PAGE 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1994 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____________ to _____________ Commission file number 1-7564 DOW JONES & COMPANY, INC. (Exact name of registrant as specified in its charter) DELAWARE 13-5034940 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 200 LIBERTY STREET, NEW YORK, NEW YORK (Address of principal executive offices) 10281 (Zip Code) (212) 416-2000 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- The number of shares outstanding of each of the issuer's classes of common stock on September 30, 1994: 75,904,605 shares of Common Stock and 22,100,177 shares of Class B Common Stock. PAGE 2 PART I. FINANCIAL INFORMATION ITEM 1. Financial Statements CONDENSED CONSOLIDATED STATEMENTS OF INCOME Dow Jones & Company, Inc. Quarter Ended Nine Months Ended September 30 September 30 ========================================================================================== (in thousands except per share amounts) 1994 1993 1994 1993 - ------------------------------------------------------------------------------------------ REVENUES: Information services $246,611 $214,980 $ 716,243 $ 638,520 Advertising 157,316 160,578 518,845 506,428 Circulation and other 97,097 93,126 289,301 274,214 - ------------------------------------------------------------------------------------------ Total revenues 501,024 468,684 1,524,389 1,419,162 - ------------------------------------------------------------------------------------------ EXPENSES: News, operations and development 160,606 142,880 461,735 421,775 Selling, administrative and general 170,968 159,861 509,513 486,874 Newsprint 25,929 26,151 76,115 79,590 Second class postage and carrier delivery 23,204 23,292 71,544 71,345 Depreciation and amortization 50,716 48,577 150,858 144,681 - ------------------------------------------------------------------------------------------ Operating expenses 431,423 400,761 1,269,765 1,204,265 - ------------------------------------------------------------------------------------------ Operating income 69,601 67,923 254,624 214,897 OTHER INCOME (DEDUCTIONS): Investment income 1,102 1,093 3,493 3,741 Interest expense (4,040) (5,696) (12,263) (17,342) Equity in (losses) earnings of associated companies (1,016) 1,295 (7,167) 1,219 Other, net (1,022) (2,294) (2,605) (4,619) - ------------------------------------------------------------------------------------------ Income before income taxes 64,625 62,321 236,082 197,896 Income taxes 30,879 32,671 113,134 97,493 - ------------------------------------------------------------------------------------------ Income before cumulative effect of accounting change 33,746 29,650 122,948 100,403 Cumulative effect of accounting change (3,007) - ------------------------------------------------------------------------------------------ NET INCOME $ 33,746 $ 29,650 $ 119,941 $ 100,403 ========================================================================================== PER SHARE: Income before cumulative effect of accounting change $.34 $.30 $1.23 $1.01 Cumulative effect of accounting change (.03) Net income .34 .30 1.20 1.01 Cash dividends declared .63 .60 ========================================================================================== Weighted average shares outstanding 99,019 99,333 99,615 99,808 ========================================================================================== See notes to condensed consolidated financial statements. PAGE 3 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Dow Jones & Company, Inc. Nine Months Ended September 30 ========================================================================== (in thousands) 1994 1993 - -------------------------------------------------------------------------- OPERATING ACTIVITIES: Net income $119,941 $100,403 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 150,858 144,681 Cumulative effect of accounting change 3,007 (Gain) loss on sale of investments (3,097) 1,212 Equity in losses (earnings) of associated companies, net of distributions 8,896 3,476 Changes in assets and liabilities: Accounts receivable-trade and unearned revenue 6,375 (10,769) Inventory, other current assets and accounts payable and accrued liabilities 12,625 157 Federal and state income taxes (4,162) (6,511) Other, net 3,032 143 - -------------------------------------------------------------------------- Net cash provided by operating activities 297,475 232,792 - -------------------------------------------------------------------------- INVESTING ACTIVITIES: Additions to plant and property (152,581) (116,583) Disposition of plant and property 14,495 3,071 Businesses and investments sold, net of cash given 5,201 1,100 Businesses and investments acquired, net of cash received (40,883) (20,153) Return of capital by investees 1,750 1,859 Investee loans (2,603) (50) - -------------------------------------------------------------------------- Net cash used in investing activities (174,621) (130,756) - -------------------------------------------------------------------------- FINANCING ACTIVITIES: Cash dividends (62,877) (59,923) Increase in long-term debt 100,391 47,278 Reduction of long-term debt (100,000) (52,875) Purchase of treasury stock (76,631) (48,312) Proceeds from sales under stock purchase plans 16,494 9,574 - -------------------------------------------------------------------------- Net cash used in financing activities (122,623) (104,258) - -------------------------------------------------------------------------- EFFECT OF EXCHANGE RATE CHANGES ON CASH (2,174) (33) - -------------------------------------------------------------------------- DECREASE IN CASH AND CASH EQUIVALENTS (1,943) (2,255) Cash and cash equivalents at beginning of year 5,652 16,416 - -------------------------------------------------------------------------- Cash and cash equivalents at September 30 $ 3,709 $ 14,161 ========================================================================== See notes to condensed consolidated financial statements. PAGE 4 CONDENSED CONSOLIDATED BALANCE SHEETS Dow Jones & Company, Inc. September 30 December 31 ============================================================================ (in thousands) 1994 1993 - ---------------------------------------------------------------------------- ASSETS: Cash and cash equivalents $ 3,709 $ 5,652 Accounts receivable-trade, net 200,780 192,855 Newsprint inventory 9,195 7,576 Other current assets 61,707 62,378 - ---------------------------------------------------------------------------- Total current assets 275,391 268,461 - ---------------------------------------------------------------------------- Investments in associated companies, at equity 86,367 70,653 Other investments 73,170 55,009 Plant and property, at cost 1,805,333 1,675,753 Less, Allowance for depreciation 1,189,868 1,081,286 - ---------------------------------------------------------------------------- 615,465 594,467 Excess of cost over net assets of businesses acquired, less amortization 1,317,066 1,347,757 Other assets 21,501 13,192 - ---------------------------------------------------------------------------- Total assets $2,388,960 $2,349,539 ============================================================================ LIABILITIES: Accounts payable and accrued liabilities $ 225,848 $ 204,561 Federal and state income taxes 51,817 56,739 Unearned revenue 218,716 204,220 Current maturities of long-term debt 5,318 5,318 - ---------------------------------------------------------------------------- Total current liabilities 501,699 470,838 Long-term debt 261,563 261,073 Other noncurrent liabilities 134,996 124,798 - ---------------------------------------------------------------------------- Total liabilities 898,258 856,709 - ---------------------------------------------------------------------------- STOCKHOLDERS' EQUITY: Common stocks 102,181 102,181 Additional paid-in capital 133,939 135,109 Retained earnings 1,366,597 1,309,533 - ---------------------------------------------------------------------------- 1,602,717 1,546,823 Less, Treasury stock, at cost 112,015 53,993 - ---------------------------------------------------------------------------- Total stockholders' equity 1,490,702 1,492,830 - ---------------------------------------------------------------------------- Total liabilities and stockholders' equity $2,388,960 $2,349,539 ============================================================================ See notes to condensed consolidated financial statements. PAGE 5 NOTES TO FINANCIAL STATEMENTS Dow Jones & Company, Inc. 1. The accompanying unaudited condensed consolidated financial statements reflect all adjustments considered necessary by management to present fairly the Company's consolidated financial position as of September 30, 1994, and December 31, 1993, and the consolidated results of operations for the three- month and nine-month periods ended September 30, 1994 and 1993, and the consolidated cash flows for the nine-month periods then ended. All adjustments reflected in the accompanying unaudited condensed consolidated financial statements are of a normal recurring nature. The results of operations for the respective interim periods are not necessarily indicative of the results to be expected for the full year. 2. Statement of Financial Accounting Standards No. 112, "Employers' Accounting for Postemployment Benefits," was adopted by the Company as of January 1, 1994. The cumulative effect from this change in accounting principle was a charge against earnings of $3,007,000. 3. Supplementary cash flow data: Nine Months Ended September 30 ============================================================================ (in thousands) 1994 1993 - ---------------------------------------------------------------------------- Interest payments $ 12,559 $ 16,355 Income tax payments 127,823 111,368 ============================================================================ 4. Certain of the 1993 amounts have been reclassified for comparative purposes. PAGE 6 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. FOR THE THIRD QUARTERS AND NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993 Third-quarter 1994 net income of $33.7 million, or $.34 per share, was up $4 million, or 13.8%, from third-quarter 1993 net income of $29.7 million, or $.30 per share. Third-quarter 1993 results included a year-to- date charge of approximately two cents per share reflecting the increase to 35% from 34% in the corporate federal income tax rate. The 35% rate, enacted in August a year ago as part of the Omnibus Budget Reconciliation Act of 1993, was retroactive to January 1, 1993. Excluding the income tax catch-up applicable to the first half of 1993, third-quarter 1994 net income would have increased $2.2 million, or 6.9%. This improvement was due to operating income gains at the information services and community newspapers segments and lower interest expense. These gains were partially offset by downturns in both business publications segment operating income and equity earnings from associated companies. Net income in 1994's first nine months of $119.9 million, or $1.20 per share, increased $19.5 million, or 19.5%, from $100.4 million, or $1.01 per share, in the like 1993 period. Earnings in the first nine months of 1994 included the cumulative effect of the adoption of Statement of Financial Accounting Standards No. 112, "Employers' Accounting for Postemployment Benefits," which reduced net income $3 million, or three cents per share. Excluding the cumulative effect of this accounting change, net income of $122.9 million would have been $22.5 million, or 22.5%, better than earnings in the first nine months of 1993. PAGE 7 SEGMENT DATA The following table compares revenues and operating income by business segment for the third quarters and nine months ended September 30, 1994 and 1993: Quarters Ended September 30 =========================================================================== % Increase (in thousands) 1994 1993 (Decrease) - --------------------------------------------------------------------------- Revenues: Information services $246,611 $214,980 14.7 Business publications 190,494 192,199 (0.9) Community newspapers 63,919 61,505 3.9 - --------------------------------------------------------------------------- Operating Income: Information services $ 49,570 $ 40,596 22.1 Business publications 14,630 23,386 (37.4) Community newspapers 9,206 8,252 11.6 =========================================================================== Nine Months Ended September 30 =========================================================================== Revenues: Information services $716,243 $638,520 12.2 Business publications 623,348 600,937 3.7 Community newspapers 184,798 179,705 2.8 - --------------------------------------------------------------------------- Operating Income: Information services $147,533 $114,203 29.2 Business publications 96,347 93,084 3.5 Community newspapers 24,829 21,119 17.6 =========================================================================== OPERATING INCOME Third-quarter 1994 operating income of $69.6 million was up $1.7 million, or 2.5%, from the like 1993 period as an operating income gain at the information services segment were nearly offset by the decline at the business publications segment. The operating margin declined to 13.9% from 14.5% in the third quarter of 1993; revenues grew 6.9%, but operating expenses increased 7.7%. The information services segment, which includes the Company's Dow Jones/Telerate and Business Information Services groups, posted robust operating income growth of $9 million, or 22.1%. Its operating margin increased to 20.1% from 18.9% in the comparable period a year ago. Third- quarter 1994 operating income benefited marginally from fluctuations in foreign currency exchange rates, primarily in the Asia/Pacific region. Excluding this benefit, information services segment operating income would have increased $7.8 million, or 19.2%. PAGE 8 Dow Jones/Telerate group third-quarter operating income was up 23.4% over the like 1993 period as revenues grew 14.1%, largely on the strength of volume gains. Expenses were up 12%, partially due to increased expenditures for product development, payments to information providers and depreciation. Operating income at the Business Information Services group advanced 10.8% on revenue growth of 20.2%. Expenses increased 22.4%, again reflecting increased product development costs and higher payments to information providers. Business publications segment operating income fell $8.8 million, or 37.4%, in 1994's third quarter. The operating margin dropped to 7.7% from 12.2% in the comparable quarter in 1993. Revenues were down $1.7 million, or 0.9%, as Wall Street Journal ad linage slid 9.3%. Operating expenses rose $7.1 million, or 4.2%. The business publications segment contains the Company's world-wide initiatives into television and multimedia, including its recently announced European Business News partnership through which the Company, together with an affiliate of Tele-Communications Inc., is scheduled to launch a European business news channel in the first quarter of 1995. Excluding television operations, business publications operating income would have decreased 27.4% in 1994's third quarter. Community newspapers operating income for the quarter was up $1 million, or 11.6%. The operating margin for the segment was 14.4% in the third quarter of 1994, up from 13.4% in 1993's third quarter. Revenues increased $2.4 million, or 3.9%, and operating expenses were up $1.5 million, or 2.7%. Consolidated operating income of $254.6 million for the first nine months of 1994 increased $39.7 million, or 18.5%. Contributing more than four-fifths of this increase, information services segment operating income was up $33.3 million, or 29.2%. Excluding the benefit from foreign currency exchange rate movements, primarily in the Asia/Pacific region, nine-month operating income for the information services segment would have grown $29.6 million, or 25.9%. Operating income for the business publications segment rose $3.3 million, or 3.5%, in 1994's first nine months. Excluding television operations, operating income at the business publications segment would have increased $7.7 million, or 7.9%. Community newspapers operating income grew $3.7 million, or 17.6%. REVENUES Revenues increased $32.3 million, or 6.9%, in the third quarter. Through nine months, revenues were up $105.2 million, or 7.4%. Information services revenues advanced $31.6 million, or 14.7%, in the third quarter and $77.7 million, or 12.2%, in the first nine months of 1994. Revenues at Dow Jones/Telerate increased 14.1% in 1994's third quarter. World-wide volume gains, from both increases in the number of terminals and enhanced and expanded services, continued to account for more than four- fifths of this increase. Revenue from Dow Jones/Telerate's foreign PAGE 9 operations grew 15.9% in the third quarter, while domestic revenue increased 11.6%. Dow Jones/Telerate's third-quarter revenues from foreign operations benefited from fluctuations in foreign currency exchange rates. Excluding this effect, revenues from Dow Jones/Telerate's foreign operations would have increased 12.4%. Revenues from Dow Jones/Telerate were up 11.8% for the nine months ended September 30. Foreign revenues increased 12.6%, or 11.4% excluding the benefit from currency exchange rate movements, and domestic revenues were up 10.8%. Business Information Services group revenues increased 20.2% in the third quarter and 15.4% in the first nine months of 1994. Business publications revenues were down 0.9% in the third quarter of 1994 as advertising revenue declined 4.6%. Wall Street Journal advertising linage fell 9.3%. For the first nine months, business publications segment revenues increased 3.7%. Advertising revenue was up 2.2%, with Journal advertising linage down 3.3%, or 3.8% on a per-issue basis. The third quarter downturn in Journal linage was largely due to an erosion of financial advertising. Financial linage, which increased 8.7% in 1994's first quarter and was down 6.3% in the second quarter, declined 24.4% in the third quarter, reflecting a tougher prior year comparison and the continued uncertain outlook in the financial markets. Through September 30, 1994, financial linage was down 7.2%. General advertising linage was down 1.3% in the third quarter and 3% in the first nine months of 1994. Circulation revenue for this segment was up 5.3% in the third quarter and 6.2% in the first nine months. Journal average circulation for the first nine months of 1994 was 1,801,000, down 1.6% from the like 1993 average. Barron's national advertising pages advanced 1.6% in the third quarter and 5.9% in the first nine months. Barron's nine-month average circulation of approximately 284,000 was up 6.3% compared with the nine-month 1993 average. Advertising revenue from overseas publications increased 5.8% in the third quarter and 19.4% in the first nine months. Combined average circulation for the Asian and European Journals of 105,000 increased about 4.4% from the first nine months of 1993. Revenues at the community newspapers segment increased 3.9% in the third quarter and 2.8% in the first nine months of 1994. Advertising revenue increased 5% in 1994's third quarter and 3.3% in the first nine months. Advertising linage was up 1.1% in the third quarter and 0.3% through nine months. Circulation revenue rose 0.8% in the third quarter and 2% in the first nine months. Average circulation at Ottaway's 20 daily newspapers for the nine months ended September 30, 1994, was up 0.1% compared with the like year-earlier period. PAGE 10 OPERATING EXPENSES Operating expenses increased $30.7 million, or 7.7%, in the three months ended September 30, 1994, and $65.5 million, or 5.4%, in the first nine months of 1994. Operating expenses for the third quarter and the first nine months at the information services segment were up $22.7 million, or 13%, and $44.4 million, or 8.5%, respectively. Increases in contributed data costs, product development expenses and depreciation were largely responsible for the rise in expenses. Information services segment operating expenses were negatively affected in 1994's third quarter by movements in foreign currency exchange rates, particularly in the Europe/Gulf region. Excluding the impact of foreign currency exchange rate fluctuations, third-quarter information services segment operating expenses would have increased 11.4%. Foreign currency rate changes had essentially no effect on operating expenses for the first nine months of 1994. At September 30, 1994, the number of full-time employees for the information services segment was up 1.4% from year-end 1993. Fourth-quarter 1994 growth in information services expenses will likely mirror the third-quarter increase as this segment continues to invest in product development. Business publications expenses increased $7.1 million, or 4.2%, in the third quarter and $19.1 million, or 3.8%, in the first nine months of 1994. Higher selling and operations costs were responsible for most of the increase. Newsprint expense was down 0.9% in 1994's third quarter. In the first nine months, newsprint expense decreased 3.7%. Newsprint expense comparisons should worsen in the fourth quarter as discounts given by suppliers are expected to be significantly lower than those in effect in 1993's fourth quarter. Included within the business publications segment are the Company's television broadcasting activities. Television initiatives increased segment expenses $4.8 million in the first nine months of 1994 compared with the like period a year ago. Excluding television related expenses, business publications segment operating expenses increased $14.4 million, or 2.9%, compared with the first nine months of 1993. These expenses are expected to continue to grow in the fourth quarter and beyond as the Company pursues an increased presence in world-wide business TV broadcasting. Expenses at Ottaway Newspapers, the Company's community newspapers segment, were up 2.7% in the quarter and only 0.9% in the nine months ended September 30, 1994. Newsprint expense was down 0.7% in the third quarter and 6.7% for the first nine months of 1994, helping to defray increases in marketing costs and depreciation. At September 30, 1994, the Company employed 10,113 full-time employees compared with 9,980 a year ago and 10,006 at year-end 1993. PAGE 11 OTHER INCOME/DEDUCTIONS Interest expense decreased $1.7 million, or 29.1%, in the third quarter and $5.1 million, or 29.3%, in 1994's first nine months. The reduction in interest expense was largely the result of a lower average debt level. Long-term debt outstanding, excluding current maturities, at September 30, 1994, was $261.6 million compared with $329.3 million a year earlier. Equity in losses of associated companies for 1994's third quarter was $1 million compared with earnings of $1.3 million in the like period a year ago. Similarly, in 1994's first nine months, equity in losses of associated companies was $7.2 million versus earnings of $1.2 million in the like 1993 period. The first nine months of 1994 included losses, which are expected to continue, for several new equity ventures. These holdings include the Company's interest in Asia Business News, a business and financial news television channel broadcasting in Asia, and BIZ, a monthly magazine aimed at chief executives and owners of the country's fastest- growing small businesses. Also, the Company's newsprint mill affiliates posted equity losses of $0.5 million in the first three quarters of 1994 versus earnings of $2.5 million in the like 1993 period. INCOME TAXES The effective income tax rate for 1994's third quarter was 47.8% compared with 52.4% a year earlier. Excluding the income tax catch-up applicable to the first half, the third-quarter 1993 effective tax rate was 49.4%. The effective income tax rate for 1994's first nine months was 47.9% versus 49.3% a year ago. The lower effective rate in 1994 was mainly due to the lesser impact of nondeductible goodwill amortization on higher pretax 1994 earnings. FINANCIAL POSITION The working capital ratio, excluding unearned revenue, was 1 to 1 at both September 30, 1994, and December 31, 1993. During 1994's first nine months, funds provided by operations increased to $297.5 million from $232.8 million for the comparable 1993 period. The growth in cash from operations was partly due to the increase in earnings. Cash flow also was enhanced by changes in working capital in the first nine months of 1994 relative to the like 1993 period. In the first nine months of 1994, primarily using cash from operations, the Company paid cash dividends of $62.9 million, incurred capital expenditures of $152.6 million, made investments totaling $40.9 million and purchased 2,383,000 shares of its common stock for $76.6 million. Long-term debt remained essentially flat with December 31, 1993's level. The Company's Board of Directors has authorized further purchases of three million shares of the Company's common stock. These additional shares may be acquired as market and other conditions warrant. PAGE 12 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits filed: Financial Data Schedule (Exhibit 27) (b) Reports on Form 8-K: No reports on Form 8-K were filed during the quarter for which this report is filed. PAGE 13 SIGNATURE --------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. DOW JONES & COMPANY, INC. ------------------------- (Registrant) Date: November 10, 1994 By Thomas G. Hetzel ---------------- Comptroller (Chief Accounting Officer)