------------------------------------
Per share - basic:
As reported $(8.36) $1.96 $1.96
Pro forma (8.41) 1.93 1.95
============================================================================
PAGE 41
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 1995 through 1997, 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
1997 $ 8.27 5.6% 2.4% 0.5 years 24.7%
1996 8.15 5.5 2.4 0.7 15.5
1995 7.15 5.7 2.4 0.6 15.5
Option under the
Stock Option Plan
1997 $11.87 5.6% 2.4% 5.0 years 22.5%
1996 8.44 6.0 2.4 6.0 20.0
1995 8.78 5.8 2.4 6.0 20.0
Option under the
Executive Incentive
Plan
1997 $11.98 5.6% 2.4% 5.0 years 22.5%
1996 8.44 6.0 2.4 6.0 20.0
1995 7.29 6.0 2.4 8.0 20.0
============================================================================
NOTE 10. PROFIT SHARING/RETIREMENT AND PENSION PLANS
The company has profit sharing retirement plans for a majority of
employees who meet specified length of service requirements. The annual cost
of the plans, which are funded currently, is based upon a percentage of
compensation or consolidated net income, as defined, but is limited to the
amount deductible for income tax purposes.
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.
Total profit sharing and pension plan expenses amounted to
$60,082,000, $54,543,000 and $50,358,000 in 1997, 1996 and 1995,
respectively.
NOTE 11. 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
profit sharing/retirement and pension plans (see Note 10).
PAGE 42
The following sets forth the plan's status reconciled with amounts reported
in the company's consolidated balance sheets at December 31.
============================================================================
(in thousands) 1997 1996
- ----------------------------------------------------------------------------
Accumulated postretirement benefit obligation (APBO):
Retirees $ 32,148 $ 28,362
Fully eligible active plan participants 17,759 14,271
Other active plan participants 83,580 72,209
- ----------------------------------------------------------------------------
Total APBO as of December 31 133,487 114,842
Unrecognized net (loss) gain (4,519) 828
- ----------------------------------------------------------------------------
Accrued postretirement benefit liability at
December 31 $128,968 $115,670
============================================================================
Pretax postretirement benefit expense included the following components:
============================================================================
(in thousands) 1997 1996 1995
- ----------------------------------------------------------------------------
Service cost $ 7,889 $ 7,316 $ 5,417
Interest cost 8,728 7,547 7,318
- ----------------------------------------------------------------------------
Net periodic postretirement benefit cost $16,617 $14,863 $12,735
============================================================================
A 9.5% annual rate of increase in the per capita costs of covered
health care benefits was assumed for 1998, gradually decreasing to 5% by the
year 2006 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, 1997, by $25 million and increase the aggregate of the service cost and
interest cost components of net periodic postretirement benefit cost for
1997 by $4 million. A discount rate of 7% was used to determine the
accumulated postretirement benefit obligation as of December 31, 1997.
At December 31, 1996, the company's accumulated postretirement benefit
obligation was calculated using a discount rate of 7.5% and a health care
cost trend rate of 11.5% for 1997, decreasing to 5% by the year 2008.
PAGE 43
NOTE 12. COMMITMENTS AND CONTINGENCIES
Commitments for capital expenditures amounted to $80,868,000 at
December 31, 1997.
Noncancelable leases require minimum rental payments through 2018 totaling
$438,288,000. Payments required for the years 1998 through 2002 are as
follows:
============================================================================
(in thousands) 1998 1999 2000 2001 2002
- ----------------------------------------------------------------------------
$79,975 $67,699 $56,974 $46,057 $40,945
============================================================================
These leases are principally for office space and equipment and contain
renewal and escalation clauses. Total rental expense amounted to
$120,011,000 in 1997, $112,075,000 in 1996 and $107,753,000 in 1995.
Rental expense in 1995 included a charge of $8.4 million, discounted at
6%, for the recognition of a loss on an operating lease, net of expected
sublease rental income. The loss stemmed from vacating office space in
which the company is obligated to rent until July 2001.
At December 31, 1997, the company had loan guarantees outstanding of
$4.3 million with remaining terms of up to four years for certain of its
investees. The company views it as unlikely that its investees will fail to
meet the terms of their obligations.
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
is adequately covered by insurance, or if not covered, would not have a
material effect on the company's financial statements taken as a whole.
NOTE 13. PER SHARE AMOUNTS
In February 1997, Statement of Financial Accounting Standards No. 128
(SFAS 128), "Earnings Per Share" was issued. The statement, which is
effective for financial statements issued after December 15, 1997, modifies
the standards for computing and presenting earnings per share (EPS). SFAS
128 requires the dual presentation of a basic EPS and a diluted EPS on the
face of the income statement.
Basic (loss) earnings per share was $(8.36) in 1997 and $1.96 in both
1996 and 1995. The per share amounts have been computed on the basis of the
weighted-average number of shares outstanding (95,993,000 shares in 1997,
96,703,000 shares in 1996 and 96,907,000 shares in 1995).
PAGE 44
Diluted (loss) earnings per share have been computed as follows:
===========================================================================
(in thousands except
per share amounts) 1997 (1) 1996 (2) 1995 (2)
- ---------------------------------------------------------------------------
Net (loss) income $(802,132) $189,969 $189,572
Weighted-average shares
outstanding - basic 95,993 96,703 96,907
Stock options 0 551 539
Other, principally contingent
stock rights 0 117 229
------ ------ ------
Weighted-average shares
outstanding - diluted 95,993 97,371 97,675
Diluted (loss) earnings
per share $(8.36) $1.95 $1.94
============================================================================
(1) Options and contingent stock rights outstanding at December 31, 1997, as
shown in Note 9 to the financial statements beginning on page 37 of this
Annual Report, have been excluded from the diluted loss per share in 1997
because to include such securities would be antidilutive.
(2) Options to purchase 290,000 shares in 1996 and 302,000 shares in 1995
at ranges of $41.09 to $54.25 were excluded from the diluted earnings per
share calculation because the options' exercise prices were greater than the
average market prices for 1996 and for 1995. The diluted average shares
outstanding were 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.
NOTE 14. RECLASSIFICATIONS
Certain amounts for prior years have been reclassified for comparative
purposes.
NOTE 15. SUMMARY OF QUARTERLY FINANCIAL DATA (UNAUDITED)
The summary of unaudited 1997 and 1996 quarterly financial data shown
on pages 50 and 51 of this report is incorporated herein by reference.
PAGE 45
NOTE 16. BUSINESS SEGMENTS
The company's operations by business segment and geographic area were as follows:
Financial Data by Business Segment
================================================================================================
Financial
Business Information Community
(in thousands) Publishing Services Newspapers Corporate Consolidated
- -----------------------------------------------------------------------------------------------
Revenues
1997 $1,320,187 $ 951,720 $300,611 $2,572,518
1996 1,214,336 979,745 287,511 2,481,592
1995 1,049,462 961,398 272,901 2,283,761
Operating (loss) income (1)
1997 218,596 (992,965) 50,584 $(18,189) (741,974)
1996 159,418 155,848 43,766 (22,052) 336,980
1995 95,509 197,015 32,987 (21,470) 304,041
Identifiable assets (2)
1997 676,646 776,292 222,609 244,187 1,919,734
1996 635,615 1,607,971 223,860 292,185 2,759,631
1995 587,032 1,598,041 229,515 184,112 2,598,700
Depreciation and
amortization expense
1997 68,359 165,821 16,554 250,734
1996 57,695 144,181 15,880 217,756
1995 50,434 141,226 14,410 206,070
Capital expenditures
1997 108,043 227,129 12,625 347,797
1996 91,194 131,658 9,326 232,178
1995 89,054 113,296 16,415 218,765
Investments in associated
companies (3)
1997 124,838
1996 194,500
1995 91,442
Equity in (losses) earnings
of associated companies (3)
1997 (41,347)
1996 3,351
1995 19,494
================================================================================================
NOTES:
(1) Includes restructuring costs in 1997 as follows (in thousands):
Business publishing $ 21,761
Financial information services 979,502
---------
$1,001,263
(2) Corporate assets include cash and cash equivalents, investments in associated companies,
other investments and related deferred income taxes.
(3) Business publishing -- Business News (Asia) Private; F.F. Soucy, Inc. & Partners, L.P.; ITT-
Dow Jones Television and SmartMoney. On December 1, 1997, the company sold its interest in
Bear Island Paper Company, L.P. and Bear Island Timberlands Co., L.P. Equity losses in 1997
include television restructuring charges.
PAGE 46
Financial Data by Geographic Area
==============================================================================================
Europe
United Middle East Asia/ Other
(in thousands) States Africa Pacific Foreign Corporate Consolidated
- ----------------------------------------------------------------------------------------------
Revenues
1997 $1,890,457 $372,813 $254,002 $ 55,246 $2,572,518
1996 1,748,800 408,434 271,765 52,593 2,481,592
1995 1,589,181 383,266 261,823 49,491 2,283,761
Operating (loss) income
1997 (117,047) (349,914) (169,960) (86,864) $(18,189) (741,974)
1996 288,686 16,289 50,741 3,316 (22,052) 336,980
1995 227,259 26,562 68,405 3,285 (21,470) 304,041
Identifiable assets
1997 1,318,905 195,327 121,939 39,376 244,187 1,919,734
1996 1,622,808 473,653 256,635 114,350 292,185 2,759,631
1995 1,570,852 468,882 256,547 118,307 184,112 2,598,700
==============================================================================================
Note: Operating loss in 1997 includes restructuring charges as follows (in thousands):
United States $ 463,084
Europe/Middle East/Africa 294,593
Asia/Pacific 163,492
Other Foreign 80,094
---------
$1,001,263
PAGE 47
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, 1997 and 1996, was
determined primarily by reference to dealer markets and quoted market
prices.
============================================================================
(in thousands) Fair Value Carrying Value
- ----------------------------------------------------------------------------
1997
Other investments $ 85,985 $ 85,290
Long-term debt 228,136 228,806
- ----------------------------------------------------------------------------
1996
Other investments $100,502 $ 99,587
Long-term debt 331,000 332,300
============================================================================
Other investments include marketable equity securities, namely shares in
United States Satellite Broadcasting Company, Inc. (USSB), a provider of
direct satellite television programming, and Nation Multimedia Group Public
Co., Ltd, a media company in Thailand, which are carried at their fair
value. At December 31, 1997, the fair value of these investments was $35.5
million, representing a gross unrealized gain of $10 million on the USSB
investment and a gross unrealized loss of $4.3 million on the investment in
Nation Multimedia Group. At December 31, 1996, the fair value of marketable
equity securities was $50.7 million, yielding a gross unrealized gain of
$20.8 million.
The company enters into nonspeculative forward exchange contracts to
insulate contractual revenue streams from foreign currency exchange rate
fluctuations (see Note 1). Risk arises from movements in foreign currency
exchange rates and from the possible inability of counterparties to meet the
terms of their commitments, which the company views as unlikely. At
December 31, 1997, the company had a forward exchange contract outstanding
which settled in January 1998 to sell 350 million Japanese yen in exchange
for $3.4 million. At December 31, 1997, the fair value of this contract was
insignificant. At December 31, 1996, the fair value of forward exchange
contracts then outstanding, which had contractual values totaling $46
million, was an unrealized gain of $4.7 million.
Concentrations of Credit Risk
Financial instruments that potentially could subject the company to
concentrations of credit risk consist largely of trade accounts receivables.
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 which comprise the company's customer base.
PAGE 48
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Dow Jones & Company, Inc.:
We have audited the accompanying consolidated balance sheets of Dow
Jones & Company, Inc. and Subsidiaries as of December 31, 1997 and 1996, and
the related consolidated statements of income, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1997.
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 in accordance with generally accepted auditing
standards. Those standards 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.
An audit also includes assessing the accounting principles used and the
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Dow
Jones & Company, Inc. and Subsidiaries as of December 31, 1997 and 1996, and
the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
New York, New York
January 29, 1998
PAGE 49
STATEMENT OF MANAGEMENT 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 in 1997 continued to strengthen, 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. Underlying the concept of reasonable assurance is the
premise that the cost of control should not exceed the benefit derived. The
company's system of internal controls is supported by written policies, a
program of internal audits, including a periodic independent review of the
Internal Audit Department, and by a program of selecting and training
qualified staff.
Coopers & Lybrand L.L.P., independent accountants, have audited the
company's consolidated financial statements, as described in their report.
The report expresses an independent opinion of 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.
PAGE 50
QUARTERLY CONSOLIDATED STATEMENTS OF (LOSS) INCOME
(UNAUDITED)
Dow Jones & Company, Inc.
For the fourth quarters ended December 31, 1997 and 1996
============================================================================
(in thousands except per share amounts) 1997 1996
- ----------------------------------------------------------------------------
REVENUES:
Information services $ 279,646 $292,245
Advertising 291,586 262,287
Circulation and other 118,253 116,718
- ----------------------------------------------------------------------------
Total revenues 689,485 671,250
- ----------------------------------------------------------------------------
EXPENSES:
News, operations and development 249,422 217,251
Selling, administrative and general 237,942 217,972
Newsprint 44,333 37,408
Second class postage and carrier delivery 30,683 29,541
Depreciation and amortization 68,999 55,414
Restructuring 1,001,263
- ----------------------------------------------------------------------------
Operating expenses 1,632,642 557,586
- ----------------------------------------------------------------------------
Operating (loss) income (943,157) 113,664
OTHER INCOME (DEDUCTIONS):
Investment income 910 1,174
Interest expense (4,445) (6,072)
Equity in losses of associated companies (27,280) (6,858)
Gain on disposition of businesses
and investments 46,416
Other, net (6,741) 388
- ----------------------------------------------------------------------------
(Loss) income before income taxes
and minority interests (934,297) 102,296
Income tax (benefit) (45,026) 43,999
- ----------------------------------------------------------------------------
(Loss) income before minority interests (889,271) 58,297
Minority interests in (earnings) losses
of subsidiaries (44) 1,346
- ----------------------------------------------------------------------------
NET (LOSS) INCOME $ (889,315) $ 59,643
============================================================================
PER SHARE:
Basic:
Net (loss) income $(9.22) $.62
Weighted-average shares outstanding 96,465 95,808
- ----------------------------------------------------------------------------
Diluted:
Net (loss) income $(9.22) $.62
Weighted-average shares outstanding 96,465 96,234
- ----------------------------------------------------------------------------
Cash Dividends $ .24 $.24
============================================================================
PAGE 51
SUMMARY OF QUARTERLY FINANCIAL DATA
(UNAUDITED)
Dow Jones & Company, Inc.
============================================================================
Quarters Ended
(in thousands except ---------------------------------------
per share amounts) March 31 June 30 Sept. 30 Dec. 31 Year
- ----------------------------------------------------------------------------
1997 (1)
Revenues $605,963 $640,744 $636,326 $ 689,485 $2,572,518
Operating (loss) income 62,162 78,027 60,994 (943,157) (741,974)
Net (loss) income 25,399 34,906 26,878 (889,315) (802,132)
Per Share:
Basic .27 .36 .28 (9.22) (8.36)
Diluted .26 .36 .28 (9.22) (8.36)
- ----------------------------------------------------------------------------
1996 (2)
Revenues $584,834 $630,637 $594,871 $ 671,250 $2,481,592
Operating income 68,952 92,092 62,272 113,664 336,980
Net income 37,625 52,025 40,676 59,643 189,969
Per Share:
Basic .39 .54 .42 .62 1.96
Diluted .38 .53 .42 .62 1.95
============================================================================
(1) Gains on the disposal of businesses and investments in 1997 included a
first-quarter gain of four cents per share from the sale of the
company's American Demographics subsidiary and a fourth-quarter gain of
29 cents per share from the disposal of the company's interests in Bear
Island Paper Company, L.P. and Bear Island Timberlands Company, L.P.
Additionally, the third quarter of 1997 included a net enhancement of 11
cents per share from certain one-time fees received from licensing the
Dow Jones Averages.
The fourth quarter and year-to-date 1997 operating losses include
restructuring costs of $1 billion.
(2) The third quarter of 1996 included a gain of nine cents per share from
the sale of the company's minority interest in Press-Enterprise Company.
PAGE 52
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.
Executive Officers of the Registrant
- ------------------------------------
Each executive officer is elected annually to serve at the pleasure of
the Board of Directors.
All executive officers named below have been employed by the company
for more than five years.
Peter R. Kann, age 55, 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. Karen Elliott House, President/International
Group of the company is the spouse of Mr. Kann.
Kenneth L. Burenga, age 53, President of the company and President of
The Wall Street Journal since July 1991, Chief Operating Officer since
January 1991 and Chief Executive Officer of Dow Jones Markets since July
1996, served as Executive Vice President from January 1991 to July 1991 and
Senior Vice President from 1986 thru 1990, and General Manager from January
1989 thru December 1990, as Chief Financial and Administrative Officer from
1986 to 1988 and Vice President/Circulation of The Wall Street Journal from
1980 to 1986.
James H. Ottaway Jr., age 60, Senior Vice President since 1986,
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.
Peter G. Skinner, age 53, Senior Vice President since November 1989,
General Counsel and Secretary since 1985 and President, Television from
January 1995 to December 1997, served as Vice President from 1985 to
November 1989.
Carl M. Valenti, age 59, will retire in early 1998, after serving as
President and Publisher of Dow Jones Newswires from July 1996 and Senior
Vice President of the company since July 1989. Mr. Valenti also served as
President and Publisher of Dow Jones Markets from May 1990 to July 1996,
Vice President of the company and President/Information Services Group from
1987 to 1990 and as Vice President/Information Services Group from 1980 to
1987.
PAGE 53
Kevin J. Roche, age 63, Vice President/Finance since 1986 and Chief
Financial Officer since January 1989, served as Comptroller from 1977 to
1987. Mr. Roche will be retiring in 1998.
Thomas G. Hetzel, age 42, Comptroller since October 1993, served as
Associate Comptroller from 1992 to 1993 and Assistant Comptroller from 1988
to 1992.
Directors of the Registrant
- ---------------------------
The information required by this item relating to directors, including
positions with the company and business experience during the past five
years, is as follows.
Rand V. Araskog, age 66, member of the Corporate Governance and
Executive Committees, has been a director of the company since 1981. Mr.
Araskog is a director of various corporations and prior to March 1998,
Chairman and Chief Executive Officer of ITT Corporation (hotel and gaming
company). Mr. Araskog is a director of Alcatel Alsthom, Rayonier Inc.,
Shell Oil Company, The Hartford Financial Services Group, Inc., ITT
Industries, Inc. and ITT Educational Services, Inc.
Christopher Bancroft, age 46, member of the Compensation Committee,
has been a director of the company since 1996. Mr. Bancroft is first
cousin of Mr. Cox and Mrs. MacElree.
William C. Cox, Jr., age 67, member of the Corporate Governance and
Executive Committees, has been a director of the company since 1976.
Prior to July, 1997, Mr. Cox was Executive Director/Client Relations of
the company. Mr. Cox is the brother of Mrs. MacElree and first cousin of
Mr. Bancroft.
Harvey Golub, age 59, member of the Audit and Corporate Governance
Committees, has been a director of the company since 1997. Mr. Golub has
been Chairman and Chief Executive Officer, American Express Company since
August 1993 and served as President from 1991 to 1993 of American Express
Company (travel and financial services company). Mr. Golub is a director
of Campbell Soup Company.
Leslie Hill, age 44, member of the Corporate Governance Committee, has
been a director of the company since 1997. Ms. Hill is a pilot for
American Airlines and is the daughter of Mrs. MacElree.
Irvine O. Hockaday, Jr., age 61, member of the Compensation and
Executive Committees, has been a director of the company since 1990. Mr.
Hockaday is President and Chief Executive Officer, Hallmark Cards, Inc.
(greeting card manufacturer) and a director of Ford Motor Company, Sprint
Corporation and UtiliCorp United, Inc.
PAGE 54
Vernon E. Jordan, Jr., age 62, member of the Executive Committee, has
been a director of the company since 1982. Senior Partner at Akin, Gump,
Strauss, Hauer & Feld, attorneys, and prior to 1982 was President and
Chief Executive Officer, National Urban League, Inc. Mr. Jordan is a
director of American Express Company, Bankers Trust Company, Bankers Trust
New York Corporation, Callaway Golf Company, Chancellor Media Corporation,
J.C. Penney Company, Inc., Revlon, Inc., Ryder Systems, Inc., Sara Lee
Corporation, Union Carbide Corporation and Xerox Corporation.
David K.P. Li, age 59, member of the Audit and Corporate Governance
Committees, has been a director of the company since 1993. Mr. Li is Chief
Executive Officer, The Bank of East Asia, Limited. Mr. Li is also a
director of CBS, Campbell Soup Company, Hong Kong Telecommunications
Limited, The Bank of East Asia, Limited, The Hong Kong & China Gas Company
Limited, Sime Darby Hong Kong Limited and South China Morning Post
(Holdings) Limited.
Jane C. MacElree, age 68, member of the Compensation and Corporate
Governance Committees, has been a director of the company since 1996. Mrs.
MacElree is the mother of Ms. Hill and first cousin of Mr. Bancroft.
Frank N. Newman, age 55, member of the Audit and Corporate Governance
Committees, has been a director of the company since 1997. Mr. Newman is
Chairman, President and Chief Executive Officer of Bankers Trust New York
Corporation and Bankers Trust Company. Prior to September 1995, Mr. Newman
was Deputy Secretary of the United States Treasury and prior to February
1993, Vice Chairman and Chief Financial Officer of BankAmerica Corporation.
James Q. Riordan, age 70, member of the Audit, Executive and
Compensation Committees, has been a director of the company since 1970 and
is retiring from the Board in 1998. Mr. Riordan is director of various
corporations. Prior to May 1992, he was President and Chief Executive
Officer of Bekaert Corp. (steel wire manufacturer) and prior to October
1989, Vice Chairman and Chief Financial Officer, Mobil Corporation
(petroleum). Mr. Riordan is a director of The Brooklyn Union Gas Company
and The Houston Exploration Company, and a director/trustee of the mutual
funds in the Seligman Group of investment companies.
William C. Steere, Jr., age 61, member of the Compensation and
Corporate Governance Committees, has been a director of the company since
1997. Mr. Steere is Chairman and Chief Executive Officer, Pfizer Inc.
(pharmaceuticals). Mr. Steere is also a director of Minerals Technologies
Inc. and Texaco Inc.
M. Peter McPherson, age 57, is being nominated for director of the
company. Mr. McPherson is President of Michigan State University and prior
to October 1993, was Group Executive Vice President of Bank of America.
The following executive officers of the company are also directors:
Peter R. Kann, member of the Executive Committee and director since 1987;
Kenneth L. Burenga, member of the Executive Committee and director since
1990; and James H. Ottaway Jr., director since 1987.
PAGE 55
Section 16(a) Beneficial Ownership Reporting Compliance
- -------------------------------------------------------
Section 16(a) of the Securities Exchange Act of 1934 requires the
company's executive officers and directors, and persons who own more than
ten percent of the outstanding Common Stock or Class B Common Stock, to
file reports of ownership and changes in ownership with the Securities and
Exchange Commission and the New York Stock Exchange. Such persons are also
required by SEC regulation to furnish the company with copies of all
Section 16(a) reports they file.
In 1991, the SEC completed an extensive revision of its rules in this
area. In addition to increasing the number and kind of reports to be
filed, the SEC has obliged companies to report in their proxy statements
failures to file reports on a timely basis. The company believes that the
failures to file listed below were inadvertent.
Based solely on its review of the copies of such forms received by the
company, or written representations from certain reporting persons that no
Form 5 annual reports were required for those persons, the company believes
that during 1997, all filing requirements under Section 16(a) of the
Exchange Act applicable to its executive officers, directors, and greater
than ten-percent beneficial owners were complied with except that Mr.
William C. Cox, Jr., Ms. Leslie Hill and Mrs. Jane C. MacElree each filed a
late Form 5 annual report reporting the deferred stock equivalents which
they were credited during 1997.
PAGE 56
ITEM 11. Executive Compensation.
The following tables and report provide information as to the cash and
noncash compensation paid to, earned by or granted to each of the five most
highly compensated senior policy making executives of the company.
Summary Compensation Table
===========================================================================
Annual Compensation Long-Term Compensation
------------------------ ---------------------------
Awards Payouts
------- ---------
Long-term All other
Name and Incentive Compen-
Principal Options Payouts sation
Position Year Salary Bonus (1) (2) (3)
- ---------------------------------------------------------------------------
Peter R. Kann, 1997 $735,000 $190,000 31,800 $282,562 $180,017
Chairman of the
Board, Chief 1996 $715,000 $380,000 40,000 $234,525 $210,850
Executive Officer
and Director 1995 $680,000 $445,000 14,800 $507,938 $220,207
- ---------------------------------------------------------------------------
Kenneth L. Burenga, 1997 $590,000 $140,000 16,900 $190,088 $113,472
President, Chief
Operating Officer 1996 $550,000 $270,000 22,500 $198,750 $156,999
and Director
1995 $520,000 $310,000 10,200 $358,313 $161,548
- ---------------------------------------------------------------------------
Carl M. Valenti, 1997 $453,000 $130,000 9,000 $128,438 $112,081
Senior Vice
President 1996 $440,000 $155,000 12,900 $135,150 $112,940
1995 $422,000 $220,000 7,300 $255,938 $124,166
- ---------------------------------------------------------------------------
Peter G. Skinner, 1997 $435,000 $153,000 10,700 $148,988 $113,074
Senior Vice
President 1996 $410,000 $165,000 14,200 $147,075 $109,023
1995 $381,000 $205,000 7,300 $220,500 $113,032
- ---------------------------------------------------------------------------
James H. Ottaway 1997 $391,000 $178,000 10,300 $128,438 $109,300
Jr., Senior
Vice President 1996 $376,000 $160,000 12,900 $135,150 $101,386
and Director
1995 $361,000 $160,000 5,500 $196,875 $100,107
===========================================================================
(1) In addition to stock option grants, the indicated executives were
granted contingent stock rights under the Dow Jones 1997 Long Term
Incentive Plan. The contingent stock rights granted during the most
recently completed fiscal year are reported in the long-term incentive plan
table on page 59 of this Form 10-K.
PAGE 57
(2) The payouts shown in the table for 1997 reflect the fair market value
as of January 21, 1998 of the Final Awards made to the indicated executives
under the Dow Jones 1992 Long Term Incentive Plan in respect of the four-
year performance period 1994-1997. The payouts shown in the table for 1996
reflect the fair market value as of January 15, 1997 of the Final Awards
made to the indicated executives under the Dow Jones 1992 Long Term
Incentive Plan in respect of the four-year performance period 1993-1996.
The payouts shown in the table for 1995 reflect the fair market value as of
January 17, 1996 of the Final Awards made to the individual executives
under the Dow Jones 1992 Long Term Inventive Plan in respect of the four-
year performance period 1992-1995. The 1992 Long Term Incentive Plan was
replaced in 1997 by the Dow Jones 1997 Long Term Incentive Plan.
(3) The amounts referred to in the table above under "All Other
Compensation" consist of the aggregate amounts contributed to the accounts
of the indicated executives under the Dow Jones Profit Sharing Retirement
Plan and the related Supplementary Benefit Plan in respect of the years
indicated. With respect to amounts contributed in 1997, the Internal
Revenue Code limits the allocation of the annual company contribution for
the benefit of any individual account under a qualified profit sharing plan
to the amount which would be contributed to such individual account based
on maximum annual compensation of $160,000, but permits under a
supplemental plan an additional allocation by the company to such
individual equal to the additional amount which would otherwise have been
allocated to him or her under the qualified plan had there been no limits.
Executive officers may elect to have the amounts allocated to their
accounts under the Supplementary Benefit Plan deemed to be invested in
shares of Common Stock. With respect to 1997, such amounts were deemed to
be invested at the closing price of the Common Stock on the first business
day of 1998. With respect to 1997, the company has allocated the following
amounts to the accounts of the indicated executives under the Profit
Sharing Retirement Plan: Mr. Kann - $28,303; Mr. Burenga - $28,303; Mr.
Valenti - $28,303; Mr. Skinner - $28,303; Mr. Ottaway - $28,303. The
company has also allocated the following amounts to the accounts of the
indicated executives under the Supplementary Benefit Plan with respect to
1997: Mr. Kann - $151,714; Mr. Burenga - $85,169; Mr. Valenti - $83,778;
Mr. Skinner - $84,771; Mr. Ottaway - $80,997.
PAGE 58
Option Grants in 1997
================================================================================================
Individual Grants
------------------------------------------------
Number of % of Total Potential Realizable Value
Securities Options Exercise at Assumed Annual Rates
Underlying Granted to or of Stock Price
Options Employees Base Price Appreciation over Stock
Granted In Fiscal ($/Share) Expiration Option Term (3)
Name (1) Year (2) Date 5% 10%
- ------------------------------------------------------------------------------------------------
Peter R. Kann 31,800 2.6% $50.75 11/26/07 $1,015,056 $2,571,984
Kenneth L. Burenga 16,900 1.4% $50.75 11/26/07 $ 539,448 $1,366,872
Carl M. Valenti 9,000 0.7% $50.75 11/26/07 $ 287,280 $ 727,920
Peter G. Skinner 10,700 0.9% $50.75 11/26/07 $ 341,544 $ 865,416
James H. Ottaway Jr. 10,300 0.8% $50.75 11/26/07 $ 328,776 $ 833,064
================================================================================================
(1) One-third of the stock options will become exercisable on November 26, 1998, another one-
third will become exercisable on November 26, 1999, and the remainder will become exercisable on
November 26, 2000.
(2) The exercise price of the stock options is $50.75 per share, the fair market value of the
Common Stock on November 26, 1997, the date on which the stock options were granted.
(3) These amounts represent gains based on assumed rates of appreciation over the entire ten-year
period. Actual gains, if any, on stock option exercises are dependent on the future performance
of the company's Common Stock and the continued employment of the optionee through the vesting
period.
Aggregated Option Exercises in 1997
And Year-End Option Values
================================================================================================
Total Number of Value of Unexercised
Unexercised Options at In-the-Money Options at
December 31, 1997 December 31, 1997 (*)
Shares -------------------------- --------------------------
Acquired on Value
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ------------------------------------------------------------------------------------------------
Peter R. Kann 1,969 $21,413 153,385 51,800 $2,878,276 $479,663
Kenneth L. Burenga - - 103,368 28,150 $1,929,197 $266,910
Carl M. Valenti - - 71,641 15,450 $1,315,507 $151,004
Peter G. Skinner 1,422 $13,510 62,230 17,800 $1,164,069 $168,550
James H. Ottaway Jr. 3,266 $54,706 63,699 16,750 $1,219,470 $154,822
================================================================================================
(*) This represents the difference between the closing price of the company's Common Stock on
December 31, 1997 ($53.6875) and the exercise price of the options.
PAGE 59
Long-Term Incentive Plan--Awards in 1997
===========================================================================
Performance or Other
Number of Shares, Units Period Until Maturation
Name or Other Rights (*) or Payout
- ---------------------------------------------------------------------------
Peter R. Kann 12,500 1998-2001
Kenneth L. Burenga 6,625 1998-2001
Carl M. Valenti 3,550 1998-2001
Peter G. Skinner 4,225 1998-2001
James H. Ottaway Jr. 4,050 1998-2001
===========================================================================
(*) The long-term incentive plan awards are contingent stock rights
granted under the Dow Jones 1997 Long Term Incentive Plan. Each contingent
stock right gives the holder the contingent right to receive up to the
number of shares of Common Stock specified in the right (the "Initial
Award") following completion of a 4-year performance period. The number of
shares ultimately received (the "Final Award") will depend on the extent to
which the performance criteria are achieved during the 4-year performance
period, the participant's individual performance and other factors.
Participants may elect, subject to the approval of the Compensation
Committee, to receive all or a portion of their Final Awards in cash, or
Common Stock, or a combination of both. If a participant elects to receive
all or a portion of the Final Award in cash, the amount of cash will equal
the closing price of the Common Stock on the date of the Final Award
multiplied by the number of shares of Common Stock as to which the election
is being made.
During the performance period relating to each right, the Compensation
Committee may adjust the performance criteria and otherwise modify the
terms and provisions of the right. Also during the performance period, the
holder is entitled to receive as "dividend equivalents" an amount equal to
the cash dividends that the holder would have received if the holder had
owned the number of shares of Common Stock covered by the Initial Award
during the entire performance period.
At December 31, 1997, Mr. Kann held contingent stock rights covering a
total of 66,800 shares; Mr. Burenga - 41,725 shares; Mr. Valenti - 27,950
shares; Mr. Skinner - 26,625 shares; and Mr. Ottaway - 23,650 shares. At
December 31, 1997, the fair market value of the Common Stock subject to
such rights was as follows: Mr. Kann - $3,586,325; Mr. Burenga -
$2,240,111; Mr. Valenti - $1,500,566; Mr. Skinner - $1,429,430; and Mr.
Ottaway - $1,269,709.
The Final Award ultimately received may be less than or equal to the
numbers set forth above. It is expected that fully satisfactory
competitive performance (as judged by the Compensation Committee in its
discretion at the time of the payouts) would be competitively rewarded if
the Final Award approximated 80% of the amounts set forth above.
Exceptional performance would support a Final Award in excess of 80% of the
amounts set forth above but in no event more than 100% of such amounts.
PAGE 60
Carl M. Valenti Retirement Agreement
- ------------------------------------
Mr. Valenti will retire from the company, effective March 31, 1998,
and has agreed to provide consulting services to the company during the
period from April 1, 1998 through December 31, 1999. He has also agreed to
refrain from engaging in any business activity that is competitive with the
business of the company and its subsidiaries. In consideration for
performance of his consulting and non-competition obligations, the company
will pay Mr. Valenti an aggregate of $792,750 in 21 equal monthly
installments of $37,750 commencing on April 1, 1998 and ending on December
1, 1999. In addition, the company will credit Mr. Valenti's deferred
compensation account with an amount equal to the amounts he would have
received under the Dow Jones Profit Sharing Retirement Plan and the related
Supplementary Benefit Plan had he been an employee of the company and
continued to receive a salary at his 1997 rate between April 1, 1998 and
December 31, 1999.
Compensation of Directors
- -------------------------
During 1997 the Board of Directors met eight times, the Executive
Committee met three times, the Audit Committee met four times, the
Compensation Committee met five times and the Corporate Governance
Committee met two times. In 1997 the fee for each Board meeting attended
was $1,200; the fee for each committee meeting attended was $1,000; and the
annual fee for each committee chairman was $3,000.
At its November 1996 meeting the Board of Directors terminated the
retirement plan for non-employee directors, effective immediately after the
1997 Annual Meeting. In order to begin to increase the proportion of
directors' stock-based compensation, the Board of Directors at the same
meeting lowered the cash component of the annual director's fee from
$26,000 to $20,000 and adopted a deferred stock equivalent compensation
plan for non-employee directors so as to provide a means to grant
compensation based on shares of Common Stock ("stock equivalents") (and
also to keep total directors' compensation competitive in light of the
elimination of retirement benefits). All of these changes became effective
immediately after the 1997 Annual Meeting. In 1998, the cash component of
the annual director's fee and the fees for attending Board and committee
meetings and for serving as a committee chairman will remain the same as in
1997.
Under the directors' deferred stock equivalent compensation plan, each
non-employee director is credited with $20,000 worth of stock equivalents
per year. Such stock equivalents are credited quarterly (since the 1997
Annual Meeting), and the number thereof are determined at the market price
of the company's Common Stock on the last business day of the quarter in
question.
From time to time Board members are invited to attend meetings of
Board committees of which they are not members; in such cases, such Board
members receive a committee meeting fee. Employees of the company or its
subsidiaries who are directors do not receive director's, committee or
committee chairman's fees.
PAGE 61
Directors may elect to defer receipt, in whole or in part, of any of
their fees payable in cash. Deferred amounts will, at the electing
director's option, either be credited to an interest bearing account or be
deemed to be invested in shares of Common Stock (i.e., stock equivalents)
at the market price on the last business day of the month in which the
deferred amount in question would have otherwise been received. Deferred
cash amounts will be paid in cash, in a lump sum or in the form of annuity,
as the director may elect. Deferred stock equivalent amounts will be paid
in cash (in a lump sum or in the form of an annuity) or shares of Common
Stock (in up to fifteen annual installments), or a combination of cash and
Common Stock, as the director may elect.
Non-employee directors who retired at or prior to the 1997 Annual
Meeting will continue to receive benefits under the company's retirement
program for directors. Any such director who served for five years or more
is entitled to receive an annual amount equal to the annual fee payable at
the time of retirement. The fee will be payable for the lesser of 15 years
or the number of years the director served. Upon the death of an eligible
director, 75% of the annual amount is payable to his or her estate or
designated beneficiary for the remaining payment term. Amounts previously
accrued under the retirement plan by directors who continued to serve on
the Board after the 1997 Annual Meeting were added to such directors'
deferred compensation accounts and credited to cash or stock equivalent
accounts as specified by the individual directors.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management.
Security Ownership of Certain Beneficial Owners
The following table sets forth information, as of January 22, 1998, with
respect to the number of shares of Common Stock and Class B Common Stock
owned by the only persons who were known by the company to own beneficially
more than 5% of the outstanding Common Stock or Class B Common Stock.
===========================================================================
Shares Percent
Beneficially of
Name and Address of Beneficial Owner Owned(a) Class
- ---------------------------------------------------------------------------
Christopher Bancroft Common 4,797,405(b) 6.4%
c/o Holme Roberts & Owen LLC Class B 3,820,360(b) 17.7%
1700 Lincoln Street
Denver, Colorado 80203
- ---------------------------------------------------------------------------
Barclays Bank PLC Common 4,491,629(c) 6.0%
54 Lombard Street
London, England EC3P 3AH
- ---------------------------------------------------------------------------
Capital Research & Management Co. Common 4,771,300(d) 6.3%
333 South Hope Street
Los Angeles, California 90071
- ---------------------------------------------------------------------------
Judson W. Detrick Common 3,402,772(e) 4.5%
Holme Roberts & Owen LLC Class B 2,266,261(e) 10.5%
1700 Lincoln Street
Denver, Colorado 80203
- ---------------------------------------------------------------------------
PAGE 62
===========================================================================
Shares Percent
Beneficially of
Name and Address of Beneficial Owner Owned(a) Class
- ---------------------------------------------------------------------------
Michael B. Elefante Common 3,012,309(e) 4.0%
Hemenway & Barnes Class B 1,689,981(e) 7.8%
60 State Street
Boston, Massachusetts 02109
- ---------------------------------------------------------------------------
Timothy F. Fidgeon Common 1,999,015(e) 2.7%
Hemenway & Barnes Class B 2,163,083(e) 10.0%
60 State Street
Boston, Massachusetts 02109
- ---------------------------------------------------------------------------
Franklin Mutual Advisers, Inc. Common 3,818,100(f) 5.1%
51 John F. Kennedy Parkway
Short Hills, New Jersey 07078
- ---------------------------------------------------------------------------
Roy A. Hammer Common 11,780,020(e) 15.6%
Hemenway & Barnes Class B 8,454,534(e) 39.2%
60 State Street
Boston, Massachusetts 02109
- ---------------------------------------------------------------------------
Paul D. Holleman Common 3,403,372(e) 4.5%
Holme Roberts & Owen LLC Class B 2,266,211(e) 10.5%
1700 Lincoln Street
Denver, Colorado 80203
- ---------------------------------------------------------------------------
Jane C. MacElree Common 6,507,784(g) 8.6%
c/o Hemenway & Barnes Class B 3,892,016(g) 18.1%
60 State Street
Boston, Massachusetts 02109
- ---------------------------------------------------------------------------
Rod B. MacLeod Common 2,689,448(e) 3.6%
MacLeod & McGinness Class B 1,380,196(e) 6.4%
1800 Second Street, Suite 971
Sarasota, Florida 34236
- ---------------------------------------------------------------------------
James H. Ottaway, Sr. Common 2,817,451(h) 3.7%
Ruth B. Ottaway Class B 1,679,014(h) 7.8%
James H. Ottaway, Jr.
David B. Ottaway
Ruth Ottaway Sherer
c/o Ottaway Newspapers, Inc.
Post Office Box 401
Campbell Hall, New York 10916
- ---------------------------------------------------------------------------
Lawrence T. Perera Common 4,510,550(e) 6.0%
Hemenway & Barnes Class B 3,477,000(e) 16.1%
60 State Street
Boston, Massachusetts 02109
- ---------------------------------------------------------------------------
PAGE 63
===========================================================================
Shares Percent
Beneficially of
Name and Address of Beneficial Owner Owned(a) Class
- ---------------------------------------------------------------------------
Michael J. Puzo Common 1,292,674(e) 1.7%
Hemenway & Barnes Class B 1,899,488(e) 8.8%
60 State Street
Boston, Massachusetts 02109
- ---------------------------------------------------------------------------
Thomas A. Richardson Common 3,126,672(e) 4.1%
Holme Roberts & Owen LLC Class B 1,928,331(e) 8.9%
1700 Lincoln Street
Denver, Colorado 80203
- ---------------------------------------------------------------------------
George T. Shaw Common 914,232(e) 1.2%
Hemenway & Barnes Class B 1,083,025(e) 5.0%
60 State Street
Boston, Massachusetts 02109
- ---------------------------------------------------------------------------
State Street Bank & Trust Company Common 6,017,075(i) 8.0%
225 Franklin Street Class B 3,230,763(i) 15.0%
Boston, Massachusetts 02110
- ---------------------------------------------------------------------------
Elizabeth Steele Common 3,912,624(e) 5.2%
c/o Hemenway & Barnes Class B 2,146,210(e) 10.0%
60 State Street
Boston, Massachusetts 02109
- ---------------------------------------------------------------------------
Bayne Stevenson Common 3,320,565(e) 4.4%
c/o Hemenway & Barnes Class B 1,739,191(e) 8.1%
60 State Street
Boston, Massachusetts 02109
===========================================================================
(a) Except as otherwise indicated, the beneficial owner has sole voting and
investment power.
(b) Includes 4,510,000 shares of Common Stock and 3,477,000 shares of Class
B Common Stock held by Mr. Bancroft as trustee, as to which he shares
voting and investment power with other trustees, including Messrs. Hammer
and Perera. Also includes 287,405 shares of Common Stock and 343,360
shares of Class B Common Stock held by Mr. Bancroft as trustee of a
revocable trust, as to which he shares voting and investment power with
other trustees, including Messrs. Holleman, Richardson and Detrick. Mr.
Bancroft could acquire sole voting and investment power over such shares if
he were to revoke the trust.
(c) As of December 31, 1997, which is the most recent date as of which the
company has such information, Barclays Bank PLC held all of these shares as
an investment advisor or broker-dealer and had sole voting power as to
4,278,017 of these shares and shared investment power over all of these
shares with non-affiliated persons.
PAGE 64
(d) As of December 31, 1997, which is the most recent date as of which the
company has such information, Capital Research & Management Co. held all of
these shares as an investment adviser and had sole investment power over
all of these shares and no voting power over any of these shares.
(e) Includes shares held as trustee, as to which voting and investment
power is shared with other trustees (including other persons named above),
by the following persons, each of whom disclaims beneficial ownership of
such shares: Mr. Detrick - 3,402,772 shares of Common Stock and 2,266,211
shares of Class B Common Stock; Mr. Elefante - 3,012,309 shares of Common
Stock and 1,689,981 shares of Class B Common Stock; Mr. Fidgeon - 1,999,015
shares of Common Stock and 2,163,083 shares of Class B Common Stock; Mr.
Hammer - 11,780,020 shares of Common Stock and 8,454,534 shares of Class B
Common Stock; Mr. Holleman - 3,402,772 shares of Common Stock and 2,266,211
shares of Class B Common Stock; Mr. MacLeod - 2,689,448 shares of Common
Stock and 1,380,196 shares of Class B Common Stock; Mr. Perera - 4,510,550
shares of Common Stock and 3,477,000 shares of Class B Common Stock; Mr.
Puzo - 1,292,674 shares of Common Stock and 1,899,488 shares of Class B
Common Stock; Mr. Richardson - 3,126,672 shares of Common Stock and
1,928,331 shares of Class B Common Stock; Mr. Shaw - 914,232 shares of
Common Stock and 1,083,025 shares of Class B Common Stock; Ms. Steele -
3,912,624 shares of Common Stock and 2,146,210 shares of Class B Common
Stock; Mr. Stevenson - 3,301,134 shares of Common Stock and 1,730,393
shares of Class B Common Stock. Also includes 600 shares of Common Stock
held by Mr. Holleman as trustee, as to which Mr. Holleman has sole voting
and investment power.
(f) As of December 31, 1997, which is the most recent date as of which the
company has such information, Franklin Mutual Advisers, Inc. held all of
these shares as an investment adviser and had sole voting and investment
power over all of these shares.
(g) Includes 5,531,471 shares of Common Stock and 3,348,848 shares of Class
B Common Stock held by Mrs. MacElree as trustee, as to which she shares
voting and investment power with other trustees, including Mr. Elefante
with respect to 2,745,000 shares of Common Stock and 1,440,250 shares of
Class B Common Stock; Mr. Hammer with respect to 2,739,400 shares of Common
Stock and 1,746,733 shares of Class B Common Stock; Mr. Puzo with respect
to 46,900 shares of Common Stock and 161,800 shares of Class B Common
Stock; Mr. Shaw with respect to 14,400 shares of Common Stock and 394,683
shares of Class B Common Stock. Also includes 819,015 shares of Common
Stock and 541,583 shares of Class B Common Stock held by Mrs. MacElree as
trustee of a revocable trust, as to which she shares voting and investment
power with other trustees, including Messrs. Fidgeon and Shaw. Mrs.
MacElree could acquire sole voting and investment power over such shares if
she were to revoke the trust.
PAGE 65
(h) All of these shares have been deposited in a voting trust by various
Ottaway family trusts, individual members of the Ottaway family and a
private investment company owned by members of the Ottaway family. The
voting trustees under the voting trust are James H. Ottaway, Sr., his wife,
Ruth B. Ottaway, and their adult children, James H. Ottaway, Jr., David B.
Ottaway and Ruth Ottaway Sherer. The voting trust will remain in effect
until January 27, 2003, but shares may be withdrawn from the voting trust
prior thereto. As of January 22, 1998, each of James H. Ottaway, Sr., Ruth
B. Ottaway and David B. Ottaway beneficially owned 2,817,451 shares of
Common Stock and 1,679,014 shares of Class B Common Stock. As of January
22, 1998, Ruth Ottaway Sherer beneficially owned 2,989,621 shares of Common
Stock (4.0%) and 1,716,203 shares of Class B Common Stock (8.0%). As of
January 22, 1998, James H. Ottaway, Jr. beneficially owned 2,886,226 shares
of Common Stock (includes 63,699 shares subject to options) and 1,679,014
shares of Class B Common Stock. Each of the foregoing persons is deemed
the beneficial owner of the shares held in the voting trust described above
and, accordingly, each of the foregoing figures includes such shares. In
addition, various other shares are also included more than once in the
foregoing figures as a result of other shared ownership arrangements. Each
of James H. Ottaway, Sr., Ruth B. Ottaway, James H. Ottaway, Jr., David B.
Ottaway and Ruth Ottaway Sherer shares voting power over 2,817,451 shares
of Common Stock and 1,679,014 shares of Class B Common Stock and investment
power over 28,080 shares of Common Stock and 1,540 shares of Class B Common
Stock. Ruth Ottaway Sherer has sole voting and investment power over
172,170 shares of Common Stock and 37,189 shares of Class B Common Stock.
(i) As of December 31, 1997, which is the most recent date as of which the
company has such information, State Street Bank & Trust Company held all of
these shares as trustee, disclaimed beneficial ownership of them and shared
voting and investment power with persons named above as to 4,685,182 shares
of Common Stock and 3,197,032 shares of Class B Common Stock.
Security Ownership of Directors and Management
The following table sets forth information as of January 22, 1998, with
respect to the number of shares of Common Stock and Class B Common Stock
owned by each director and nominee for director, the five most highly
compensated executive officers, and all directors, nominees and executive
officers as a group.
PAGE 66
===========================================================================
Shares Percent
Beneficially of Common Stock
Owned Class Equivalents
Name (1) (2) (3)
- ---------------------------------------------------------------------------
Rand V. Araskog(4) Common 8,000 * 27,073
Class B 700 *
- ---------------------------------------------------------------------------
Christopher Bancroft(5)(6)(7) Common 4,797,405 6.4% 1,128
Class B 3,820,360 17.7%
- ---------------------------------------------------------------------------
Kenneth L. Burenga(4) Common 127,987 * -
Class B 3,015 *
- ---------------------------------------------------------------------------
William C. Cox, Jr.(5)(6)(8) Common 247,276 * 685
Class B 639,061 3.0%
- ---------------------------------------------------------------------------
Harvey Golub Common 2,000 * 1,110
Class B - *
- ---------------------------------------------------------------------------
Leslie Hill(5)(6)(9) Common 117,437 * 504
Class B 68,943 *
- ---------------------------------------------------------------------------
Irvine O. Hockaday, Jr. Common 3,000 * 6,479
Class B - *
- ---------------------------------------------------------------------------
Vernon E. Jordan, Jr. Common 270 * 7,144
Class B 105 *
- ---------------------------------------------------------------------------
Peter R. Kann(4) Common 230,923 * 5,505
Class B 4,027 *
- ---------------------------------------------------------------------------
David K.P. Li Common 8,030 * 8,025
Class B - *
- ---------------------------------------------------------------------------
Jane C. MacElree(5)(6)(10) Common 6,507,784 8.6% 457
Class B 3,892,016 18.1%
- ---------------------------------------------------------------------------
M. Peter McPherson Common - * -
Class B - *
- ---------------------------------------------------------------------------
Frank N. Newman Common 200 * 457
Class B - *
- ---------------------------------------------------------------------------
James H. Ottaway, Jr.(11) Common 2,886,226 3.8% -
Class B 1,679,014 7.8%
- ---------------------------------------------------------------------------
Peter G. Skinner (4) Common 72,070 * -
Class B - *
- ---------------------------------------------------------------------------
William C. Steere, Jr. Common 1,000 * 1,238
Class B - *
- ---------------------------------------------------------------------------
PAGE 67
===========================================================================
Shares Percent
Beneficially of Common Stock
Owned Class Equivalents
Name (1) (2) (3)
- ---------------------------------------------------------------------------
Carl M. Valenti(4) Common 105,860 * -
Class B 2,087 *
- ---------------------------------------------------------------------------
All directors and executive Common 15,169,567 20.1% 60,466
officers as a group Class B 10,111,536 46.9%
(19 persons)(12)
===========================================================================
(1) Except as otherwise indicated, the beneficial owner has sole voting and
investment power. Includes shares of Common Stock subject to options
exercisable within 60 days after January 22, 1998 held by: Mr. Burenga
(103,368 shares), Mr. Cox (24,905 shares), Mr. Kann (153,385 shares), Mr.
Ottaway (63,699 shares), Mr. Skinner (62,230 shares) and Mr. Valenti
(71,641 shares).
(2) For purposes of computing the percentages above, the number of shares
of Common Stock outstanding includes any shares which may be acquired by
the named person within 60 days after January 22, 1998. An asterisk under
the column "Percent of Class" indicates that the named person beneficially
owns less than one percent of the shares of Common Stock or Class B Common
Stock outstanding.
(3) Under the directors' deferred stock equivalent compensation plan (see
page 60), each non-employee director is credited with $20,000 worth of
stock equivalents per year. Certain directors have elected to defer
receipt of some or all of their fees payable in cash and have invested such
deferred amounts in stock equivalents. Amounts previously accrued under
the terminated retirement plan for non-employee directors by directors who
continued to serve on the Board after the 1997 Annual Meeting, were added
to such director's deferred compensation accounts and certain directors
have elected to invest such accrued amount in stock equivalents. Also,
certain executive officers have elected to have the amounts allocated to
their accounts under the Supplementary Benefit Plan (see footnote (3) of
the Summary Compensation Table on page 57) deemed to be invested in stock
equivalents.
(4) Includes shares owned by, or jointly with, spouses, as follows: Mr.
Burenga - 7,522 shares of Common Stock and 1,292 shares of Class B Common
Stock owned by his spouse; Mr. Kann - 8,332 shares of Common Stock and 124
shares of Class B Common Stock owned by his spouse; Mr. Skinner - 2,762
shares of Common Stock owned jointly with his spouse; Mr. Valenti - 664
shares of Common Stock owned by his spouse and 409 shares of Common Stock
owned jointly with his spouse. Includes, with respect to Messrs. Kann and
Valenti, 32,686 and 19,190 shares of Common Stock, respectively, subject to
options exercisable within 60 days after January 22, 1998 held by their
respective spouses. Mr. Burenga shares voting and investment power with
his spouse as to those shares owned by her. Messrs. Kann and Valenti
disclaim beneficial ownership of the shares owned by their respective
spouses. Mr. Skinner shares voting and investment power with his spouse as
to those shares owned jointly.
PAGE 68
(5) Mr. Cox is the brother of Mrs. MacElree. Mr. Cox and Mrs. MacElree are
first cousins of Mr. Bancroft. Ms. Hill is the daughter of Mrs. MacElree.
(6) As of January 1, 1998, Mr. Cox, Mr. Bancroft, Mrs. MacElree and Ms.
Hill, certain of their relatives, and certain trusts and charitable
organizations established by them owned beneficially a total of 24,913,657
shares (33%) of the outstanding Common Stock and 17,359,716 shares (80%) of
the outstanding Class B Common Stock. Such shares account for
approximately 64% of the votes represented by the outstanding Common Stock
and Class B Common Stock. Mr. Cox, Mr. Bancroft, Mrs. MacElree and Ms.
Hill, trusts as to which they or certain of their relatives are trustees or
have beneficial or reversionary interests, and the trustees of such trusts,
may be considered in control of the company and therefore its "parent."
(7) Includes 287,405 shares of Common Stock and 343,360 shares of Class B
Common Stock held by Mr. Bancroft as trustee of a revocable trust, as to
which he shares voting and investment power with other trustees and as to
which he could acquire sole voting and investment power if he were to
revoke the trust. Also includes 4,510,000 shares of Common Stock and
3,477,000 shares of Class B Common Stock held by Mr. Bancroft as trustee,
as to which he shares voting and investment power with other trustees.
(8) Includes 58,351 shares of Common Stock and 207,400 shares of Class B
Common Stock held by a revocable trust for the benefit of Mr. Cox, as to
which he could acquire sole voting and Investment power if he were to
revoke the trust. Also includes 164,014 shares of Common Stock and 431,621
shares of Class B Common Stock, as to which Mr. Cox disclaims beneficial
ownership, as follows: 85,514 shares of Common Stock and 379,791 shares of
Class B Common Stock held by Mr. Cox as trustee, as to which he shares
voting and investment power; 50,500 shares of Common Stock and 27,130
shares of Class B Common Stock held by trustees for Mr. Cox's spouse; and
29,000 shares of Common Stock and 24,700 shares of Class B Common Stock
held by a foundation of which Mr. Cox is President.
(9) Includes 6,006 shares of Common Stock and 1,618 shares of Class B
Common Stock owned by Ms. Hill's spouse and minor children.
(10) Includes 819,015 shares of Common Stock and 541,583 shares of Class B
Common Stock held by Mrs. MacElree as trustee of a revocable trust, as to
which she shares voting and investment power with other trustees and as to
which she could acquire sole voting and investment power if she were to
revoke the trust. Also includes 5,531,471 shares of Common Stock and
3,348,848 shares of Class B Common Stock held by Mrs. MacElree as trustee,
as to which she disclaims beneficial ownership and shares voting and
investment power with other trustees and 4,255 shares of Common Stock and
1,585 shares of Class B Common Stock owned by her spouse.
(11) See footnote (h) starting on page 65 of this Form 10-K for a
description of Mr. Ottaway's ownership of Common Stock and Class B Common
Stock.
(12) Includes 573,989 shares of Common Stock subject to options that may be
exercised by executive officers and directors within 60 days after January
22, 1998. Also includes shares owned by or jointly with their spouses and
by their children and relatives sharing their homes.
PAGE 69
ITEM 13. Certain Relationships and Related Transactions.
During 1997, Akin, Gump, Strauss, Hauer & Feld, the law firm of which
Mr. Jordan is a senior partner, rendered certain legal services to the
company. The company expects that this law firm will continue to render
legal services to the company in 1998.
Karen Elliott House, President/International Group of the company and
the spouse of Mr. Kann, received a salary and bonus in 1997 of $400,000.
An aggregate of $75,729 was contributed to Ms. House's account under the
Dow Jones Profit Sharing Retirement Plan and the related Supplementary
Benefit Plan in respect of 1997. Ms. House received a payout for 1997 of
1,400 shares of Common Stock with a fair market value as of January 21,
1998 of $71,925 under the Dow Jones 1992 Long Term Incentive Plan in
respect of the four-year performance period 1994-1997. Ms. House also
received contingent stock rights and stock options under the Dow Jones 1997
Long Term Incentive Plan. Ms. House's compensation is set by the
Compensation Committee of the Board of Directors.
PAGE 70
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 (loss) income for the years
ended December 31, 1997, 1996 and 1995 24
Consolidated balance sheets, December 31, 1997 and 1996 25-26
Consolidated statements of cash flows for the
years ended December 31, 1997, 1996 and 1995 27-28
Consolidated statements of stockholders' equity for the
years ended December 31, 1997, 1996 and 1995 29
Notes to financial statements 30-47
Report of independent accountants 48
(a) (2) Financial Statement Schedules:
Included in Part IV of this report:
Report and consent of independent accountants 75
II - Valuation and qualifying accounts and reserves 76
Other schedules have been omitted since they are either not required or
not applicable.
PAGE 71
(a) (3) Exhibits
Exhibit
Number Document
------- --------
3.1 The Restated Certificate of Incorporation of the company, as
amended, is hereby incorporated by reference to Exhibit 19.1 to
its Form 10-Q for the quarter ended March 31, 1988.
3.2 The Bylaws of the company is hereby incorporated by reference to
Exhibit 19.2 to its Form 10-Q for the quarter ended September 30,
1987.
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.
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 Dow Jones 1983 Executive Incentive Plan, as amended, is hereby
incorporated by reference to Exhibit 10.3 to its Form 10-K for the
year ended December 31, 1983.
10.4 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.
10.5 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.
10.6 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.
10.7 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.
10.8 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.
10.9 Dow Jones Credit Agreement dated November 16, 1994 between the
company and Chemical Bank is hereby incorporated by reference to
Exhibit 10.9 to its Form 10-K for the year ended December 31,
1994.
PAGE 72
Exhibit
Number Document
------- --------
* 10.10 First Amendment to the Dow Jones Credit Agreement dated December
31, 1997 between the company and The Chase Manhattan Bank.
* 10.11 Retirement Agreement dated December 30, 1997 between the company
and Mr. Valenti.
21 List of Subsidiaries.
23 Consent of Coopers & Lybrand, independent accountants, is
contained on page 75 of this report.
* 27 Financial Data Schedule
* Securities and Exchange Commission and New York Stock Exchange copies
only.
(b) Reports on Form 8-K
On a Form 8-K, dated November 19, 1997, under Item 5. Other Events and Item
7. Financial Statements, Pro Forma Financial Information and Exhibits, Dow
Jones filed a copy of a press release that the company had issued on that
date.
PAGE 73
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.
By Thomas G. Hetzel
-------------------------
Comptroller
(Chief Accounting Officer)
Dated: March 16, 1998
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 16, 1998
Chief Executive Officer
Kenneth L. Burenga
- -------------------------- President March 16, 1998
Chief Operating Officer
Kevin J. Roche
- -------------------------- Vice President/Finance March 16, 1998
Chief Financial Officer
Harvey Golub
- -------------------------- Director March 16, 1998
James Q. Riordan
- -------------------------- Director March 16, 1998
PAGE 74
Signature Title Date
- --------- ----- ----
Frank N. Newman
- --------------------------- Director March 16, 1998
William C. Cox Jr.
- --------------------------- Director March 16, 1998
Jane C. MacElree
- --------------------------- Director March 16, 1998
Leslie Hill
- --------------------------- Director March 16, 1998
Christopher Bancroft
- --------------------------- Director March 16, 1998
William C. Steere Jr.
- --------------------------- Director March 16, 1998
Irvine O. Hockaday Jr.
- --------------------------- Director March 16, 1998
Vernon E. Jordan Jr.
- --------------------------- Director March 16, 1998
James H. Ottaway Jr.
- --------------------------- Director March 16, 1998
Rand V. Araskog
- --------------------------- Director March 16, 1998
PAGE 75
INDEPENDENT ACCOUNTANTS' REPORT ON FINANCIAL STATEMENT SCHEDULES
-----------------------
To the Board of Directors and Stockholders
of Dow Jones & Company, Inc.:
Our report on the consolidated financial statements of Dow Jones &
Company, Inc. and its Subsidiaries is included on page 48 of this 1997 Form
10-K. In connection with our audits of such financial statements, we have
also audited the related financial statement schedules listed in the index
on page 70 of this Form 10-K.
In our opinion, the financial statement schedules referred to above,
when considered in relation to the basic financial statements taken as a
whole, present fairly, in all material respects, the information required to
be included therein.
COOPERS & LYBRAND L.L.P.
New York, New York
January 29, 1998
CONSENT OF INDEPENDENT ACCOUNTANTS
-----------------------
We consent to the incorporation by reference in the Registration
Statements on Form S-3 (File No. 333-2071) and Form S-8 (File Nos. 2-72684,
2-95540, 33-35211, 33-45962, 33-45963, 33-49311 and 33-55079) of Dow Jones &
Company, Inc. of our report dated January 29, 1998 appearing on page 48 of
this 1997 Form 10-K. We also consent to the incorporation by reference of
our report on the financial statement schedules, which appears above.
COOPERS & LYBRAND L.L.P.
New York, New York
March 16, 1998
PAGE 76
Schedule II
DOW JONES & COMPANY, INC.
and its Subsidiaries
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
for the years ended December 31, 1997, 1996 and 1995
(in thousands)
Additions
------------------------
Balance at Charged to Charged Balance
Beginning Cost and to Other at End
Description of Period Expenses Accounts(A) Deductions(B) of Period
----------- --------- --------- ---------- ------------ ---------
Year ended December 31, 1997:
Reserves deducted from assets -
allowance for doubtful accounts $16,234 $10,743 $4,134 $14,666 $16,445
======= ======= ====== ======= =======
Year ended December 31, 1996:
Reserves deducted from assets -
allowance for doubtful accounts $13,402 $8,827 $4,062 $10,057 $16,234
======= ====== ====== ======= =======
Year ended December 31, 1995:
Reserves deducted from assets -
allowance for doubtful accounts $14,870 $6,176 $3,572 $11,216 $13,402
======= ====== ====== ======= =======
Notes:
(A) Recoveries of accounts previously written off and reductions of revenue.
(B) Accounts written off as uncollectible and credits issued to customers.