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 June 30, 1995 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____________ to _____________ Commission file number 1-7564 DOW JONES & COMPANY, INC. (Exact name of registrant as specified in its charter) DELAWARE 13-5034940 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 200 LIBERTY STREET, NEW YORK, NEW YORK 10281 (Address of principal executive offices) (Zip Code) (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 June 30, 1995: 74,966,507 shares of Common Stock and 21,958,713 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. Quarters Ended Six Months Ended June 30 June 30 ========================================================================================== (in thousands except per share amounts) 1995 1994 1995 1994 ------------------------------------------------------------------------------------------ REVENUES: Information services $273,317 $239,726 $ 536,364 $ 469,632 Advertising 198,295 186,856 380,416 361,529 Circulation and other 105,431 97,571 205,621 192,204 ------------------------------------------------------------------------------------------ Total revenues 577,043 524,153 1,122,401 1,023,365 ------------------------------------------------------------------------------------------ EXPENSES: News, operations and development 186,589 155,519 359,073 301,129 Selling, administrative and general 188,300 170,660 376,409 338,545 Newsprint 38,944 26,541 72,273 50,186 Second class postage and carrier delivery 25,787 24,443 51,397 48,340 Depreciation and amortization 53,598 50,717 105,068 100,142 ------------------------------------------------------------------------------------------ Operating expenses 493,218 427,880 964,220 838,342 ------------------------------------------------------------------------------------------ Operating income 83,825 96,273 158,181 185,023 OTHER INCOME (DEDUCTIONS): Investment income 1,330 1,256 2,560 2,391 Interest expense (4,717) (3,890) (9,352) (8,223) Equity in earnings (losses) of associated companies 3,783 (3,319) 5,191 (6,151) Other, net 452 (2,583) 13,362 (1,583) ------------------------------------------------------------------------------------------ Income before income taxes 84,673 87,737 169,942 171,457 Income taxes 37,060 41,717 77,082 82,255 ------------------------------------------------------------------------------------------ Income before minority interests 47,613 46,020 92,860 89,202 Minority interests (1,705) (2,889) ------------------------------------------------------------------------------------------ Income before cumulative effect of accounting change 49,318 46,020 95,749 89,202 Cumulative effect of accounting change (3,007) ------------------------------------------------------------------------------------------ NET INCOME $ 49,318 $ 46,020 $ 95,749 $ 86,195 ========================================================================================== PER SHARE: Income before cumulative effect of accounting change $.51 $.46 $.99 $.89 Cumulative effect of accounting change (.03) Net income .51 .46 .99 .86 Cash dividends declared .46 .42 .69 .63 ========================================================================================== Weighted average shares outstanding 96,800 100,015 96,736 99,973 ========================================================================================== See notes to condensed consolidated financial statements. PAGE 3 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Dow Jones & Company, Inc. Six Months Ended June 30 =========================================================================== (in thousands) 1995 1994 --------------------------------------------------------------------------- OPERATING ACTIVITIES: Net income $ 95,749 $ 86,195 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 105,068 100,142 Changes in assets and liabilities (36,222) (18,639) Other, net (11,712) 9,114 --------------------------------------------------------------------------- Net cash provided by operating activities 152,883 176,812 --------------------------------------------------------------------------- INVESTING ACTIVITIES: Additions to plant and property (99,738) (85,127) Businesses and investments acquired, net of cash received (53,277) (38,427) Disposition of businesses and investments 22,032 5,185 Other, net 6,927 2,509 --------------------------------------------------------------------------- Net cash used in investing activities (124,056) (115,860 --------------------------------------------------------------------------- FINANCING ACTIVITIES: Cash dividends (44,483) (42,021) Increase in long-term debt 23,189 89,810 Reduction of long-term debt (15,463) (100,000) Other, net 13,694 (5,769) --------------------------------------------------------------------------- Net cash used in financing activities (23,063) (57,980) --------------------------------------------------------------------------- EFFECT OF EXCHANGE RATE CHANGES ON CASH (1,064) (1,544) --------------------------------------------------------------------------- INCREASE IN CASH AND CASH EQUIVALENTS 4,700 1,428 Cash and cash equivalents at beginning of year 10,888 5,652 --------------------------------------------------------------------------- Cash and cash equivalents at June 30 $ 15,588 $ 7,080 =========================================================================== See notes to condensed consolidated financial statements. PAGE 4 CONDENSED CONSOLIDATED BALANCE SHEETS Dow Jones & Company, Inc. June 30 December 31 =========================================================================== (in thousands) 1995 1994 --------------------------------------------------------------------------- ASSETS: Cash and cash equivalents $ 15,588 $ 10,888 Accounts receivable--trade, net 239,328 229,687 Inventories 7,595 10,454 Other current assets 63,115 59,101 --------------------------------------------------------------------------- Total current assets 325,626 310,130 --------------------------------------------------------------------------- Investments in associated companies, at equity 99,403 90,231 Other investments 75,608 72,835 Plant and property, at cost 1,949,851 1,858,769 Less, Allowance for depreciation 1,301,739 1,216,680 --------------------------------------------------------------------------- 648,112 642,089 Excess of cost over net assets of businesses acquired, less amortization 1,328,277 1,304,953 Other assets 32,387 25,528 --------------------------------------------------------------------------- Total assets $2,509,413 $2,445,766 =========================================================================== LIABILITIES: Accounts payable and accrued liabilities $ 239,893 $ 237,406 Income taxes 41,260 68,694 Unearned revenue 242,454 219,880 Current maturities of long-term debt 5,318 5,318 --------------------------------------------------------------------------- Total current liabilities 528,925 531,298 Long-term debt 303,278 295,552 Other noncurrent liabilities 157,459 137,305 --------------------------------------------------------------------------- Total liabilities 989,662 964,155 --------------------------------------------------------------------------- STOCKHOLDERS' EQUITY: Common stocks 102,181 102,181 Additional paid-in capital 133,978 134,017 Retained earnings 1,433,319 1,404,346 Cumulative translation adjustment (5,796) (6,219) --------------------------------------------------------------------------- 1,663,682 1,634,325 Less, Treasury stock, at cost 143,931 152,714 --------------------------------------------------------------------------- Total stockholders' equity 1,519,751 1,481,611 --------------------------------------------------------------------------- Total liabilities and stockholders' equity $2,509,413 $2,445,766 =========================================================================== 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 June 30, 1995, and December 31, 1994, and the consolidated results of operations for the three- month and six-month periods ended June 30, 1995 and 1994, and the consolidated cash flows for the six-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. The first quarter of 1995 included a net gain of one cent per share, consisting of a gain of six cents per share from the sale of 80% of the Company's interest in SportsTicker, a sports information service, and a charge of five cents per share for the recognition of a loss on an operating lease. 3. The Company made the following acquisitions for cash in the first quarter of 1995: on January 20, the Company bought the business of Charter Financial Publishing Corp., publisher of Investment Advisor and Fee Advisor magazines and the Realty Stock Review newsletter; on February 27, the Company acquired majority ownership of IDD Enterprises, L.P., a diversified publishing, database, software and consulting company; and on March 15, the Company's Ottaway Newspapers subsidiary completed its purchase of Salem News Publishing Co., which publishes the Salem (MA) Evening News. 4. 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. 5. Supplementary cash flow data: Six Months Ended June 30 =========================================================================== (in thousands) 1995 1994 --------------------------------------------------------------------------- Interest payments $ 10,026 $11,328 Income tax payments 104,593 97,758 ============================================================================ 6. Certain of the 1994 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 SECOND QUARTER AND SIX MONTHS ENDED JUNE 30, 1995 AND 1994 Second-quarter 1995 net income was $49.3 million, or $.51 per share, an increase of $3.3 million, or 7.2%, from second-quarter 1994 net income of $46 million, or $.46 per share. Per-share earnings increased at the greater rate of 10.9% as shares outstanding declined due to share repurchases in 1994's second half. The increase in earnings was partially due to lower income tax expense. The effective income tax rate in the second quarter of 1995 dropped to 43.8% from 47.5% in the like 1994 period as a result of the successful settlement of some state and local tax issues. Operating income increased at the financial information services segment. However, the business publishing segment posted a decline in operating income due to European Business News, the Company's television channel launched February 27 of this year, and substantial increases in newsprint prices. The higher newsprint prices were partially offset by improved earnings at the Company's newsprint mill affiliates. For the first half of 1995 net income of $95.7 million, or $.99 per share, improved $9.6 million, or 11.1%, from the $86.2 million, or $.86 per share, earned in the first half of 1994. Earnings per share grew 15.1%. This year's first half included a net gain of one cent per share, consisting of a gain of $5.8 million, or six cents per share, from the sale of 80% of the Company's interest in SportsTicker, a sports information service, and a charge of $5 million, or five cents per share, for the recognition of a loss on the sublease of office space. Last year's first half included a charge of $3 million, or three cents per share, for an accounting change. Excluding these nonrecurring items from both periods, first-half 1995 net income of $95 million would have been 6.5% better than earnings of $89.2 million in the first half a year ago largely due to the reasons given above for the gain in second-quarter earnings. Operating income of $83.8 million for the second quarter of 1995 decreased $12.5 million, or 12.9%, from the like 1994 period due to the decline at the business publishing segment. The operating margin dropped to 14.5% from 18.4%. For the first half of 1995 operating income of $158.2 million, including an $8.4 million pretax write-down on a sublease, fell $26.8 million, or 14.5%, compared with the first half of 1994. The operating margin was 14.1%, down from 18.1% in 1994. Revenues in the second quarter of 1995 of $577 million were up $52.9 million, or 10.1%. Information services revenue grew $33.6 million, or 14%, to $273.3 million. Advertising revenue of $198.3 million increased $11.4 million, or 6.1%, with advertising linage at The Wall Street Journal and Ottaway Newspapers up 2.9% and 2.7%, respectively. Circulation and other revenue grew $7.9 million, or 8.1%. Through six months, revenues were up $99 million, or 9.7%, to $1.1 billion. Foreign operations comprised 30% of total revenue in 1995's first half versus 28% in the like 1994 period. PAGE 7 Operating expenses in the second quarter of 1995 were $493.2 million, up $65.3 million, or 15.3%. News, operations and development expenses rose $31.1 million, or 20%. Additional spending on product development and new initiatives accounted for about 40% of the increase. Selling, general and administrative expenses increased $17.6 million, or 10.3%. Newsprint expense climbed $12.4 million, or 46.7%, with the cost per ton up over 40% and consumption up slightly. Second class postage and carrier delivery expenses, which absorbed a 12.5% postal rate increase in early 1995, were up $1.3 million, or 5.5%. Depreciation and amortization expenses increased $2.9 million, or 5.7%. In the first six months of 1995 operating expenses increased $125.9 million, or 15%, to $964.2 million. News, operations and development costs were up $57.9 million, or 19.2%, with about 40% of this increase attributable to research and development and product enhancements. Such spending is expected to remain high for the balance of 1995. Selling, administrative and general expenses, which included an $8.4 million write- down for an operating lease, increased $37.9 million, or 11.2%. Newsprint expense rose $22.1 million, or 44%. Costs for newsprint for the remainder of the year are expected to continue to be substantially higher than in 1994. At June 30, 1995, the Company employed 10,973 full-time employees, up 6.9% from 10,265 at year-end 1994, primarily due to businesses acquired in 1995's first quarter, expanding television activities and higher staff levels in product development. SEGMENT DATA The Company realigned its business operations in 1995 into the following three segments: financial information services, business publishing and community newspapers. Financial information services includes Dow Jones Telerate and Dow Jones' financial news services, such as Dow Jones News Service, the AP-Dow Jones news wires and Federal Filings. This segment primarily serves the world-wide financial services industry - including traders and brokers - with real-time business and financial news, quotes, trading systems and analytical tools. Financial information services comprises about 42% of the Company's revenue. Business publishing contains the Company's Print Publications group, its Business Information Services group and its Television and Multimedia group. Business publishing, which serves the business consumer marketplace, accounts for roughly 46% of the Company's revenue. The community newspapers segment consists of the Company's Ottaway Newspapers, Inc. subsidiary, which publishes 21 daily newspapers in communities throughout the United States. The community newspapers segment accounts for about 12% of the Company's revenue. PAGE 8 The following table compares revenues and operating income by business segment for the quarters and six months ended June 30, 1995 and 1994: Quarters Ended June 30 ============================================================================ % Increase (in thousands) 1995 1994 (Decrease) ---------------------------------------------------------------------------- Revenues: Financial information services $240,199 $215,923 11.2 Business publishing 265,474 243,134 9.2 Community newspapers 71,370 65,096 9.6 ---------------------------------------------------------------------------- Operating Income: Financial information services $ 48,789 $ 46,542 4.8 Business publishing 29,239 43,489 (32.8) Community newspapers 10,851 11,197 (3.1) ============================================================================ Six Months Ended June 30 ============================================================================ Revenues: Financial information services $473,334 $422,991 11.9 Business publishing 518,207 479,495 8.1 Community newspapers 130,860 120,879 8.3 ---------------------------------------------------------------------------- Operating Income: Financial information services $ 97,930 $ 90,336 8.4 Business publishing 54,512 89,344 (39.0) Community newspapers 15,604 15,623 (0.1) ============================================================================ FINANCIAL INFORMATION SERVICES For the second quarter of 1995, the financial information services segment reported operating income of $48.8 million, an increase of $2.2 million, or 4.8%, from the comparable 1994 quarter. The operating margin decreased to 20.3% from 21.6%. Excluding a benefit from fluctuations in foreign currency exchange rates, primarily in the Asia/Pacific region, operating income of $46.8 million would have increased only slightly from the $46.5 million earned in the comparable period in 1994. Financial information services revenue rose $24.3 million, or 11.2%, to $240.2 million. Domestic revenues were up only 4.6% in part due to retrenchments in the financial services community. Revenues from foreign operations grew 15.9%, or 9.6% excluding the benefit from changes in foreign currency exchange rates. World-wide volume gains, resulting from both increases in the number of terminals and enhanced and expanded services, caused over three-quarters of the revenue increase, excluding the foreign exchange benefit. Revenue growth was especially strong for the Digital Page Feed product and for exclusive third-party information. PAGE 9 Operating expenses for the financial information services segment of $191.4 million were up $22 million, or 13%, in the second quarter of 1995, in part reflecting increases in research and development, royalties to information providers and selling expenses. Dow Jones Telerate continues to invest in expanded information, network enhancements and product improvements, including the flexible Telerate Workstation which was introduced in January 1995. Excluding the effect of foreign currency exchange rate fluctuations, operating expenses would have increased $16 million, or 9.5%. Financial information services operating income for the first half of 1995 of $97.9 million increased $7.6 million, or 8.4%, from the $90.3 million earned in the like period last year. Revenues grew $50.3 million, or 11.9%, while operating expenses were up $42.7 million, or 12.9%. If the effect of foreign currency rate fluctuations were excluded, operating income would have increased $3.7 million, or 4.1%. Revenues would have risen $36.3 million, or 8.6%, while operating expenses would have been up $32.6 million, or 9.8%. The number of full-time employees in the financial information services segment at June 30, 1995, was up 5.3% from year-end 1994. BUSINESS PUBLISHING Operating income at the business publishing segment for the second- quarter 1995 of $29.2 million declined $14.3 million, or 32.8%, from 1994's second quarter. The operating margin dropped to 11% from 17.9%. Higher newsprint prices and expenses related to the new television channel, European Business News, sharply reduced operating income. Revenues grew $22.3 million, or 9.2%, to $265.5 million, but operating expenses climbed $36.6 million, or 18.3%, to $236.2 million. Advertising revenue from Print Publications increased 4.8%, with advertising linage for The Wall Street Journal up 2.9%. Linage in the general advertising category, which comprised about 60% of total Wall Street Journal linage for the quarter, grew 6.7%. Financial linage was off 3.7%. Barron's national advertising pages, which are largely dependent on financial advertising, were down 13.4%. Advertising revenue for the overseas Print Publications grew 18.8%. Circulation revenue for the business publishing segment was up 6.9%. Business Information Services group revenue grew 48.2%, chiefly due to volume gains and the inclusion of IDD Enterprises, L.P. (IDD), a majority-owned subsidiary of Dow Jones acquired in early 1995. Business publishing operating expenses of $236.2 million rose $36.6 million, or 18.3%, in 1995's second quarter. Print Publications expenses increased 10.4%, primarily due to newsprint expense, which increased 47% as a result of steep price hikes and a slight rise in consumption. Also within the business publishing segment are expenses for the Company's world-wide television and multimedia initiatives, including European Business News, which rose $7 million. Operating expenses for the Business Information Services group increased 55.9% primarily due to the inclusion of IDD, product development expenses and royalties to information providers. PAGE 10 Business publishing operating income for the first half of 1995 declined $34.8 million, or 39%, to $54.5 million. Excluding the write-down of an operating lease which was charged against the segment in the first quarter of 1995, operating income would have been down $26.4 million, or 29.6%. The downturn was primarily attributable to sharply higher newsprint expense and spending for the European Business News television channel. Six-month segment revenue increased $38.7 million, or 8.1%, to $518.2 million versus the comparable period in 1994. Advertising revenue increased 4.1% with advertising linage at The Wall Street Journal up 2.3%. Barron's national advertising pages fell 17.1%. Circulation revenue was up 6.2% due to rate increases. Average circulation for the domestic Journal in the first half of 1995 was 1,797,000, down 1.3% from 1994's first half. However, average combined circulation for the Asian and European Journals increased about 6% to 111,000. Barron's average circulation was down 3.2% from the first half of 1994. Business publishing operating expenses for the first half of 1995 were up $73.5 million, or 18.9%. This increase was primarily attributable to higher newsprint prices, expanded spending on television and multimedia, the initial inclusion of IDD Enterprises expenses and the $8.4 million write- down of an operating lease. The number of full-time employees at this segment increased 10.8% from 1994's year end, mainly due to staffing for the European Business News channel and acquisitions. COMMUNITY NEWSPAPERS Second-quarter 1995 operating income at the community newspapers segment of $10.9 million decreased $0.3 million, or 3.1%, compared with the like 1994 quarter. Community newspapers revenue of $71.4 million increased $6.3 million, or 9.6%. Advertising revenue grew 9.7% largely due to rate increases and the inclusion of the Salem Evening News, which was acquired in March 1995. Advertising linage was up 2.7%. Circulation revenue for this segment was up 8.5% from the year-ago quarter. Expenses at community newspapers grew $6.6 million, or 12.3%, in 1995's second quarter primarily due to higher newsprint expense and inclusion of the Salem Evening News. Community newspapers operating income for the first half of 1995 was flat with the like period in 1994. Revenues and operating expenses each grew by $10 million, representing an increase of 8.3% in revenues and 9.5% in operating expenses. OTHER INCOME / DEDUCTIONS Interest expense in 1995's second quarter increased $0.8 million, or 21.3%, from the second-quarter 1994. For the first half of 1995, interest expense rose $1.1 million, or 13.7%. Long-term debt outstanding, excluding current maturities, at June 30, 1995, was $303.3 million compared with $295.6 million at year-end 1994 and $251 million at June 30, 1994. The debt-to-equity ratio at June 30 1995, was 20% compared to 16.6% a year earlier and 19.9% at December 31, 1994. PAGE 11 Equity in earnings of associated companies was $3.8 million compared with losses of $3.3 million in the year-ago quarter. The turnaround was attributable to the Company's newsprint mill affiliates which benefitted from the increases in newsprint prices. In the first half of 1995 equity earnings were $5.2 million compared with losses of $6.2 million for the like period in 1994. Six-month earnings from the mills totaled $10.4 million versus losses of $1.5 million in 1994's first half. Increased earnings from the newsprint mills have helped to mitigate the effect of higher newsprint prices. Other, net for the first half of 1995 of $13.4 million included the pretax gain from the sale of 80% of the Company's interest in SportsTicker, a sports information service. INCOME TAXES The effective income tax rate for the second quarter of 1995 declined to 43.8% from 47.5% in the second quarter a year ago. For the first half, the effective income tax rate was 45.4% versus 48% in the comparable period in 1994. The decrease in the effective tax rate in 1995 was primarily due to the successful settlement of some state and local tax issues. FINANCIAL POSITION The working capital ratio, excluding unearned revenue, was 1.1 to 1 at June 30, 1995, and 1 to 1 at December 31, 1994. During 1995's first half funds provided by operations of $152.9 million were down from $176.8 million in the like 1994 period. The reduction was primarily the result of the fall-off in operating income. During the first half of 1995, using funds provided by operations, the Company paid cash dividends of $44.5 million and made capital expenditures of $99.7 million. Investments totaled $53.3 million and included acquisition of the business of Charter Financial Publishing Corp., Salem News Publishing Co. and a majority ownership of IDD. Cash and cash equivalents totaled $15.6 million at June 30, 1995, an increase of $4.7 million from December 31, 1994. In August the Company announced that it had entered into a 50/50 partnership with ITT Corporation and that the partnership had agreed to acquire WNYC-TV from New York City for $207 million in cash. The purchase, subject to approval by the Federal Communications Commission, is expected to be finalized in early 1996. The partners plan to provide a mix of business and sports programming. The Company's share of this investment is expected to be funded through commercial paper borrowings. 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: August 10, 1995 By Thomas G. Hetzel ---------------------- Comptroller (Chief Accounting Officer)