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, 1996
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 registrant's classes of
common stock on September 30, 1996: 74,949,555 shares of Common Stock and
21,684,039 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 Nine Months Ended
September 30 September 30
==========================================================================================
(in thousands except
per share amounts) 1996 1995 1996 1995
- ------------------------------------------------------------------------------------------
REVENUES:
Information services $276,822 $272,934 $ 833,380 $ 809,298
Advertising 202,900 171,971 634,694 552,387
Circulation and other 115,149 104,365 342,268 309,986
- ------------------------------------------------------------------------------------------
Total revenues 594,871 549,270 1,810,342 1,671,671
- ------------------------------------------------------------------------------------------
EXPENSES:
News, operations and development 205,879 188,435 603,313 547,508
Selling, administrative and general 208,706 189,431 613,298 565,840
Newsprint 36,573 38,252 127,358 110,525
Second class postage and carrier delivery 26,746 24,737 80,715 76,134
Depreciation and amortization 54,695 53,025 162,342 158,093
- ------------------------------------------------------------------------------------------
Operating expenses 532,599 493,880 1,587,026 1,458,100
- ------------------------------------------------------------------------------------------
Operating income 62,272 55,390 223,316 213,571
OTHER INCOME (DEDUCTIONS):
Investment income 976 1,261 3,075 3,821
Interest expense (5,206) (4,628) (12,683) (13,980)
Equity in (losses) earnings of
associated companies (3,310) 4,365 1,450 9,556
Other, net 14,966 1,820 13,806 15,182
- ------------------------------------------------------------------------------------------
Income before income taxes and
minority interests 69,698 58,208 228,964 228,150
Income taxes 30,536 26,110 103,729 103,192
- ------------------------------------------------------------------------------------------
Income before minority interests 39,162 32,098 125,235 124,958
Minority interests in losses of subsidiaries 1,514 1,744 5,091 4,633
- ------------------------------------------------------------------------------------------
NET INCOME $ 40,676 $ 33,842 $ 130,326 $ 129,591
==========================================================================================
PER SHARE:
Net income $.42 $.35 $1.34 $1.34
Cash dividends declared .72 .69
==========================================================================================
Weighted average shares outstanding 96,725 97,021 97,054 96,831
==========================================================================================
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) 1996 1995
- ---------------------------------------------------------------------------
OPERATING ACTIVITIES:
Net income $130,326 $ 129,591
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 162,342 158,093
Changes in assets and liabilities (1,635) (12,823)
Other, net (4,734) (13,326)
- ---------------------------------------------------------------------------
Net cash provided by operating activities 286,299 261,535
- ---------------------------------------------------------------------------
INVESTING ACTIVITIES:
Additions to plant and property (168,482) (158,423)
Businesses and investments acquired,
net of cash received (134,154) (70,112)
Disposition of businesses and investments 23,855 22,049
Other, net 10,894 3,406
- ---------------------------------------------------------------------------
Net cash used in investing activities (267,887) (203,080)
- ---------------------------------------------------------------------------
FINANCING ACTIVITIES:
Cash dividends (69,970) (66,803)
Increase in long-term debt 137,608 23,189
Reduction of long-term debt (65,811) (39,838)
Purchase of treasury stock (48,186)
Other, net 26,012 19,641
- ---------------------------------------------------------------------------
Net cash used in financing activities (20,347) (63,811)
- ---------------------------------------------------------------------------
Effect of exchange rate changes on cash (662) (777)
- ---------------------------------------------------------------------------
Decrease in cash and cash equivalents (2,597) (6,133)
Cash and cash equivalents at beginning of year 13,667 10,888
- ---------------------------------------------------------------------------
Cash and cash equivalents at September 30 $ 11,070 $ 4,755
===========================================================================
See notes to condensed consolidated financial statements.
PAGE 4
CONDENSED CONSOLIDATED
BALANCE SHEETS
Dow Jones & Company, Inc.
September 30 December 31
===========================================================================
(in thousands) 1996 1995
- ---------------------------------------------------------------------------
ASSETS:
Cash and cash equivalents $ 11,070 $ 13,667
Accounts receivable--trade, net 285,114 272,601
Inventories 12,372 12,752
Other current assets 70,782 72,235
- ---------------------------------------------------------------------------
Total current assets 379,338 371,255
- ---------------------------------------------------------------------------
Investments in associated companies,
at equity 214,987 122,587
Other investments 163,203 71,777
Plant and property, at cost 2,171,516 2,049,566
Less, accumulated depreciation 1,455,256 1,359,585
- ---------------------------------------------------------------------------
716,260 689,981
Excess of cost over net assets of
businesses acquired, less amortization 1,283,373 1,308,623
Deferred income taxes 11,786
Other assets 21,200 22,691
- ---------------------------------------------------------------------------
Total assets $2,778,361 $2,598,700
===========================================================================
LIABILITIES:
Accounts payable and accrued liabilities $ 277,896 $ 274,112
Income taxes 52,297 67,940
Unearned revenue 239,592 234,168
Current maturities of long-term debt 5,318 5,318
- ---------------------------------------------------------------------------
Total current liabilities 575,103 581,538
Long-term debt 325,767 253,935
Deferred income taxes 15,170
Other noncurrent liabilities 179,875 161,476
- ---------------------------------------------------------------------------
Total liabilities 1,095,915 996,949
- ---------------------------------------------------------------------------
STOCKHOLDERS' EQUITY:
Common stocks 102,181 102,181
Additional paid-in capital 134,450 134,898
Retained earnings 1,565,143 1,504,787
Unrealized gain on investments 46,901
Cumulative translation adjustment (5,626) (5,586)
- ---------------------------------------------------------------------------
1,843,049 1,736,280
Less, treasury stock, at cost 160,603 134,529
- ---------------------------------------------------------------------------
Total stockholders' equity 1,682,446 1,601,751
- ---------------------------------------------------------------------------
Total liabilities and stockholders' equity $2,778,361 $2,598,700
===========================================================================
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, 1996, and
December 31, 1995, and the consolidated results of operations for the three-
month and nine-month periods ended September 30, 1996 and 1995, 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. The third quarter of 1996 included a gain of nine cents per share from
the sale of the company's minority interest in Press-Enterprise Company, a
newspaper publisher in Riverside, California.
3. On July 1, 1996, the company and ITT Corp. finalized the purchase of
WNYC-TV from the city of New York for $207 million. The station, renamed
WBIS+, will offer business and sports programming to the New York
metropolitan area.
4. The company holds a minority interest in United States Satellite
Broadcasting Company, Inc. (USSB), a provider of direct satellite television
programming. On placement of an initial public offering by USSB on February
1, 1996, the fair value of the company's investment in USSB became readily
determinable as defined in Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity Securities."
The resultant unrealized gain, net of deferred taxes, was recorded directly
to Stockholders' Equity. As of September 30, 1996, the market value of the
company's available-for-sale investments, principally USSB, was $108.9
million yielding a gross unrealized gain of $79 million.
5. Supplementary cash flow data:
Nine Months Ended September 30
===========================================================================
(in thousands) 1996 1995
- ---------------------------------------------------------------------------
Interest payments $ 9,354 $ 13,432
Income tax payments 121,908 121,672
===========================================================================
6. Certain of the 1995 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 QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
Net income for the third quarter of 1996 was $40.7 million, or $.42 per
share, an increase of 20.2% from the $33.8 million, or $.35 per share,
earned in 1995's third quarter. Included in this year's third quarter was a
gain of nine cents per share from the sale of the company's minority
interest in Press-Enterprise Company. Excluding this nonrecurring gain, net
income would have declined 5.8%, to $31.9 million, or $.33 per share. A
downturn in earnings at the financial information services segment, a fall-
off in equity income from newsprint mill affiliates and additional losses
from television more than offset strong earnings gains from the business
publishing and community newspapers segments.
The company expects earnings for 1996, including the Press-Enterprise
gain, to be down slightly compared with the $1.96 a share earned in 1995.
The downturns in financial information services segment operating earnings
and newsprint mill affiliate equity results coupled with wider television
losses are expected to continue at least through 1996's fourth quarter.
For the first nine months of 1996, net income of $130.3 million, or
$1.34 per share, was essentially flat with the $129.6 million, or $1.34 per
share, earned in the like period last year. Results in 1995 included a net
enhancement of one cent per share consisting of a six-cents-per-share gain
on the sale of a subsidiary and a five-cents-per-share loss on an operating
lease. Excluding nonrecurring items in both years, net income would have
fallen 5.7%.
Third-quarter 1996 operating income grew 12.4%, to $62.3 million,
buoyed by strong advertising revenue gains at The Wall Street Journal and
falling newsprint prices. The operating margin rose to 10.5% from 10.1%.
Revenues grew $45.6 million, or 8.3%, to $594.9 million with over two-thirds
of the rise stemming from higher advertising revenue. Ad revenue benefited
from a 17% advertising linage gain at The Wall Street Journal.
Operating expenses of $532.6 million rose $38.7 million, or 7.8%, from
the third quarter of last year. The increase was in part due to expanded
news content, additional selling efforts and continued investment in product
initiatives. The company employed roughly 11,700 full-time employees at
September 30, 1996, up 6.2% from a year earlier, reflecting the expansion of
the company's news, sales and development staffs. Newsprint expense fell
$1.7 million, or 4.4%, due to a drop in the average price per ton in excess
of 10%. Newsprint prices at the beginning of 1996's fourth quarter were
roughly 25% lower than prices at the like period last year.
Operating income of $223.3 million for the first nine months of 1996
was up $9.7 million, or 4.6%. Excluding a loss of $8.4 million on an
operating lease in 1995, operating income would have risen 0.6%. Strong
gains by the company's print publications were largely offset by a decline
in financial information services earnings. Revenues gained $138.7 million,
or 8.3%, to $1.8 billion. Operating expenses increased $128.9 million, or
8.8%, to $1.6 billion.
PAGE 7
SEGMENT DATA
The company's operations are divided 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 newswires and Federal Filings. This segment serves primarily the
worldwide financial services industry - including traders and brokers - with
real-time business and financial news, quotes, trading systems and
analytical tools.
Business publishing contains the company's Print Publications as well
as its Business Information Services and its Television and Multimedia
group. Business publishing serves companies, business consumers and private
investors by providing news and information in a wide variety of print and
electronic media. The community newspapers segment consists of the
company's Ottaway Newspapers Inc. subsidiary, which publishes 19 daily
newspapers in communities throughout the United States.
The following table compares revenues and operating income by business
segment for the quarters and nine months ended September 30, 1996 and 1995:
Quarters Ended September 30
============================================================================
% Increase
(in thousands) 1996 1995 (Decrease)
- ----------------------------------------------------------------------------
Revenues:
Financial information services $240,468 $239,093 0.6
Business publishing 281,712 241,283 16.8
Community newspapers 72,691 68,894 5.5
- ----------------------------------------------------------------------------
Operating Income:
Financial information services $ 32,551 $ 48,155 (32.4)
Business publishing 24,258 4,955 -
Community newspapers 11,390 7,225 57.6
============================================================================
Nine Months Ended September 30
============================================================================
Revenues:
Financial information services $726,446 $712,427 2.0
Business publishing 872,812 759,490 14.9
Community newspapers 211,084 199,754 5.7
- ----------------------------------------------------------------------------
Operating Income:
Financial information services $118,937 $146,085 (18.6)
Business publishing 92,826 59,467 56.1
Community newspapers 28,111 22,829 23.1
============================================================================
PAGE 8
FINANCIAL INFORMATION SERVICES
Financial information services segment third-quarter operating income
of $32.6 million fell $15.6 million, or 32.4%, from 1995's third quarter.
The operating margin dropped to 13.5% from 20.1%. Excluding the benefit
from fluctuations in foreign currency exchange rates, operating income would
have decreased $17.3 million, or 36%, from the third quarter of 1995.
Third-quarter revenue for this segment edged up $1.4 million, or 0.6%,
to $240.5 million. Domestic revenues declined 1.4% while revenues from
foreign operations grew 1.8%. Exclusive of the benefit from foreign
currency exchange rate fluctuations, revenue earned outside the U.S. was up
1.6%, with revenue growth in Europe partially offset by a decline in the
Asia/Pacific region, particularly in Japan. The slow growth of revenue in
this segment is in part due to strong competition, cost containment measures
by major customers and consolidations in the financial services industry.
During 1996 this segment lost market share relative to its primary
competitors.
Operating income at this segment is expected to continue to be
adversely affected as expense increases outpace slight revenue gains. The
company is in the process of conducting a comprehensive review of this
segment's overall strategy and market position. Management's goal is to
build on this segment's established strengths, while expanding its products
and services in order to increase its market share and revenues.
In the third quarter, financial information services operating expenses
increased $17 million, or 8.9%, to $207.9 million. Excluding the effect of
foreign exchange rate fluctuations, operating expenses would have risen
9.6%. The expense increase reflected enhanced news content, product
development and heightened sales efforts. At September 30, 1996, the number
of full-time employees in this segment was up 12.8% from a year earlier,
chiefly due to an expanded sales force and increased staff in product
development and news.
For the first nine months of 1996, financial information services
operating income of $118.9 million dropped $27.1 million, or 18.6%, from the
like period in 1995. Revenues rose $14 million, or 2%, while expenses
increased $41.2 million, or 7.3%. Excluding the effect of foreign currency
exchange fluctuations in 1996, operating income would have declined $33.9
million, or 23.2%, with revenues and operating expenses increasing 1.3% and
7.6%, respectively. The expense increase was largely due to expanded
operations, heightened sales efforts and higher development costs while
revenue growth was held back by the factors mentioned above for the quarter.
BUSINESS PUBLISHING
In the third quarter, which is traditionally this segment's weakest
revenue quarter reflecting the customary slowdown in advertising in the
summer months, the business publishing segment's operating income was $24.3
million, almost five times third-quarter earnings a year ago. The operating
margin rose to 8.6% from 2.1% in 1995. Revenues of $281.7 million advanced
$40.4 million, or 16.8%, while operating expenses increased $21.1 million,
or 8.9%.
PAGE 9
For the quarter, advertising revenue for the Print Publications group
advanced 22.2% as a result of a 17%, or 15.2% per-issue, linage gain at The
Wall Street Journal. General advertising linage, which comprised 54% of
total Journal linage, grew 14.3% largely due to a rise in corporate image
advertising. Financial advertising linage, which composed about 34% of
Journal linage, rose 26.8% primarily due to increased advertising by
investment and trading firms and a rise in security offerings. Classified
and other Journal linage was up 5.8%. Barron's national advertising pages
rose 33%, or 23.5% per issue, with one additional publishing day in this
year's quarter. Advertising revenue for international print publications,
which include the Asian and European Journals and the Far Eastern Economic
Review, climbed 18%. Circulation revenue for the Print Publications group
advanced 7.4%. Revenues in the Business Information Services group grew
8.3%.
Operating expenses for the business publishing segment increased $21.1
million, or 8.9%, in the third quarter of 1996. Print Publications group
expenses rose 7.1% partly due to an increase in selling and operations
costs. Business Information Services group expenses were up 15.8% primarily
as a result of additional spending on Internet products such as The Wall
Street Journal Interactive Edition and Barron's Online. Expenses for the
Television and Multimedia group rose $2.1 million.
Business publishing operating income for the first nine months of 1996
advanced $33.4 million, or 56.1%, to $92.8 million. Excluding a loss on an
operating lease in 1995, operating income would have risen 36.8%. Business
publishing revenues grew $113.3 million, or 14.9%, to $872.8 million.
Advertising revenue for the Print Publications group jumped 17.7% with Wall
Street Journal linage up 10.8%, or 10.3% per issue. Barron's national
advertising pages increased 25.8%, or 22.6% per issue. Circulation revenue
for the Print Publications group rose 7.2%. Average circulation for The
Wall Street Journal in the first nine months was 1.8 million, up about 1%
from last year. Average combined circulation for the Asian and European
Journals rose roughly 6%, to 117,000. Barron's average circulation grew
about 6%, to 298,000.
Business publishing operating expenses in the first nine months
increased $80 million, or 11.4%, to $780 million. The increase was
attributable to higher newsprint costs in the first half of 1996 and
additional spending on new product initiatives at Business Information
Services and Television. At September 30, 1996, the number of full-time
employees in the business publishing segment increased 5.2% from a year
earlier, mainly due to additional staffing in product development and news.
For the first nine months of 1996, the company's television operations,
including operating losses, less the noncontrolling partner's share of
losses in European Business News, and equity losses from partnerships in
Asia and the U.S., posted a pretax loss of $33.4 million compared with a
loss of $26 million in 1995.
PAGE 10
COMMUNITY NEWSPAPERS
The community newspapers segment's operating income of $11.4 million
increased $4.2 million, or 57.6%, compared with the third quarter of 1995.
Community newspapers revenue of $72.7 million grew $3.8 million, or 5.5%.
Advertising revenue was up 5.5%, despite a 2.3% decline in advertising
linage. Rate increases caused circulation revenue to increase 5.9% from the
year-ago quarter. Operating expenses in the third quarter were slightly
lower than the corresponding period last year largely due to a 13% drop in
newsprint expense.
Community newspapers operating income for the first nine months of 1996
grew $5.3 million, or 23.1%, compared with the like 1995 period. Revenues
were up $11.3 million, or 5.7%. Operating expenses increased $6 million, or
3.4%.
OTHER INCOME / DEDUCTIONS
Third-quarter interest expense of $5.2 million increased $0.6 million,
or 12.5%, from the prior-year quarter due to a higher debt level in 1996.
For the first nine months, interest expense was down $1.3 million, or 9.3%,
to $12.7 million. Long-term debt outstanding, including current maturities,
was $331.1 million at September 30, 1996 compared with $259.3 million at
December 31, 1995 and $284.2 million at September 30, 1995. The increased
debt level was due to the midyear acquisition of WNYC-TV.
In the third quarter, the company's share of losses from associated
companies was $3.3 million versus earnings of $4.4 million a year ago. The
negative swing was due to a fall-off in earnings at the company's newsprint
mill affiliates as well as additional losses from partnerships in television
and Teleres, a commercial real estate on-line service. In the first nine
months of 1996, equity earnings were $1.5 million against earnings of $9.6
million for the like period in 1995. Unfavorable comparisons for Teleres,
television and the newsprint mills were the main factors for the decline in
equity earnings. The company expects equity results from newsprint mill
affiliates to be down sharply from 1995's fourth quarter reflecting lower
newsprint prices. Also the company expects the start-up of WBIS+, its new
television station which is equally owned with ITT Corp., to negatively
impact earnings in the fourth quarter. WBIS+ is scheduled to begin its
business and sports programming to the New York metropolitan area in January
1997.
Other, net for the third quarter of 1996 increased $13.1 million from
the comparable period last year. The third quarter of 1996 included a
pretax gain of $14.3 million from the sale of the company's minority
interest in Press-Enterprise Company, a newspaper publisher in Riverside,
California. The first quarter last year benefited from a $13.4 million
pretax gain on the sale of 80% of the company's interest in SportsTicker.
PAGE 11
INCOME TAXES
The effective income tax rate for the third quarter of 1996 dipped to
43.8% from 44.9% in the third quarter a year ago. The effective tax rate in
1996 reflected the lesser impact of nondeductible goodwill amortization on
higher pretax earnings. The effective income tax rates for the first nine
months of 1996 and 1995 were both just over 45%.
FINANCIAL POSITION
In the first nine months of 1996, the company recorded an unrealized
gain on investments of $46.9 million, net of deferred taxes of $32.1
million, as a separate component of Stockholders' Equity. The recognition
of this unrealized gain was a result of the February 1, 1996 initial public
offering by United States Satellite Broadcasting Company, Inc. (USSB), which
made the fair value of the company's investment in USSB readily determinable
as defined in Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities."
The working capital ratio, excluding unearned revenue, was 1.1 to 1 at
September 30, 1996 and December 31, 1995. In the first nine months of 1996,
cash provided by operations was $286.3 million compared with $261.5 million
in the comparable 1995 period. In 1996 with cash from operations, the
company paid cash dividends of $70 million and funded capital expenditures
of $168.5 million. Investments of $134.2 million in equity ventures,
principally WNYC-TV, were largely funded by issuing commercial paper. The
company also repurchased 1.3 million shares of its common stock for $48.2
million. The company can repurchase an additional 3.3 million shares under
current Board authorizations. 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 12, 1996 By Thomas G. Hetzel
----------------------
Comptroller
(Chief Accounting Officer)