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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, 1998
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 29, 1999 was approximately $2,173,000,000.
The number of shares outstanding of each of the registrant's classes of common
stock on January 29, 1999: 71,133,233 shares of Common Stock and
20,864,394 shares of Class B Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Definitive Proxy Statement for 1999 Annual Meeting of Stockholders dated March
22, 1999: Part III.
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 operating segments:
print publishing, electronic publishing and general-interest community
newspapers. Financial information about operating segments and geographic
areas is incorporated by reference to Note 16 to the Financial Statements on
pages 50 to 53 of this report.
At December 31, 1998, the company employed 8,253 full-time employees. The
company's principal executive offices are located at 200 Liberty Street, New
York, New York, 10281.
On May 29, 1998, the company sold its former subsidiary, Telerate, to Bridge
Information Systems, Inc. As discussed further in Management's Discussion and
Analysis results in 1998 and 1997 included significant charges relating to
Telerate. Additionally, the company's results of operations since the end of
1996 were negatively affected by a sharp fall-off in Telerate results of
operations.
As discussed further in Management's Discussion and Analysis, in 1998 the
company formulated a three-year plan covering the 1999-2001 period with the
objective of growing earnings per share and increasing margins. The company
also restructured certain business units resulting in staff reduction and
occupancy-related charges. Also in 1998, the company incurred charges for the
write-down of certain technology, principally related to a print publishing
news-editing system.
In addition to divesting Telerate in 1998, the company disposed of certain
noncore investments including its share of WBIS+ TV and Mediatex Communication
Corp, as well as a portion of its holdings in OptiMark Technologies, Inc.
Print publishing
- ----------------
The print publishing segment contains the operations of The Wall Street
Journal and its international editions, Barron's and other periodicals, as
well as U.S. television operations. (Results of the company's international
television ventures are included in Equity in Losses of Associated Companies.)
Dow Jones' flagship publication, The Wall Street Journal, is the country's
largest daily newspaper with average circulation for 1998 of 1,773,000. 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 through 18 localized editions and the
option of advertising in full color.
In 1998, the company launched a $232 million three-year program to expand
color and page capacity for The Wall Street Journal. This project will expand
the Journal's page capacity from 80 pages to 96 pages and color page capacity
from eight pages to 24 pages and offers advertisers added flexibility with
regard to the positioning of color advertising throughout the paper.
Since 1993, the Journal has been expanding its regional coverage of business
and economic trends to select regions of the United States. In 1998, the
Journal began publishing The Wall Street Journal/Northwest, adding to its
already specialized regional coverage in Texas, Florida, California, the
Southeast and the New England markets. These Journal editions appear every
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Wednesday as four news and advertising pages in copies of The Wall Street
Journal distributed in their respective markets.
The Journal also provides weekend-oriented coverage every Friday via a fourth
section "Weekend Journal", which was launched in 1998. Weekend Journal
includes expanded personal-finance coverage as well as pages devoted to
travel, wines, sports, residential real estate and the arts. The Journal also
publishes at various times of the year special reports on topics such as
technology, personal finance and executive compensation, as well as
demographically targeted editions devoted to subjects of retirement and small
business.
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 1998, the National Delivery Service on
average delivered about 1.1 million of the Journal's subscription copies each
publishing day. This system provides delivery earlier and more reliably than
the Postal Service. Approximately 200,000 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 1998 of 68,000. In
February 1998, the Journal Europe introduced an edition tailored especially
for the United Kingdom market.
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, Korea, Taiwan and beginning in 1998 to printing sites in
the Philippines and Indonesia. The Asian Wall Street Journal had average
circulation of 60,000 in 1998.
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 30 newspapers in 26 countries. They are published in 10 different
languages and serve a combined circulation in excess of four million.
Barron's, the Dow Jones Business and Financial Weekly, is a magazine that
specializes in reporting and commentary on financial markets. The weekend
magazine, which had average circulation of 296,000 in 1998, uses some of the
facilities employed in the production of the domestic Wall Street Journal.
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Barron's is edited in New York City and is delivered by second-class postal
service and through National Delivery Service. About 125,000 copies are sold
at newsstands weekly.
Other business publications include the Far Eastern Economic Review, Asia's
leading English-language business 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 3,900 middle-school and high-school
classrooms throughout the United States.
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 725,000 copies effective with its January 1999 issue.
Also included in this segment is the domestic portion of the company's
television group. As a result of the global business television alliance with
NBC, the company's domestic operations provide business news programming to
CNBC as part of a multiyear license agreement. The company's overseas
television ventures, which were merged with CNBC's overseas operations into
equally-owned operations in Europe and Asia, are included as part of Equity in
Associated Companies. In early 1998, NBC and Dow Jones relaunched their
business information channels in Europe and Asia as CNBC, a service of NBC and
Dow Jones. The new overseas services reach in total nearly 38 million
households on a full-time basis and over 55 million households on a part-time
basis.
Additionally as part of the television alliance with NBC, Dow Jones joined
Microsoft Corp. and NBC in certain interactive initiatives, including
supplying highlights of 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.
Electronic publishing
- ---------------------
Electronic publishing includes the operations of Dow Jones Newswires, Dow
Jones Interactive Publishing and Dow Jones Indexes.
Dow Jones Newswires is a global publisher of real-time business and financial
news. Its various wires are displayed on approximately 290,000 terminals
worldwide, providing users with real-time information on equities, fixed
income, foreign exchange, commodities and energy. Dow Jones Newswires has a
dedicated staff of over 750 business and financial journalists in addition to
drawing on the resources of the global Journal and the Associated Press.
In 1998, in conjunction with the sale of Telerate, the company entered into a
non-exclusive long-term agreement with Bridge Information Systems, Inc. to
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distribute the company's newswires over Bridge terminals. Also in 1998, the
company entered into agreements with Reuters Group PLC and Bloomberg L.P. to
market Dow Jones Newswires worldwide as an optional service to the roughly
550,000 users of their terminals. Prior to the sale of the company's Telerate
subsidiary, essentially all of the international distribution of Dow Jones
Newswires' products was handled exclusively by Telerate.
Dow Jones News Service, a 24-hour service, is North America's pre-eminent
supplier of business and financial news to subscribers at brokerage firms,
banks, investment companies and other businesses. Capital Markets Report is
the company's newswire that covers 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 and Asian 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.
The company's agreement with the AP, which began in 1967, was restructured
effective January 1, 1998. As part of the agreement the company obtained sole
sales, marketing and product development control of the joint AP/Dow Jones
overseas newswires, while the Associated Press gained a royalty stream through
2004. In 1998 and through the end of the contract period, Dow Jones will
record 100% of revenues and expenses for these newswires. Prior to 1998, the
company recorded its 50% share of both revenues and expenses from the joint
newswires.
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. In late 1998, a portion of Federal
Filings' business (EDGAR Direct) was sold to Primark Corp.'s Disclosure Inc.
unit.
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 group's
principal products include Dow Jones Interactive and The Wall Street Journal
Interactive Edition.
Dow Jones Interactive is available over the Internet or through Windows or
Macintosh software interfaces. In 1999, the company plans to migrate all
users from its proprietary retrieval system to the Web version, except certain
high-volume users such as librarians. Dow Jones Interactive provides current-
awareness news and on-line research to end-users at corporate desktops as well
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as the traditional market of information professionals. By focusing on Web-
delivery of its content, Dow Jones Interactive finished 1998 with over 600,000
users.
Dow Jones Interactive provides its users with a vast news library of over
6,000 publications, including the full-text archive of The Wall Street Journal
and Dow Jones Newswires and roughly 1,500 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, an 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. 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. The Interactive Journal began charging
subscribers in the latter part of 1996. At the end of 1998, this edition had
about 266,000 subscribers.
Also included in Dow Jones Interactive Publishing are Dow Jones' radio
products --"The Wall Street Journal Report" on AM stations and "The Dow
Jones Report" on FM stations. Together these programs are approximately
carried on about 160 stations and reach roughly 80% of the United States.
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 entered into a joint venture, named STOXX Ltd. The venture
launched a series of indexes that tracks the performance of certain European
equities, including broad-based measures as well as gauging the market
performance of countries that have joined the European Economic and Monetary
Union.
Community Newspapers
- --------------------
Community newspapers published at year-end 1998 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 1998 was approximately 568,000; Sunday circulation for 14
newspapers was approximately 538,000. Community newspapers also publishes 15
weekly publications, including four publications acquired in early 1998. The
principal administrative office of Ottaway Newspapers is in Campbell Hall, New
York. The primary delivery method for the newspapers is private delivery.
In 1998, Ottaway Newspapers implemented a three-year plan to increase its
profit margins. An initial step in that process was its voluntary separation
program, which reduced its workforce by about 10%.
PAGE 7
Other
- -----
Dow Jones' investments include a minority interest in United States Satellite
Broadcasting Company, Inc. (USSB), 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
and Portugese language business magazine in South America; VWD-Vereinigte
Wirtschaftsdienste GmbH, a German news agency specializing in business and
economic news and information; HB-Dow Jones S.A., a part-owner of a publishing
company in the Czech Republic; OptiMark Technologies, Inc, a developer of
trading systems for equities; and a newsprint mill in Canada.
Other investments of the company also include $150 million of 5 year,
convertible, 4% preferred stock of Bridge Information Systems, Inc.
In December 1998, Hughes Electronics Corp., a unit of General Motors Corp.,
agreed to acquire USSB. The purchase, which is subject to regulatory
approval, entitles shareholders of USSB consideration of .3775 shares of
General Motors Class H stock (GMH) or its cash equivalent. The actual
purchase price will be based on the weighted-average price of GMH shares
during a 20-day period ending two days prior to closing.
Raw Materials
- -------------
The primary raw material used by the company is newsprint. In 1998
approximately 278,000 metric tons were consumed. Newsprint was purchased
principally from 14 suppliers. The company is a limited partner in F.F.
Soucy, Inc. & Partners, L.P., Riviere du Loup, Quebec, Canada. F.F. Soucy
furnished 14.5% of total newsprint requirements in 1998. The company has
signed long-term contracts with certain newsprint suppliers, including F.F.
Soucy, for a substantial portion of its annual newsprint requirements. For
many years the available sources of newsprint have been adequate to supply
the company's needs.
Research and Development
- ------------------------
Research and development expenses were $60,988,000 in 1998, $116,420,000 in
1997 and $73,974,000 in 1996. Excluding Telerate operations, R&D expenses
totaled $32,029,000 in 1998, $31,887,000 in 1997 and $27,362,000 in 1996.
Competition
- -----------
The print publications of the company are highly competitive. In its various
news publishing activities, Dow Jones competes with a wide spectrum of other
information media. All metropolitan general interest newspapers and many
small city or suburban papers carry business and financial pages or sections,
including securities quotations, as do many Internet-based publications and
services. In addition, specialized magazines in the business and financial
field, as well as general news magazines, publish substantial amounts of
business-related material. Nearly all these publications seek to sell
advertising space and much of this effort is directly or indirectly
competitive with Dow Jones' publications. The Journal also competes for
advertising with non-business publications, such as technology magazines,
offering audiences of similar demographic quality. In addition,the Journal
PAGE 8
and the company's other business publications also compete with television and
radio for advertisers.
The company's newswires compete with other global financial newswires
including Reuters Holdings PLC, Bloomberg L.P. and Bridge Information Systems,
Inc. as well as McGraw-Hill, Inc. The company's newswires maintain a stronger
market position in North America than internationally. In 1998 in order to
expand its market presence, especially internationally, the company entered
into agreements with Reuters, Bloomberg and Bridge to distribute the company's
newswires over their terminals.
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.
Dow Jones' index-licensing business competes with various organizations that
develop and license indexes, including the Standard & Poors unit of McGraw-
Hill, Inc., Financial Times, and Morgan Stanley/Capital International. Dow
Jones competes with these organizations in developing benchmarks of equity
market performance to which investable products may be linked.
All of the community newspapers operating under Ottaway Newspapers, Inc.
compete with metropolitan general interest newspapers, and most compete with
other newspapers, local radio and television available in their respective
sales areas.
The company's overseas business television ventures compete with various
international satellite networks that specialize in general news but also
provide business programming. Also, individual television stations, networks
and cable channels in each country broadcast programming that competes for
advertising and the attention of viewers in their respective markets.
ITEM 2. Properties.
Dow Jones operates 17 plants with an aggregate of approximately one million
square feet for the printing of its domestic publications. Printing plants
are located in Palo Alto and Riverside, California; Denver, Colorado; Orlando,
Florida; LaGrange, Georgia; Naperville and Highland, Illinois; Des Moines,
Iowa; White Oak, Maryland; Chicopee Falls, Massachusetts; South Brunswick, New
Jersey; Charlotte, North Carolina; Bowling Green, Ohio; Sharon, Pennsylvania;
Dallas and Beaumont, Texas; and Federal Way, Washington. All plants include
office space. All are owned in fee except the Palo Alto, California, plant,
which is located on 8.5 acres under a lease to Dow Jones for 50 years,
expiring in 2015.
Other facilities owned in fee with a total of approximately 870,000 square
feet house news, sales, administrative, technology and operations staff.
These facilities are located in South Brunswick, New Jersey, and Chicopee
Falls, Massachusetts. Additionally, the company is near completion of an
additional 450,000 square foot building at its South Brunswick, New Jersey
location. The company plans to sublet some of this space upon completion.
Dow Jones occupies two major leased facilities in New York City, including
320,000 square feet at the World Financial Center, which primarily houses
PAGE 9
editorial and executive staff, and 89,000 square feet at a separate location
for advertising sales staff. Results in 1998 included a charge relating to
the reduction of roughly 80,000 square feet of leased space at the World
Financial Center. 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.
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 72% and 96% 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.
PAGE 10
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, with the exception of Mr. Bailey, have
been employed by the company for more than five years.
Peter R. Kann, age 56, 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.
Kenneth L. Burenga, age 54, retired from the company at the end of 1998. Mr.
Burenga served as 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 Telerate 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.
Jerome H. Bailey, age 46, joined the company in April 1998 as Senior Vice
President and Chief Financial Officer, and in October 1998 was promoted to
Executive Vice President and Chief Financial Officer. Prior to joining Dow
Jones, Mr. Bailey was Chief Financial Officer for Salomon, Inc and Salomon
Brothers from 1993 until Salomon was acquired by Travelers Group, Inc. in
1997.
Peter G. Skinner, age 54, Executive Vice President since October 1998 and
General Counsel and Secretary since 1985, Senior Vice President from November
1989 to October 1998, President, Television from January 1995 to December
1997, served as Vice President from 1985 to November 1989.
James H. Ottaway Jr., age 61, Senior Vice President since 1986, President of
Magazines since February 1988, Chairman of Ottaway Newspapers, Inc. since
1979, served as President of the International Group from February 1988 to
January 1995, as Vice President/Community Newspapers from 1980 to 1985 and as
President of Ottaway Newspapers, Inc. from 1970 to 1985 and its Chief
Executive from 1976 to January 1989.
L. Gordon Crovitz, age 40, Senior Vice President/Electronic Publishing since
October 1998, Vice President/Planning and Development from November 1997 to
October 1998. Managing Director for Telerate's Asia/Pacific operation from
September 1996 to November 1997. Editor and Publisher of Review Publishing
Company from July 1993 to September 1996.
Thomas G. Hetzel, age 43, Vice President of Finance since July 1998,
Comptroller from October 1993 to December 1998, served as Associate
Comptroller from 1992 to 1993 and Assistant Comptroller from 1988 to 1992.
Lawrence K. Kinsella, age 42, Comptroller since December 1998, served as
Associate Comptroller from October 1993 to December 1998, and Controller of
Telerate from 1990 to May 1998.
PAGE 11
PART II.
ITEM 5. Market for the Registrant's Common Equity and Related
Stockholder Matters.
The company's common stock is listed on the New York Stock Exchange. The class
B common stock is not traded. The approximate number of stockholders of
record as of January 29, 1999, was 11,750 for common stock and 4,380 for class
B common stock. The company paid $.96 per share in dividends in 1998 and in
1997.
==================================================================================
Market Price 1998 Market Price 1997
----------------- -----------------
Quarters Dividends Dividends
Ended High Low Paid 1998 High Low Paid 1997
- ----------------------------------------------------------------------------------
March 31 $56 3/16 $48 3/4 $.24 $46 1/8 $33 3/8 $.24
June 30 56 45 7/8 .24 42 1/4 37 5/8 .24
September 30 59 46 1/2 .24 50 3/8 40 1/16 .24
December 31 50 5/16 41 9/16 .24 55 7/8 42 13/16 .24
==================================================================================
PAGE 12
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) 1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------
Revenues $2,158,106 $2,572,518 $2,481,592 $2,283,761 $2,090,977
Income (loss)
before
cumulative
effect of
accounting
changes $8,362 $(802,132) $189,969 $189,572 $181,180
Net income (loss) $8,362 $(802,132) $189,969 $189,572 $178,173
- --------------------------------------------------------------------------------
Per share amounts:
Basic:
Income (loss) before
cumulative effect
of accounting
changes $.09 $(8.36) $1.96 $1.96 $1.83
Net income (loss) $.09 $(8.36) $1.96 $1.96 $1.80
Diluted:
Income (loss) before
cumulative effect
of accounting
changes $.09 $(8.36) $1.95 $1.94 $1.82
Net income (loss) $.09 $(8.36) $1.95 $1.94 $1.79
Dividends $.96 $ .96 $ .96 $ .92 $ .84
- --------------------------------------------------------------------------------
Total assets $1,491,322 $1,919,734 $2,759,631 $2,598,700 $2,445,766
Long-term debt,
including
current portion $149,889 $234,124 $337,618 $259,253 $300,870
================================================================================
PAGE 13
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Consolidated net income in 1998 was $8.4 million, or $.09 per diluted share,
compared with a net loss of $802.1 million, or $8.36 per diluted share, a year
ago. Consolidated results in 1998 and 1997 included significant charges
relating to Telerate (formerly, Dow Jones Markets), a former subsidiary of the
company. On May 29, 1998, the company completed the sale of Telerate to
Bridge Information Systems, Inc. As a result, the company recorded a loss on
its sale of $150.3 million ($123 million after taxes). Results in 1997
included Telerate restructuring charges of $979.5 million ($922.5 after
taxes), of which about 97% was attributable to an impairment in Telerate's
carrying value with the remaining portion mainly attributed to severance
costs. In addition to these charges, Telerate net losses from operations
lowered consolidated results by $23.3 million in 1998 and $67 million in 1997.
In 1996, Telerate contributed net income of $55.5 million to consolidated
earnings.
The disposition of Telerate in 1998 as well as other special charges/gains
have had a significant impact on the comparability of the company's financial
statements. Excluding these items, 1998 net income was $185 million, or $1.92
per diluted share, in line with net income of $185.7 million, or $1.92 per
diluted share, a year earlier. A reduction in television losses, improvements
at Dow Jones Interactive Publishing and community newspapers and a positive
swing to net interest income were offset by a decline in profits of U.S. and
international print publications.
For the purpose of assisting the reader with comparability, the company has
presented the table on the following page which reconciles reported results to
income excluding these special items for 1998, 1997 and 1996. The term
"special items" as used within the remainder of management's discussion and
analysis refers to those items within the table.
PAGE 14
1998 1997 1996
(in millions, except Income Income/(Loss) Income
per share amounts) Operating Net EPS* Operating Net EPS* Operating Net EPS*
--------- --- --- --------- --- --- --------- --- ---
Reported $218.6 $ 8.4 $ .09 $ (742.0) $(802.1) $(8.36) $337.0 $190.0 $1.95
Adjusted to remove:
Telerate (loss) income (33.2) (146.3) (1.51) (1,064.4) (989.5) (10.29) 105.3 55.5 .57
Included in
operating income:
One-time index fees,
net of expenses 26.5 15.6 .15
Divested operations ** (18.3) (12.0) (.13) (36.8) (18.8) (.19)
Restructuring charges:
Employee severance (38.8) (22.9) (.24)
Real estate
lease terminations (20.0) (12.2) (.13)
Technology related (17.3) (10.3) (.11)
Television (4.7) (2.8) (.03)
IDD Enterprises (17.1) (11.1) (.11)
Included in
non-operating
income:
International
TV restructuring (4.2) (.05) (19.3) (.20)
Investment gains:
OptiMark 8.2 .09
EDGAR Direct 1.0 .01
WBIS+ 7.4 .08
Mediatex 2.7 .03
Bear Island 27.7 .29
American Demographics 3.6 .04
Press-Enterprise 8.8 .09
Income excluding
special items $327.9 $185.0 $1.92 $336.0 $185.7 $1.92 $268.5 $144.5 $1.48
* Diluted
** Divested operations include European Business News, Dow Jones Investor Network, American
Demographics, Inc. and IDD Enterprises' print publishing unit.
The restructuring charge in 1998 included staff reduction and occupancy-
related charges of $58.8 million ($38.8 million and $20 million, respectively).
As part of an effort to grow earnings per share and improve the company's
margins, Dow Jones offered two voluntary retirement plans and closed certain
operations resulting in severance and other costs. In total, approximately
520 employees throughout the company received severance. Also, as a result of
reduced occupancy requirements post-Telerate, the company agreed to give back
about 20% of the leased space at its New York headquarters. Annual savings as
a result of these actions are expected to be approximately $15 million pretax.
PAGE 15
The $17.3 million technology charge primarily related to the write-off of
certain modules of the company's U.S. news-editing technology system, the
Global News Management System (GNMS). The company started to build the GNMS
system in 1993 at a time when off-the-shelf external vendor solutions were not
available. The system was intended to provide state-of-the-art electronic
news writing and editing to support the company's print publishing operations.
While GNMS added some increased functionality to the news staff's desktops,
the system that was built was too complicated to effectively prepare the pages
for printing. The company decided it was more cost beneficial to invest in a
new pagination system using current off-the-shelf technology rather than to
invest additional resources in fixing the GNMS system. In December 1998,
after repeated systems instability, the decision was made to resume using
prior in-place news-editing systems as an interim measure until a new
pagination system can be selected and installed. The majority of the news
editing and composing staffs migrated off the GNMS system in December to the
prior news-editing systems. The remaining staff will be transferred by June
30, 1999. The company expects the new pagination system to be implemented
over the next two years. The write-off will not lead to a reduction in annual
depreciation expense. The depreciation charge for the GNMS modules still in
use will be approximately the same as the full GNMS depreciation charge in
1998, as their useful lives have been shortened.
In addition to the charge to operating expenses, the company recorded a charge
of $6.5 million ($4.2 million after taxes) to Equity in Losses of Associated
Companies for additional costs related to redundant international television
satellite leases as a result of establishing joint ventures with CNBC in 1997.
Reported operating income was $218.6 million in 1998, compared with an
operating loss of $742 million in 1997. Excluding special items, 1998
operating income slipped 2.4%, to $327.9 million. EBITDA (defined here as
operating income excluding depreciation and amortization and noncash write-
downs) was $381.8 million in 1998, $481.1 million in 1997 and $554.7 million
in 1996. Excluding other restructuring charges and divested operations as
well, EBITDA was $416.5 million in 1998 versus $454.1 million in 1997 and
$344.1 million in 1996. Revenues, excluding special items, of $1.87 billion
increased 5.4% over comparable revenues in 1997. The revenue increase was
largely driven by electronic publishing operations. Excluding special items,
expenses rose $104 million, or 7.2%, primarily as a result of increased
employee salaries and benefits and higher newsprint costs. Newsprint expense
was up $10.7 million, or 7%, from 1997, with 60% of the increase due to an
increase in average prices and 40% the result of higher consumption.
The reported net loss in 1997 was $802.1 million, or $8.36 per diluted share,
significantly worse than reported earnings of $190 million, or $1.95 per
diluted share, in 1996. Earnings in 1996 included a net gain of $8.8 million
from the sale of the company's interest in Press-Enterprise Company.
Excluding Telerate, 1997 restructuring charges, one-time index licensing fees
and gains from asset sales, net income in 1997 was up 38% from 1996, largely
the result of strong operating gains by the print publishing and community
newspapers segments.
PAGE 16
Restructuring costs in 1997, exclusive of Telerate, totaled $51.5 million
consisting of a $21.8 million charge to operations relating to restructuring
IDD Enterprises ($17.1 million) and U.S. television operations ($4.7 million),
and a $29.7 million charge to Equity in Losses of Associated Companies for
international television ventures. The IDD charge mainly reflected the write-
down of goodwill, while the $29.7 million charge related to operating lease
redundancies resulting from the merger of the company's international
television operations with CNBC. In December 1997, the company and National
Broadcasting Company (NBC) agreed to a worldwide business television alliance.
As part of the agreement, the company 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 1997 reported operating loss was $742 million, compared with operating
income of $337 million in 1996. Reported revenues in 1997 grew $90.9 million,
or 3.7%, to $2.57 billion, as higher advertising revenue from The Wall Street
Journal and one-time index licensing revenue were tempered by an 8.7% decline
in Telerate revenue. Wall Street Journal linage was up 13.4% in 1997, which
followed a 13.9% increase in 1996. Excluding Telerate and the index licensing
fees, revenues were up 7.9%. Expenses, excluding restructuring costs,
increased $168.6 million, or 7.9%, largely the result of Telerate and
advertising-volume related costs. Excluding Telerate and restructuring
charges, expenses were up 3.5%.
SEGMENT DATA
A summary of the results of operations for each of the company's principal
business segments as well as additional financial data is displayed in Note 16
to the financial statements.
In 1998's second quarter, the company re-aligned its operating segments. The
company's business and financial news and information operations are reported
in the following two segments: print publishing and electronic publishing.
The results of the company's Ottaway Newspapers subsidiary, which publishes 19
daily newspapers and 15 weekly newspapers in communities throughout the U.S.,
are reported in the community newspapers segment.
Print publishing includes the operations of The Wall Street Journal and its
international editions, Barron's and other periodicals, as well as U.S.
television operations. (Results of the company's international television
ventures are included in Equity in Losses of Associated Companies.) Print
publishing accounted for approximately 62% of 1998 continuing revenues.
Approximately 10% of print publishing revenues are earned by international
publications. Revenues, particularly advertising, for the print publications
are historically seasonal with the fourth quarter typically being the
strongest in terms of total volume followed by the second, the first and the
third quarters. Within the print publishing segment, "U.S." revenue figures
refer to all revenues, from whatever geographic source, for publications
headquartered in the United States, while "International" revenue figures
refer to all revenues, from whatever geographic source, for publications
headquartered outside the United States.
Electronic publishing includes the operations of Dow Jones Newswires, Dow
Jones Interactive Publishing and Dow Jones Indexes. Electronic publishing
comprised 21% of 1998 continuing revenues, while the community newspapers
segment accounted for the remaining 17% of 1998 continuing revenues.
Divested/joint ventured operations include Telerate and print and television
operations, comprising European Business News, Dow Jones Investor Network,
American Demographics, Inc. and IDD Enterprises' print publishing unit.
PAGE 17
PRINT PUBLISHING
Operating income of $173.6 million in 1998 for the print publishing segment
declined $73.6 million, or 29.8%, from 1997. Excluding restructuring charges
of $49.9 million in 1998 and $4.7 million in 1997, print publishing operating
income decreased $28.4 million, or 11.3%. This decline followed an increase
in operating profits in 1997, relative to 1996, of 34.4%, or 37% excluding
1997 restructuring charges. Operating income in 1997 benefited from double-
digit advertising volume gains at The Wall Street Journal coupled with lower
newsprint prices, while 1998 reflected a decline of 1.1% in Journal
advertising volume and a modest increase in average newsprint prices. This
segment's EBITDA, which excludes restructuring costs, slipped to $272 million
from $303.8 million a year earlier, but exceeded 1996's EBITDA of $225.3
million. The EBITDA margins were as follows: 23.4% in 1998, 26.6% in 1997 and
21.6% in 1996.
Print publishing 1998 revenues of $1.16 billion edged up $18.5 million, or
1.6%, from 1997 as modest advertising rate increases, advertising volume gains
at The Wall Street Journal Europe and a rise in U.S. television revenue were
somewhat restrained by declines in advertising volume in the U.S. and in Asia.
Advertising revenue for U.S. publications of $729.9 million rose 1.4% from
1997, while circulation and other revenues in the U.S. rose 3.6%, to $319.3
million. International advertising revenue dropped 4.5%, to $67.8 million,
reflecting a 10.5% drop in volume at The Asian Wall Street Journal tempered by
a 9% rise in advertising volume for The Wall Street Journal Europe.
Wall Street Journal advertising linage ended 1998 down 1.1% from 1997 levels.
Through the first half of 1998, total linage for the U.S. Journal was up 5.7%;
however, the last half of 1998 experienced a sharp drop in financial
advertising, which ranges from a quarter to a third of total Journal linage.
Financial advertising, which includes advertising from investment and trading
firms and other financial institutions as well as advertising for initial
public offerings (IPO's), was off 8.4% for the third quarter and 32.8% for the
fourth quarter, to end the year down 11.6% from 1997. This softness in
financial advertising was largely the result of cost cutting by investment and
commercial banks and low IPO levels. The company expects this softness to
extend at least through the first half of 1999 due to tougher comparisons with
the first half of 1998. General linage, which constituted 59% of total linage
and includes advertising from the automotive and technology industries as well
as corporate image advertising, rose 2.1% in 1998. Classified and other
advertising, which comprised about 15% of Journal linage in 1998, advanced
8.9% from 1997 as a result of increased real estate advertising, partly via
the Journal's Weekend section.
Circulation revenue for U.S. print publications was flat versus 1997, as
volume declines were offset by 1998 benefiting from 1997 rate increases.
Average circulation for the U.S. Wall Street Journal declined to 1,773,000 in
1998, from 1,802,000 in 1997. Barron's average circulation was flat with a
year ago at 296,000. Circulation revenue in 1998 for international
publications was level with 1997, as volume gains were offset by the impact of
foreign exchange. Average circulation for the international editions of The
Wall Street Journal for 1998 was 128,000, combined, up 5.7% from 1997.
PAGE 18
Print publishing 1998 expenses of $988.4 million climbed $92.2 million, or
10.3%, from 1997. Excluding restructuring costs, expenses rose $47 million,
or 5.3%, due to higher employee compensation and an increase in newsprint
costs. Newsprint expense was up 7.7%, reflecting an almost even split between
average rate increases and higher consumption. At December 31, 1998, the
number of full-time employees in the print publishing segment was down about
2% from its level at the end of 1997, largely reflecting the 1998 fourth
quarter severance programs. However, the average staffing level in 1998 was
4.8% higher than in 1997.
Print publishing revenues in 1997 of $1.14 billion advanced $99.1 million, or
9.5%, from $1.04 billion in 1996. Advertising revenue of U.S. publications of
$719.7 million jumped $98.3 million, or 15.8%, largely driven by an
advertising linage gain of 13.4% at The Wall Street Journal. The linage gain
by category was as follows: general was up 17% (57% of total), financial
increased 6.4% (30% of total), and classified and other rose 13%. U.S.
circulation and other revenue in 1997 was level with 1996 as gains from rate
increases were offset by volume declines. Circulation for The Wall Street
Journal in 1997 was down slightly from 1,807,000 in 1996.
International publications in 1997 had advertising revenue of $71 million,
which was up $4.1 million, or 6.2%, reflecting gains in advertising linage of
10.7% for The Wall Street Journal Europe and 5.6% at The Asian Wall Street
Journal. Circulation and other revenue in 1997 at the international
publications slowed to $44.6 million, compared with $48.2 million in 1996, in
part the result of a stronger U.S. dollar versus Asian currencies.
Total segment expenses in 1997 of $896.2 million increased $35.8 million, or
4.2% from 1996. Excluding restructuring charges, expenses rose 3.6%, 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% decline, on average, in prices and a 7%
rise in tons consumed.
ELECTRONIC PUBLISHING
Electronic publishing's 1998 operating income of $56.1 million was down $5
million, or 8.2%, from 1997. Excluding the one-time index fees in 1997, and
restructuring charges of $9.9 million in 1998 and $17.1 million in 1997,
operating income in 1998 gained 27.6% from a year earlier. Operating income
of $61.1 million in 1997 was 2.9% below 1996's level, or 17.9% lower compared
with 1996 excluding special items. This segment's EBITDA was $88.4 million in
1998, $101.3 million in 1997 ($74.8 million excluding one-time index fees) and
$81.2 million in 1996. The EBITDA margins were as follows: 22.5% in 1998,
27.9% in 1997 (22.5% excluding one-time index fees), and 26.0% in 1996.
Electronic publishing revenues in 1998 of $393.2 million increased $60.9
million, or 18.3%, from 1997 excluding the one-time fees. Segment expenses
excluding special items were up 16.6% in 1998. Part of the increase in both
segment revenues and expenses was due to a restructured agreement with the
Associated Press (AP), which was extended through the end of 2004. As part of
the agreement the company obtained sole control over sales, marketing and
product development of the joint AP/Dow Jones overseas newswires, while the
Associated Press gained a royalty stream through 2004. In 1998 and through
the end of the contract period, Dow Jones will record 100% of revenues and
expenses for these newswires. Prior to 1998, the company recorded its 50%
share of both revenues and expenses from the joint newswires.
PAGE 19
Revenues for Dow Jones Newswires and Dow Jones Indexes, combined, were up 7.3%
in 1998. Excluding the effect of the restructured AP agreement, Dow Jones
Newswires revenues rose 5.9% in 1998. As of the end of 1998, the number of
terminals displaying Dow Jones Newswires totaled 290,000, up 12.8% from a year
earlier. On October 10, 1998, the company entered into an agreement with
Reuters Group PLC to market Dow Jones Newswires as an optional service to the
users of Reuters terminals. Also in the third quarter, Dow Jones signed a
similar agreement with Bloomberg L.P. to market Dow Jones Newswires to its
users. In addition to Reuters and Bloomberg, Dow Jones Newswires is
distributed over Bridge's terminals and other channels. Prior to the sale of
the company's Telerate subsidiary, essentially all of the international
distribution of Dow Jones Newswires' products was limited exclusively to
Telerate terminals.
Dow Jones Indexes revenues including the one-time fees in 1997 fell in 1998,
due to the tougher comparison. Revenues in 1998 and beyond are dependent on
the volume of transactions of products based on the Dow Jones Indexes. At
December 31, 1998, assets based on the Dow Jones Indexes were $19.9 billion
compared with $8.4 billion in 1997.
Dow Jones Interactive Publishing, which includes the results of Dow Jones
Interactive, The Wall Street Journal Interactive Edition and IDD Enterprises'
electronic business unit (IDD), posted a revenue gain of 9.5%, to $174.4
million. (The revenue gain excluding IDD was 12.1%.) The revenue increase
was driven by strong corporate enterprise sales for Dow Jones Interactive, and
both subscription and advertising gains for The Wall Street Journal
Interactive Edition. Dow Jones Interactive provides current-awareness news
and on-line research to end-users at corporate desktops as well as the
traditional market of information professionals. By focusing on Web-delivery
of its content and on enterprise-wide sales, Dow Jones Interactive finished
1998 with over 600,000 users, up from 385,000 users at year-end 1997. The
higher amount of users was largely attributable to an increase in users at
corporate desktops. Average per-user revenues in the corporate desktop market
are less than the average revenues in the information professional market. At
the end of 1998, subscribers to the Interactive Journal totaled 266,000, up
about 55% from a year ago. In November 1998, the annual subscription price
for Wall Street Journal Interactive Edition subscribers who do not already
subscribe to a print Journal was raised to $59 from $49. Subscriber renewal
rates at the end of 1998 were about 80%.
Expenses for the segment rose 11.6%, to $337.1 million in 1998. Expenses in
1998 included a charge of $9.9 million for this segment's share of
restructuring costs, while 1997 included a restructuring charge of $17.1
million, which principally reflected the write-down of goodwill in IDD.
Excluding one-time items and the effect of the restructured AP agreement,
expenses would have been up 7.6%, as a higher staffing level and increased
selling expense outweighed savings from restructuring IDD Enterprises in the
latter part of 1997. Full-time employee levels at December 31, 1998 were
about 4% higher than the comparable 1997 level. On an average basis, the
number of full-time employees was 7% higher than in 1997.
Electronic publishing revenues in 1997 of $363.2 million added $50.7 million,
or 16.2%, from 1996. Excluding one-time index fees, revenues grew 6.3%. Dow
Jones Newswires revenues climbed roughly 7%; while revenues at Dow Jones
Interactive Publishing improved 4.2%, largely the result of increased
advertising and subscription revenue from the Interactive Journal.
Subscribers to the Interactive Journal totaled 172,000 at the end of 1997, up
from the roughly 50,000 at the end of 1996. Excluding the IDD restructuring
charge, expenses for the segment increased 14.2% reflecting higher content
acquisition costs, increased expenses from Interactive Journal operations and
higher staffing levels for the company's newswires.
PAGE 20
COMMUNITY NEWSPAPERS
Community newspapers operating income for 1998 was $44.8 million, compared
with $50.6 million earned in the like 1997 period. Operating income in 1998
included a third quarter charge of $16.3 million related to a voluntary
severance program. Excluding this charge, operating income increased 20.8%
from 1997. Operating income in 1997 rose $6.8 million, or 15.6%, from 1996.
Community newspapers' EBITDA, which excludes the restructuring charge, was
$78.6 million in 1998, $67.1 million in 1997 and $59.6 million in 1996. The
EBITDA margins were as follows: 24.8% in 1998, 22.3% in 1997 and 20.7% in
1996.
Revenues in 1998 were up $16.5 million, or 5.5%, from 1997, largely on the
strength of advertising revenue. Advertising linage for community newspapers
gained 3.4% from 1997. Linage for the daily papers was flat with last year,
while linage for the non-dailies rose 25.5%, largely the result of the
acquisition of four publications in early 1998. Circulation and other revenue
of $92.1 million advanced $3.2 million, or 3.5%, largely due to circulation
rate increases. Average circulation in 1998 for its 19 dailies declined to
568,000 from 572,000 in 1997. Community newspapers expenses were up 8.9% in
1998. Excluding the restructuring charge, expenses were held to an increase
of 2.3% from 1997. Employee compensation expense, which is the major cost
component of the segment, was up 0.8% versus 1997, reflecting savings from the
staff reduction plan. At the end of 1998, the number of full-time employees
at community newspapers was down 10% from the end of 1997.
Revenues in 1997 of $300.6 million rose $13.1 million, or 4.6%, largely the
result of rate increases. Advertising revenue grew 5%, with an advertising
linage increase of 0.7%. Circulation and other revenue advanced $2.5 million,
or 2.9%, to $88.9 million. Average daily circulation declined 0.3% from
574,000 in 1996. Segment expenses were higher by $6.3 million, or 2.6%, as
increased employee compensation was softened by a 10.5% decline in newsprint
expense.
STAFFING COSTS
At December 31, 1998, the company employed 8,253 full-time employees, which
was down approximately 3.5% from a year earlier excluding Telerate, reflecting
the retirement programs. The number of employees, excluding Telerate, peaked
at about 8,800 in June 1998. The average number of employees for 1998
increased 2% over 1997. Employees salaries and benefits, on a consolidated
basis, were approximately 31% of total operating expenses, excluding
restructuring charges, in 1998, 1997 and 1996.
OTHER INCOME/DEDUCTIONS
Net interest income of $5.1 million was $21 million better than net interest
expense of $15.9 million in 1997, and improved roughly $20 million over 1996.
The positive swing reflected a reduced debt level and an increase in interest
income resulting from proceeds from asset sales. Long-term debt outstanding
at December 31, 1998 was $149.9 million, compared with $234.1 million at
December 31, 1997 and $337.6 million at December 31, 1996.
PAGE 21
The company's share of losses from associated companies in 1998 was $21.7
million, compared with a loss of $49.3 million in 1997 and $5.4 million in
1996. Excluding international television restructuring charges, Equity in
Losses of Associated Companies was $15.2 million in 1998, versus $19.6 million
in 1997 and $5.4 million in 1996. The reduction in losses in 1998 versus 1997
was largely due to stronger results from the company's newsprint mill
partnership in Canada, as well as a favorable comparison as 1997 included
losses from WBIS+ TV. The company's share of losses from its European
business television partnership with CNBC partially offset these improvements.
(Prior to the joint venture with CNBC, European television operations were
included in operating income.)
The company recorded a loss of $126.1 million on the sale of businesses and
investments in 1998. Somewhat lowering the loss on the Telerate sale of
$150.3 million were gains of $24 million, principally from the sales of the
company's interest in WBIS+ TV, Mediatex Communications Corp. and a portion of
its holding in OptiMark Technologies, Inc.
Results in 1997 included a $6.2 million gain on the sale of the company's
American Demographics subsidiary, and a $46.4 million gain from the sale of
its interest in Bear Island Paper Company, L.P. and Bear Island Timberlands
Company, L.P.
In 1996, the company recorded a gain of $14.3 million from the sale of the
company's minority interest in Press-Enterprise Company.
Included in Other, net were losses on foreign exchange of $4.6 million in
1998, $6.4 million in 1997 and $0.1 million in 1996.
TELEVISION
Excluding special charges, total pretax losses from television ventures, which
include income from U.S. television operations reported in the print
publishing segment and losses from international television reported in equity
results, were $20.8 million in 1998, compared with $48 million in both 1997
and 1996. 1998's television results have benefited from the company's
worldwide alliance with CNBC, while the first half of 1997 was negatively
affected by start-up losses from WBIS+ TV.
INCOME TAXES
The effective income tax rate in 1998 was 88%, versus a 1997 rate of 4.9% and
44.6% in 1996, largely reflecting the nondeductibility of the Telerate
charges. Excluding Telerate, the effective tax rates were 39.8% in 1998,
39.1% in 1997 and 43.2% in 1996. As a result of the sale of Telerate, the
company has available about $600 million of capital loss carryforwards over
the next five years.
PAGE 22
FINANCIAL POSITION
As previously mentioned, the company completed the sale of Telerate during
1998's second quarter. The purchase price consisted of $150 million of 5
year, convertible, 4% preferred stock of Bridge, which is included in other
noncurrent investments, and $360 million in cash. Under the terms of the
sales agreement, the purchase price is subject to possible post-closing
adjustments, including for closing working capital changes and
indemnification.
As mentioned in Note 7 on page 40 of this Form 10-K, the company repurchased
6.2 million shares of its common stock in 1998 at an aggregate cost of $295.2
million. Put options outstanding at December 31, 1998 may obligate the
company to repurchase up to $44.6 million in the company's common stock in
1999. As of December 31, 1998, approximately $460.7 million remained under
board authorization, after reserving for the possible exercise of outstanding
puts.
Cash provided by operations for 1998 was $306.2 million, compared with $459.8
million in 1997 and $405.2 million in 1996. The decline in cash provided by
operations, relative to 1997, was primarily due to changes in working capital
and a decrease in operating income after adjusting for noncash items. The
change in working capital was principally due to the timing of collections of
trade accounts receivable of Telerate and payments of accounts payable and
accrued liabilities, which included the pay-out of restructuring charges
accrued at year-end 1997. Also, the bulk of the 1998 severance was paid in
1998. In 1998, in addition to cash provided by operations, the company
received a total $478.6 million in cash, principally from the disposition of
Telerate, WBIS+TV, Mediatex Communications Corp. and a portion of its holdings
in OptiMark Technologies, Inc. The company also received $53 million from
sales under employee stock compensation plans.
In 1998, the company funded capital expenditures of $225.8 million (about $170
million excluding Telerate), repurchased shares of its stock, paid down debt
by $63 million, paid dividends of $91.7 million and funded $55.7 million into
various investments, principally international television ventures. Cash and
cash equivalents, which include highly-liquid investments with a maturity of
three months or less, was $142.9 million at December 31, 1998, versus $23.8
million at the end of 1997 and $6.8 million at 1996's year-end.
In 1999, the company expects the cash balance and cash provided by operations
to be sufficient to meet its normal recurring operating commitments, fund
capital expenditures, fund the share repurchase program, and pay dividends of
roughly $90 million. In June 1998, the company launched a three-year program
to expand color and page capacity for the U.S. print Wall Street Journal. The
company expects capital expenditure funding for the program to total $232
million over this period, of which $24 million was spent in 1998. This
project will expand the Journal's page capacity from 80 pages to 96 pages and
color page capacity from eight pages to 24 pages. Capital expenditures in
1999 will include spending of about $125 million as a result of this project,
with other capital expenditures estimated at $100 to $125 million, bringing
the total 1999 capital spending to roughly $225 to $250 million.
PAGE 23
A source of liquidity in 1999 could result from the disposition of noncore
investments. In December 1998, Hughes Electronics Corp., a unit of General
Motors Corp., agreed to acquire United States Satellite Broadcasting, Inc.
(USSB). The purchase, which is subject to regulatory approval, entitles
shareholders of USSB to .3775 shares of General Motors Class H stock (GMH) or
its cash equivalent. The actual purchase price will be based on the weighted-
average price of GMH shares during a 20-day period ending two days prior to
closing. Dow Jones owns 4.4 million shares of USSB, which at the end of 1998
were valued at $60.7 million based on the December 31, 1998 closing market
price of $13 3/4.
If necessary the company's liquidity requirements that exceed cash provided by
operations and available cash in banks may be funded through the issuance of
commercial paper, which is supported by a $400 million revolving credit
agreement with several banks through November 1999. The company plans to
extend the credit agreement prior to its expiration. Borrowings may be in the
form of commercial paper or long-term notes under a $300 million shelf
registration statement filed with the Securities and Exchange Commission. At
December 31, 1998, long-term notes of $150 million, which are due December 1,
2000 and are not redeemable prior to maturity, were outstanding.
YEAR 2000
The Year 2000 problem is essentially the inability of computer programs to
operate properly after January 1, 2000, as a result of the software programs
using two digits rather than four digits to identify a year. The software may
recognize "00" to be the year "1900" rather than year "2000", which could
cause interruptions of normal business operations.
In 1996, Dow Jones established a project team responsible for identifying and
resolving Year 2000 issues. The team includes staff of the company as well as
outside consultants. Efforts through the end of 1998 include, but are not
limited to, identification and review of internal operating systems and
applications, and customer products and services, prioritizing the remediation
or replacement of such; tracking the progress of systems being remediated and
replaced; as well as formal discussions with information providers and other
key suppliers to the business; reviewing test results for Year 2000 compliance
and performing contingency planning specific to Year 2000 issues.
The company has completed its assessment of its Year 2000 problem. The
company expects its efforts to modify existing software and the replacement of
certain systems will be completed so as not to interrupt ongoing operations.
Costs over the 1997-1999 period to modify the company's systems are expected
to total between $13 million and $20 million. Of this total, approximately
$12 million has been incurred and expensed from the beginning of 1997 through
the end of 1998.
PAGE 24
As of December 31, 1998, on a corporate-wide basis, approximately 72% of all
computer applications have been fully remediated or replaced. The remaining
28% are in various stages of remediation and testing with full certification
expected by July 1999. The company has identified existing computer
applications and categorized them into three categories: (1) Applications to
be modified, (2) Applications to be replaced by Year 2000 compliant systems,
and (3) Applications initially reported as Year 2000 compliant that are
required to be tested to confirm their readiness. Through 1998, about 70% of
the applications requiring modification have been certified, over 60% of
applications requiring replacement have been certified, and of the initially
reported Year 2000 compliant applications over 85% have been confirmed.
As applications are remediated or replaced Year 2000 compliance is tested and
documented at the application level. All systems will be subject to
integration testing. Integration testing exercises compliant hardware, system
software and application code in a simulated Year 2000 production environment.
This provides additional assurance that components that may have been tested
separately, interface properly with all compliant component levels in place.
The company has prepared an inventory of computer hardware and platforms, as
well as production and communication equipment, in order to make an evaluation
of such items for Year 2000 compliance. In general, manufacturers of
equipment and software providers are contacted to determine the compliance
status of these items.
The company is coordinating the evaluation of the Year 2000 readiness of
significant suppliers and business partners. The individual business units
have identified providers of goods and services that could inconvenience or
disrupt the ability of Dow Jones to provide its products to customers or could
impact the profitability or reputation of the company. These business
partners have been contacted through correspondence in regard to their Year
2000 readiness. Their responses as well as non-responses are being evaluated
and incorporated into the contingency planning. Certain significant business
partners are being contacted directly (including newsprint and ink suppliers,
as well as information providers) in order to better understand their Year
2000 readiness.
During 1999, the company will be reviewing business continuity plans with the
various business units and developing contingency plans for mission critical
processes that could likely be affected by the Year 2000 problem. This Year
2000 contingency planning will be done in conjunction with the evaluation of
supply chain responses. The primary focus will be to plan for unprepared
providers of goods and services, the potential for numerous simultaneous
outages, facilities problems, and the potential for unforeseen internal and
external failures of computer applications and hardware. In addition the
company is ensuring the availability of employees and others at year-end.
The company's products and services as well as the tools that Dow Jones uses
to conduct its Year 2000 evaluation are dependent on technological components,
equipment and software that were developed by third parties and that may not
be Year 2000 compliant. Failure of such third party components, equipment or
software to operate properly with regard to the Year 2000 could interrupt
ongoing operations or require the company to incur unanticipated expenses to
remedy any problems, which could have a material adverse effect on the
company's business and operating results.
PAGE 25
While the company expects its Year 2000 efforts will be successful, if the
modifications and replaced systems are not made compliant in a timely manner,
it could result in a material effect on the company.
OUTLOOK - THREE-YEAR PLAN
In September 1998, the company completed a planning process covering the 1999-
2001 period. As part of that planning process, the company developed
corporate objectives, the most significant of which include:
- - To grow earnings per share at a compound rate of at least 10% over the
long-term.
- - Achieve a long-term average corporate EBITDA margin of 26%, with
segment EBITDA margins of 25% for print publishing, 27% for electronic
publishing, and 27% for community newspapers.
- - Migrate toward a 50/50 profit mix between print publishing versus
community newspapers and electronic publishing, combined. Given this
objective, it is expected that electronic publishing and community
newspapers will achieve higher growth rates than print publishing during
the plan period and they will contribute a significant amount to earnings
growth. Over the 1989-1998 period, the average EBITDA margin for both
print publishing and community newspapers was 20%. Over the 1995-1998
period, the average EBITDA margin for electronic publishing, excluding
one-time fees, was 26%.
OUTLOOK - 1999
While the company expects that 1999 will be a continued transition year, it is
still committed to the 10% earnings growth target as part of the "Focus
Forward" plan. In 1999, the company anticipates growing earnings per share,
excluding nonrecurring items, largely on the strength of print publishing and
community newspapers operating income gains, a further reduction in television
losses and a result of the company's share repurchase program. Assuming no
further share repurchases and no new employee-related issuances of stock,
average shares outstanding in 1999 would be down 3% as a result of the 1998
share buyback program.
For the U.S. and international publications, we expect a challenging first
half, with greater rates of growth in the second. There is a more volatile
environment for The Wall Street Journal, which will require continued focus on
margins. Although the Journal is experiencing softness in financial
advertising, domestically and in some overseas markets, the company expects
that advertising revenues will grow overall from 1998's base levels, largely
through modest rate increases. Changes in advertising volume are
unpredictable and are in a large part dependent on the U.S. economy, and
specifically on the activity in financial markets. The Journal will be faced
with tougher advertising linage comparisons in the first half of 1999, as Wall
Street Journal linage was up 5.7% in the first half of 1998, compared with a
decline of 7.4% in the second half of 1998. Lower newsprint prices may
partially mitigate the expected decline in first half advertising linage.
Average 1998 newsprint costs were about $590 per ton ($598 per ton in the
first half of 1998); 1999 newsprint consumption is expected to increase by 2%
to 3%.
PAGE 26
While electronic publishing revenues are expected to grow in 1999
(particularly in the second half), margins (and potentially operating income)
are expected to be lower reflecting the company's accelerated investment
initiatives, principally directed at expanding its services internationally.
Additionally, Dow Jones Interactive will have a reduction in revenues from a
third-party licensing contract and from the continued migration of its
customer base to its Web product. The company will be adding to this
segment's staffing levels to further expand international content and
international sales. Also, the company expects any benefit from its newswires
agreements in 1998 with Bloomberg and Reuters to be seen toward the last half
of 1999, as it will take time to expand selling efforts and launch commercial
products.
Community newspapers operating earnings and margins are expected to grow in
1999. Revenues will likely advance as a result of rate increases, while
expense growth will be marginal.
Pretax television losses in 1999 are expected to be reduced to less than half
of the 1998 loss, driven by operating income improvement in the U.S. and a
decline in losses in Europe. The company anticipates results from the Asian
region will be even with 1998 results, exclusive of 1998 one-time charges.
Union contracts including wage scales for about 25% of the company's full-time
employees will be renegotiated in 1999. Historically, the company and its
major union have agreed to new contracts without work interruptions.
In 1998, Statement of Position 98-1 (SOP 98-1) "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use" was issued, which is
effective beginning January 1, 1999. The accounting guidance standardizes the
accounting treatment for internal-use software. The SOP requires companies to
capitalize certain costs of developing software once certain criteria are met.
The company does not expect the adoption of the SOP to have a material effect
on the company's financial statements.
The foregoing targets, goals and objectives in the sections entitled "OUTLOOK
- - THREE-YEAR PLAN" and "OUTLOOK - 1999" are based on current information and
certain assumptions about the future and accordingly, are not forecasts or
predictions of actual future results. Information relating to such forward-
looking statements is contained on page 27 of this Form 10-K.
PAGE 27
INFORMATION RELATING TO FORWARD-LOOKING STATEMENTS
Management's Discussion and Analysis, including the sections entitled "OUTLOOK
- -THREE-YEAR PLAN" and "OUTLOOK - 1999," 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," "plans," "believes," "anticipates," "likely," "will,"
and similar expressions identify forward-looking statements. These forward-
looking statements are subject to certain risks and uncertainties that could
cause actual results and events to differ materially from those anticipated in
the forward-looking statements. Some important factors that might cause such
a difference include, but are not limited to, global economic and stock market
conditions, and their impact on advertising sales and sales of the company's
products and services; the inability to expand newspaper page capacity and/or
production and service capacity for electronic publishing products on a timely
basis to satisfy customer demands; the extent to which the company is able to
achieve increased revenues/earnings from distribution of its newswires
services; the extent to which the company is able to achieve and maintain a
more diversified advertising base for its print publications; cost of
newsprint and labor; rapid technological changes and frequent new product
introductions prevalent in electronic publishing; product obsolescence due to
advances in technology and shifts in market demand; any damage to or technical
failure of the company's computer infrastructure or software that causes
interruptions of operations; increased competition in the markets for
financial news and information and advertising resulting from the rise in
popularity of the Internet, financial television programming and other new
media; business conditions (growth or consolidation) in the financial services
industry; the company's ability to negotiate collective bargaining agreements
with its labor unions without work interruptions; adverse verdicts in legal
proceedings, including libel actions; adverse developments relating to
commitments and contingencies and/or investments held by the company; 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 that results in
business interruption or shutdown, financial loss, reputation loss, and/or
legal liability; 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 Disclosure About Market Risk
The company believes its financial instruments as shown in Footnote 17 on page
53 of this Form 10-K are not subject to material market risk.
PAGE 28
ITEM 8. Financial Statements and Supplementary Data
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
Dow Jones & Company
For the years ended December 31, 1998, 1997 and 1996
==============================================================================
(in thousands except per share amounts) 1998 1997 1996
- ------------------------------------------------------------------------------
REVENUES:
Advertising $1,031,210 $1,011,864 $ 896,981
Information services 670,441 1,101,696 1,125,625
Circulation and other 456,455 458,958 458,986
- ------------------------------------------------------------------------------
Total revenues 2,158,106 2,572,518 2,481,592
- ------------------------------------------------------------------------------
EXPENSES:
News, operations and development 677,381 899,868 820,564
Selling, administrative and general 762,803 895,707 831,270
Newsprint 163,146 152,478 164,766
Second class postage and carrier delivery 117,649 114,442 110,256
Depreciation and amortization 142,439 250,734 217,756
Restructuring (Note 3) 76,115 1,001,263
- ------------------------------------------------------------------------------
Operating expenses 1,939,533 3,314,492 2,144,612
- ------------------------------------------------------------------------------
Operating income (loss) 218,573 (741,974) 336,980
OTHER INCOME (DEDUCTIONS):
Investment income 12,266 3,473 4,249
Interest expense (7,193) (19,367) (18,755)
Equity in losses of associated
companies (Notes 3 & 4) (21,653) (49,311) (5,408)
(Loss) gain on disposition of businesses
and investments (Note 2) (126,085) 52,595 14,315
Other, net (4,250) (9,300) (121)
- ------------------------------------------------------------------------------
Income (loss) before income taxes
and minority interests (Note 8) 71,658 (763,884) 331,260
Income taxes (Note 8) 63,083 37,796 147,728
- ------------------------------------------------------------------------------
Income (loss) before minority interests 8,575 (801,680) 183,532
Minority interests in (earnings) losses
of subsidiaries (213) (452) 6,437
- ------------------------------------------------------------------------------
NET INCOME (LOSS) $ 8,362 $ (802,132) $ 189,969
==============================================================================
PER SHARE (Note 13):
Net income (loss) per share:
Basic $ .09 $(8.36) $1.96
Diluted .09 (8.36) 1.95
Weighted-average shares outstanding:
Basic 95,180 95,993 96,703
Diluted 96,404 95,993 97,371
- ------------------------------------------------------------------------------
Cash dividends $ .96 $ .96 $ .96
==============================================================================
The accompanying notes are an integral part of the financial statements.
PAGE 29
CONSOLIDATED BALANCE SHEETS
Dow Jones & Company
December 31, 1998 and 1997
===============================================================================
(dollars in thousands) 1998 1997
- -------------------------------------------------------------------------------
ASSETS:
Current Assets:
Cash and cash equivalents $ 142,877 $ 23,763
Accounts receivable -- trade, net of
allowance for doubtful accounts of
$6,641 in 1998 and $16,445 in 1997 236,928 295,250
Inventories (Note 5) 11,386 13,104
Deferred income taxes (Note 8) 13,992 16,565
Prepaid expenses 18,068 25,991
Other current assets 19,038 29,091
Investment in associated company,
held for disposal 102,789
- -------------------------------------------------------------------------------
Total current assets 442,289 506,553
- -------------------------------------------------------------------------------
Investments in associated companies, at equity (Note 4) 40,479 46,064
Other investments (Notes 2, 6 & 17) 223,785 85,290
Plant and property, at cost:
Land 22,507 26,234
Buildings and improvements 313,591 394,646
Equipment 1,118,131 1,970,903
Construction in progress 121,552 59,806
- -------------------------------------------------------------------------------
1,575,781 2,451,589
Less, accumulated depreciation 973,664 1,667,552
- -------------------------------------------------------------------------------
602,117 784,037
Goodwill, less accumulated amortization
of $58,610 in 1998 and $1,275,738 in 1997 86,554 387,787
Deferred income taxes (Note 8) 67,171 93,045
Other assets 28,927 16,958
- -------------------------------------------------------------------------------
Total assets $1,491,322 $1,919,734
===============================================================================
The accompanying notes are an integral part of the financial statements.
PAGE 30
===============================================================================
(dollars in thousands) 1998 1997
- -------------------------------------------------------------------------------
LIABILITIES:
Current liabilities:
Accounts payable -- trade $ 75,974 $ 147,378
Accrued wages, salaries and commissions 52,028 70,011
Profit sharing and other retirement plan
contributions payable (Note 10) 43,596 45,913
Other payables (Note 2) 152,592 97,048
Income taxes (Note 8) 37,198 53,895
Unearned revenue 238,409 252,832
Current maturities of long-term debt (Note 6) 5,318
- -------------------------------------------------------------------------------
Total current liabilities 599,797 672,395
Long-term debt (Notes 6 & 17) 149,889 228,806
Deferred compensation, principally postretirement
benefit obligation (Note 11) 198,089 179,798
Other noncurrent liabilities 34,207 57,913
- -------------------------------------------------------------------------------
Total liabilities 981,982 1,138,912
- -------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY:
Common stock, par value $1 per share; authorized
135,000,000 shares; issued 81,315,638 shares
in 1998 and 80,621,254 shares in 1997 81,316 80,621
Class B common stock, convertible, par value $1
per share; authorized 25,000,000 shares; issued
20,865,383 shares in 1998 and 21,559,767 shares
in 1997 20,865 21,560
- -------------------------------------------------------------------------------
102,181 102,181
Additional paid-in capital 137,479 136,398
Retained earnings 624,239 707,539
Accumulated other comprehensive income:
Unrealized gain on investments 35,775 3,396
Cumulative translation adjustment 38 (9,540)
- -------------------------------------------------------------------------------
899,712 939,974
Less, treasury stock, at cost; 10,211,733 shares in
1998 and 5,511,285 shares in 1997 390,372 159,152
- -------------------------------------------------------------------------------
Total stockholders' equity 509,340 780,822
- -------------------------------------------------------------------------------
Total liabilities and stockholders' equity $1,491,322 $1,919,734
PAGE 31
CONSOLIDATED STATEMENTS OF CASH FLOWS
Dow Jones & Company
For the years ended December 31, 1998, 1997 and 1996
=============================================================================
(in thousands) 1998 1997 1996
- -----------------------------------------------------------------------------
OPERATING ACTIVITIES:
Consolidated net income (loss) $ 8,362 $(802,132) $189,969
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Write-down of goodwill 868,333
Write-down of plant and property 20,801 104,040
Depreciation 134,594 205,525 174,189
Amortization of goodwill 7,845 45,209 43,567
Loss (gain) on disposition of businesses
and investments 126,085 (52,595) (14,315)
Gain on disposition of plant and property (1,410) (840) (1,696)
Equity in losses of associated
companies, net of distributions 34,831 55,525 21,289
Changes in assets and liabilities:
Accounts receivable (41,980) 15,132 (40,099)
Inventories 87 (2,409) 1,912
Accounts payable and accrued liabilities (1,302) 63,519 17,214
Deferred taxes (22,261) (76,111) (3,994)
Other current and noncurrent assets (13,228) 2,216 (2,998)
Other current and noncurrent liabilities 53,384 34,614 26,317
Other, net 418 (263) (6,198)
- -----------------------------------------------------------------------------
Net cash provided by operating activities 306,226 459,763 405,157
- -----------------------------------------------------------------------------
INVESTING ACTIVITIES:
Additions to plant and property (225,834) (347,797) (232,178)
Disposition of plant and property 9,210 9,580 13,549
Businesses and investments acquired, net of
cash received (55,663) (79,616) (145,145)
Disposition of businesses and investments 478,574 128,621 23,877
Other, net (626) 4,271 6,117
- -----------------------------------------------------------------------------
Net cash provided by (used in)
investing activities 205,661 (284,941) (333,780)
- -----------------------------------------------------------------------------
FINANCING ACTIVITIES:
Cash dividends (91,662) (92,116) (92,969)
Increase in long-term debt 32,310 144,129
Reduction of long-term debt (63,015) (135,854) (65,811)
Proceeds from sales under stock
compensation plans 52,951 38,100 21,259
Purchase of treasury stock, net of
put premiums (291,215) (88,704)
Other 5,416
- -----------------------------------------------------------------------------
Net cash used in financing activities (392,941) (157,560) (76,680)
- -----------------------------------------------------------------------------
Effect of exchange rate changes on cash 168 (268) (1,595)
- -----------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 119,114 16,994 (6,898)
Cash and cash equivalents at beginning of year 23,763 6,769 13,667
- -----------------------------------------------------------------------------
Cash and cash equivalents at end of year $142,877 $ 23,763 $ 6,769
=============================================================================
The accompanying notes are an integral part of the financial statements.
PAGE 32
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Dow Jones & Company, Inc.
For the years ended December 31, 1998, 1997 and 1996
====================================================================================================================
Accumulated
Class B Additional Other Treasury Stock
(in thousands, Common Common Paid-in Retained Comprehensive -----------------
except shares) Stock Stock Capital Earnings Income Shares Amount Total
=====================================================================================================================
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
Unrealized gain on investments,
net of taxes of $8,436 12,353 12,353
Translation adjustment (310) (310)
-------
Comprehensive income 202,012
Dividends, $.96 per share (92,969) (92,969)
Conversion of class B common
stock into common stock 248 (248)
Capital changes of investee (37) (37)
Sales under stock
compensation 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)
Unrealized loss on investments,
net of taxes of $6,122 (8,957) (8,957)
Translation adjustment (3,644) (3,644)
-------
Comprehensive loss (814,733)
Dividends, $.96 per share (92,116) (92,116)
Conversion of class B common
stock into common stock 107 (107)
Capital changes of investee (223) (223)
Sales under stock
compensation plans 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
PAGE 33
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CONT.)
Dow Jones & Company, Inc.
For the years ended December 31, 1998, 1997 and 1996
=========================================================================================================================
Accumulated
Class B Additional Other Treasury Stock
(in thousands, Common Common Paid-in Retained Comprehensive -----------------
except shares) Stock Stock Capital Earnings Income Shares Amount Total
=========================================================================================================================
Balance, December 31, 1997 $80,621 $21,560 $136,398 $707,539 $(6,144) (5,511,285) $(159,152) $ 780,822
Net income - 1998 8,362 8,362
Unrealized gain on investments 32,379 32,379
Translation adjustment 555 555
Adjustment for realized
loss included in net income 9,023 9,023
-------
Comprehensive income 50,319
Dividends, $.96 per share (91,662) (91,662)
Conversion of class B common
stock into common stock 695 (695)
Capital changes of investee 655 655
Premiums on puts 3,490 3,490
Sales under stock
compensation plans (3,064) 1,512,385 63,965 60,901
Purchase of treasury stock (6,212,833) (295,185) (295,185)
- -------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 $81,316 $20,865 $137,479 $624,239 $35,813 (10,211,733) $(390,372) $ 509,340
=========================================================================================================================
The accompanying notes are an integral part of the financial statements.
PAGE 34
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 has significant influence,
generally this represents common stock ownership or partnership equity of at
least 20% and not more than 50% (see Note 4). All significant intercompany
transactions are eliminated in consolidation. On May 29, 1998, the company
completed the sale of Telerate (formerly, Dow Jones Markets), which was a
significant subsidiary of the company. The disposition of this business has
had a major impact on the comparability of the company's financial statements.
To assist the reader of these financial statements and related notes with
comparability, the company has disclosed certain financial information
throughout the footnotes excluding the impact of Telerate.
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 (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. The cost of construction of
certain long-term assets includes capitalized interest, which is amortized over
the life of the related assets. Interest capitalized in 1998 totaled $4.8
million, while the amount of capitalized interest for 1997 and for 1996 was
insignificant. Maintenance and repairs are charged to expense as incurred.
Major renewals, betterments and additions are capitalized.
GOODWILL is amortized using the straight-line method over various periods,
principally forty years. The company evaluates annually whether there has been
an other than temporary 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.
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).
PAGE 35
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 $4,616,000 in 1998, $6,391,000 in
1997 and $78,000 in 1996.
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 upfront one-time fees, which were received and
recorded to income in 1997, and ongoing revenues. One-time index-licensing
revenue totaled $31 million in 1997. 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 (R&D) expenses were $60,988,000 in 1998, $116,420,000
in 1997 and $73,974,000 in 1996. Excluding Telerate operations, R&D expenses
totaled $32,029,000 in 1998, $31,887,000 in 1997 and $27,362,000 in 1996.
USE OF ESTIMATES: The financial statements are prepared in accordance with
generally accepted accounting principles which require certain reported amounts
to be based on estimates. Actual results could differ from these estimates.
NOTE 2. DISPOSITIONS OF BUSINESSES AND INVESTMENTS
In the second quarter of 1998, the company completed the sale of Telerate to
Bridge Information Systems, Inc. (Bridge). The purchase price consisted of
$150 million of 5 year, convertible, 4% Bridge preferred stock, which is
included in other investments and cash of $360 million. In 1998, the company
recorded a loss on the sale of Telerate of $150.3 million ($123 million after
taxes, $98 million in the second quarter and an additional $25 million in the
fourth quarter).
Included in Other Payables are liabilities from the sale of Telerate. These
liabilities principally relate to long-term contracts the company had entered
into when Telerate was a wholly-owned subsidiary.
Additionally in 1998, the company recorded a first quarter gain of $15.4
million ($10.1 million after taxes) on the disposition of the company's
interests in WBIS+ TV and Mediatex Communications Corp., publisher of Texas
Monthly magazine, and a fourth quarter after-tax gain of $9.2 million from the
sale of a portion of its holding in OptiMark Technologies, Inc. and the
company's EDGAR Direct business. Because of the capital loss resulting from
the sale of Telerate, the company has not provided a tax provision on the
OptiMark gain.
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.
PAGE 36
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.
NOTE 3. RESTRUCTURING CHARGES
Operating expenses in 1998 included charges associated with restructuring
certain business units, collectively totaling $76.1 million ($45.4 million
after taxes). Additionally, the company recorded a $6.5 million charge ($4.2
million after taxes) to Equity in Losses of Associated Companies for costs
associated with international television joint ventures.
The 1998 pretax charge to operating expenses mainly consisted of employee
severance-related costs of $38.8 million, a charge of $20 million pertaining to
a reduction in leased office space and $17.3 million for write-downs of a U.S.
news-editing technology system and other computer equipment.
In 1998, the company initiated two voluntary early retirement programs, one for
its Ottaway Newspapers unit in the third quarter and the other in the fourth
quarter for employees of its other business units. Also, the company shuttered
some minor operations resulting in severance and other costs. In total,
approximately 520 employees throughout the company received severance,
principally via the voluntary retirement plans. The bulk of the severance was
paid in 1998.
The $20 million charge for leased office space largely related to a reduction
in the company's obligation on its principal leased space in New York City,
which expires in 2005. The company has entered an agreement with its landlord
to eliminate its obligation on roughly 20% of its leased space at this
location, which will reduce its rent expense over the lease period. The charge
primarily consists of a termination fee and the write-down of leasehold
improvements. The termination fee will be paid in the first quarter of 1999.
The company wrote down the carrying value of its U.S. news-editing technology
system, the Global News Management System (GNMS), in the fourth quarter of
1998. Because of repeated system instability, the company made the decision to
abandon significant components (primarily the editing function) of GNMS. In
the fourth quarter the vast majority of the editing function was taken off GNMS
and switched to the prior news-editing system. Within six months from year-end
1998 the remaining editing done on GNMS will be transferred. In addition in
1999 the company began to implement a longer-term solution that will replace
the components of GNMS still in use and will fully paginate The Wall Street
Journal, a capability not available under GNMS. The implementation period is
expected to take two years and the remaining carrying value of GNMS will be
depreciated over that time period.
PAGE 37
The restructuring charge in 1998 was composed of the following:
===============================================================================
(in thousands)
- -------------------------------------------------------------------------------
Severance $23,572
Write-down of plant and property 20,801
Real estate lease terminations 18,264
Pension/postretirement benefit costs 11,721
Other 1,757
- -------------------------------------------------------------------------------
Total restructuring (*) $76,115
===============================================================================
(*) The Ottaway Newspapers restructuring charge of $16.3 million was recorded
in the third quarter. The rest of the charge was recorded in 1998's fourth
quarter.
The $6.5 million charge to Equity in Losses of Associated Companies represented
the company's share of additional losses associated with television satellite
lease redundancies in Asia and Europe, as a result of establishing joint
ventures in 1997 with CNBC. These charges are due to difficulties in
subleasing satellites.
In 1997's fourth quarter, the company recorded a charge to operating expenses
of $1 billion ($936.5 million after taxes) reflecting the write-down of
goodwill and plant and property, severance and other costs. Substantially all
of the charge related to restructuring Telerate; 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. The $1 billion charge was
composed of write-downs of goodwill of $868.3 million and plant and property of
$104 million, accrued severance costs of $22.2 million and other costs of $6.7
million.
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.
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 38
NOTE 4. INVESTMENTS IN ASSOCIATED COMPANIES, AT EQUITY
At December 31, 1998, the principal components of investments in associated
companies, at equity were the following:
===============================================================================
Investment Ownership Description of business
- -------------------------------------------------------------------------------
Business News (Asia) Private 50% Business and financial news television
company broadcasting as CNBC Asia, in
partnership with NBC
Business News (Europe) L.P. 50 Business and financial news television
company broadcasting as CNBC Europe,
in partnership with NBC
F.F. Soucy, Inc. & Partners, L.P. 40 Newsprint mill in Quebec, Canada
HB-Dow Jones S.A. 42 A part-owner of a publishing company
in the Czech Republic
Interactive Video LLC 33 Provides Internet delivery of live
and archived audio and video business
and financial news, in partnership
with MSNBC as CNBC/Dow Jones Business
Video
SmartMoney 50 Publisher of SmartMoney magazine and
SmartMoney.com, serving the private-
investor market throughout the U.S.
and Canada, in partnership with
Hearst Corp.
===============================================================================
Dow Jones & Company has entered a long-term contract with F.F. Soucy, Inc. &
Partners, L.P. covering a substantial portion of its annual newsprint
requirements. Operating expenses of the company include the cost of newsprint
supplied by F.F. Soucy of $22,325,000 in 1998, $21,598,000 in 1997 and
$26,417,000 in 1996.
Summarized financial information for 1998 of the company's equity-basis
investments in associated companies, combined, was as follows. The majority of
these investments are partnerships, which require the associated tax benefit or
expense to be recorded by the parent.
===============================================================================
(in thousands)
- -------------------------------------------------------------------------------
Income statement information:
Revenues $182,694
Operating loss (41,261)
Net loss (39,615)
Financial position information:
Current assets 80,402
Noncurrent assets 139,201
Current liabilities 74,248
Noncurrent liabilities 50,639
Net worth 94,716
===============================================================================
PAGE 39
NOTE 5. INVENTORIES
Inventories as of December 31 were composed of the following:
===============================================================================
(in thousands) 1998 1997
- -------------------------------------------------------------------------------
Newsprint inventory $11,386 $11,929
Other, principally Telerate equipment for resale 1,175
- -------------------------------------------------------------------------------
Total inventories $11,386 $13,104
===============================================================================
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 $8,557,000 and $9,240,000 higher in 1998 and 1997,
respectively.
NOTE 6. LONG-TERM DEBT
Long-term debt at December 31 was as follows:
===============================================================================
(in thousands) 1998 1997
- -------------------------------------------------------------------------------
Commercial paper $ 63,015
Notes payable, 5.75%, due December 1, 2000 $149,889 149,836
Note payable, Associated Press, 7.75% 21,273
- -------------------------------------------------------------------------------
149,889 234,124
Less: current portion 5,318
- -------------------------------------------------------------------------------
Total long-term debt $149,889 $228,806
===============================================================================
Interest payments were $10,970,000 in 1998, $18,386,000 in 1997 and $18,916,000
in 1996.
The note payable to the Associated Press as well as a guaranteed investment
contract that matched the payments of interest and principal of the note were
assumed by Bridge Information Systems, Inc. as part of the sale of Telerate.
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. The company plans to extend the
revolving credit agreement prior to its expiration.
The revolving credit agreement contains certain restrictive covenants,
including restrictions on consolidated indebtedness and a minimum cash flow
requirement. At December 31, 1998, with respect to restrictive covenants then
in effect, consolidated indebtedness was approximately $600 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.
PAGE 40
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.
In 1998, the company's board of directors authorized the repurchase of up to
$800 million of the company's common stock. The company repurchased 6.2
million shares at an aggregate cost of $295.2 million. Additionally in 1998,
as part of the company's stock repurchase program the company sold put options.
As of December 31, 1998, one million shares under puts were outstanding at
strike prices (net of put premiums received) ranging from $43.94 to $45.06 per
share, with exercise dates in March, June and September 1999. In the event the
puts are exercised, the contract allows the company, at its option, to
repurchase the stock or deliver to the holder either cash or shares of the
company equivalent to the difference between the put option's exercise price
and the market price of the company's stock. As of December 31, 1998,
approximately $460.7 million remained under board authorization, after
reserving for the exercise of outstanding puts.
NOTE 8. INCOME TAXES
The components of consolidated income (loss) before income taxes and minority
interests were as follows:
===============================================================================
(in thousands) 1998 1997 1996
- -------------------------------------------------------------------------------
Domestic $104,282 $(118,627) $258,616
Foreign (32,624) (645,257) 72,644
- -------------------------------------------------------------------------------
$ 71,658 $(763,884) $331,260
===============================================================================
The following is a reconciliation of income tax expense (benefit) to the amount
derived by multiplying income (loss) before income taxes and minority interests
by the statutory federal income tax rate of 35%.
===============================================================================
% of % of % of
Income Loss Income
Before Before Before
(in thousands) 1998 Taxes 1997 Taxes 1996 Taxes
- -------------------------------------------------------------------------------
Income (loss) before taxes
multiplied by statutory
federal income tax rate $25,080 35.0 $(267,359) (35.0) $115,941 35.0
Write-down of nondeductible
goodwill 326,807 42.8
Nondeductible capital loss 26,186 36.5
State and foreign taxes,
net of federal income
tax effect 12,276 17.1 (31,377) (4.1) 14,454 4.4
Amortization of
nondeductible goodwill 2,865 4.0 15,969 2.0 16,124 4.9
Research and development
credits (5,067) (7.1) (4,456) (0.6) (2,550) (0.8)
Other, net 1,743 2.5 (1,788) (0.2) 3,759 1.1
- -------------------------------------------------------------------------------
$63,083 88.0 $ 37,796 4.9 $147,728 44.6
===============================================================================
PAGE 41
Consolidated income tax expense was as follows:
===============================================================================
(in thousands) Federal State Foreign Total
- -------------------------------------------------------------------------------
1998
Currently payable $ 71,765 $ 17,710 $11,684 $101,159
Income tax refund due * (20,157) (20,157)
Deferred (13,651) (3,573) (695) (17,919)
- -------------------------------------------------------------------------------
Total $ 37,957 $ 14,137 $10,989 $ 63,083
===============================================================================
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
===============================================================================
* Relates to a tax capital loss carryback resulting from the Telerate sale.
The company's combined current and noncurrent deferred taxes at December 31,
1998 and 1997 consisted of the following deferred tax assets and liabilities:
===============================================================================
Deferred Tax Deferred Tax
Assets Liabilities
(in thousands) 1998 1997 1998 1997
- -------------------------------------------------------------------------------
Depreciation $64,048 $59,418
Employee benefit plans, including
deferred compensation $ 82,671 $ 80,174 4,312
Foreign tax credits 2,154 15,393
Restructuring charges 44,577 56,987
Sales and product allowances 3,156 3,799 2,276
Capital loss carryforward 222,504
Valuation allowance (222,504)
Leases 9,010 10,704
All other 11,760 11,878 5,841 5,595
- -------------------------------------------------------------------------------
Total deferred taxes $153,328 $178,935 $72,165 $69,325
===============================================================================
The company may utilize the capital loss carryforward for up to five years. At
this time the company has fully reserved the balance.
Income tax payments were $107,101,000 in 1998, $119,377,000 in 1997 and
$154,005,000 in 1996.
PAGE 42
Exclusive of Telerate operations and the loss on sale, the components of income
before income taxes and the reconciliation of tax expense were as follows:
===============================================================================
(in thousands) 1998 1997 1996
- -------------------------------------------------------------------------------
Domestic $271,474 $357,151 $240,506
Foreign (13,961) (48,625) (15,122)
- -------------------------------------------------------------------------------
$257,513 $308,526 $225,384
===============================================================================
===============================================================================
% of % of % of
Income Income Income
Before Before Before
(in thousands) 1998 Taxes 1997 Taxes 1996 Taxes
- -------------------------------------------------------------------------------
Income before taxes
multiplied by statutory
federal income tax rate $ 90,130 35.0 $107,984 35.0 $ 78,884 35.0
State and foreign taxes,
net of federal income
tax effect 17,132 6.7 14,306 4.6 16,395 7.3
Utilization of capital loss
benefit (4,290) (1.7)
Amortization of
nondeductible goodwill 1,143 0.4 1,402 0.3 1,187 0.5
Research and development
credits (1,980) (0.8) (3,556) (1.2) (1,800) (0.8)
Other, net 456 0.2 576 0.4 2,642 1.2
- -------------------------------------------------------------------------------
$102,591 39.8 $120,712 39.1 $ 97,308 43.2
===============================================================================
NOTE 9. EMPLOYEE STOCK COMPENSATION PLANS
STOCK PURCHASE PLAN: Under the terms of the Dow Jones 1998 Employee Stock
Purchase Plan, eligible employees may purchase shares of the company's common
stock based on compensation through payroll deductions or lump-sum payment.
The purchase price for payroll deductions is the lower of 85% of the fair
market value of the stock on the first or last day of the purchase period.
Lump-sum purchases are made during the offering period at the lower of 85% of
the fair market value of the stock on the first day of the purchase period or
the payment date.
The activity in the plan was as follows:
===============================================================================
Shares Subscribed
Stock Purchase --------------------------------
Prices 1998 1997 1996
- -------------------------------------------------------------------------------
Balance, January 1 141,457 137,107 141,855
Shares subscribed 185,474 258,635 220,306
Purchases $34.54 to $48.08 (213,915) (241,243) (216,329)
Terminated/canceled (14,238) (13,042) (8,725)
- -------------------------------------------------------------------------------
Balance, December 31 98,778 141,457 137,107
===============================================================================
At December 31, 1998, there were 1,817,560 shares available for future
offerings.
PAGE 43
STOCK OPTION PLAN: Under the Dow Jones 1998 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
1998 and 1997 become exercisable in equal annual installments over three years.
All other options outstanding at December 31, 1998 were exercisable. Options
expire ten years from the date of grant. At December 31, 1998, there were
2,618,543 shares available for future grants.
The activity with respect to options under the stock option plan was as
follows:
===============================================================================
1998 1997 1996
--------------- --------------- ---------------
Weighted- Weighted- Weighted-
Average Average Average
Shares Exercise Shares Exercise Shares Exercise
('000) Price ('000) Price ('000) Price
- -------------------------------------------------------------------------------
Balance, January 1 3,745 $37.22 3,791 $32.98 3,360 $32.32
Granted 969 49.10 1,019 50.19 888 34.54
Exercised (1,073) 32.95 (909) 32.08 (430) 30.85
Terminated/canceled (332) 49.19 (156) 44.58 (27) 35.38
- -------------------------------------------------------------------------------
Balance, December 31 3,309 $41.65 3,745 $37.22 3,791 $32.98
===============================================================================
Options exercisable
at December 31 1,914 $36.24 2,726 $32.41 2,903 $32.51
===============================================================================
EXECUTIVE INCENTIVE PLAN: The Dow Jones 1997 Long Term Incentive Plan 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.
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 1998
and 1997 become exercisable in equal annual installments over three years from
the date of grant. All other options outstanding at December 31, 1998 were
exercisable. Options expire ten years from the date of grant.
PAGE 44
The activity with respect to options under the executive incentive plan was as
follows:
===============================================================================
1998 1997 1996
--------------- --------------- ---------------
Weighted- Weighted- Weighted-
Average Average Average
Shares Exercise Shares Exercise Shares Exercise
('000) Price ('000) Price ('000) Price
- -------------------------------------------------------------------------------
Balance, January 1 1,286 $38.26 1,224 $35.42 966 $35.60
Granted 319 49.45 222 50.75 293 34.38
Exercised (218) 36.20 (135) 30.29 (27) 31.44
Terminated/canceled (19) 44.64 (24) 54.25 (2) 32.42
Surrendered upon
exercise of stock
appreciation rights (1) 32.50 (6) 32.04
- -------------------------------------------------------------------------------
Balance, December 31 1,368 $41.11 1,286 $38.26 1,224 $35.42
===============================================================================
Options exercisable
at December 31 911 $36.71 919 $35.78 879 $35.19
===============================================================================
Options outstanding at the end of 1998 for both the stock option and executive
incentive plans are summarized as follows:
===============================================================================
Options outstanding Options exercisable
--------------------------------- -------------------
Weighted-
Weighted- Average Weighted-
Average Remaining Average
Range of Shares Exercise Contractual Shares Exercise
Exercise Prices ('000) Price Life ('000) Price
- -------------------------------------------------------------------------------
$26.00 to $30.00 745 $28.02 3.4 years 745 $28.02
$32.50 to $35.47 1,220 34.18 5.8 1,220 34.18
$36.25 to $41.09 416 37.19 6.2 416 37.19
$43.91 to $48.94 195 45.33 6.7 160 44.66
$49.13 to $53.06 2,101 49.83 9.5 284 50.75
- -------------------------------------------------------------------------------
Balance, December 31, 1998 4,677 $40.97 7.2 years 2,825 $35.26
===============================================================================
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. Compensation received could be less than or equal to
that specified in the right, but cannot exceed the right.
PAGE 45
A summary of contingent stock right activity follows:
===============================================================================
1998 1997 1996
- -------------------------------------------------------------------------------
Balance, January 1 513,181 558,600 522,900
Granted 180,225 88,600 117,000
Awarded (42,495) (58,482) (80,300)
Terminated/canceled (69,324) (75,537) (1,000)
- -------------------------------------------------------------------------------
Balance, December 31 581,587 513,181 558,600
===============================================================================
Year of Grant
1994 1995 1996 1997 1998 Balance
- -------------------------------------------------------------------------------
Rights outstanding 104,300 111,656 106,256 85,175 174,200 581,587
===============================================================================
At December 31, 1998, there were 1,211,725 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
$1,564,000 in 1998, $3,400,000 in 1997 and $1,504,000 in 1996.
Had the company's stock-based compensation been determined by the fair-value
based method of SFAS 123, "Accounting for Stock-Based Compensation," the
company's net income (loss) and earnings (loss) per share would have been the
following adjusted amounts:
===============================================================================
1998 1997 1996
- -------------------------------------------------------------------------------
Net income (loss) (in thousands):
Consolidated as reported $8,362 $(802,132) 189,969
Consolidated adjusted for SFAS 123 5,765 (807,509) 186,170
Per share - diluted:
Consolidated as reported $.09 $(8.36) $1.95
Consolidated adjusted for SFAS 123 .06 (8.41) 1.92
===============================================================================
PAGE 46
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
1996 through 1998, 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
1998 $12.39 5.2% 2.4% 0.6 years 24.2%
1997 8.27 5.6 2.4 0.5 24.7
1996 8.15 5.5 2.4 0.7 15.5
Option under the
Stock Option Plan
1998 $10.72 4.7% 2.4% 5.0 years 22.3%
1997 11.87 5.6 2.4 5.0 22.5
1996 8.44 6.0 2.4 6.0 20.0
Option under the
Executive Incentive Plan
1998 $10.74 4.7% 2.4% 5.0 years 22.3%
1997 11.98 5.6 2.4 5.0 22.5
1996 8.44 6.0 2.4 6.0 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 $55,607,000,
$60,082,000 and $54,543,000 in 1998, 1997 and 1996, respectively. Excluding
Telerate, total profit sharing and pension plan expenses for 1998, 1997 and
1996 were as follows: $48,645,000, $43,815,000 and $38,283,000.
PAGE 47
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 and
pension plans (see Note 10).
The following sets forth the plan's status reconciled with amounts reported in
the company's consolidated balance sheets at December 31.
===============================================================================
(in thousands) 1998 1997
- -------------------------------------------------------------------------------
Benefit obligation at January 1 $133,487 $117,042
Service cost 8,267 7,889
Interest cost 9,293 8,728
Special termination benefit 7,309
Plan amendments 3,144 3,275
Actuarial loss (gain) 5,477 (522)
Curtailment gain (11,800)
Benefits paid:
Company contributions (4,609) (4,085)
Plan participant contributions 1,294 1,320
----- -----
Benefits paid (3,315) (2,765)
- -------------------------------------------------------------------------------
Benefit obligation at December 31 151,862 133,647
Unrecognized prior service cost (6,302) (1,540)
Unrecognized net actuarial loss (2,765) (3,139)
- -------------------------------------------------------------------------------
Accrued postretirement benefit liability at December 31 $142,795 $128,968
===============================================================================
The special termination benefit resulted from acceleration of service cost for
employees who elected to retire under the company's voluntary separation
incentive program. A curtailment gain was recognized in conjunction with the
sale of Telerate since its employees are no longer covered by the company's
benefit plans.
Pretax postretirement benefit expense included the following components:
===============================================================================
(in thousands) 1998 1997 1996
- -------------------------------------------------------------------------------
Service cost $ 8,267 $ 7,889 $ 7,316
Interest cost 9,293 8,728 7,547
Special termination benefit 5,183
Curtailment gain (5,600)
- -------------------------------------------------------------------------------
Net periodic postretirement benefit cost $17,143 $16,617 $14,863
===============================================================================
PAGE 48
A 9% annual rate of increase in the per capita costs of covered health care
benefits was assumed for 1999, gradually decreasing to 4.5% 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, 1998, by $24.8 million and
increase the aggregate of the service cost and interest cost components of net
periodic postretirement benefit cost for 1998 by $3.7 million. Conversely, a
one percentage point decline in the assumed health care cost trend rates would
lower the benefit obligation at the end of 1998 by $20.7 million and reduce the
aggregate of the service and interest cost by $3 million. A discount rate of
6.75% was used to determine the accumulated postretirement benefit obligation
as of December 31, 1998.
At December 31, 1997, the company's accumulated postretirement benefit
obligation was calculated using a discount rate of 7% and a health care cost
trend rate of 9.5% for 1998 decreasing to 5% by the year 2006.
NOTE 12. COMMITMENTS AND CONTINGENCIES
Commitments for capital expenditures amounted to $47,020,000 at December 31,
1998.
Noncancelable leases require minimum rental payments through 2011 totaling
$268,831,000. Payments required for the years 1999 through 2003 are as
follows:
===============================================================================
(in thousands) 1999 2000 2001 2002 2003
- -------------------------------------------------------------------------------
$51,720 $45,025 $41,487 $33,695 $28,653
===============================================================================
These leases are principally for office space and equipment and contain renewal
and escalation clauses. Total rental expense amounted to $89,391,000 in 1998,
$120,011,000 in 1997 and $112,075,000 in 1996. Excluding Telerate, total
rental expense was $76,320,000 in 1998, $85,755,000 in 1997 and $81,377,000 in
1996.
The company has guaranteed payment under certain circumstances of certain
annual minimum payments for data acquired by Telerate (now wholly owned by
Bridge Information Systems, Inc.) from Cantor Fitzgerald Securities and Market
Data Corporation under contracts entered into during the period when Telerate
was a subsidiary of the company. The annual minimum payments average
approximately $50 million per year through October 2006. Bridge has agreed to
indemnify the company if the company is required to make any payments under the
guarantee.
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.
PAGE 49
NOTE 13. PER SHARE AMOUNTS
Basic earnings (loss) per share was $0.09 in 1998, $(8.36) in 1997 and $1.96 in
1996. The per share amounts have been computed on the basis of the weighted-
average number of shares outstanding (95,180,000 shares in 1998, 95,993,000
shares in 1997 and 96,703,000 shares in 1996).
Diluted earnings (loss) per share have been computed as follows:
===============================================================================
(in thousands except
per share amounts) 1998 (2) 1997 (3) 1996 (4)
- -------------------------------------------------------------------------------
Net income (loss) $ 8,362 $(802,132) $189,969
Weighted-average shares
outstanding - basic 95,180 95,993 96,703
Stock options 961 551
Other, principally contingent
stock rights 263 117
------ ------ ------
Weighted-average shares
outstanding - diluted (1) 96,404 95,993 97,371
Diluted earnings (loss) per share $ .09 $(8.36) $1.95
===============================================================================
(1) The diluted average shares outstanding have been determined by assuming the
proceeds from the exercise of outstanding options were used to acquire treasury
stock at the average market value of the stock during the year.
(2) Options to purchase 888,000 shares in 1998 at $50.75 were excluded from the
diluted earnings per share calculation because the options' exercise price was
greater than the average market price for 1998.
(3) Options and contingent stock rights outstanding at December 31, 1997, as
shown in Note 9 to the financial statements beginning on page 42 of this Form
10-K, have been excluded from the diluted loss per share in 1997 because to
include such securities would be antidilutive. Including the dilution from
outstanding options and contingent stock rights would have resulted in
weighted-average diluted shares outstanding of 96,947,000 for the year 1997.
(4) Options to purchase 290,000 shares in 1996 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 price for 1996.
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 1998 and 1997 quarterly financial data shown on pages
57 and 58 of this report is incorporated herein by reference.
PAGE 50
NOTE 16. BUSINESS SEGMENTS
In 1998 the company realigned its operating segments. The company's business
and financial news and information operations are reported in two segments:
print publishing and electronic publishing, while the results of the company's
Ottaway Newspapers subsidiary continues to be reported in the community
newspapers segment.
Print publishing includes the operations of The Wall Street Journal and its
international editions, Barron's and other periodicals, as well as U.S.
television operations. Electronic publishing includes the operations of Dow
Jones Newswires, Dow Jones Interactive Publishing and Dow Jones Indexes.
Ottaway Newspapers publishes 19 daily newspapers and 15 weekly newspapers in
communities throughout the U.S.
The company's operations by business segment and geographic area were as
follows:
Financial Data by Business Segment
==============================================================================
(in thousands) 1998 1997 1996
- ------------------------------------------------------------------------------
Revenues (1)
Print publishing $ 1,161,939 $ 1,143,395 $ 1,044,261
Electronic publishing (2) 393,178 363,232 312,561
Community newspapers 317,087 300,611 287,511
---------- ---------- ----------
Segment revenues 1,872,204 1,807,238 1,644,333
Divested/joint ventured operations:
Print and television operations (3) 21,091 20,822
Telerate 285,902 744,189 816,437
---------- ---------- ----------
Consolidated revenues $ 2,158,106 $ 2,572,518 $ 2,481,592
- ------------------------------------------------------------------------------
Income (loss) before taxes and
minority interests
Print publishing $ 173,582 $ 247,191 $ 183,897
Electronic publishing 56,060 61,089 62,900
Community newspapers 44,760 50,584 43,766
Corporate (22,602) (18,189) (22,052)
---------- ---------- ----------
Segment operating income (4) 251,800 340,675 268,511
Divested/joint ventured operations:
Print and television operations (18,239) (36,798)
Telerate (33,227) (1,064,410) 105,267
---------- ---------- ----------
Consolidated operating income (loss) 218,573 (741,974) 336,980
Equity in losses of associated companies (21,653) (49,311) (5,408)
(Loss) gain on sale of businesses and
investments (126,085) 52,595 14,315
Other income (deductions), net 823 (25,194) (14,627)
---------- ---------- ----------
Income (loss) before taxes and
minority interests $ 71,658 $ (763,884) $ 331,260
- ------------------------------------------------------------------------------
PAGE 51
Financial Data by Business Segment (cont.)
==============================================================================
(in thousands) 1998 1997 1996
- ------------------------------------------------------------------------------
EBITDA (5)
Print publishing $ 272,005 $ 303,837 $ 225,328
Electronic publishing 88,409 101,285 81,167
Community newspapers 78,644 67,138 59,645
Corporate (22,602) (18,189) (22,052)
---------- ---------- ----------
Segment EBITDA 416,456 454,071 344,088
Divested/joint ventured operations:
Print and television operations (15,484) (32,228)
Telerate 20,671 71,436 242,876
---------- ---------- ----------
Consolidated EBITDA $ 437,127 $ 510,023 $ 554,736
- ------------------------------------------------------------------------------
Depreciation and amortization expense
Print publishing $ 48,509 $ 51,934 $ 41,431
Electronic publishing 22,488 23,147 18,267
Community newspapers 17,544 16,554 15,879
---------- ---------- ----------
Segment depreciation/
amortization expense 88,541 91,635 75,577
Divested/joint ventured operations:
Print and television operations 2,755 4,570
Telerate 53,898 156,344 137,609
---------- ---------- ----------
Consolidated depreciation/
amortization expense $ 142,439 $ 250,734 $ 217,756
- ------------------------------------------------------------------------------
Assets at December 31, (6)
Print publishing $ 667,422 $ 571,527 $ 507,410
Electronic publishing 202,875 156,859 143,929
Community newspapers 213,884 222,609 223,860
---------- ---------- ----------
Segment assets 1,084,181 950,995 875,199
Cash and investments 407,141 218,824 275,240
Divested/joint ventured operations 749,915 1,609,192
---------- ---------- ----------
Consolidated assets $ 1,491,322 $ 1,919,734 $ 2,759,631
- ------------------------------------------------------------------------------
Capital expenditures
Print publishing $ 120,699 $ 78,342 $ 78,738
Electronic publishing 38,719 39,235 25,679
Community newspapers 11,075 12,625 9,326
---------- ---------- ----------
Segment capital expenditures 170,493 130,202 113,743
Divested/joint ventured operations 55,341 217,595 118,435
---------- ---------- ----------
Consolidated capital expenditures $ 225,834 $ 347,797 $ 232,178
==============================================================================
PAGE 52
Financial Data by Geographic Area
==============================================================================
(in thousands) 1998 1997 1996
- ------------------------------------------------------------------------------
Revenues (7)
United States $ 1,786,861 $ 1,890,457 $ 1,748,800
International 371,245 682,061 732,792
---------- ---------- ----------
Consolidated revenues $ 2,158,106 $ 2,572,518 $ 2,481,592
- ------------------------------------------------------------------------------
Plant and Property, net of
accumulated depreciation
United States $ 587,700 $ 672,110 $ 618,359
International 14,417 111,927 121,041
---------- ---------- ----------
Consolidated plant and
property, net $ 602,117 $ 784,037 $ 739,400
==============================================================================
Notes:
(1) Revenues shown represent revenues from external customers. Transactions
between segments are not significant.
(2) Electronic publishing revenue in 1997 included $31 million in one-time fees
for licensing the Dow Jones Averages.
(3) Divested/Joint Ventured print and television operations include the results
of European Business News, a television operation which merged with CNBC Europe
December 1997; Dow Jones Investor Network, a multimedia product which was
discontinued January 1997; American Demographics, Inc. (sold March 1997); and
IDD Enterprises' print publishing unit (sold November 1997).
(4) Included within segment operating income were restructuring charges as
follows:
(in thousands) 1998 1997
Print publishing $49,914 $ 4,712
Electronic publishing 9,861 17,049
Community newspapers 16,340
------ ------
Total restructuring $76,115 $21,761
Approximately $20 million of the 1998 restructuring charge for the print
publishing segment reflected a noncash write-down of plant and property.
The 1997 charge for electronic publishing was largely the result of
noncash write-downs as well.
Excluding restructuring charges, segment operating income was as follows:
(in thousands) 1998 1997 1996
Print publishing $223,496 $251,903 $183,897
Electronic publishing * 65,921 78,138 62,900
Community newspapers 61,100 50,584 43,766
Corporate (22,602) (18,189) (22,052)
------- ------- -------
$327,915 $362,436 $268,511
* Includes one-time index licensing fees, net of expenses, of $26.5 million in
1997.
PAGE 53
(5) EBITDA is computed by the company as operating income excluding
depreciation and amortization and restructuring charges. EBITDA is a measure
used by the company's management in determining a business unit's performance.
EBITDA may be calculated differently by other companies and investors should
not view the company's calculation of EBITDA as an alternative to GAAP
measurements such as operating income, net income and cash flows provided by or
used in operating, investing and financing activities.
(6) Net assets, computed as total assets net of current liabilities, by segment
are shown below:
(in thousands) 1998 1997 1996
Print publishing $ 257,086 $ 202,848 $ 146,938
Electronic publishing 124,859 92,498 90,544
Community newspapers 177,537 189,052 193,511
-------- -------- --------
Segment net assets * $ 559,482 $ 484,398 $ 430,993
EBITDA return on net assets (RONA):
Print publishing 105.8% 149.8% 153.3%
Electronic publishing 70.8 109.5 89.6
Community newspapers 44.3 35.5 30.8
All segments 74.4% 93.7% 79.8%
* Segment level net assets exclude corporate net assets and net assets related
to divested/joint ventured operations.
(7) Revenues excluding Telerate were the following:
(in thousands) 1998 1997 1996
United States $1,695,981 $1,665,483 $1,510,461
International 176,223 162,846 154,694
--------- --------- ---------
Total revenues, excluding Telerate $1,872,204 $1,828,329 $1,665,155
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, 1998 and 1997, was
determined primarily by reference to dealer markets and market prices.
===============================================================================
(in thousands) Fair Value Carrying Value
- -------------------------------------------------------------------------------
1998
Other investments $275,858 $223,785
Long-term debt 151,673 149,889
- -------------------------------------------------------------------------------
1997
Other investments $ 85,985 $ 85,290
Long-term debt 228,136 228,806
===============================================================================
PAGE 54
The increase in fair value over the 1998 carrying value primarily reflects the
appreciation on the company's investment in OptiMark Technologies, Inc. based
on the market price of fourth quarter 1998 sales.
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 the end
of 1998, the fair value of these investments was $63.8 million, reflecting a
gross unrealized gain of $35.7 million on the USSB investment and a gross
unrealized loss of $3.1 million on the investment in Nation Multimedia Group.
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. Also included in other investments at December 31, 1998 was $150
million of 5 year, convertible, 4% Bridge preferred stock. The company has
determined that there has been no diminution of carrying value of the Bridge
stock at year end.
In December 1998, Hughes Electronics Corp., a unit of General Motors Corp.,
agreed to acquire USSB. The purchase, which is subject to regulatory approval,
entitles shareholders of USSB consideration of .3775 shares of General Motors
Class H stock (GMH) or its cash equivalent. The actual purchase price will be
based on the weighted-average price of GMH shares during a 20-day period ending
two days prior to closing.
Concentrations of Credit Risk
Financial instruments that potentially could subject the company to
concentrations of credit risk consist largely of trade accounts receivables and
the $150 million of 5 year, convertible, 4% preferred stock of Bridge.
With respect to 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 that comprise the company's customer
base.
PAGE 55
STATEMENT OF MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
To the Stockholders of Dow Jones & Company, Inc.:
Management has prepared and is responsible for the consolidated financial
statements and related information in the Annual Report. The financial
statements, which include amounts based on judgment, have been prepared in
conformity with generally accepted accounting principles consistently applied.
Management has developed and continues to maintain a system of internal
accounting and other controls for the company and its subsidiaries. Management
believes these controls provide reasonable assurance that assets are
safeguarded from loss or unauthorized use and that the company's financial
records are a reliable basis for preparing the financial statements. The
company's system of internal controls is supported by written policies,
including a code of conduct, a program of internal audits, and by a program of
selecting and training qualified staff. Underlying the concept of reasonable
assurance is the premise that the cost of control should not exceed the benefit
derived.
PricewaterhouseCoopers LLP, independent accountants, have audited the
consolidated financial statements as described in their report. The report
expresses an independent opinion on the fairness of presentation of the
financial statements and, in so doing, provides an independent objective
assessment of the manner in which management meets its responsibility for
fairness and accuracy in financial reporting.
The Board of Directors, through its audit committee consisting solely of
outside directors, is responsible for reviewing and monitoring the company's
financial reporting and accounting practices. The audit committee meets
regularly with management, internal auditors and independent accountants - both
separately and together. The internal auditors and the independent accountants
have free access to the audit committee to review the results of their audits,
the adequacy of internal accounting controls and the quality of financial
reporting.
PAGE 56
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Dow Jones & Company, Inc.:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income (loss), stockholders' equity and cash flows
present fairly, in all material respects, the financial position of Dow Jones &
Company, Inc. and its subsidiaries at December 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1998, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of
the company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
New York, New York
January 25, 1999
PAGE 57
QUARTERLY CONSOLIDATED STATEMENTS OF LOSS
(UNAUDITED)
Dow Jones & Company
For the fourth quarters ended December 31, 1998 and 1997
============================================================================
(in thousands, except
per share amounts) 1998 1997
- ----------------------------------------------------------------------------
REVENUES:
Advertising $ 278,044 $ 291,586
Information services 96,341 279,646
Circulation and other 117,473 118,253
- ----------------------------------------------------------------------------
Total revenues 491,858 689,485
- ----------------------------------------------------------------------------
EXPENSES:
News, operations and development 141,850 249,422
Selling, administrative and general 163,666 237,942
Newsprint 41,753 44,333
Second class postage and carrier delivery 31,130 30,683
Depreciation and amortization 21,003 68,999
Restructuring 59,775 1,001,263
- ----------------------------------------------------------------------------
Operating expenses 459,177 1,632,642
- ----------------------------------------------------------------------------
Operating income (loss) 32,681 (943,157)
OTHER INCOME (DEDUCTIONS):
Investment income 4,699 910
Interest expense (1,764) (4,445)
Equity in losses of associated companies (8,025) (27,280)
(Loss) gain on disposition of businesses
and investments (5,088) 46,416
Other, net (892) (6,741)
- ----------------------------------------------------------------------------
Income (loss) before income taxes and
minority interests 21,611 (934,297)
Income taxes (benefit) 22,073 (45,026)
- ----------------------------------------------------------------------------
Loss before minority interests (462) (889,271)
Minority interests in earnings of subsidiaries (36) (44)
- ----------------------------------------------------------------------------
NET LOSS $ (498) $ (889,315)
============================================================================
PER SHARE:
Net loss per share:
Basic $ (.01) $ (9.22)
Diluted (.01) (9.22)
Weighted-average shares outstanding:
Basic 93,225 96,465
Diluted 93,225 96,465
- ----------------------------------------------------------------------------
Cash dividends $ .24 $ .24
============================================================================
PAGE 58
SUMMARY OF QUARTERLY FINANCIAL DATA
(UNAUDITED)
Dow Jones & Company
===============================================================================
Quarters Ended
(in thousands except ---------------------------------------
per share amounts) March 31 June 30 Sept. 30 Dec. 31 Year
- -------------------------------------------------------------------------------
1998
Consolidated: (1)
Revenues $621,481 $601,142 $443,625 $ 491,858 $2,158,106
Operating income 55,478 85,864 44,550 32,681 218,573
Net income (loss) 34,698 (51,697) 25,859 (498) 8,362
Per Share:
Basic .36 (.54) .27 (.01) .09
Diluted .35 (.54) .27 (.01) .09
- -------------------------------------------------------------------------------
1997
Consolidated: (2)
Revenues $605,963 $640,744 $636,326 $ 689,485 $2,572,518
Operating income (loss) 62,162 78,027 60,994 (943,157) (741,974)
Net income (loss) 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)
===============================================================================
(1) The company recorded a net after-tax loss of $103.7 million on the sale of
businesses and investments in 1998. The first quarter included a net gain
of $10.1 million from the sales of the company's interests in WBIS+ TV and
Mediatex Communications Corp. A net loss of $123 million was recorded on
the disposition of Telerate ($98 million loss recorded in the second
quarter and an additional $25 million in the fourth). Also the fourth
quarter included a net gain of $9.2 million principally from the sale of a
portion of the company's holding in OptiMark Technologies, Inc.
Operating income in 1998 included restructuring charges of $76.1 million
($16.3 million was recorded in the third quarter, $59.8 million in the
fourth quarter). See Note 3 on page 36 of this Form 10-K.
(2) Gains on the disposal of businesses and investments in 1997 included a
first-quarter net gain of $3.6 million from the sale of the company's
American Demographics subsidiary and a fourth-quarter gain of $27.7 million
from the disposal of the company's interests in Bear Island Paper Company,
L.P. and Bear Island Timberlands Company, L.P. Additionally, 1997 included
a net enhancement from one-time index licensing fees of $15.6 million, of
which $10.6 million was earned in the third quarter and the remainder split
between the second and fourth quarters.
The fourth quarter and year-to-date 1997 operating losses include
restructuring costs of $1 billion.
PAGE 59
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not applicable.
PART III.
ITEM 10. Directors and Executive Officers of the Registrant.
The information required by this item with respect to directors of the company
is incorporated by reference to the tables, including the footnotes thereto,
appearing on pages 9 to 10 of the 1999 Proxy Statement and to the material in
footnote 5 on page 6 of the 1999 Proxy Statement. The information required by
this item with respect to compliance with Section 16(a) of the Securities
Exchange Act of 1934 is incorporated by reference to the material on page 22
of the 1999 Proxy Statement under the caption "Section 16(a) Beneficial
Ownership Reporting Compliance." For the information required by this item
relating to executive officers, see Part I, page 10 of this 1998 Form 10-K.
ITEM 11. Executive Compensation.
The information required by this item is incorporated by reference to the
tables, including the footnotes thereto, appearing under the caption
"Executive Compensation" on pages 12 to 14 of the 1999 Proxy Statement, the
material appearing under the captions "Separation Plan for Management" and
"Kennth L. Burenga Separation Agreement" on page 15 of the 1999 Proxy Statement,
and to the material appearing in the first four paragraphs on page 11 of the
1999 Proxy Statement.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management.
The information required by this item is incorporated by reference to the
tables, including the footnotes thereto, appearing on pages 2 to 7 of the 1999
Proxy Statement under the captions "Security Ownership of Certain Beneficial
Owners" and "Security Ownership of Directors and Management."
ITEM 13. Certain Relationships and Related Transactions.
The information required by this item is incorporated by reference to
footnotes 1 and 6 on page 10 of the 1999 Proxy Statement.
PAGE 60
PART IV.
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
14(a)(1)Financial Statements: Page Reference
--------------
Included in Part II, Item 8 of this report:
Consolidated statements of income (loss) for the years
ended December 31, 1998, 1997 and 1996 28
Consolidated balance sheets, December 31, 1998 and
1997 29-30
Consolidated statements of cash flows for the
years ended December 31, 1998, 1997 and 1996 31
Consolidated statements of stockholders' equity for the
years ended December 31, 1998, 1997 and 1996 32-33
Notes to financial statements 34-54
Report of independent accountants 56
(a) (2) Financial Statement Schedules:
Included in Part IV of this report:
Report and consent of independent accountants 65
II - Valuation and qualifying accounts and reserve 66
Other schedules have been omitted since they are either not required or not
applicable.
PAGE 61
(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 Lease, as amended, between the Company and Olympia and York
Battery Park Company, of space in The World Financial Center, New
York City, is hereby incorporated by reference to Exhibit 10.9 to
its Form 10-K for the year ended December 31, 1983.
10.4 Dow Jones 1988 Executive Incentive Plan, as amended, is hereby
incorporated by reference to Exhibit 19 to its Form 10-Q for the
quarter ended June 30, 1988.
10.5 Lease, as amended, between the Company and Waterfront Associates,
of space at Harborside Plaza Two, Jersey City, N.J. is hereby
incorporated by reference to Exhibit 10.15 to its Form 10-K for
the year ended December 31, 1989.
10.6 Dow Jones 1991 Stock Option Plan, as amended, is hereby
incorporated by reference to Exhibit 19.2 to its Form 10-Q for
the quarter ended September 30, 1991.
10.7 Dow Jones 1992 Long term Incentive Plan is hereby incorporated by
reference to Exhibit 10 to its Form 10-Q for the quarter ended
March 31,1992.
10.8 Dow Jones 1997 Long Term Incentive Plan is hereby incorporated
by reference to Exhibit 10 to its Form 10-Q for the quarter ended
March 31, 1997.
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 62
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 is
hereby incorporated by reference to Exhibit 10.10 to its Form
10-K for the year ended December 31, 1997.
10.11 Retirement Agreement dated December 30, 1997 between the company
and Mr. Valenti is hereby incorporated by reference to Exhibit
to its Form 10-K for the year ended December 31, 1997.
10.12 Dow Jones 1998 Stock Option Plan is hereby incorporated by
reference to Exhibit 10.2 to its Form 10-Q for the quarter ended
March 31, 1998.
* 10.13 Separation Plan for Senior Management
* 10.14 Separation Agreement and Release of Claims dated December 2, 1998
between the company and Mr. Kenneth L. Burenga.
21 List of Subsidiaries
23 Consent of PricewaterhouseCoopers LLP, independent accountants,
is contained on page 65 of this report.
* 27 Financial Data Schedule
* Securities and Exchange Commission and New York Stock Exchange copies
only.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of the
1998 fiscal year.
PAGE 63
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 Lawrence K. Kinsella
-------------------------
Comptroller
(Chief Accounting Officer)
Dated: March 23, 1999
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 23, 1999
Chief Executive Officer
Jerome H. Bailey
- -------------------------- Executive Vice President March 23, 1999
Chief Financial Officer
Rand V. Araskog
- -------------------------- Director March 23, 1999
Christopher Bancroft
- -------------------------- Director March 23, 1999
William C. Cox
- -------------------------- Director March 23, 1999
Harvey Golub
- -------------------------- Director March 23, 1999
PAGE 64
Signature Title Date
- --------- ----- ----
Roy Hammer
- -------------------------- Director March 23, 1999
Leslie Hill
- -------------------------- Director March 23, 1999
Irvine O. Hockaday, Jr.
- -------------------------- Director March 23, 1999
Vernon E. Jordan, Jr.
- -------------------------- Director March 23, 1999
David K.P. Li
- -------------------------- Director March 23, 1999
Jane C. MacElree
- -------------------------- Director March 23, 1999
M. Peter McPherson
- -------------------------- Director March 23, 1999
Frank N. Newman
- -------------------------- Director March 23, 1999
James H. Ottaway, Jr.
- -------------------------- Director March 23, 1999
William C. Steere, Jr.
- -------------------------- Director March 23, 1999
PAGE 65
INDEPENDENT ACCOUNTANTS' REPORT ON FINANCIAL STATEMENT SCHEDULES
- ----------------------------------------------------------------
To the Board of Directors and Stockholders of Dow Jones & Company, Inc.:
Our audits of the consolidated financial statements referred to in our report
dated January 25, 1999 appearing in this Annual Report on Form 10-K also
included an audit of the Financial Statement Schedule listed in Item 14(a) on
page 60 of this Form 10-K. In our opinion, this Financial Statement Schedule
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
PRICEWATERHOUSECOOPERS LLP
New York, New York
January 25, 1999
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, 33-45962,
33-45963, 33-49311, 33-55079, 33-357175, 33-370921, and 33-367523) of
Dow Jones & Company, Inc. of our report dated January 25, 1999 appearing on
page 56 of this 1998 Form 10-K. We also consent to the incorporation by
reference of our report on the financial statement schedule, which appears
above.
PRICEWATERHOUSECOOPERS LLP
New York, New York
March 23, 1999
PAGE 66
Schedule II
DOW JONES & COMPANY, INC.
and its Subsidiaries
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
for the years ended December 31, 1998, 1997 and 1996
(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, 1998:
Reserves deducted from assets -
Allowance for doubtful accounts $16,445 $ 4,623 $3,234 $17,661 $ 6,641
======= ======== ====== ======= ========
Tax valuation allowance - $222,504 - - $222,504
======= ======== ====== ======= ========
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
======= ======== ====== ======= ========
Notes:
(A) Recoveries of accounts previously written off and reductions of revenue.
(B) Accounts written off as uncollectible and credits issued to customers and in 1998 includes a deduction
of $9,955,000 resulting from the divestiture of Telerate.