EXHIBIT 13
Dow Jones 1999 Annual Report, page 22
Management's Discussion and Analysis
Net income in 1999 was $272.4 million, or $2.99 per diluted share, compared
with earnings of $8.4 million, or $.09 per diluted share, a year earlier.
Earnings in 1999 included a net enhancement of $50 million, or $.55 per
diluted share, largely from gains on sales of non-core investments. Sales of
investments included the company's interest in United States Satellite
Broadcasting, Inc. with a gain of $57.3 million, or $.63 per diluted share,
and a portion of the company's minority interest in OptiMark Technologies,
Inc. for a gain of $10.6 million, or $.12 per diluted share. These gains were
somewhat offset by a loss of $16.3 million, or $.18 per diluted share, on the
disposition of IDD Enterprises L.P., a wholly-owned subsidiary. Earnings were
slightly tempered by a restructuring charge of $2.8 million ($1.6 million
after tax) for employee severance associated with the conversion to electronic
pagination of The Wall Street Journal.
On May 29, 1998, the company completed the sale of its Telerate subsidiary and
recorded a loss on sale of $150.3 million ($123 million after taxes). In
addition, Telerate net losses lowered consolidated net income by $23.3
million. Earnings in 1998 also included net gains of $19.3 million from the
sales of a portion of the company's holdings in OptiMark Technologies Inc.,
WBIS+TV, Mediatex Communications Corp. and EDGAR Direct. In 1998, the company
incurred restructuring charges of $76.1 million ($45.4 million after tax),
largely from employee severance, write-down of assets and real estate lease
terminations, as well as non-operating charges of $6.5 million ($4.2 million
after tax) for redundant international television satellite leases, which are
either being subleased or returned to the vendor.
In 1997, the company reported a loss of $802.1 million, or $8.36 per diluted
share. Results included Telerate restructuring charges of $979.5 million
($922.5 after taxes), of which 97% was attributable to an impairment in
Telerate's carrying value with the remaining portion mainly attributable to
severance costs. In addition to these charges, Telerate net losses from
operations lowered consolidated results by $67 million.
Net income (excluding special items from all years and Telerate in 1998 and
1997) was $222.4 million, or $2.44 per diluted share, in 1999, representing a
27% increase in earnings per share compared with net earnings of $185 million,
or $1.92 per diluted share, in 1998. Earnings were $185.7 million, or $1.92
per diluted share, in 1997.
To enhance comparability of the financial results for the periods presented,
the following table reconciles the reported results to income excluding these
special items for 1999, 1998 and 1997. The term "special items", as used
within the remainder of management's discussion and analysis, refers to those
items within the table. The graphs that are displayed reflect results that
also exclude special items.
Special Items
-------------
(in millions, except
per share amounts) 1999 Income 1998 Income 1997 Income (Loss)
Operating Net EPS* Operating Net EPS* Operating Net EPS*
--------- --- ---- --------- --- ---- --------- --- ----
REPORTED INCOME $389.5 $272.4 $2.99 $218.6 $ 8.4 $ .09 $ (742.0) $(802.1) $(8.36)
ADJUSTED TO REMOVE:
Telerate loss (33.2) (146.3) (1.51) (1,064.4) (989.5) (10.29)
Included in
operating income:
One-time index fees,
net of expenses 26.5 15.6 .15
Divested operations ** (18.3) (12.0) (.13)
Restructuring charges:
Employee severance (2.8) (1.6) (.02) (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 (loss):
USSB Inc. 57.3 .63
OptiMark 10.6 .12 8.2 .09
IDD Enterprises (16.3) (.18)
EDGAR Direct 1.0 .01
WBIS+ 7.4 .08
Mediatex 2.7 .03
Bear Island 27.7 .29
American Demographics 3.6 .04
- ------------------------------------------------------------------------------------------------------
INCOME EXCLUDING
SPECIAL ITEMS $392.3 $222.4 $2.44 $327.9 $185.0 $1.92 $ 336.0 $185.7 $1.92
======================================================================================================
* Diluted
** Divested operations include European Business News, Dow Jones Investor Network, American
Demographics, Inc. and IDD Enterprises' print publishing unit.
Dow Jones 1999 Annual Report, page 23
Diluted earnings per share (excluding special items as defined) in 1999
increased $.52, or 27%, from 1998 due to improved print publishing operating
income ($.33, excluding U.S. television and newsprint price benefit), the
positive impact of share repurchases ($.13), enhanced earnings at community
newspapers ($.12, excluding newsprint price benefit), lower newsprint expense
($.12), reduced worldwide television losses ($.10) and a lower effective tax
rate ($.07). These were partially offset by reduced earnings at electronic
publishing ($.22), an increase in corporate expenses related to compensation,
establishment of new business initiatives and process redesign ($.09) and
combined higher equity losses ($.04).
Operating income in 1999 of $389.5 million advanced 78% from $218.6 million in
1998. Excluding special items from both periods, operating income increased
$64.4 million, or 19.6%, to $392.3 million. EBITDA margin (defined as
operating income excluding depreciation and amortization and restructuring
charges) was 24.8% in 1999 compared to 22.2% (excluding Telerate) in 1998.
Revenues in 1999 of $2 billion declined $156.3 million, or 7.2%. Excluding
Telerate from 1998, revenues rose $129.6 million, or 6.9%, entirely
attributable to advertising revenue, which grew 19%, resulting from an
advertising linage gain of 17.9% at The Wall Street Journal. Revenue from the
U.S., which represents 92% of total revenues, grew 8%, while revenue from
international operations fell 3.7%. In 1999, expenses of $1.61 billion fell
$327.2 million, or 16.9%, from 1998. Excluding special items and Telerate,
consolidated expenses were up $65.3 million, or 4.2%, in part due to a rise in
compensation, promotional spending on branding campaigns across all
businesses, costs associated with international expansion and process redesign
initiatives. Newsprint expense declined 7.5% compared with 1998, reflecting a
14.4% drop in average price per ton partially offset by an 8% increase in tons
used in 1999.
On July 1, 1999, the company formed a 50-50 joint venture, Dow Jones Reuters
Business Interactive LLC (Factiva), into which the company contributed a
significant portion of its Dow Jones Interactive business. The company's
share of Factiva's results is reported in Equity in Losses of Associated
Companies. Prior to July 1, 1999, results of the interactive business
contributed to Factiva were included in the company's information services
revenues, expenses and operating income. If special items and Telerate were
and one-half of the joint venture results were included effective
July 1, 1999, consolidated revenues of $2.06 billion in 1999 would have
increased 9.8% from 1998, expenses of $1.67 million would have been 8% higher,
and operating income of $387.6 million would have risen 18.2%. The EBITDA
margin would have been 23.9% in 1999, compared with 22.2% a year earlier.
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 increase earnings per share and
improve the company's margins, Dow Jones offered two voluntary retirement
plans and closed certain operations. In total, approximately 520 employees
throughout the company received severance. Also, as a result of reduced
occupancy requirements post-Telerate, the company arranged to give back about
20% of the leased space at its New York headquarters.
The technology charge in 1998 of $17.3 million 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 early 1999, the company initiated the Journal Pagination project, which is
expected to streamline the production process and compose electronically all
news and advertising pages of The Wall Street Journal using a fully integrated
system with new ad-layout and editorial components. It is intended to provide
a fresher and more competitive Journal by delivering the paper to more readers
before 6:30 a.m. every business day while providing an edition with more
timely news due to later closing pages. The Journal is expected to be fully
paginated by the end of the second quarter of 2000. Other Dow Jones
publications, notably Barron's, The Asian Wall Street Journal and The Wall
Street Journal Europe, are expected to be utilizing the new pagination system
by the end of 2000.
In 1998, the company also 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.
Operating income in 1998 was $218.6 million compared with an operating loss of
$742 million in 1997. Excluding special items, operating income slipped 2.4%,
to $327.9 million. EBITDA (excluding Telerate) was $416.5 million in 1998
versus $454.1 million in 1997. Revenues, excluding special items, of $1.87
billion increased 5.4% over comparable revenues in 1997. The revenue increase
was largely
Dow Jones 1999 Annual Report, page 24
driven by electronic publishing operations. Excluding special items, expenses
rose $104 million, or 7.2%, primarily as a result of increased employee
compensation 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
prices and 40% the result of higher consumption.
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.
[PIE CHART]
1999 Percentage of Revenue by Segment
Print Publishing 66%
Electronic Publishing 17%
Community Newspapers 17%
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.
The company's business and financial news and information operations are
reported in two segments: print publishing and electronic publishing. The
results of the company's Ottaway Newspapers subsidiary, which publishes 19
daily newspapers and 15 weekly newspapers in 11 states in the U.S., are
reported in the community newspaper 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 66% of 1999 continuing revenues.
Approximately 9% 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 Indexes, WSJ.com, dowjones.com and Dow Jones Interactive and other (the
company's 50% share of Factiva's results are reported in the Equity in Losses
of Associated Companies). Electronic publishing comprised 17% of 1999
continuing revenues, while the community newspapers segment accounted for the
remainder of 1999 continuing revenues.
Divested/joint ventured operations in 1998 and 1997 included Telerate,
European Business News, Dow Jones Investor Network, American Demographics,
Inc. and IDD Enterprises' print publishing unit.
[BAR CHART]
Print Publishing
EBITDA
(in millions)
1997 $303.8
1998 272.0
1999 372.4
[BAR CHART]
Print Publishing
EBITDA Margin
1997 26.5%
1998 23.4%
1999 28.2%
PRINT PUBLISHING
==============================================================================
(in thousands) 1999 1998 1997
- ------------------------------------------------------------------------------
U.S. Publications:
Advertising $ 892,317 $ 729,865 $ 719,679
Circulation and other 311,565 319,293 308,134
International Publications:
Advertising 73,327 67,773 70,977
Circulation and other 43,588 45,008 44,605
- ------------------------------------------------------------------------------
Total revenues 1,320,797 1,161,939 1,143,395
Operating expenses 1,013,760 988,357 896,204
- ------------------------------------------------------------------------------
Operating income $ 307,037 $ 173,582 $ 247,191
- ------------------------------------------------------------------------------
EBITDA $ 372,354 $ 272,005 $ 303,837
EBITDA margin 28.2% 23.4% 26.6%
==============================================================================
Dow Jones 1999 Annual Report, page 25
[BAR CHART]
Print Publishing Advertising Revenue
(in millions)
United States International
1997 $1,028 $115
1998 1,049 113
1999 1,204 117
[PIE CHART]
1999 Wall Street Journal Linage by Category
General - other 45%
General - technology 15%
Financial 27%
Classified and other 13%
[BAR CHART]
International Journal Editions' Circulation
(in thousands)
The Asian Wall Street Journal The Wall Street Journal Europe
1997 56 65
1998 59 69
1999 67 80
Print publishing operating income in 1999 increased $133.5 million, or 77%,
from 1998. Excluding restructuring charges of $2.8 million for employee
severance in 1999 and $76.1 million for severance, write-down of assets and
real estate lease terminations in 1998, print publishing operating income
advanced $86.3 million, or 39%. In 1999, EBITDA rose $100.3 million, or 37%,
from 1998 and increased 23% from 1997. Operating profit in 1999 benefited
from strong advertising volume, with double-digit gains at The Wall Street
Journal as well as Barron's and The Wall Street Journal Europe, and lower
average newsprint prices. In contrast, operating profit in 1998 reflected a
decline of 1.1% in Journal advertising linage and a modest increase in average
newsprint prices from 1997.
Revenues in 1999 grew $158.9 million, or 13.7%, from 1998. U.S. revenue
advanced 14.7%, driven by advertising revenue growth of 22%, reflecting the
strength of a 17.9% linage gain at The Wall Street Journal. Barron's revenue
rose $8.9 million, or 14.1%, sustained by a gain of 16.1% in Barron's national
ad pages, which are primarily dependent on financial advertising. Revenue
from The Wall Street Journal Europe and The Asian Wall Street Journal
increased 12.1%, reflecting 26.1% and 9.6% advertising volume gains,
respectively. Revenue from other international periodicals declined $4.9
million, or 13%. The decline largely reflected a revenue falloff at the Far
Eastern Economic Review, a regional business publication in Asia, which was
particularly affected by the Asian economic crisis. U.S. television revenue
nearly doubled from 1998, reflecting significant gains in advertising revenue
and a full year of the CNBC television agreement in 1999 versus nine months in
1998. Circulation and other revenues for print publishing fell 2.5% to $355.2
million in 1999.
All three principal Wall Street Journal advertising categories achieved volume
gains in 1999. Financial advertising linage, which comprises 27% of total
Journal linage and includes advertising from investment and trading firms as
well as advertising for initial public offerings (IPO's), grew 17.7% in 1999
compared with a decline of 11.6% in 1998 and a gain of 6.4% in 1997. The
surge in demand for financial advertising was driven largely by a strong
economy, as financial services clients actively promoted their products, and
IPO activity. The company expects this trend to continue at least through the
first half of 2000, assuming the U.S. economy remains strong, and due to
easier comparisons with the first half of 1999. General linage, which makes
up 60% of total linage and includes advertising from all significant
industries including technology, telecommunications, automotive and
professional services, as well as corporate image and "dot-com" advertising,
rose 21.9% in 1999, following gains of 2.1% in 1998 and 17.0% in 1997. The
Journal benefited from strong "dot-com" advertising as well as long running
technology advertisers repositioning their companies/services for the
Internet. The technology component of general advertising increased 32% in
1999. General, excluding technology, was up a robust 19% in 1999. Classified
and other advertising, which comprised the remaining 13% of Journal linage in
1999, posted a linage gain of 2% in 1999, after gains of 8.9% in 1998 and
13.4% in 1997. The 1999 growth is a result of real estate advertising, partly
through the Weekend Journal section (first published on March 20, 1998),
offset somewhat by a reduction in employment advertising. Effective January
2000, advertising rates for The Wall Street Journal were increased 4%, with
four-color and spot color ad rates rising 5% and 8%, respectively.
Circulation revenue for U.S. print publications was down $10.6 million, or
3.6%, from 1998. Average circulation for the U.S. Wall Street Journal was
1,764,000 in 1999, following 1,773,000 in 1998, and 1,802,000 in 1997, with a
drop in subscriptions partially offset by the expansion of low-revenue bulk
distribution to hotel and airline markets. The Statement of Total Circulation
(STC), which presents circulation results in March and September, was first
issued in March 1998. The STC provides circulation data which is reviewed by
independent accountants, and also information on the quality and character of
the publication's paid circulation, including complimentary and third party
amenity copies, subscription terms and price. STC circulation for The Wall
Street Journal was 1,855,000 for the six months ended September 30, 1999,
compared with 1,836,000 a year earlier. Barron's average annual circulation
of 300,000 was up from 296,000 in both 1998 and 1997.
Dow Jones 1999 Annual Report, page 26
Circulation revenue in 1999 for international publications was down $1.1
million, or 3.2%, from 1998, due to a revenue decline for the Far Eastern
Economic Review and a weaker U.S. dollar in the Asian market. Average
combined circulation for the international editions of The Wall Street Journal
for 1999 was 147,000, up 14.7% from 1998, building upon the 5.7% increase from
1997.
Print publishing's expenses in 1999 rose $25.4 million, or 2.6%, from 1998.
Excluding restructuring costs, expenses increased $72.6 million, or 7.7%, due
to compensation (part of which was tied to advertising revenue gains)
promotional spending (a portion of which was linked to the Journal's branding
campaign) and costs related to international expansion. Newsprint expense
declined $12.2 million, or 7.5%, as the company benefited from reduced prices.
The average newsprint price per ton in 1999 was $503, down 14.3%, while
consumption increased 8%. At December 31, 1999, the number of full-time
employees in the print publishing segment was up 3.6% from a year ago,
primarily due to expanded news coverage world-wide.
Print publishing revenues in 1998 advanced $18.5 million, or 1.6%, from 1997.
Advertising revenue generated by U.S. publications rose modestly, due to rate
increases as advertising volume declined 1.1% at The Wall Street Journal.
U.S. circulation and other revenue in 1998 was level with 1997 as volume
declines were offset by gains from rate increases. In 1998, advertising
revenue from international publications was down $3.2 million, or 4.5%,
reflecting a 10.5% drop in volume at The Asian Wall Street Journal partly
offset by a 9% rise at The Wall Street Journal Europe.
Total segment expenses in 1998 climbed $92.2 million, or 10.3%, from 1997.
Excluding restructuring charges, expenses rose $47 million, or 5.3%,
reflecting higher costs related to employee compensation and newsprint prices.
Newsprint expense increased 7.7% in 1998, reflecting an almost even split
between price increases and higher consumption.
ELECTRONIC PUBLISHING
==============================================================================
(in thousands) 1999 1998 1997
- ------------------------------------------------------------------------------
Revenues $349,998 $393,178 $363,232
Expenses 314,888 337,118 302,143
- ------------------------------------------------------------------------------
Operating income $ 35,110 $ 56,060 $ 61,089
- ------------------------------------------------------------------------------
EBITDA $ 58,372 $ 88,409 $101,285
EBITDA margin 16.7% 22.5% 27.9%
==============================================================================
Operating income in 1999 for electronic publishing declined $21 million, or
37%, from 1998. Excluding special items, operating income fell $30.8 million
as the company continued to invest in its electronic products, focus on
revenue growth and expand its worldwide distribution. EBITDA fell $30 million,
or 34%, in 1999.
Revenues in 1999 declined $43.2 million, or 11%, while operating expenses
decreased 6.6%. The 1999 to 1998 comparison is distorted due to the impact,
effective July 1, 1999, of contributing the bulk of the Dow Jones interactive
business to the Factiva joint venture, whose results are recorded in Equity in
Losses of Associated Companies.
The information included in the following table and related discussion
excludes special items. Factiva's results are presented on a pro forma basis
as if the venture was formed on January 1, 1998.
==============================================================================
(in thousands) 1999 1998
- ------------------------------------------------------------------------------
Dow Jones Newswires:
North America $172,193 $161,535
International 36,868 44,718
- ------------------------------------------------------------------------------
Total Newswires 209,061 206,253
Factiva 111,329 108,514
WSJ.com 30,939 17,177
dowjones.com 5,472
Dow Jones Indexes 12,924 12,490
Other 33,954 48,744
- ------------------------------------------------------------------------------
Total revenues 403,679 393,178
Operating expenses 373,241 327,257
- ------------------------------------------------------------------------------
Operating income $ 30,438 $ 65,921
- ------------------------------------------------------------------------------
EBITDA $ 54,692 $ 88,409
EBITDA margin 13.5% 22.5%
==============================================================================
Dow Jones 1999 Annual Report, page 27
[BAR CHART]
Electronic Publishing Revenue*
(in millions)
1997 $332.2
1998 393.2
1999 403.7
* Excludes special items; includes 50% share of Factiva in 1999.
[BAR CHART]
Newswires Terminals
(in thousands)
North America International
1997 237 28
1998 263 27
1999 294 24
[BAR CHART]
WSJ.com Subscribers
(in thousands)
1997 172
1998 266
1999 375
Electronic publishing operating income decreased $35.5 million, or 54%, in
1999. Revenues grew $10.5 million, or 2.7%, and operating expenses increased
$46 million, or 14.1%. EBITDA fell $33.7 million, or 38%, in 1999. The growth
in expenses chiefly was due to the company's promotion of interactive
products, expansion of Newswire businesses, principally internationally, and
Factiva development costs. Since the sale of Telerate, which was the primary
distributor of Newswires overseas, the company has invested heavily in its
electronic products in an effort to expand internationally through various
distribution channels and to position itself to take advantage of
opportunities presented by the Internet.
Dow Jones Newswires revenue in 1999 increased modestly, as cancellations of
Telerate-related terminals in Europe and Asia were partly offset by the start
of distribution channels with Reuters and Bloomberg in late 1998/early 1999.
The company initiated 20,400 user trials on Reuters and Bloomberg, of which
roughly 12,600 were completed. Approximately 37% of the completed trials
continued as paid subscribers with roughly 60% former Telerate customers and
40% new customers.
At the end of 1999, there were 318,000 newswires terminals compared with
290,000 a year ago and 257,000 in 1997. Terminal growth in North America was
31,000 in 1999, partly offset by a 3,000 decrease overseas. Revenue in the
U.S. is affected by larger accounts that tend to contract for more terminals
and receive larger volume discounts whereas overseas terminals yield higher
per-terminal revenue. This resulted in a 17.6% decline in international
revenue, which offset growth in North America. In 1999 the ratio between
North America and international revenue was roughly 82% to 18% compared with
78% to 22% a year ago.
Given that the transition from Dow Jones Interactive to Factiva complicates
comparisons, the Factiva amounts present the company's 50% share of Factiva
revenue had Factiva existed from the beginning of 1998. The difference
between the company's pro forma half of Factiva revenue and the company's
wholly-owned Dow Jones Interactive revenues for the first half of 1999 and all
of 1998 is reflected in "other", and accounts for the decline in the "other"
category. Factiva 1999 revenues, compared with pro forma 1998 revenues,
increased slightly. Growth was negatively affected by a reduction in fees
from a third-party licensing contract, the migration of customers to a web
version of the product and transitional issues in Europe and Asia as Factiva
establishes itself as a stand-alone business.
Revenue for WSJ.com in 1999 advanced $13.8 million, or 80%, from 1998.
Advertising revenue doubled from last year and subscription revenue grew 56%,
partly reflecting a 20% price increase for non-print subscribers effective
November 1998. For 1999, the mix of advertising revenue versus subscription
revenue was 56% advertising/44% subscription. At December 31, 1999, there
were about 375,000 subscribers to WSJ.com, compared with 266,000 a year ago
and 172,000 in 1997.
Revenue for dowjones.com, launched at the end of May 1999, was $5.5 million.
The free portal site provides business news and information for small
businesses and averaged approximately 22,700 sessions per day during 1999's
fourth quarter, with an average of four page views per session. It is
supported by sponsorships, banner advertising and e-commerce.
Dow Jones Indexes revenue in 1999 was $12.9 million, an increase of 3.5% from
the like period in 1998. The average number of futures contracts on the CBOT
and options contracts on the CBOE declined 5% from 1998. Volume in DIAMONDS,
which trade on the American Stock Exchange, was up 51% from last year. Assets
based on Dow Jones Indexes grew to $196 billion from $19.9 billion a year ago,
predominantly due to growth of the Dow Jones STOXX partnership in Europe
(launched in the third quarter of 1998). (The company's share of results from
STOXX is included in Equity in Losses of Associated Companies).
Electronic publishing expenses, excluding special items and including one-half
of Factiva results since July 1, 1999, increased $46 million, or 14.1%.
Approximately 44% of the increase resulted from increased sales and marketing
efforts (up $20.1 million, or 84%) across all electronic products and
Dow Jones 1999 Annual Report, page 28
increased fees to content providers (up $5.3 million, or 12.5%). Also
contributing to the increase was the expansion of the Newswires business
overseas and product development efforts at Factiva.
Electronic publishing operating income in 1998 of $56.1 million was down $5
million, or 8.2%, from 1997. Excluding special items (one-time index fees in
1997 and restructuring charges in 1998), operating income was 28% higher than
1997. Revenues in 1998 increased $60.9 million, or 18.3%, from 1997
(excluding the one-time index fees), while expenses excluding special items
rose 16.6% in 1998. Part of the increase in both segment revenues and
expenses in 1998 related to a restructured agreement between Dow Jones and the
Associated Press (AP), which runs 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. Before 1998, the company recorded its one-half
share of both revenues and expenses from the joint newswires. Under the new
agreement, which was effective January 1998, the company recognizes 100% of
revenues and expenses for these newswires.
Revenue for Dow Jones Newswires rose 5.9% in 1998, excluding the effect of the
restructured AP agreement, with the number of terminals increasing 12.8%.
Revenue at the then Dow Jones Interactive Publishing unit (including Dow Jones
Interactive, WSJ.com and IDD Enterprises) increased 9.5%, in part due to a 76%
increase at WSJ.com.
[BAR CHART]
Community Newspapers
EBITDA
(in millions)
1997 $ 67.1
1998 78.6
1999 102.8
[BAR CHART]
Community Newspapers
EBITDA Margin
1997 22%
1998 25%
1999 31%
COMMUNITY NEWSPAPERS
==============================================================================
(in thousands) 1999 1998 1997
- ------------------------------------------------------------------------------
Advertising $237,005 $225,017 $211,693
Circulation and other 94,035 92,070 88,918
- ------------------------------------------------------------------------------
Total revenues 331,040 317,087 300,611
Operating expenses 246,081 272,327 250,027
- ------------------------------------------------------------------------------
Operating income $ 84,959 $ 44,760 $ 50,584
- ------------------------------------------------------------------------------
EBITDA $102,804 $ 78,644 $ 67,138
EBITDA margin 31.1% 24.8% 22.3%
==============================================================================
Community newspapers operating income in 1999 rose $40.2 million, or 90%, from
a year ago. Expenses were down $26.2 million, or 9.6%, from 1998 due to a
1998 restructuring charge as well as a 13.5% decline in newsprint expense in
1999. Excluding the $16.3 million restructuring charge in 1998, operating
income in 1999 advanced $23.9 million, or 39%, while expenses declined 3.9%.
Community newspapers contributed 37% of the increase in consolidated operating
income in 1999, excluding special items. Community newspapers' EBITDA
increased $24.2 million, or 31%, in 1999, after a gain of 17.1% in 1998.
Revenue in 1999 grew $14 million, or 4.4%, to $331 million. Advertising
revenue, which comprises 72% of total community newspapers revenue, advanced
$12 million, or 5.3%, while circulation revenue was up $1.8 million, or 2.1%,
from 1998. Advertising linage for the daily papers increased 1.1% from last
year, while linage for the non-dailies fell 3.3%. Circulation volume stood at
551,000 at year-end 1999, down 2.2%. Circulation and other revenue increased
modestly at 2.1%, mostly due to circulation rate increases in early 1999.
Average circulation in 1999 for this segment's 19 dailies declined to 555,000,
down 2.3%, after a decrease of 4,000, or 1%, in 1998. Employee compensation
expense, which is the major cost component of the segment, was down 2.7% from
1998, reflecting savings from the staff reduction plan completed in mid-1998.
In 1998, community newspapers operating income fell 11.5% from 1997.
Excluding the restructuring charge in 1998, operating income increased 21%
from 1997. Revenue in 1998 was up $16.5 million, or 5.5%, from 1997, largely
on the strength of advertising revenue. Advertising linage (combined daily
and non-daily) for community newspapers gained 3.4% from 1997. Community
newspapers expenses were up 8.9% in 1998. Excluding the restructuring charge,
expenses rose 2.3% from 1997.
STAFFING COSTS
At December 31, 1999, the company employed 8,175 full-time employees, down
approximately 1% from a year earlier, largely reflecting the assignment of
staff to Factiva that was offset by growth in print and electronic publishing.
The average number of employees for
Dow Jones 1999 Annual Report, page 29
1998 increased 2% over 1997. Consolidated employee compensation (including
retirement plans and medical benefits), as a percentage of total expenses,
were approximately 42% in 1999, 38% in 1998 and 36% in 1997 (excluding
restructuring charges in all years).
OTHER INCOME/DEDUCTIONS
Net interest income was $4.6 million in 1999 compared with $5.1 million in
1998. Net interest expense was $15.9 million in 1997. The improvement in
1998 over 1997, in part reflected a lower average debt level in 1998. Long-
term debt outstanding at December 31, 1999 was $149.9 million, the same as
year-end 1998 and down from $234.1 million at December 31, 1997.
The company's share of losses from equity investees in 1999 was $27.9 million
($23.2 million excluding Factiva) compared with losses of $22.3 million in
1998 and $49.3 million in 1997. Excluding international television
restructuring charges, Equity in Losses of Associated Companies was $15.2
million in 1998 and $19.6 million in 1997. The wider loss in 1999 versus 1998
was primarily due to reduced earnings at F.F. Soucy, the company's newsprint
mill partnership in Canada (due to lower newsprint prices), the launch of the
company's 50% share of Factiva effective July 1, 1999 and SmartMoney (from
development costs for SmartMoney.com), partially offset by a 9.5% improvement
in international television, excluding restructuring charges. The reduction
in losses in 1998 versus 1997 reflects stronger results from F.F. Soucy and an
easier comparison as 1997 included losses from WBIS+ TV.
In 1999, the company sold its interest in United States Satellite
Broadcasting, Inc. to Hughes Electronics for a pretax gain of $57.3 million
($.63 per diluted share) and also sold a portion of its holdings in OptiMark
Technologies, Inc. for a pretax gain of $10.6 million ($.12 per diluted
share). The company recorded a pretax loss of $16.3 million ($.18 per diluted
share) in the fourth quarter of 1999 from the sale of IDD Enterprises, L.P., a
wholly-owned subsidiary. The pretax and after-tax gains on these transactions
were nearly equivalent due to the utilization of certain tax loss
carryforwards resulting from the Telerate sale.
In 1998, the company recorded a pretax loss of $126.1 million on the sale of
businesses and investments. Partially offsetting the pretax loss on the
Telerate sale of $150.3 million were pretax gains of $24.2 million 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 pretax gain on the sale of the
company's American Demographics subsidiary, and a $46.4 million pretax gain
from the sale of its interest in Bear Island Paper Company, L.P. and Bear
Island Timberlands Company, L.P.
Included in Other, net was a gain on foreign exchange of $285,000 in 1999,
compared with losses of $4.6 million in 1998 and $6.4 million in 1997. The
significant improvement in foreign exchange reflects less exposure overseas
due to the Telerate sale. Excluding Telerate, foreign exchange losses were
$1.9 million and $260,000 in 1998 and 1997, respectively.
[BAR CHART]
Losses from
Television - Pretax*
(in millions)
1997 $(48.0)
1998 (20.8)
1999 (4.4)
* Excludes special items
TELEVISION
Television includes income from U.S. television operations reported in the
print publishing segment and losses from international television reported in
equity results. Excluding special charges in 1998 and 1997, total pretax
losses were $4.4 million in 1999, down significantly from $20.8 million in
1998 and $48 million in 1997. Since 1998, television results have benefited
from the company's worldwide alliance with CNBC, particularly enhancing U.S.
television revenues, while results in 1997 were negatively affected by start-
up losses from WBIS+ TV.
INCOME TAXES
The effective income tax rate for 1999 was 34.8%, compared with 88% in 1998
and 4.9% in 1997. The effective rate is distorted in all three years by the
non-deductibility of Telerate-related items in 1998 and 1997 and from the
utilization of capital loss carryforwards, which resulted from the Telerate
sale, on the sales of investments in 1999. Excluding Telerate and the capital
loss carryforward, the effective tax rate would have been 39.1% in 1999, 41.5%
in 1998 and 39.1% in 1997. At December 31, 1999, the company had available
approximately $493 million of capital loss carryforward (a deferred tax asset
of $186 million) which was fully reserved through a valuation allowance. The
company may utilize the benefit of the Telerate capital loss carryforward
through 2003.
Dow Jones 1999 Annual Report, page 30
FINANCIAL POSITION
During 1999, the company repurchased 3 million shares of its common stock at
an aggregate price of $146.7 million, with an average price per share of
$48.19. Additionally, the company holds 1.67 million shares subject to put
options, which may require the company to repurchase up to $79.4 million of
its common stock (net of premiums) through September 2000. In 1998, the
company's board of directors authorized the repurchase of up to $800 million
of the company's common stock over a three-year period. (Since initial
approval in June 1998, the company has repurchased 9.3 million shares.) As of
December 31, 1999, the remaining amount of repurchase authorizations from the
company's board was $281.4 million, after reserving for the exercise of put
options.
Cash provided by operations in 1999 was $297 million, down $10 million, or
3.3%, from 1998, due to a negative swing in working capital, principally
accounts receivable. The ramp-up in accounts receivable reflects both strong
fourth quarter advertising revenues (up $100 million, or 36%) and a slowdown
in collections, which the company views as temporary. Cash provided from the
sale of investments was $80.7 million in 1999 and cash and cash equivalents
were $86.4 million at December 31, 1999 compared with $142.9 million at the
end of 1998. Also, proceeds from sales under the company's various stock
compensation plans generated $33.4 million.
In addition to the repurchase of its common stock in 1999, the company funded
capital expenditures of $190.7 million, dividends of $87.2 million and $52.2
million in various investments in affiliated companies.
On January 14, 2000, the company sold Dow Jones Financial Publishing Corp.,
its subsidiary which publishes: Investment Advisor, Asset Management,
Property, and Realty Stock Review. A gain of $9.5 million, or $.10 per
diluted share, was recorded in the first quarter of 2000.
As previously mentioned, the company sold Telerate during 1998's second
quarter. The purchase price consisted of $150 million of 5 year, convertible,
4% preferred stock of Bridge, included in other non-current investments, and
$360 million in cash. The company has accrued the dividend on the Bridge
preferred stock as earned; under the terms of the preferred stock, the
dividend is not payable until certain events occur, but no later than 2003.
The carrying value of the investment in Bridge, including a note receivable,
at December 31, 1999 was $162.3 million. 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, which at
this time the company believes will be immaterial.
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.
At December 31, 1999, the company held 1.8 million shares of Savvis
Communications Corp. (Savvis), with a carrying value of $900,000. Savvis, a
provider of Internet backbone and high-speed access, completed an Initial
Public Offering in February 2000. The closing price for Savvis stock was $20
on February 29, 2000. The shares may not be sold by Dow Jones (other than
pursuant to one or more private placements) for 180 days following the Savvis
public offering. Bridge is a majority owner of Savvis and its largest
customer.
In 2000, the company expects its beginning cash balance and cash provided by
operations, augmented, if the opportunity arises, by sales of non-core
investments, to be sufficient to meet its normal recurring operating
commitments, fund capital expenditures (including the expansion of color and
page capacity for the U.S. print Wall Street Journal), fund the share
repurchase program, and pay dividends. The company expects capital
expenditure funding for the expansion project, on schedule for completion by
the end of 2001, to total $232 million, of which $102 million was spent
through 1999. Total capital expenditures in 2000 are projected to be $200
million, with $125 million for normal spending and $75 million for the
expansion project, compared with $191 million in 1999 ($113 million for normal
spending and $78 million for print expansion) and $226 million ($56 million
for Telerate and $24 million for print expansion) in 1998.
If necessary, the company's liquidity requirements that exceed the above
sources may be funded through the issuance of commercial paper, which is
supported by a $400 million revolving credit agreement with several banks
through June 2000. 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, 1999, the company had
long-term notes of $150 million (see Note 5), which are due December 1, 2000
and are not redeemable prior to maturity. Upon maturity, the outstanding debt
will be repaid through borrowings from either the issuance of commercial paper
or the company's revolving credit facility, or through issuance of long-term
debt. As such these notes are classified as long term.
Dow Jones 1999 Annual Report, page 31
RESOLUTION OF YEAR 2000
The company did not incur any significant unanticipated expenses nor any
disruption of business operations as a result of the transition to Year 2000.
The company's final operating cost over the 1997-1999 period to modify its
systems for the Year 2000 was approximately $17 million.
OUTLOOK - THREE-YEAR PLAN
The major corporate objectives outlined in the Focus Forward plan for 1999-
2001 include:
(1) Achieve earnings per share growth at a compound rate of at least 10% over
the long term.
(2) Achieve revenue growth of at least half of the net income growth.
(3) 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.
With the first year completed, the company reported diluted earnings per share
growth (excluding special items) of 27% in 1999, largely from the strength in
advertising revenue, the benefit of share repurchases and improved results at
community newspapers.
Revenue growth (including Factiva) of 9.8% over 1998 was well ahead of the "at
least 5%" target, and was roughly half of the net income growth of 20%.
EBITDA margins of 28.2% and 31.1% were attained by print publishing and
community newspapers, respectively, in 1999, mainly due to growth in revenues
and cost cutting measures. Electronic publishing's EBITDA margin (including
Factiva) of 13.5% fell below the long-range plan target of 27%, as the company
invested significantly to augment revenue. The company believes it will be
able to reach this margin target during 2001 through continued investment and
marketing.
OUTLOOK - 2000
In 2000, the company is targeting earnings per share growth of 15%, assuming a
reasonable economic environment. The company expects the main components
driving that growth to be: 2% to 3% from additional share repurchases, 2% from
a reduction in the effective tax rate, 2% from reduced equity losses,
excluding Factiva and any new ventures, and 8% to 9% from core operations.
In 2000, the company presently expects the print publishing and community
newspapers segments to each realize modest growth of 4% to 5% in both revenues
and expenses. With respect to revenues, advertising rates at print publishing
were raised 4% on average, effective January 1, 2000. Advertising volume at
the U.S. Wall Street Journal is expected to increase marginally, with double-
digit growth coming in the first half, but to decline later in the year, due
to tougher comparisons. (The international editions of the Journal are
expected to grow at a greater rate.) Circulation revenue is anticipated to
remain relatively stable and no rate increases are planned. The increase in
expenses for print publishing and community newspapers is in part due to
anticipated price increases in newsprint (predicted to be up roughly 10%, to
$560 per ton, by June 2000). The company expects to benefit in 2000 from its
process redesign initiatives with annual expense savings of $20 million, most
of which will impact print publishing. These savings should increase further
in 2001.
The company is also planning additional investments in print publishing,
specifically marketing and selling efforts linked to the U.S. and
international Journal's branding campaigns. International print margins are
expected to remain in the single digits, with planned additional investments
for increased circulation and page capacity of The Wall Street Journal Europe.
Electronic publishing's EBITDA margin is expected to improve several
percentage points in 2000. The company anticipates double-digit revenue
growth along most products including Factiva but it also expects to invest
significantly in brand awareness and recognition as well as expanding the
distribution channels across all electronic products.
In 1999, the combined circulation for the U.S. Journal, the Journal Europe,
the Asian Journal and WSJ.com was over 2.3 million, a company circulation
record. The company added another corporate target this year to increase paid
circulation to more than three million in 2003. Much of the growth is
anticipated to be from WSJ.com. Circulation growth at The Wall Street Journal
Europe is planned to double within the five years of 1999-2003.
Television in 2000 is expected to be modestly profitable (its 1999 pretax loss
was $4.4 million), driven by expected improved operating income in the U.S.
and a decline in losses in Europe and Asia.
In October 1999, the company and its major union, Independent Association of
Publishers' Employees (IAPE/CWA 1096), representing roughly 40% of full-time
employees, reached an agreement to a three year contract that expires on April
30, 2002. The contract chiefly provides for wage increases of 9.5% over three
years (3% in 1999, 3% in 2000 and 3.5% in 2001) and a change from the
Dow Jones 1999 Annual Report, page 32
company's former profit sharing plan to a money-purchase pension plan as well
as a 401(k) plan. The former plan was modified to be based on a fixed
percentage of compensation and to allow an employer matching opportunity.
The foregoing targets, goals and objectives in this section entitled "OUTLOOK
- - THREE-YEAR PLAN" and "OUTLOOK - 2000" 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 below.
INFORMATION RELATING TO FORWARD-LOOKING STATEMENTS
Management's Discussion and Analysis and other sections of this Annual Report
include forward-looking statements that reflect the company's current
expectations or beliefs concerning future results and events. In addition, the
company may from time to time make additional forward-looking statements,
either orally or in writing. The company cautions readers that the company's
targets and objectives, and the results expected or anticipated by forward-
looking statements, including, without limitation, statements relating to the
company's future business prospects, revenues, income, working capital,
liquidity, capital needs and interest costs and similar items, are subject to
certain risks and uncertainties which could cause actual results and events to
differ materially from those anticipated in the forward-looking statements.
Factors that might cause such a difference include, but are not limited to,
global economic and business conditions, and the strong tendency of economic
downturns to negatively impact advertising sales and sales of the company's
products and services; the intense competition faced by the company's products
and services in the markets for financial news and information, and related
advertising revenues, from newspapers, specialized business and financial
magazines, technology publications, Internet-based publications and services
(including both free and paid competitive Internet services that feature or
include business and financial news and information), financial television
programming and other new media that may develop; the extent to which the
company is able to increase its circulation and advertising revenues from its
international print publications, in the face of competition from local
publications and from other international publications; the extent to which
the company is able to achieve its revenues and earnings targets for
distribution of its newswires, taking into account in particular the rate of
addition of new subscribers outside the U.S. and cancellations of Telerate-
related terminals; the extent to which the company is able to achieve and
maintain a diversified advertising base for its print publications; any
delays that could occur in expanding the company's newspaper page and color
printing capacity, which could result in insufficient capacity to carry
advertisements; the company's ability to expand production and service
capacity for electronic publishing products on a timely basis to support
growth of operations and user traffic; business conditions (growth or
consolidation) in the financial services industry, and the tendency of
consolidation to negatively impact the market for the company's products and
services and advertising; increased competition in the market for electronic
business information and research services and Factiva's ability to develop
competitive country-specific interfaces and increase its market share and
revenues on a global basis; with respect to the company's Internet services
that rely partly or entirely on advertising revenues, the amount of user
traffic on those services and the pricing of advertising on Internet sites
generally; 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 the
ability to sell advertising time at desired rates in the U.S. television
market; rapid technological changes and frequent new product introductions
prevalent in electronic publishing, and the extent to which the company is
able to introduce new and enhanced services and products to meet shifts in
market demand; any damage to or technical failure of the company's computer
infrastructure systems or software that causes interruptions of operations;
cost of newsprint; the company's ability to attract and retain qualified
personnel in the tight labor market that exists; 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 foreign operations,
including currency and political risks; 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.
Dow Jones 1999 Annual Report, page 33
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.
Dow Jones 1999 Annual Report, page 34
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, changes in stockholders' equity and cash
flows present fairly, in all material respects, the financial position of Dow
Jones & Company, Inc. and subsidiaries at December 31, 1999 and 1998, and the
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States 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, 2000
Dow Jones 1999 Annual Report, page 35
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
Dow Jones & Company
For the years ended December 31, 1999, 1998 and 1997
===============================================================================
(in thousands except per share amounts) 1999 1998 1997
- -------------------------------------------------------------------------------
REVENUES:
Advertising $1,225,405 $1,031,210 $1,011,864
Information services 326,882 670,441 1,101,696
Circulation and other 449,548 456,455 458,958
- -------------------------------------------------------------------------------
Total revenues 2,001,835 2,158,106 2,572,518
- -------------------------------------------------------------------------------
EXPENSES:
News, operations and development 520,515 677,381 899,868
Selling, administrative and general 712,765 762,803 895,707
Newsprint 150,899 163,146 152,478
Second class postage and carrier delivery 121,691 117,649 114,442
Depreciation and amortization 103,669 142,439 250,734
Restructuring (Note 3) 2,755 76,115 1,001,263
- -------------------------------------------------------------------------------
Operating expenses 1,612,294 1,939,533 3,314,492
- -------------------------------------------------------------------------------
Operating income (loss) 389,541 218,573 (741,974)
OTHER INCOME (DEDUCTIONS):
Investment income 9,861 12,266 3,473
Interest expense (5,269) (7,193) (19,367)
Equity in losses of associated
companies (Notes 3 & 4) (27,907) (22,253) (49,311)
Gain (loss) on disposition of
businesses and investments (Note 2) 51,945 (126,085) 52,595
Other, net (125) (3,650) (9,300)
- -------------------------------------------------------------------------------
Income (loss) before income taxes
and minority interests (Note 7) 418,046 71,658 (763,884)
Income taxes (Note 7) 145,501 63,083 37,796
- -------------------------------------------------------------------------------
Income (loss) before minority interests 272,545 8,575 (801,680)
Minority interests in earnings
of subsidiaries (116) (213) (452)
- -------------------------------------------------------------------------------
NET INCOME (LOSS) $ 272,429 $ 8,362 $ (802,132)
===============================================================================
PER SHARE (Note 12):
Net income (loss):
Basic $3.01 $ .09 $(8.36)
Diluted 2.99 .09 (8.36)
Weighted-average shares outstanding:
Basic 90,450 95,180 95,993
Diluted 91,151 96,404 95,993
- -------------------------------------------------------------------------------
Cash dividends $ .96 $ .96 $ .96
===============================================================================
The accompanying notes are an integral part of the financial statements.
Dow Jones 1999 Annual Report, page 36
CONSOLIDATED BALANCE SHEETS
Dow Jones & Company
December 31, 1999 and 1998
===============================================================================
(dollars in thousands) 1999 1998
- -------------------------------------------------------------------------------
ASSETS:
Current Assets:
Cash and cash equivalents $ 86,388 $ 142,877
Accounts receivable - trade, net of
allowance for doubtful accounts of
$6,170 in 1999 and $6,641 in 1998 314,289 229,628
Newsprint inventory (Note 1) 9,407 11,386
Prepaid expenses 16,041 18,068
Deferred income taxes (Note 7) 9,885 13,992
Other current assets 19,979 19,038
- -------------------------------------------------------------------------------
Total current assets 455,989 434,989
- -------------------------------------------------------------------------------
Investments in associated companies,
at equity (Note 4) 50,959 41,406
Other investments (Notes 2 & 17) 174,727 222,858
Plant and property, at cost:
Land 22,066 22,507
Buildings and improvements 313,138 313,591
Equipment 902,230 1,118,131
Construction in progress 205,917 121,552
- -------------------------------------------------------------------------------
1,443,351 1,575,781
Less, accumulated depreciation 766,939 973,664
- -------------------------------------------------------------------------------
676,412 602,117
Goodwill, less accumulated amortization
of $38,660 in 1999 and $58,610 in 1998 83,099 86,554
Deferred income taxes (Note 7) 73,552 67,171
Other assets 15,821 28,927
- -------------------------------------------------------------------------------
Total assets $1,530,559 $1,484,022
===============================================================================
The accompanying notes are an integral part of the financial statements.
Dow Jones 1999 Annual Report, page 37
December 31, 1999 and 1998
===============================================================================
(dollars in thousands) 1999 1998
- -------------------------------------------------------------------------------
LIABILITIES:
Current Liabilities:
Accounts payable - trade $ 73,382 $ 68,674
Accrued wages, salaries and commissions 65,010 52,028
Retirement plan contributions payable (Note 9) 42,948 43,596
Other payables (Note 2) 128,624 152,592
Income taxes (Note 7) 40,315 37,198
Unearned revenue 228,251 238,409
- -------------------------------------------------------------------------------
Total current liabilities 578,530 592,497
Notes payable (Notes 5 & 17) 149,945 149,889
Deferred compensation, principally postretirement
benefit obligation (Note 10) 217,991 198,089
Other noncurrent liabilities 30,603 34,207
- -------------------------------------------------------------------------------
Total liabilities 977,069 974,682
- -------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY:
Common stock, par value $1 per share; authorized
135,000,000 shares; issued 81,004,088 shares
in 1999 and 80,898,838 shares in 1998 81,004 80,899
Class B common stock, convertible, par value $1
per share; authorized 25,000,000 shares; issued
21,176,933 shares in 1999 and
21,282,183 shares in 1998 21,177 21,282
- -------------------------------------------------------------------------------
102,181 102,181
Additional paid-in capital 137,487 137,479
Retained earnings 809,517 624,239
Accumulated other comprehensive income:
Unrealized (loss) gain on investments (941) 35,775
Cumulative translation adjustment (1,257) 38
- -------------------------------------------------------------------------------
1,046,987 899,712
Less, treasury stock, at cost; 12,360,278 shares
in 1999 and 10,211,733 shares in 1998 493,497 390,372
- -------------------------------------------------------------------------------
Total stockholders' equity 553,490 509,340
- -------------------------------------------------------------------------------
Total liabilities and stockholders' equity $1,530,559 $1,484,022
===============================================================================
Dow Jones 1999 Annual Report, page 38
CONSOLIDATED STATEMENTS OF CASH FLOWS
Dow Jones & Company
For the years ended December 31, 1999, 1998 and 1997
================================================================================
(in thousands) 1999 1998 1997
- --------------------------------------------------------------------------------
OPERATING ACTIVITIES:
Consolidated net income (loss) $272,429 $ 8,362 $(802,132)
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 100,214 134,594 205,525
Amortization of goodwill 3,455 7,845 45,209
(Gain) loss on disposition of businesses
and investments (51,945) 126,085 (52,595)
Gain on disposition of plant and property (433) (1,410) (840)
Equity in losses of associated
companies, net of distributions 34,118 36,109 55,525
Changes in assets and liabilities:
Accounts receivable (89,976) (34,680) 15,132
Other current assets 1,699 (13,141) (193)
Unearned revenue (9,062) 33,179 20,329
Accounts payable and accrued liabilities 966 (8,602) 63,519
Income and deferred taxes 23,764 (23,861) (81,581)
Deferred compensation 19,902 20,056 17,476
Other, net (8,104) 1,735 1,748
- ---------------------------------------------------------------------------------
Net cash provided by operating
activities 297,027 307,072 459,495
- --------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Additions to plant and property (190,739) (225,834) (347,797)
Disposition of plant and property 2,664 9,210 9,580
Businesses and investments acquired,
net of cash received (52,215) (56,967) (80,663)
Disposition of businesses and investments 80,692 478,574 128,621
Other, net 2,205 5,318
- --------------------------------------------------------------------------------
Net cash (used in) provided by
investing activities (157,393) 204,983 (284,941)
- --------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Cash dividends (87,151) (91,662) (92,116)
Increase in long-term debt 32,310
Reduction of long-term debt (63,015) (135,854)
Proceeds from sales under stock
compensation plans 33,367 52,951 38,100
Purchase of treasury stock, net of
put premiums (142,339) (291,215)
- --------------------------------------------------------------------------------
Net cash used in financing activities (196,123) (392,941) (157,560)
- --------------------------------------------------------------------------------
(Decrease) increase in cash
and cash equivalents (56,489) 119,114 16,994
Cash and cash equivalents at
beginning of year 142,877 23,763 6,769
- --------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 86,388 $142,877 $ 23,763
================================================================================
The accompanying notes are an integral part of the financial statements.
Dow Jones 1999 Annual Report, page 39
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Dow Jones & Company, Inc.
For the years ended December 31, 1999, 1998 and 1997
============================================================================================================================
Accumulated
Class B Additional Other Com- Treasury Stock
(in thousands except Common Common Paid-in Retained prehensive -----------------
per share amounts) Stock Stock Capital Earnings Income Shares Amount Total
============================================================================================================================
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
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 278 (278)
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 80,899 21,282 137,479 624,239 35,813 (10,211,733) (390,372) 509,340
Net income - 1999 272,429 272,429
Unrealized gain on investments 2,124 2,124
Translation adjustment (1,295) (1,295)
Adjustment for realized
gain included in net income (38,840) (38,840)
-------
Comprehensive income 234,418
Dividends, $.96 per share (87,151) (87,151)
Conversion of class B common 105 (105)
stock into common stock
Capital changes of investee (322) (322)
Premiums on puts 4,869 4,869
Sales under stock
compensation plans (4,539) 895,989 43,604 39,065
Purchase of treasury stock (3,044,534) (146,729) (146,729)
----------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 $81,004 $21,177 $137,487 $809,517 $(2,198) 12,360,278) $(493,497) $553,490
============================================================================================================================
The accompanying notes are an integral part of the financial statements.
Dow Jones 1999 Annual Report, page 40
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.
NEWSPRINT INVENTORY is stated at the lower of cost or market. The cost of
newsprint is computed by the last-in, first-out (LIFO) method. If newsprint
inventory had been valued by the average cost method, it would have been
approximately $6,725,000 and $8,557,000 higher in 1999 and 1998, respectively.
INVESTMENTS in marketable equity securities, all of which are classified as
available for sale, are carried at their market value in the consolidated
balance sheets. The unrealized gains or losses from these investments are
recorded directly to Stockholders' Equity, 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 1999 and 1998 totaled
$4.5 million and $4.8 million, respectively, while the amount of capitalized
interest for 1997 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 40 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 7).
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 included in Other, net
in the income statement totaled a gain of $285,000 in 1999, compared with
losses of $4,616,000 in 1998, and $6,391,000 in 1997.
FOREIGN-EXCHANGE CONTRACTS are designated as cash flow hedges of anticipated
operating expenses that are denominated in foreign currencies. These contracts
are entered into to protect against the risk that such expenses will be
adversely affected by changes in exchange rates. Such losses could be
significant if a major devaluation were to occur. By using these derivative
instruments the company is exposed to the adverse effect that a change in
currency has on the value of a financial instrument. The company manages this
market risk by establishing and monitoring limits as to the degree of risk that
may be undertaken. The company's derivative activities are monitored by its
treasury and finance functions. There were no foreign exchange contracts
outstanding at December 31, 1999 or 1998.
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
Dow Jones 1999 Annual Report, page 41
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 $30,544,000 in 1999, $60,988,000
in 1998, and $116,420,000 in 1997. Excluding Telerate operations, R&D expenses
totaled $32,029,000 in 1998, and $31,887,000 in 1997.
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 first quarter of 1999, the company realized a net gain of $10.6 million
from the sale of a portion of its minority interest in OptiMark Technologies,
Inc. In the third quarter a net gain of $57.3 million was recorded from the
disposition of the company's holdings in United States Satellite Broadcasting,
Inc. The fourth quarter included a loss of $16.3 million from the sale of the
company's subsidiary, IDD Enterprises L.P. No federal tax was provided on
these transactions as the company utilized a portion of its capital loss
carryforward (see Note 7).
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 was
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 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 did not provide 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.
NOTE 3. RESTRUCTURING CHARGES
In 1999's second quarter, the company recorded severance associated with the
conversion to electronic pagination of The Wall Street Journal of $2.8 million,
or $1.6 million after tax, which applies to approximately 70 employees. The
company expects that the layoffs will be substantially completed in the second
quarter of 2000.
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 entered into an agreement with its landlord
to eliminate its obligation on roughly 20% of its leased space at this
location, reducing its rent expense over the lease period. The charge
primarily consisted of a termination fee and the write-down of leasehold
improvements. The termination fee was paid in the first quarter of 1999.
Dow Jones 1999 Annual Report, page 42
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
then to abandon significant components (primarily the editing function) of
GNMS. In the fourth quarter of 1998, the vast majority of the editing function
was taken off GNMS and switched to the prior news-editing system. The
electronic pagination project, a replacement for GNMS, is expected to
streamline the production process and compose electronically all news and
advertising pages of The Wall Street Journal using a single pagination system.
It is expected to be fully operational by the end of the second quarter of
2000.
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 were 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 restructuring 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.
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.
Restructuring charges were as follows:
===============================================================================
(in thousands) 1999 1998 1997
- -------------------------------------------------------------------------------
Severance $2,755 $23,572 $ 22,154
Write-down of goodwill 868,333
Write-down of plant and property 20,801 104,040
Real estate lease terminations 18,264
Pension/postretirement benefit
costs 11,721
Other 1,757 6,736
- -------------------------------------------------------------------------------
Total restructuring $2,755 $76,115 $1,001,263
===============================================================================
NOTE 4. INVESTMENTS IN ASSOCIATED COMPANIES, AT EQUITY
On July 1, 1999, the company formed a 50-50 joint venture, Dow Jones Reuters
Business Interactive LLC (Factiva), with Reuters Group Plc, into which Dow
Jones contributed a significant portion of its interactive business unit. The
company's 50% share of the joint venture results is reported in Equity in
Losses of Associated Companies in the consolidated financial statements. Prior
to July 1, 1999, results of the interactive business contributed to the joint
venture were included in electronic publishing operating results.
At December 31, 1999, 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
Dow Jones Reuters Business 50 Provides electronic-delivery of
Interactive LLC (Factiva) business news and on-line research,
in partnership with Reuters Group Plc.
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
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 1999 Annual Report, page 43
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 $18,954,000 in 1999, $22,325,000 in 1998 and
$21,598,000 in 1997.
NOTE 5. LONG-TERM DEBT
The company can borrow up to $400 million through June 28, 2000, under a
revolving credit agreement with a consortium of banks. Borrowings may be made
either in Eurodollars with interest that approximates the applicable Eurodollar
rate or in U.S. dollars with interest that approximates the bank's prime rate,
its certificate of deposit rate or the federal funds rate. An annual fee of
.06% 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, 1999, with respect to restrictive covenants then
in effect, consolidated indebtedness was approximately $678 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. Based on the company's ability and intent to refinance these notes on a
long-term basis through either long-term debt issuance or the issuance of
commercial paper supported by the company's revolving credit agreement, these
notes have been classified as long term (the company can draw down funds under
the revolving credit agreement prior to June 28, 2000, which would not be
payable until one year from the date drawn). The notes are general unsecured
obligations of the company and may not be redeemed prior to maturity.
Interest payments were $9,720,000 in 1999, $10,970,000 in 1998, and $18,386,000
in 1997.
NOTE 6. 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. Through December 31, 1999, the
company repurchased 9.3 million shares at an aggregate cost of $441.9 million.
Additionally, as part of the company's stock repurchase program the company
sold put options. As of December 31, 1999, 1,667,000 shares under puts were
outstanding at strike prices (net of put premiums received) ranging from $40.96
to $50.13 per share, with exercise dates through September 2000. As of
December 31, 1999, approximately $281.4 million remained under board
authorization, after reserving for the exercise of outstanding puts.
NOTE 7. INCOME TAXES
The components of consolidated income (loss) before income taxes and minority
interests were as follows:
==============================================================================
(in thousands) 1999 1998 1997
- ------------------------------------------------------------------------------
Domestic $469,085 $104,282 $(118,627)
Foreign (51,039) (32,624) (645,257)
- ------------------------------------------------------------------------------
$418,046 $ 71,658 $(763,884)
==============================================================================
Dow Jones 1999 Annual Report, page 44
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 Income Loss
Before Before Before
(in thousands) 1999 Taxes 1998 Taxes 1997 Taxes
- ------------------------------------------------------------------------------
Income (loss) before taxes and
minority interest multiplied
by statutory federal income
tax rate $146,316 35.0 $25,080 35.0 $(267,359) (35.0)
State and foreign taxes, net
of federal income tax effect 20,074 4.8 12,276 17.1 (31,377) (4.1)
Write-down of nondeductible
goodwill 326,807 42.8
Nondeductible capital loss 26,186 36.5
Utilization of capital loss
carryforward (18,181) (4.4)
Amortization of
nondeductible goodwill 1,159 0.3 2,865 4.0 15,969 2.0
Research and development
credits (1,824) (0.4) (5,067) (7.1) (4,456) (0.6)
Other, net (2,043) (0.5) 1,743 2.5 (1,788) (0.2)
- ------------------------------------------------------------------------------
$145,501 34.8 $63,083 88.0 $ 37,796 4.9
==============================================================================
Consolidated income tax expense was as follows:
==============================================================================
(in thousands) Federal State Foreign Total
- ------------------------------------------------------------------------------
1999
Currently payable $113,147 $26,393 $8,235 $147,775
Deferred 809 572 (3,655) (2,274)
- ------------------------------------------------------------------------------
Total $113,956 $26,965 $4,580 $145,501
==============================================================================
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
==============================================================================
* Relates to a tax capital loss carryback resulting from the Telerate sale,
which was received in 1999.
The company's combined current and noncurrent deferred taxes at December 31,
1999 and 1998 consisted of the following deferred tax assets and liabilities:
==============================================================================
Deferred Tax Deferred Tax
Assets Liabilities
(in thousands) 1999 1998 1999 1998
- ------------------------------------------------------------------------------
Depreciation $47,663 $64,048
Employee benefit plans, including
deferred compensation $ 97,599 $ 82,671
Foreign tax credits 6,688 2,154
Restructuring charges 4,913 44,577
Investments 13,727 6,391
Leases 7,755 9,010
Capital loss carryforward 185,824 222,504
Valuation allowance (185,824) (222,504)
All other 5,742 7,105 5,324 6,697
- ------------------------------------------------------------------------------
Total deferred taxes $136,424 $151,908 $52,987 $70,745
==============================================================================
The company may utilize the capital loss carryforward for up to four more
years. At this time the company has fully reserved the balance.
Income tax payments were $141,894,000 in 1999, $107,101,000 in 1998, and
$119,377,000 in 1997.
Dow Jones 1999 Annual Report, page 45
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) 1999 1998 1997
- ------------------------------------------------------------------------------
Domestic $469,085 $278,897 $357,151
Foreign (51,039) (21,384) (48,625)
- ------------------------------------------------------------------------------
$418,046 $257,513 $308,526
==============================================================================
==============================================================================
% of % of % of
Income Income Income
Before Before Before
(in thousands) 1999 Taxes 1998 Taxes 1997 Taxes
- ------------------------------------------------------------------------------
Income before taxes
multiplied by statutory
federal income tax rate $146,316 35.0 $ 90,130 35.0 $107,984 35.0
State and foreign taxes,
net of federal income
tax effect 20,074 4.8 17,132 6.7 14,306 4.6
Utilization of capital loss
carryforward (18,181) (4.4) (4,290) (1.7)
Amortization of
nondeductible goodwill 1,159 0.3 1,143 0.4 1,402 0.3
Research and development
credits (1,824) (0.4) (1,980) (0.8) (3,556) (1.2)
Other, net (2,043) (0.5) 456 0.2 576 0.4
- ------------------------------------------------------------------------------
$145,501 34.8 $102,591 39.8 $120,712 39.1
==============================================================================
Excluding the utilization of the capital loss carryforward, the effective tax
rate was 39.1% in 1999 and 41.5% in 1998.
NOTE 8. 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 1999 1998 1997
- ------------------------------------------------------------------------------
Balance, January 1 98,778 141,457 137,107
Shares subscribed 149,681 185,474 258,635
Purchases $35.60 to $48.08 (149,202) (213,915) (241,243)
Terminated/canceled (12,484) (14,238) (13,042)
- ------------------------------------------------------------------------------
Balance, December 31 86,773 98,778 141,457
==============================================================================
At December 31, 1999, there were 1,680,363 shares available for future
offerings.
STOCK OPTION PLANS:
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.
The Dow Jones 1998 Stock Option Plan provides for grant of stock options to key
employees.
Options for shares of common stock may be granted under both plans at not less
than the fair market value of the common stock on the date of grant. Options
granted in 1999, 1998 and 1997 become exercisable in equal annual installments
over three years from the date of grant. All other options outstanding at
December 31, 1999 were exercisable. Options expire ten years from the date
of grant.
Dow Jones 1999 Annual Report, page 46
The activity with respect to options under both plans was as follows:
===============================================================================
(shares in thousands) 1999 1998 1997
---------------- ---------------- ----------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
- -------------------------------------------------------------------------------
Balance, January 1 4,677 $40.97 5,031 $37.50 5,015 $33.58
Granted * 94 52.07 1,288 49.18 1,241 50.29
Exercised (735) 34.18 (1,291) 33.50 (1,044) 31.85
Terminated/canceled (70) 49.71 (351) 48.95 (180) 45.86
Surrendered upon
exercise of stock
appreciation rights (1) 32.50
- -------------------------------------------------------------------------------
Balance, December 31 3,966 $42.33 4,677 $40.97 5,031 $37.50
===============================================================================
Options exercisable
at December 31 2,792 $39.20 2,825 $36.39 3,645 $33.27
===============================================================================
* The company has granted the vast majority of stock options and contingent
stock rights in the fourth quarter of each year. In 1999 no such grants were
awarded. Commencing in 2000 these grants will take place in the first quarter
of the year.
Options outstanding at the end of 1999 are summarized as follows:
===============================================================================
(shares in thousands) Options outstanding Options exercisable
-------------------------------- -------------------
Weighted-
Weighted- Average Weighted-
Average Remaining Average
Range of Exercise Contractual Exercise
Exercise Prices Shares Price Life Shares Price
- -------------------------------------------------------------------------------
$26.00 to $32.88 670 $29.06 2.5 years 670 $29.06
$34.38 to $37.50 1,003 35.14 5.9 1,003 35.14
$41.09 to $48.94 268 44.36 5.4 214 43.97
$49.13 to $60.88 2,025 50.02 8.6 905 50.09
- -------------------------------------------------------------------------------
Balance,
December 31, 1999 3,966 $42.33 6.6 years 2,792 $39.20
===============================================================================
Contingent stock rights, granted under the Long Term Incentive Plan, entitle
the participant to receive future payments in the form of common stock, cash or
a combination of both. The compensation ultimately received will depend on the
extent to which specific performance criteria are achieved during the four-year
performance period, the participant's individual performance and other factors,
as determined by the compensation committee. Compensation received could be
less than or equal to that specified in the right, but cannot exceed the right.
A summary of contingent stock right activity follows:
<CAPTIONS>
===============================================================================
1999 1998 1997
- -------------------------------------------------------------------------------
Balance, January 1 581,587 513,181 558,600
Granted* 9,250 180,225 88,600
Awarded (41,900) (42,495) (58,482)
Terminated/canceled (72,325) (69,324) (75,537)
- -------------------------------------------------------------------------------
Balance, December 31 476,612 581,587 513,181
===============================================================================
Year of Grant
--------------------------------------------
1995 1996 1997 1998 1999 Balance
- -------------------------------------------------------------------------------
Rights outstanding 109,156 103,456 83,175 171,575 9,250 476,612
===============================================================================
* The company has granted the vast majority of stock options and contingent
stock rights in the fourth quarter of each year. In 1999 no such grants were
awarded. Commencing in 2000 these grants will take place in the first quarter
of the year.
At December 31, 1999, there were 1,143,550 shares available for future grants
under the executive incentive plan and 2,658,571 shares available under the
stock option plan.
Dow Jones 1999 Annual Report, page 47
The company accounts for its stock-based compensation in accordance with
Accounting Principles Board Opinion No. 25 (APB 25) and its related
interpretations. Under APB 25, stock-based compensation charged to income was
$5,500,000 in 1999, $1,564,000 in 1998, and $3,400,000 in 1997. The increase
in 1999 expenses chiefly resulted from appreciation from $48.13 (year-end 1998)
to $68.00 (year-end 1999) in the price of the company's common stock in 1999.
Had the company's stock-based compensation been determined by the fair-value
based method of SFAS 123, "Accounting for Stock-Based Compensation," the
company's net income (loss) and earnings (loss) per share would have been the
following adjusted amounts:
===============================================================================
(in thousands except per share amounts) 1999 1998 1997
- -------------------------------------------------------------------------------
Net income (loss):
Consolidated as reported $272,429 $8,362 $(802,132)
Consolidated adjusted for SFAS 123 266,896 5,765 (807,509)
Per share - diluted:
Consolidated as reported 2.99 .09 (8.36)
Consolidated adjusted for SFAS 123 2.93 .06 (8.41)
===============================================================================
The following table provides the estimated fair value under the Black-Scholes
option-pricing model of each option and stock-purchase right granted in years
1997 through 1999, 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
1999 $11.09 5.1% 2.3% 0.6 years 22.7%
1998 12.39 5.2 2.4 0.6 24.2
1997 8.27 5.6 2.4 0.5 24.7
Option under the Stock
Option Plan and
Executive Incentive Plan
1999 $12.63 5.6% 2.3% 5.0 years 23.0%
1998 10.72 4.7 2.4 5.0 22.3
1997 11.98 5.6 2.4 5.0 22.5
=====================================================================================
NOTE 9. RETIREMENT AND PENSION PLANS
The company provides retirement plans for a majority of its employees who meet
specific length of service requirements. Effective January 1, 2000, the
company's Profit Sharing Retirement Plan was renamed the Dow Jones 401(k)
Savings Plan. Also, the plan, which was based on a combination of compensation
and consolidated net income, was modified to be based on a fixed percentage of
compensation and to allow an employer matching opportunity. The contribution
for each employee is limited to the amount deductible for income tax purposes.
The annual cost of the plan is funded currently.
Substantially all employees who are not covered by the above plans are covered
by noncontributory defined benefit pension plans. These plans are not material
in respect to charges to operations.
Total retirement and pension plan expenses amounted to $47,484,000, $55,607,000
and $60,082,000 in 1999, 1998 and 1997, respectively. Excluding Telerate,
total retirement and pension plan expenses were $48,645,000 in 1998 and
$43,815,000 in 1997.
NOTE 10. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
For a majority of its full-time employees, the company sponsors a defined
benefit postretirement medical plan which provides lifetime health care
benefits to retirees who meet specified length of service and age requirements,
and their eligible dependents. The plan is unfunded. The company sponsors no
additional postretirement benefit plans other than its retirement plans (see
Note 9).
Dow Jones 1999 Annual Report, page 48
The following sets forth the plan's status reconciled with amounts reported in
the company's consolidated balance sheets at December 31.
==============================================================================
(in thousands) 1999 1998
- ------------------------------------------------------------------------------
Benefit obligation at January 1 $151,525 $133,487
Service cost 7,055 8,267
Interest cost 9,631 9,293
Plan participant contributions 609 566
Special termination benefit 7,309
Plan amendments 3,144
Actuarial (gain) loss (13,724) 5,477
Curtailment gain (11,800)
Benefits paid (6,014) (3,881)
- ------------------------------------------------------------------------------
Benefit obligation at December 31 149,082 151,862
Unrecognized prior service cost (6,049) (6,302)
Unrecognized net actuarial gain (loss) 11,043 (2,765)
- ------------------------------------------------------------------------------
Accrued postretirement benefit
liability at December 31 $154,076 $142,795
==============================================================================
The special termination benefit resulted in 1998 from acceleration of service
cost for employees who elected to retire under the company's voluntary
separation incentive program. A curtailment gain was also recognized in 1998
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) 1999 1998 1997
- -------------------------------------------------------------------------------
Service cost $ 7,055 $ 8,267 $ 7,889
Interest cost 9,631 9,293 8,728
Special termination benefit 5,183
Curtailment gain (5,600)
- -------------------------------------------------------------------------------
Net periodic postretirement benefit cost $16,686 $17,143 $16,617
===============================================================================
An 8.25% annual rate of increase in the per capita costs of covered health care
benefits was assumed for 2000, gradually decreasing to 5.25% 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, 1999 by $23.8 million and
increase the aggregate of the service cost and interest cost components of net
periodic postretirement benefit cost for 1999 by $3.3 million. Conversely, a
one percentage point decline in the assumed health care cost trend rates would
lower the benefit obligation at the end of 1999 by $19.9 million and reduce the
aggregate of the service and interest cost by $2.6 million. A discount rate
of 7.75% was used to determine the accumulated postretirement benefit
obligation as of December 31, 1999.
At December 31, 1998, the company's accumulated postretirement benefit
obligation was calculated using a discount rate of 6.75% and a health care cost
trend rate of 9% for 1999 decreasing to 4.5% by the year 2006.
NOTE 11. COMMITMENTS AND CONTINGENCIES
Commitments for capital expenditures amounted to $44,578,000 at December 31,
1999.
Noncancelable leases require minimum rental payments through 2012 totaling
$281,424,000. Payments required for the years 2000 through 2004 are as
follows:
===============================================================================
(in thousands) 2000 2001 2002 2003 2004
- -------------------------------------------------------------------------------
$54,122 $50,691 $42,927 $36,842 $31,170
===============================================================================
These leases are principally for office space and equipment and contain renewal
and escalation clauses. Total rental expense amounted to $70,114,000 in 1999,
$89,391,000 in 1998 and $120,011,000 in 1997. Excluding Telerate, total rental
expense was $76,320,000 in 1998 and $85,755,000 in 1997.
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
Dow Jones 1999 Annual Report, page 49
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.
NOTE 12. PER SHARE AMOUNTS
Basic earnings (loss) per share were $3.01 in 1999, $0.09 in 1998 and $(8.36)
in 1997. The per share amounts have been computed on the basis of the
weighted-average number of shares outstanding (90,450,000 shares in 1999,
95,180,000 shares in 1998, and 95,993,000 shares in 1997).
Diluted earnings (loss) per share have been computed as follows:
===============================================================================
(in thousands except
per share amounts) 1999 1998 (2) 1997 (3)
- -------------------------------------------------------------------------------
Net income (loss) $272,429 $8,362 $(802,132)
Weighted-average shares
outstanding - basic 90,450 95,180 95,993
Stock options 559 961
Other, principally contingent
stock rights 142 263
------ ------ ------
Weighted-average shares
outstanding - diluted (1) 91,151 96,404 95,993
Diluted earnings (loss) per share $2.99 $.09 $(8.36)
===============================================================================
(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 prices
were greater than the average market price for 1998 and to include such
securities would be antidilutive.
(3) Options and contingent stock rights outstanding at December 31, 1997, as
shown in Note 8 to the financial statements, 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.
NOTE 13. RECLASSIFICATIONS
Certain amounts for prior years have been reclassified for comparative
purposes.
NOTE 14. SUMMARY OF QUARTERLY FINANCIAL DATA (UNAUDITED)
The summary of unaudited 1999 and 1998 quarterly financial data shown on page
53 of this report is incorporated herein by reference.
NOTE 15. PENDING TRANSACTIONS
On December 27, 1999, the company signed a letter of intent to sell Dow Jones
Financial Publishing Corp., its subsidiary, which publishes: Investment
Advisor, Asset Management, Property and Realty Stock Review. The gain on sale
of approximately $.10 per diluted share will be recorded at the time of
closing, which occurred on January 14, 2000.
In June 1999, the company entered into an agreement to swap a 49% interest in
The Wall Street Journal Europe for a 22% interest in Handelsblatt, Germany's
leading business newspaper. As part of the agreement, Dow Jones will
contribute its indirect holdings in the Czech business publisher Economia and
the German financial news agency VWD. Dow Jones' interest in Economia will
drop to 12% from 23.5% and in VWD to 17% from 33.3%. The new alignment is
effective January 1, 2000.
NOTE 16. BUSINESS SEGMENTS
Print publishing includes the operations of The Wall Street Journal and its
international editions, Barron's and other periodicals, as well as U.S.
television operations. Electronic publishing includes the operations of Dow
Jones Newswires, Dow Jones Indexes, WSJ.com, dowjones.com and Dow Jones
Interactive and other. Ottaway Newspapers, the community newspapers segment,
publishes 19 daily newspapers and 15 weekly newspapers in communities
throughout the U.S.
Dow Jones 1999 Annual Report, page 50
The company's operations by business segment and geographic area were as
follows:
Financial Data by Business Segment
==================================================================================
(in thousands) 1999 1998 1997
- ----------------------------------------------------------------------------------
REVENUES (1)
Print publishing $1,320,797 $1,161,939 $1,143,395
Electronic publishing (2) (5) 349,998 393,178 363,232
Community newspapers 331,040 317,087 300,611
---------- ---------- ----------
Segment revenues 2,001,835 1,872,204 1,807,238
Divested/joint ventured operations:
Print and television operations (3) 21,091
Telerate 285,902 744,189
---------- ---------- ----------
Consolidated revenues $2,001,835 $2,158,106 $2,572,518
- ----------------------------------------------------------------------------------
INCOME (LOSS) BEFORE TAXES
AND MINORITY INTERESTS
Print publishing $ 307,037 $ 173,582 $ 247,191
Electronic publishing (5) 35,110 56,060 61,089
Community newspapers 84,959 44,760 50,584
Corporate (37,565) (22,602) (18,189)
---------- ---------- ----------
Segment operating income (4) 389,541 251,800 340,675
Divested/joint ventured operations:
Print and television operations (18,239)
Telerate (33,227) (1,064,410)
---------- ---------- ----------
Consolidated operating income (loss) 389,541 218,573 (741,974)
Equity in losses of associated companies (27,907) (21,653) (49,311)
Gain (loss) on sale of businesses and
investments 51,945 (126,085) 52,595
Other income (deductions), net 4,467 823 (25,194)
---------- ---------- ----------
Income (loss) before taxes and
minority interests $ 418,046 $ 71,658 $ (763,884)
- ----------------------------------------------------------------------------------
==================================================================================
(in thousands) 1999 1998 1997
- ----------------------------------------------------------------------------------
EBITDA (6)
Print publishing $ 372,354 $ 272,005 $ 303,837
Electronic publishing (5) 58,372 88,409 101,285
Community newspapers 102,804 78,644 67,138
Corporate (37,565) (22,602) (18,189)
---------- ---------- ----------
Segment EBITDA 495,965 416,456 454,071
Divested/joint ventured operations:
Print and television operations (15,484)
Telerate 20,671 71,436
---------- ---------- ----------
Consolidated EBITDA $ 495,965 $ 437,127 $ 510,023
- ----------------------------------------------------------------------------------
DEPRECIATION AND AMORTIZATION EXPENSE
Print publishing $ 62,562 $ 48,509 $ 51,934
Electronic publishing 23,262 22,488 23,147
Community newspapers 17,845 17,544 16,554
---------- --------- ----------
Segment depreciation/
amortization expense 103,669 88,541 91,635
Divested/joint ventured operations:
Print and television operations 2,755
Telerate 53,898 156,344
---------- --------- ----------
Consolidated depreciation/
amortization expense $ 103,669 $ 142,439 $ 250,734
- ----------------------------------------------------------------------------------
ASSETS AT DECEMBER 31 (7)
Print publishing $ 813,623 $ 667,422 $ 571,527
Electronic publishing 201,225 195,575 156,859
Community newspapers 203,637 213,884 222,609
---------- ---------- ----------
Segment assets 1,218,485 1,076,881 950,995
Cash and investments 312,074 407,141 218,824
Divested/joint ventured operations 749,915
---------- ---------- ----------
Consolidated assets $1,530,559 $1,484,022 $1,919,734
- ----------------------------------------------------------------------------------
Dow Jones 1999 Annual Report, page 51
Financial Data by Business Segment (Continued)
<CAPTIONS>
==================================================================================
(in thousands) 1999 1998 1997
- ----------------------------------------------------------------------------------
CAPITAL EXPENDITURES
Print publishing $ 161,414 $ 120,699 $ 78,342
Electronic publishing 21,243 38,719 39,235
Community newspapers 8,082 11,075 12,625
---------- ---------- ----------
Segment capital expenditures 190,739 170,493 130,202
Divested/joint ventured operations 55,341 217,595
---------- ---------- ----------
Consolidated capital expenditures $ 190,739 $ 225,834 $ 347,797
==================================================================================
Financial Data by Geographic Area
=================================================================================
(in thousands) 1999 1998 1997
- ---------------------------------------------------------------------------------
REVENUES (8)
United States $1,840,716 $1,795,755 $1,879,865
International 161,119 362,351 692,653
---------- ---------- ----------
Consolidated revenues $2,001,835 $2,158,106 $2,572,518
- ---------------------------------------------------------------------------------
PLANT AND PROPERTY, NET OF
ACCUMULATED DEPRECIATION
United States $ 661,113 $ 587,700 $ 672,110
International 15,299 14,417 111,927
---------- ---------- ----------
Consolidated plant and
property, net $ 676,412 $ 602,117 $ 784,037
=================================================================================
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
in December 1997; Dow Jones Investor Network, a multimedia product which was
discontinued in January 1997; American Demographics, Inc. (sold in March 1997);
and IDD Enterprises' print publishing unit (sold in November 1997).
(4)Included within segment operating income were restructuring charges as
follows:
(in thousands) 1999 1998 1997
Print publishing $2,755 $49,914 $ 4,712
Electronic publishing 9,861 17,049
Community newspapers 16,340
------ ------ ------
Total restructuring $2,755 $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.
(5)The company's share of Factiva's results is included in Equity in Losses in
Associated Companies in the consolidated financial statements. Prior to July
1, 1999, results of the interactive business were included in the company's
electronic publishing revenue, expenses and operating income. Had 50% of
Factiva's results been included, electronic publishing 1999 revenue would have
been $403.7 million, up 2.7% from 1998; operating income would have been $30.4
million, down 46%; EBITDA would have been $54.7 million and the EBITDA margin
would have been 13.5%.
Excluding restructuring charges, but including the company's 50% share of
Factiva, segment operating income was as follows:
(in thousands) 1999 1998 1997
Print publishing $309,792 $223,496 $251,903
Electronic publishing * 30,438 65,921 78,138
Community newspapers 84,959 61,100 50,584
Corporate (37,565) (22,602) (18,189)
-------- -------- --------
$387,624 $327,915 $362,436
* Includes one-time index licensing fees, net of expenses, of $26.5 million in
1997.
(6)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.
(7)Net assets, computed as total assets net of current liabilities, by segment
are shown below:
(in thousands) 1999 1998 1997
Print publishing $354,713 $257,086 $202,848
Electronic publishing 138,687 124,859 92,498
Community newspapers 166,926 177,537 189,052
-------- -------- --------
Segment net assets * $660,326 $559,482 $484,398
EBITDA return on net assets (RONA):
Print publishing 105.0% 105.8% 149.8%
Electronic publishing 42.1 70.8 109.5
Community newspapers 61.6 44.3 35.5
All segments 75.1% 74.4% 93.7%
* Segment level net assets exclude corporate net assets and net assets related
to divested/joint ventured operations.
(8)Revenues excluding Telerate were the following:
(in thousands) 1999 1998 1997
United States $1,840,716 $1,704,875 $1,654,891
International 161,119 167,329 173,438
--------- --------- ---------
Total revenues, excluding Telerate $2,001,835 $1,872,204 $1,828,329
Dow Jones 1999 Annual Report, page 52
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, 1999 and 1998, was
determined primarily by reference to dealer markets and market prices.
===============================================================================
(in thousands) Fair Value Carrying Value
- -------------------------------------------------------------------------------
1999
Other investments $217,172 $174,727
Long-term debt 148,875 149,945
- -------------------------------------------------------------------------------
1998
Other investments $275,858 $223,785
Long-term debt 151,673 149,889
===============================================================================
The increase in fair value over the 1999 carrying value primarily reflects the
appreciation on the company's investment in OptiMark Technologies Inc. based on
the market price of first quarter 1999 sales.
Included in other investments at December 31, 1999 and 1998 was $150 million of
5 year, convertible, 4% Bridge preferred stock. The company has determined
using transactions of similar companies that at December 31, 1999, the carrying
value approximated fair value. The company has accrued the dividend as
earned. The dividend is not payable until certain events occur, but no later
than 2003. In addition, the company holds a note receivable from Bridge,
bringing the company's total investment to $162.3 million.
Other investments also included marketable equity securities, namely shares in
Nation Multimedia Group Public Co., Ltd, a media company in Thailand, which is
carried at its fair value in both 1999 and 1998 and United States Satellite
Broadcasting, Inc. (USSB) in 1998. At the end of 1999, the fair value of
Nation Multimedia Group was $6.4 million, reflecting a gross unrealized loss of
$.9 million. At December 31, 1998, the fair value of these investments was
$63.8 million, representing a gross unrealized gain of $38.8 million on the
USSB investment (sold for a pre-tax gain of $57.6 million in 1999) and gross
unrealized loss of $3.1 million on the investment of Nation Multimedia Group.
At December 31, 1999, the company held 1.8 million shares of Savvis
Communications Corp. (Savvis), with a carrying value (and considered the fair
value) of $900,000. Savvis, a provider of Internet backbone and high-speed
access, completed an Initial Public Offering in February 2000. The closing
price for Savvis stock was $20 on February 29, 2000. The shares may not be
sold by Dow Jones (other than pursuant to one or more private placements) for
180 days following the Savvis public offering. Bridge is a majority owner of
Savvis and its largest customer.
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.
Dow Jones 1999 Annual Report, page 53
SUMMARY OF QUARTERLY FINANCIAL DATA
(UNAUDITED)
Dow Jones & Company
===============================================================================
(in thousands except Quarters Ended
per share amounts) March 31 June 30 Sept. 30 Dec. 31 Year
- -------------------------------------------------------------------------------
1999
Consolidated: (1)
Revenues $462,082 $510,571 $469,795 $559,387 $2,001,835
Operating income 72,814 104,812 84,143 127,772 389,541
Net income 51,522 57,212 102,801 60,894 272,429
Per Share:
Basic .56 .63 1.14 .68 3.01
Diluted * .56 .62 1.13 .67 2.99
- -------------------------------------------------------------------------------
1998
Consolidated: (2)
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
===============================================================================
(1) In 1999, the company recorded a net gain of $51.6 million on the sale of
businesses and investments. The first quarter included a net gain of $10.6
million on the sale of a portion of the company's minority interest in OptiMark
Technologies, Inc. and the third quarter included a net gain of $57.3 million
on the sale of United States Satellite Broadcasting, Inc. The fourth quarter
included a net loss of $16.3 million on the sale of IDD Enterprises L.P.
(2) The company recorded a net 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 41 of this annual report.
* The sum of quarterly earnings per share does not equal earnings per share for
the year due to rounding.
Market and Dividend Information
The company's common stock is listed on the New York Stock Exchange. The class
B common stock is not traded. The approximate number of stockholders of record
as of January 31, 2000 was 11,313 for common stock and 4,195 for class B common
stock. The company paid $.96 per share in dividends in 1999 and in 1998.
==============================================================================
Market Price 1999 Market Price 1998
Quarters ----------------- Dividends ----------------- Dividends
Ended High Low Paid 1999 High Low Paid 1998
- ------------------------------------------------------------------------------
March 31 $49 1/2 $43 5/8 $.24 $56 3/16 $48 3/4 $.24
June 30 56 3/8 46 5/16 .24 56 45 7/8 .24
September 30 55 49 5/16 .24 59 46 1/2 .24
December 31 71 3/8 53 1/16 .24 50 5/16 41 9/16 .24
==============================================================================
Dow Jones 1999 Annual Report, page 54
FIVE-YEAR FINANCIAL SUMMARY
Dow Jones & Company, Inc.
=========================================================================================================================
(dollars in thousands,
except per share amounts) 1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------------
REVENUES:
Advertising $1,225,405 $1,031,210 $1,011,864 $ 896,981 $ 771,779
Information services 326,882 670,441 1,101,696 1,125,625 1,092,002
Circulation and other 449,548 456,455 458,958 458,986 419,980
- -------------------------------------------------------------------------------------------------------------------------
Total revenues 2,001,835 2,158,106 2,572,518 2,481,592 2,283,761
- -------------------------------------------------------------------------------------------------------------------------
EXPENSES:
News, operations and development 520,515 677,381 899,868 820,564 748,945
Selling, administrative and
general 712,765 762,803 895,707 831,270 764,161
Newsprint 150,899 163,146 152,478 164,766 157,047
Second class postage and carrier
delivery 121,691 117,649 114,442 110,256 103,497
Depreciation and amortization 103,669 142,439 250,734 217,756 206,070
Restructuring 2,755 76,115 1,001,263
- -------------------------------------------------------------------------------------------------------------------------
Operating expenses 1,612,294 1,939,533 3,314,492 2,144,612 1,979,720
- -------------------------------------------------------------------------------------------------------------------------
Operating income (loss) 389,541 218,573 (741,974) 336,980 304,041
OTHER INCOME (DEDUCTIONS):
Investment income 9,861 12,266 3,473 4,249 5,379
Interest expense (5,269) (7,193) (19,367) (18,755) (18,345)
Equity in losses of associated
companies (27,907) (22,253) (49,311) (5,408) 14,193
Gain (loss) on disposition of
businesses and investments 51,945 (126,085) 52,595 14,315 13,557
Other, net (125) (3,650) (9,300) (121) 4,075
- -------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes
and minority interests 418,046 71,658 (763,884) 331,260 322,900
Income taxes 145,501 63,083 37,796 147,728 139,878
- -------------------------------------------------------------------------------------------------------------------------
Income (loss) before minority
interests 272,545 8,575 (801,680) 183,532 183,022
Minority interests in (earnings)
losses of subsidiaries (116) (213) (452) 6,437 6,550
- -------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ 272,429 $ 8,362 $ (802,132) $ 189,969 $ 189,572
=========================================================================================================================
PER SHARE:
Net income (loss):
Basic $ 3.01 $ .09 $ (8.36) $ 1.96 $ 1.96
Diluted $ 2.99 $ .09 $ (8.36) $ 1.95 $ 1.94
Dividends $ .96 $ .96 $ .96 $ .96 $ .92
Weighted-average shares outstanding:
Basic 90,450,000 95,180,000 95,993,000 96,703,000 96,907,000
Diluted 91,151,000 96,404,000 95,993,000 97,371,000 97,675,000
- ------------------------------------------------------------------------------------------------------------------------
OTHER DATA
Long-term debt, including current portion,
as a percent of total capital 21.3% 22.7% 23.1% 17.0% 13.9%
Operating income (loss), as
a percent of revenue 19.5% 10.1% (28.8%) 13.6% 13.3%
Newsprint consumption
(metric tons) 300,000 278,000 270,000 252,000 224,000
Number of full-time employees
at year-end 8,175 8,253 12,309 11,844 11,232
Cash from operations $ 297,027 $ 307,072 $ 459,495 $ 405,157 $ 371,887
Capital expenditures 190,739 225,834 347,797 232,178 218,765
Cash dividends 87,151 91,662 92,116 92,969 89,131
Total assets 1,530,559 1,484,022 1,919,734 2,759,631 2,598,700
Long-term debt,
including current portion 149,945 149,889 234,124 337,618 259,253
Stockholders' equity 553,490 509,340 780,822 1,643,993 1,601,751
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