ITEM 1. Business.
Dow Jones & Company, Inc. (the company) is a communications and publishing company. Its operations are currently divided into three industry segments: information services, business publications and general interest community newspapers. Financial information about industry segments and geographic areas are incorporated by reference to Note 15 to Financial Statements on pages 42 and 43 of this report.
The company currently has approximately 10,000 full-time employees. The company's principal executive offices are located at 200 Liberty Street, New York, New York.
Information Services - - - -------------------- The information services segment of Dow Jones reflects the operations of the company's Dow Jones/Telerate group and the Business Information Services group. The Dow Jones/Telerate group primarily serves the financial services market world-wide and includes Dow Jones Telerate, Dow Jones News Service, Professional Investor Report, AP-Dow Jones News Service, Federal Filings and the Dow Jones Asian Equities Report. The Business Information Services group serves corporate, small business and individual investor needs largely through Dow Jones News/Retrieval. This group also includes DowVision, Voice Information Services, SportsTicker, Telco Alliance, and two radio networks.
Dow Jones Telerate is one of the largest suppliers of real-time market information and related services to financial professionals with offices or distributors in more than 80 countries world-wide. Almost two-thirds of Dow Jones Telerate's revenues are generated by its foreign operations. Telerate, Inc., which became a wholly-owned subsidiary of Dow Jones in 1990, started in 1969 as a provider of commercial paper quotations. The breadth and depth of Dow Jones Telerate are reflected in the mix of services presently offered. The foundation of the service rests on providing prices of U.S. Government securities, foreign exchange, international government bonds, global equities, energy, mortgage-backed securities and a variety of money market instruments. In addition, Dow Jones Telerate provides global news coverage of the world's financial markets and an array of services from outside information providers, ranging from informed commentary on Federal Reserve actions to analysis of the commodities markets.
Dow Jones Telerate also provides products and software to help users analyze its live market data. Its Matrix terminal employs the power of a personal computer to allow customers to build personalized, full-color, market-specific pages using Dow Jones Telerate data. In 1993 Matrix added expanded graphing and charting capabilities, as well as access to more historical and analytical information. Matrix has modules to analyze the fixed income and foreign exchange markets and sophisticated analytical tools, including a spreadsheet from Lotus Development Corporation that uses live Telerate data and contains built-in formulas customized to help traders
analyze financial markets.
Telerate Trading Room Systems (TTRS) provide even more advanced decision-support tools. Designed to serve the needs of large trading rooms, TTRS have networking capabilities which enable customers to link trading rooms world-wide. Running on powerful desktop workstations, TTRS consolidates several information, transaction and analytic services into a single terminal at a trader's desk. In 1993 new terminal software, based on Microsoft's Windows, was added to this product line.
The Treasury 500 product offers the widest coverage available of U.S. Government securities and provides value-added analytics in addition to the price information distributed through Dow Jones Telerate's long-standing exclusive agreement with Cantor Fitzgerald Securities Corp. One of Treasury 500's most important features is that it provides live bids and offers from an identified source that customers can actually trade on. It also has live two-sided market displays of best-bid and best-offer prices. In 1993 prices for U.S. Treasury odd-lot securities from Cantor Fitzgerald were added as was exclusive distribution of odd-lot prices from Fuji Securities.
In 1993 Dow Jones Telerate began exclusive distribution of real-time foreign exchange and money market prices from M. W. Marshall & Company and Exco International, two of the world's foremost foreign exchange brokers.
Dow Jones holds an equity stake in the Japanese consortium Minex Corp. and serves as exclusive world-wide sales and distribution agent outside of Japan for Minex's foreign exchange trading service. Minex's service, which provides for automated matching of trades, was launched in April 1993.
TeleTrac and Tactician products are continually enhanced to make them more powerful for customers. TeleTrac is a technical analysis tool favored by dealers in the foreign exchange and fixed income markets and is a leading technical analysis program in Europe and Asia. Tactician is a fundamental analysis product targeted at institutional traders in the Treasury markets and is particularly popular with traders of Japanese government bonds.
The Digital Page Feed product fills the needs of larger customers who prefer to receive Dow Jones Telerate's thousands of pages of data in the form of an electronic feed that can be incorporated into their own information systems.
Telerate International Quotations (TIQ) product line offers quotes and news on thousands of securities traded on stock, futures and options exchanges around the world. TIQ, when combined with Dow Jones Telerate's fixed income and foreign exchange information, gives customers comprehensive coverage of the world's major markets and reflects the markets' growing interaction. Two of TIQ's products, Access Plus and QuotElite, combine in one service all Dow Jones Telerate data, including information on equities, foreign exchange and U.S. Government issues.
In early 1993, Dow Jones Telerate introduced a new service, Dow Jones
Emerging Markets Report, which provides information on the emerging capital markets of developing countries, with particular emphasis on Latin America, by combining Dow Jones Telerate's live market prices with news from Dow Jones and the Associated Press, plus market commentary from Thomson Financial Services.
Other Dow Jones Telerate products and services currently in the marketplace include: the Telerate Access Service, a personal-computer software package that provides a link to Telerate's core information base through the public telephone network and includes access to Dow Jones News/ Retrieval; hand-held quotation devices that deliver current prices, rates and other data at the touch of a button; and data for mortgage markets.
Dow Jones News Service is the nation's preeminent supplier of business and financial news to subscribers at brokerage firms, banks, investment companies and other businesses. The News Service significantly increased its transmission speed in 1992, enabling it to carry more news and distribute it faster.
Professional Investor Report (PIR), a companion to the News Service, focuses on daily trading activity and news of interest to traders, arbitragers, hedge fund operators and other equity market professionals. In 1993, PIR began following Nasdaq small capitalization market issues thereby increasing by 25% the number of issues tracked by PIR computers. Capital Markets Report, which is incorporated into Dow Jones Telerate's basic information package, is the company's newswire that covers fixed income and financial futures markets around the world.
AP-Dow Jones, a news service joint venture with Associated Press, provides international economic, business and financial news to subscribers in 63 countries. In addition to two broad international newswires, AP-Dow Jones offers specialized wires dedicated to the coverage of European equities, banking and the markets in foreign exchange and petroleum. AP-Dow Jones also produces the European Corporate Report, a news service focusing on European companies and stock markets, and the World Equities Report newswire which serves domestic institutions investing in international markets.
Washington-based Federal Filings publishes newswires, newsletters and investment research based on its coverage of federal regulatory agencies, Capitol Hill and bankruptcy courts nationwide. Federal Filings' products include Corporate BondWatch, a fixed income bond ownership database, and 13F Advance, which analyzes the equity portfolio changes of prominent money managers.
In early 1994 Dow Jones Telerate launched the Dow Jones Asian Equities Report, which covers 12 Asian-Pacific stock markets and the companies traded on them. Headquartered in Singapore, the service draws on the staffs of AP- Dow Jones, The Asian Wall Street Journal and Far Eastern Economic Review, as well as its own editors and reporters.
Dow Jones News/Retrieval is widely recognized as one of the nation's leading suppliers of online business and financial news and information to financial professionals, private investors, corporate executives and managers, as well as to information specialists in corporate libraries. In
1993, it introduced TextSearch Plus, available for personal computers running Microsoft Windows, to simplify searching and retrieving articles from its library of more than 1,400 full-text publications.
In 1993, the Business Information Services group began development of Personal Journal, an electronic publication designed to deliver customized business and market news, stock quotes, world and national news, weather and sports 24 hours a day. It will be introduced in 1994 when it will be included with Microsoft Corp.'s Microsoft At Work operating system for portable computing devices. Also in development is The Wall Street Journal Interactive Edition, which will be a real-time, electronic extension of the printed Journal and the company's newswire services.
DowVision, a comprehensive service that delivers all the Dow Jones newswires, three press release services and the complete text of The Wall Street Journal directly to desktops through corporate computer systems, enables individual users in the corporate and financial marketplaces to tailor information to their own needs.
Other electronic services offered by the company include SportsTicker, the nation's leading electronic sports news service, and Voice Information Services, which provides pay-per-call stock quotes, market updates, company news and investment analysis. The Dow Jones Market Report, another pay-per- call service, provides a one minute summary, which is updated hourly, of the stock market.
The Business Information Services group established the Telco Alliance Development unit to explore emerging business opportunities with Regional Bell and other telephone companies. Its primary offering, the Dow Jones PersonalInfo Network, provides news and information for delivery through voicemail and electronic mail systems, pagers, personal digital assistants and screenphones.
Dow Jones' radio products include two radio networks -- "The Wall Street Journal Report" on AM stations and "The Dow Jones Report" on FM stations. Together these programs were carried on over 160 stations and reach nearly 90% of the country, including all of the top 50 markets.
Business Publications - - - --------------------- Dow Jones' best-known publication, The Wall Street Journal, is the country's largest daily newspaper with average circulation for 1993 of 1,839,900. The Wall Street Journal is edited in New York City at the company's executive offices. The Journal's four regional editions are printed at eighteen plants located across the United States. Advertisers can also focus their messages on readers served by sixteen localized editions. In September 1993, Texas Journal was started to provide Journal- quality reporting on regional business trends and issues. Texas Journal, a four-page weekly section of regional news produced by a separate staff, appears in the copies of The Wall Street Journal that are distributed in Texas.
Production of the paper employs satellite transmission of page images to the outlying plants and other technologies designed to speed the delivery of editorial material to the presses and to reduce the steps taken in the
printing process. The Wall Street Journal is delivered in two ways: by second class postal service and through the company's own National Delivery Service, Inc., a subsidiary. At the end of 1993, National Delivery Service delivered nearly one million of the Journal's subscription copies. The system provides delivery earlier and more reliably than the postal service. Approximately 230,000 copies of the Journal are sold each day on newsstands.
Barron's National Business and Financial Weekly, a magazine specializing in reporting and commentary on financial markets, had average circulation of 265,200 in 1993. The magazine uses the same facilities employed in the production of The Wall Street Journal. Barron's is edited in New York City, and is delivered by second class postal service and through National Delivery Service. About 123,400 copies are sold on newsstands.
The Wall Street Journal Europe is headquartered in Brussels and printed in the Netherlands, Switzerland and England. It is available on day-of- publication in continental Europe and the United Kingdom. The newspaper, which began publication in 1983, had average circulation in 1993 of 58,300. The Asian Wall Street Journal began publication in 1976. It is headquartered and printed in Hong Kong and is transmitted by satellite to additional printing sites in Singapore and Japan. The Asian Wall Street Journal had average circulation of 43,400 in 1993. The Wall Street Journal Europe and the Asian Journal draw on the resources of The Wall Street Journal's world-wide staff. The Asian Journal provides the foundation for the company's Asian Wall Street Journal Weekly, which is published in New York for North American readers with interests in Asia.
Other business publications include Far Eastern Economic Review, Asia's leading English-language newsweekly; the National Business Employment Weekly, which contains career-related news features, job-related ads from the Journal's regional editions and self-generated advertising; The Wall Street Journal Classroom Edition, which is published nine times during the school year and is used by more than 2,700 teachers in high school classrooms nationwide; and American Demographics magazine, which contains feature stories analyzing statistics from the United States Census Bureau and private data collectors.
SmartMoney, The Wall Street Journal Magazine of Personal Business, is published jointly with Hearst Corp. SmartMoney, introduced in 1992, became a monthly publication with its November 1993 issue. Dow Jones and American City Business Journals, Inc. launched BIZ, a monthly magazine targeted to the heads of America's fastest-growing small businesses, in March 1994.
Also included in this segment is The Wall Street Journal's television group which produces "The Wall Street Journal Report" a half-hour weekly program with about one million viewers in the U.S. In October 1993, the television group launched "The Asian Wall Street Journal Report", a half- hour weekly television news magazine program distributed throughout Asia. The television group also produces daily news feeds to stations in the U.S. and abroad.
Dow Jones Investor Network is a video business-news service delivered to customers' computer terminals, that includes exclusive video interviews with business leaders and coverage of major corporate announcements and
events.
Community Newspapers - - - -------------------- Community newspapers published by Ottaway Newspapers, Inc., a wholly- owned subsidiary, include 21 general-interest dailies in Arizona, California, Connecticut, Kentucky, Massachusetts, Michigan, Minnesota, Missouri, New York, Oregon and Pennsylvania. Average circulation of the dailies during 1993 was approximately 556,300; Sunday circulation for 13 newspapers was approximately 523,200. The principal administrative office of Ottaway Newspapers is in Campbell Hall, New York. The primary delivery method for the newspapers is private delivery.
Other - - - ----- Dow Jones also has investments in Handelsblatt-Dow Jones GmbH, a joint venture with the von Holtzbrinck Group, publisher of Germany's leading business daily, Handelsblatt; Press-Enterprise Co., a daily newspaper in Riverside, Calif.; Groupe Expansion S.A., a French business publishing company; Mediatex Communications Corp., publisher of Texas Monthly magazine; Nation Publishing Group, a Bangkok, Thailand publisher of English and Thai- language magazines and newspapers; AmericaEconomia, a Spanish-language business magazine in South America; Asia Business News, a business and financial television news channel broadcasting in Asia; and newsprint mills in the United States and Canada. In early 1994, the company invested in Hubbard Broadcasting Inc.'s new U.S. Satellite Broadcasting venture which will direct broadcast television programming to viewers in the U.S. having 18-inch dish antennas linked to special home receivers. Dow Jones will be the exclusive provider of business and financial news to U.S. Satellite Broadcasting.
Raw Materials - - - ------------- The primary raw material used by the company is newsprint. In 1993, approximately 218,000 metric tons were consumed. Newsprint was purchased from sixteen suppliers. F.F. Soucy, Inc. & Partners and Company, Limited, Riviere du Loup, Quebec, Canada, and Bear Island Paper Company, Richmond, Virginia, furnished 16.3% and 20.9%, respectively, of total newsprint requirements. The company is a limited partner in both ventures and has signed long-term contracts with both for a substantial portion of its annual newsprint requirements. For many years the available sources of newsprint have been adequate to supply the company's needs.
Competition - - - ----------- The company believes that Reuters Holdings PLC ("Reuters"), a company headquartered in London whose shares are publicly traded in the United States and the UK, is the only significant company which currently provides, on a world-wide basis, financial information display services closely comparable to those furnished by Dow Jones Telerate, although other companies, primarily Automated Data Processing Corporation, Knight- Ridder, Inc., Bloomberg L.P., Telekurs A.G., ILX Systems, Inc. and Quick Corporation of Japan are also in the business of providing financial information displayed on video screens to customers. The company believes that Reuters has more subscribers and video screens than the company outside
North America, but that Dow Jones Telerate has more subscribers and video screens than Reuters in North America. The company believes that it is the largest provider of fixed income and foreign exchange data in the United States.
Many business enterprises, including banks, brokerage houses and other financial firms, operate data or voice telecommunications systems which are able to move information rapidly from one location to another, competing with the company's other information services products.
The business publications of the company remain highly competitive. In its various news publishing activities, Dow Jones competes with a wide spectrum of other information media, and this competition may well become more intense as telecommunications systems are improved and new techniques are developed. All metropolitan general newspapers and many small city or suburban papers carry business and financial pages or sections, including securities quotations. In addition, specialized magazines in the economics field, as well as general news magazines, publish substantial amounts of business material. Nearly all these publications seek to sell advertising space and much of this effort is directly or indirectly competitive with Dow Jones' publications. The company also competes with television and radio for advertisers.
All of the community newspapers operating under Ottaway Newspapers, Inc. compete with metropolitan general newspapers and most compete with other newspapers available in their respective sales areas.
ITEM 2.
ITEM 2. Properties.
Dow Jones operates eighteen plants with an aggregate of approximately 1.1 million square feet for the printing of its domestic publications. Printing plants are located in Palo Alto and Riverside, California; Denver, Colorado; Orlando, Florida; LaGrange, Georgia; Naperville and Highland, Illinois; Des Moines, Iowa; White Oak, Maryland; Chicopee Falls, Massachusetts; South Brunswick, New Jersey; Charlotte, North Carolina; Bowling Green, Ohio; Oklahoma City, Oklahoma; Sharon, Pennsylvania; Dallas and Beaumont, Texas; and Federal Way, Washington. All plants include office space. All are owned in fee except the Palo Alto, California plant, which is located on 8.5 acres under a lease to Dow Jones for 50 years, expiring in 2015.
Other facilities owned in fee with a total of approximately 870,000 square feet house news, sales, administrative, research, computer and operations staff. These facilities are located in Chicopee Falls, Massachusetts and South Brunswick, New Jersey.
Dow Jones occupies two major leased facilities in New York City: editorial and executive staff occupy 340,000 square feet, while advertising sales staff occupy 90,000 square feet at a separate location. The company also leases other business and editorial offices in numerous separate locations around the world, including 50,000 square feet in two locations in Hong Kong.
Dow Jones Telerate leases approximately 23,000 square feet in New York City, 325,000 in Jersey City, New Jersey, 115,000 at three locations in
London, England, 70,000 at three locations in Toronto, Ontario and 30,000 at two locations in Hong Kong. In addition, Dow Jones Telerate leases space around the world for its operations.
Ottaway Newspapers operates in 27 locations, including a 24,000 square foot administrative headquarters in Campbell Hall, New York. These facilities are located in Sun City, Arizona; Santa Cruz, California; Danbury, Connecticut; Ashland, Kentucky; Beverly, Hyannis, New Bedford, Gloucester, Nantucket, Peabody, Fall River and Newburyport, Massachusetts; Traverse City, Michigan; Mankato, Minnesota; Joplin, Missouri; Exeter and Hampton, New Hampshire; Middletown, Oneonta, Plattsburgh and Port Jervis, New York; Medford, Oregon; and Grove City, Sharon, Stroudsburg and Sunbury, Pennsylvania. Local printing facilities, which include office space, total approximately 1,062,000 square feet. All facilities are owned in fee.
The company believes that its current facilities are suitable and adequate, well maintained and in good condition. Older facilities have been modernized and expanded to meet present and anticipated needs. It is estimated that between 65% and 75% of the capacity of the company's existing production facilities is being utilized.
ITEM 3.
ITEM 3. Legal Proceedings.
Not applicable.
ITEM 4.
ITEM 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
Executive Officers of the Registrant - - - ------------------------------------
Each executive officer is elected annually to serve at the pleasure of the Board of Directors.
All executive officers named below have been employed by the company for more than five years.
Peter R. Kann, age 51, Chairman of the Board since July 1991, Chief Executive Officer since January 1991 and Publisher of The Wall Street Journal since January 1989, served as President from July 1989 to July 1991 and Chief Operating Officer from July 1989 to December 1990, Executive Vice President from 1985 to 1989 and Associate Publisher of The Wall Street Journal from 1979 to 1988.
Kenneth L. Burenga, age 49, President since July 1991 and Chief Operating Officer since January 1991, served as Executive Vice President from January 1991 to July 1991 and Senior Vice President from 1986 thru 1990, and General Manager from January 1989 thru December 1990, as Chief Financial and Administrative Officer from 1986 to 1988 and Vice President/
Circulation of The Wall Street Journal from 1980 to 1986.
James H. Ottaway, Jr., age 56, Senior Vice President since 1986, President of International Group and Magazine Group since February 1988, President of Affiliated Companies Group since 1986, and Chairman of Ottaway Newspapers, Inc. since 1979, served as Vice President/Community Newspapers from 1980 to 1985 and as President of Ottaway Newspapers, Inc. from 1970 to 1985 and Chief Executive from 1976 to January 1989.
Peter G. Skinner, age 49, Senior Vice President since November 1989 and General Counsel and Secretary since 1985, served as Vice President from 1985 to November 1989.
Carl M. Valenti, age 55, Senior Vice President and Publisher and President of the Information Services Group since July 1989 and President of Dow Jones Telerate, Inc. since May 1990, served as Vice President of the company and President/Information Services Group from 1987 to 1989 and as Vice President/Information Services Group from 1980 to 1987.
Kevin J. Roche, age 59, Vice President/Finance since 1986 and Chief Financial Officer since January 1989, served as Comptroller from 1977 to March 1987.
Thomas G. Hetzel, age 38, Comptroller since October 1993, served as Associate Comptroller from 1992 to 1993 and Assistant Comptroller from 1988 to 1992.
PART II.
ITEM 5.
ITEM 5. Market for the Registrant's Common Equity and Related Stockholder Matters.
The company's common stock is listed on the New York Stock Exchange. The class B common stock is not traded. The approximate number of stockholders of record as of January 31, 1994, was 10,400 for common stock and 4,700 for class B common stock. The company paid $.80 per share in dividends in 1993 and $.76 per share in 1992, which represented an earnings payout of 54.1% in 1993 and 60.9% in 1992, excluding the nonrecurring net charge for accounting changes and asset write-downs in 1992.
ITEM 6.
ITEM 6. Selected Financial Data.
See Management's Discussion and Analysis of Financial Condition and Results of Operations for a discussion of factors that affect the comparability of the information reflected in this table.
ITEM 7.
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Net income in 1993 of $147.5 million, or $1.48 per share, increased $40 million, or 37.1%, from 1992 net income of $107.6 million, or $1.06 per share. Earnings in 1992 were up $35.4 million, or 49%, from 1991 net income of $72.2 million, or $.71 per share. Net income in 1992 excluding accounting changes and asset write-downs was $126.4 million, or $1.25 per share. Net income in 1993 increased $21.1 million, or 16.7%, from 1992 earnings, adjusted to exclude the nonrecurring items described below. The improvement was largely the result of advertising linage growth at The Wall Street Journal, reduced interest expense and improved operating results for the information services segment.
Earnings in 1992 included the cumulative effect of the adoption of Statement of Financial Accounting Standards (SFAS) No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," which reduced net income by $32.4 million, or $.32 per share, and Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," which increased earnings by $21.6 million, or $.21 per share. Also included in 1992 net income were after-tax charges totaling $8 million, or eight cents per share, for the write-down of the company's minority investments in Groupe Expansion, S.A., a French publisher of business magazines, and other Groupe Expansion-related companies, and for the write-down of Ottaway Newspapers, Inc.'s investment in the Chapel Hill News.
Results in 1991 included an after-tax charge of $31.8 million, or $.32 per share, from the write-down of goodwill, capitalized development costs and equipment associated with The Trading Service (TTS), the company's foreign exchange trading service. If the cumulative effect of the 1992 accounting changes and asset write-downs and the 1991 write-down of TTS were excluded from each year's respective net income, 1992's net income would have increased $22.4 million, or 21.5%, from 1991 income of $104 million, or $1.03 per share.
A summary of the results of operations for each of the company's principal business segments as well as financial data by geographic area can be found in Note 15 to the financial statements.
OPERATING INCOME
Operating income in 1993 advanced $35.8 million, or 12.7%, to $316.5 million. Operating income was $280.7 million in 1992, an increase of $40 million, or 16.6%, from 1991's income of $240.7 million. In 1991 operating income grew $11.5 million, or 5%. The operating margin improved to 16.4% in 1993 from 15.4% in 1992 and 14% in 1991.
Approximately $126.2 million, or roughly 40%, of 1993 operating income was due to foreign operations, primarily at Dow Jones Telerate. Foreign operations in total were up 21% from $104.3 million in 1992. Operating income from U.S. operations increased 7.4% in 1993.
Operating income at the information services segment, which includes the Dow Jones/Telerate and Business Information Services groups, grew $6.7 million, or 4.5%, to $157.4 million in 1993. Revenues in 1993 for the segment rose $52.6 million, or 6.5%, while operating expenses increased $45.9 million, or 7%. Operating income in 1993 benefited from fluctuations
in foreign currency exchange rates, chiefly in the Europe/Gulf region. Excluding this benefit, 1993 operating income would have been down 1%.
Dow Jones/Telerate group operating income grew 4.5% in 1993, and operating income at the Business Information Services group was up 4.3%. The operating margin for the information services segment was 18.3% in 1993, 18.6% in 1992 and 19.4% in 1991. In 1992 operating income for the segment grew $3 million, or 2.1%, as revenues advanced $47.4 million, or 6.2%, and operating expenses increased $44.3 million, or 7.2%. Expenses in 1993 and 1992 included substantial investments in technical and product development and in the acquisition of enhanced information. Operating income at this segment rose 14.3% in 1991.
Business publications operating income in 1993 increased $28.6 million, or 24.8%, to $143.7 million. Revenues were up $51.5 million, or 6.7%, as Wall Street Journal advertising linage grew 3.3%, following a 4% increase in 1992. Operating expenses rose $22.9 million, or 3.5%. Operating income in 1992 climbed $33.6 million, or 41.3%, to $115.1 million. In 1991 operating income fell 2.7%. The operating margin for the business publications segment increased to 17.4% in 1993 from 14.9% in 1992 and 11.1% in 1991.
Community newspapers segment operating income of $32.6 million grew $0.9 million, or 2.9%. The increase was primarily due to higher advertising rates and continuing cost controls. Operating income was up $4.7 million, or 17.6%, in 1992 and down $4.5 million, or 14.2%, in 1991. The operating margin in 1993 for the community newspapers segment was 13.3% compared with 13.5% in 1992 and 11.9% in 1991.
REVENUES
Revenues of $1.9 billion increased $113.9 million, or 6.3%, in 1993 and $92.8 million, or 5.4%, in 1992, compared with the respective prior years. Revenues from domestic operations increased 6.3% to $1.4 billion in 1993 and accounted for slightly less than three-quarters of total revenues. Revenues from foreign components grew 6.2% to $527.3 million in 1993.
Advertising revenue advanced $44.4 million, or 6.8%, to $699 million. Advertising revenue in 1992 was up $30 million, or 4.8%, from 1991. Circulation revenue improved $14.3 million, or 4.3%, in 1993 climbing to $347.8 million. In 1992 circulation revenue rose 5.5% to $333.5 million.
Information services 1993 revenue, which accounted for about 45% of the company's revenue, increased $52.6 million, or 6.5%, reaching $862 million. In 1992 revenue from this segment grew $47.4 million, or 6.2%, to $809.4 million from $762 million in 1991.
Dow Jones/Telerate, which primarily serves the financial services market and includes Dow Jones Telerate, Dow Jones News Services, AP-Dow Jones News Service, Federal Filings and Professional Investor Report, produced 90% of information services revenue in 1993. Despite an economic slowdown in Japan and parts of Europe, revenue in the Europe/Gulf region was up 6.5% in 1993, while revenue from the Asia/Pacific region was up 5%. As economic conditions in the U.S. improved, revenue in 1993 from U.S. operations increased 6% after being essentially flat in 1992. In 1992
revenues from the Europe/Gulf and Asia/Pacific regions rose 12.6% and 12.2%, respectively.
The remaining 10% of information services revenue was earned by Business Information Services, which serves corporate and individual business consumer needs through Dow Jones News/Retrieval and related services. Business Information Services revenue was up 13.1% in 1993 after increasing 1.8% in 1992.
Business publications 1993 revenues of $825.2 million advanced 6.7% from 1992 revenues of $773.8 million. Revenues in 1992 were up 5.1% from 1991 revenues of $735.9 million. Advertising revenue increased 7.7% in 1993, with the Journal, its overseas editions and Barron's all posting gains. Advertising linage in 1993 at The Wall Street Journal, the largest component of business publications, increased 3.3% after rising 4% in 1992. Ad linage, hurt by the effects of the Persian Gulf war, was down 10.3% in 1991.
Financial advertising at The Wall Street Journal increased 13.4% in 1993 on top of 17.4% growth in 1992. This category comprised 34.2% of total Journal advertising in 1993, compared with 31.2% in 1992, 27.6% in 1991 and 39% at its peak in 1987. General linage was off 0.9% in 1993, following declines of 1.2% in 1992 and 9.8% in 1991. Journal advertising rates were increased an average of about 5% in 1993, 4.5% in 1992 and 6% in 1991. Advertising linage at Barron's increased 6.9% in 1993. Barron's advertising linage in 1992 was flat, following an 11.6% drop in 1991.
Circulation revenue at business publications grew 4.4%, as The Wall Street Journal benefited from roughly a 1% gain in average circulation and a $10, or 7.2%, midyear increase in its annual subscription price to $149. This price was last raised in January 1991. The newsstand price of the Journal remained 75 cents a copy, unchanged since December 1990. Including the Journal's European and Asian editions, world-wide average circulation increased to 1,941,600 in 1993 compared with 1,920,300 in 1992 and 1,922,800 in 1991. Barron's average circulation for 1993 was up 5.3% from 1992 to 265,200.
Revenues at Ottaway Newspapers, Inc., the company's community newspapers subsidiary, were up $9.9 million, or 4.2%, in 1993 compared with the prior year. Revenues were up 3.4% in 1992 after being down in 1991. Ottaway's advertising revenue in 1993 increased $6.7 million, or 4.1%, chiefly as a result of rate increases and sales gains in preprinted inserts. Advertising revenue rose 2.1% in 1992, after falling 7% in 1991. Advertising linage edged up 0.6% in 1993. Linage had declined 3.9% in 1992 and 11.9% in 1991, the result of industrywide weakness in retail and classified advertising. Circulation revenue improved $2.5 million, or 3.8%, in 1993, following increases of 6.2% and 7.2% in 1992 and 1991, respectively. Average circulation for Ottaway's 21 daily newspapers was essentially flat over the 1991-1993 period, at about 556,000.
OPERATING EXPENSES
Operating expenses in 1993 rose $78.2 million, or 5.1%, to $1.6 billion, in part due to increases in payments to outside information
providers, newsprint costs and depreciation. In 1992 operating expenses increased $52.8 million, or 3.6%, with higher information services costs partially offset by lower newsprint. In 1991 operating expenses declined $6.5 million, or 0.4%.
Information services expenses were up $45.9 million, or 7%, to $704.6 million in 1993, mainly due to increases in contributed data costs, depreciation and continuing investments in research and product development. At December 31, 1993, the number of full-time employees for information services was up 1.5% from year-end 1992.
Business publications expenses rose 3.5% to $681.6 million in 1993, partially due to additional newsprint expense reflecting increased consumption and a higher average price. In 1992 operating expenses of $658.7 million were essentially flat compared with 1991, largely due to deeply discounted newsprint prices. At December 31, 1993, business publications full-time employee count was up about 3% from year-end 1992.
Community newspapers expenses were up $9 million, or 4.4%, in 1993, largely due to newsprint and salaries. Operating expenses increased 1.4% in 1992, after decreasing 1.5% in 1991. The number of full-time employees at year-end 1993 fell 0.6% from the end of 1992.
In 1993 Dow Jones' purchases of newsprint containing recycled fiber reached 54% of total purchases, up from 39% in 1992 and 11.5% in 1991. The company expects purchases of newsprint containing recycled material to continue to increase in 1994.
Salaries and wages were 31% of operating expenses in 1993, 30% in 1992 and 29% in 1991. Salaries and wages increased 6.4% in 1993, following increases of 8.4% in 1992 and 1.4% in 1991. In 1993 the company signed a new three-year contract with a union representing about 20% of its work force. The contract, which expires January 31, 1996, calls for compensatory increases of 4% each year for 1993, 1994 and 1995. At December 31, 1993, Dow Jones employed 10,006 full-time employees, compared with 9,860 at year- end 1992 and 9,459 at year-end 1991.
Dow Jones and the Dow Jones Foundation made public-interest and charitable contributions in 1993 totaling $2.8 million, which was approximately 1% of earnings before income taxes and 1.9% of net income. Contributions in 1993 included those given to the United Negro College Fund to support entrepreneurial studies at Spelman College, Clark Atlanta University and the Atlanta University Center.
OTHER INCOME / DEDUCTIONS
Interest expense of $22.6 million decreased $7.8 million, or 25.7%, from 1992, the result of a lower average debt level and reduced interest rates on commercial paper. Long-term debt outstanding averaged $339.9 million during 1993 compared with $385.4 million in 1992 and $531.4 million in 1991.
The company broke even in 1993 in its equity earnings from associated companies, compared with losses of $4.2 million in 1992 and earnings of $3.9
million in 1991. The company's share of earnings from its newsprint affiliates was $2.2 million, a $6.9 million improvement from losses of $4.7 million in 1992. Gains on land sales coupled with increased sales of newsprint, reflecting the recovering U.S. economy, caused the better 1993 results from newsprint affiliates. Equity losses from newsprint mill affiliates in 1992 were $8.8 million worse than earnings of $4.1 million in 1991.
The fourth quarters of 1993 and 1992 included write-downs of assets totaling $8.2 million ($5.4 million after taxes) and $13.4 million ($8 million after taxes), respectively.
In 1991's fourth quarter the company wrote down certain assets of TTS, its foreign exchange direct dealing service. This write-down resulted in a nonrecurring charge of $45 million ($31.8 million after taxes). Included in this charge was an $11.3 million write-down of goodwill and $33.7 million ($20.5 million after taxes) related to capitalized development costs and equipment.
INCOME TAXES
The effective income tax rate was 48.5% in 1993 versus 49.5% in 1992 and 54.7% in 1991. The lower 1993 rate was chiefly caused by the lesser impact of stable nondeductible goodwill amortization on higher 1993 pretax earnings.
Excluding goodwill amortization, the effective income tax rate would have increased to 42.4% in 1993 from 42.1% in 1992, the result of an increase as of January 1, 1993, to 35% from 34% in the corporate federal income tax rate, which diluted net income about $3.3 million, or three cents per share. The effective tax rate in 1991 excluding goodwill amortization and the write-down of assets was 40.9%.
In 1992 the company adopted SFAS No. 109, "Accounting for Income Taxes," which mandates a change in accounting for income taxes from an income statement-based deferred method to a balance sheet-based asset/ liability method. The cumulative effect of the accounting change was a benefit of $21.6 million, or $.21 per share, to 1992 earnings.
The Omnibus Budget Reconciliation Act of 1993 raised the federal corporate income tax rate to 35%. The revaluation of deferred taxes, as required by SFAS No. 109, at the 35% rate was immaterial.
FINANCIAL POSITION
Cash provided by operations in 1993 was $337.6 million, up $32 million, or 10.5%, from $305.6 million in 1992. The increase, which mainly resulted from higher earnings, was tempered by a $28.7 million rise in accounts receivable in 1993 relative to a $0.8 million decline in 1992. The increase in accounts receivable was attributable both to revenue growth and a slowdown in advertising receipts resulting from the elimination in early 1993 of a cash discount. In 1993 cash generated through operations was used to pay dividends of $79.8 million, fund capital expenditures of $159.9
million and repay debt of $73.9 million. In 1993 Dow Jones purchased 1,668,000 shares of its stock totaling $48.3 million. The year-end cash balance was reduced to $5.7 million in 1993 from $16.4 million at year-end 1992.
At December 31, 1993, outstanding long-term debt, excluding current maturities, was $261.1 million. The debt-to-equity ratio at December 31, 1993, was 17.5%, compared with 23.1% at 1992's year end. Long-term debt peaked at $719 million on December 31, 1989, when the debt-to-equity ratio was 51.2%. The company used commercial paper to retire long-term notes of $100 million which matured on February 1, 1994, and will likely use commercial paper again to retire long-term notes of approximately $92 million which will mature on December 1, 1994.
The company expects in 1994 to be able to meet its normal recurring operating commitments, to fund estimated capital expenditures of roughly $210 million, to pay dividends of about $84 million and to repay a portion of its commercial paper borrowings, all with cash provided by operations. Capital spending in 1994 will include press equipment, which will enable the company's business publications to offer advertisers limited four-color capability several years hence, as well as continued investments in the technical infrastructure of print and electronic services.
Working capital, excluding unearned revenue, was 1 to 1 at December 31, 1993, compared with 0.9 to 1 at December 31, 1992. Return on equity rose to 9.9% in 1993 from 7.4% in 1992 and 5% in 1991. On January 19, 1994, Dow Jones announced that it would raise its quarterly dividend to 21 cents per share from 20 cents per share, an increase of 5%.
In January 1994, the company acquired a minority interest in a subsidiary of Hubbard Broadcasting, Inc., United States Satellite Broadcasting Company, Inc., for $20 million plus services valued at $5 million. U.S. Satellite plans to broadcast television programming directly to viewers who will receive the signals on 18-inch dish antennas linked to special home receivers. Dow Jones will be the exclusive provider of business and financial news to U.S. Satellite Broadcasting. Also, in early 1994 Dow Jones agreed to lease a transponder to increase its flexibility in distributing television programming in Asia. The transponder will be on the APSTAR-2 satellite, which is scheduled to be launched in late 1994 or early 1995. Both investments reflect Dow Jones' intention to become more active in television programming on a global basis.
OUTLOOK
In 1994 business publications revenues are expected to continue showing improvement from both rate and volume increases. Advertising rates at The Wall Street Journal were raised an average of almost four percent effective January 3, 1994. Improvement in domestic Journal advertising linage is largely dependent on the continuing recovery of the national economy. Advertising rates at the Journal's overseas editions were raised an average of about eight percent, effective January 3, 1994.
Information services revenues in 1994 are expected to continue to increase at a rate similar to the annual rates of growth achieved over the
past several years. It is expected that a significant portion of the growth will continue to come from Dow Jones Telerate's overseas operations.
Information services will continue to make substantial investments in expanded information and product enhancements. Dow Jones Telerate is expected to expand the capacity of its networks and will continue to integrate all its information into more flexible systems. In addition, information services will continue to concentrate in 1994 on developing advanced platforms for the storage and retrieval of text, user-friendly, front-end software for customer terminals and an interactive, real-time edition of The Wall Street Journal.
Following revenue increases at the community newspapers segment of 4.2% in 1993 and 3.4% in 1992, revenues are expected to grow modestly in 1994 largely due to price increases.
Dow Jones continues to maintain and monitor its budgetary cost controls despite the continuing signs of U. S. economic recovery.
In 1993 the company benefited from substantial discounts from its newsprint suppliers. No increase in stated newsprint prices is anticipated in 1994, and discounts on average are not expected to vary substantially. Second class postage rates were last raised in February 1991. No postal rate increases are anticipated in 1994.
In the absence of a major acquisition, it is expected that interest expense will continue to fall in 1994 as notes due in 1994 will most likely be refinanced with lower rate commercial paper.
In November 1992 the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 112, "Employers' Accounting for Postemployment Benefits," which provides for a change in current accounting practice by requiring accrual, during the years that the employee renders service, of the costs of providing certain postemployment benefits. Currently, most of these expenses are accrued by the company at termination.
The company will adopt SFAS No. 112 in the first quarter of 1994 and will record an after-tax cumulative adjustment of approximately $3 million. The annual expense of postemployment benefits is not expected to be materially different from the current expense.
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's common stock ownership and partnership equity is at least 20% and not more than 50% (see Note 3). All significant intercompany transactions are eliminated in consolidation.
UNEARNED REVENUE is recorded as earned, pro rata on a monthly basis, over the life of subscriptions. Costs in connection with the procurement of subscriptions are charged to expense as incurred.
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.
MAINTENANCE AND REPAIRS are charged to expense as incurred. Major renewals, betterments and additions are capitalized.
CASH EQUIVALENTS are highly liquid investments with a maturity of three months or less when purchased.
NEWSPRINT INVENTORY is stated at the lower of last-in, first-out (LIFO) cost or market (see Note 4).
DEFERRED INCOME TAXES are provided for temporary differences in bases between financial statement and income tax assets and liabilities. In 1992, the company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." Accordingly, deferred tax assets and liabilities are recalculated annually at tax rates then in effect (see Note 7).
THE EXCESS OF COST OVER NET ASSETS OF BUSINESSES ACQUIRED (GOODWILL) is amortized using the straight-line method over various periods, principally forty years. The company evaluates annually whether there has been a permanent impairment in the value of goodwill. Factors considered in the valuation include cash flows from operations of businesses acquired and the market value of comparable companies.
FORWARD EXCHANGE CONTRACTS are entered into to insulate contracted revenue streams from foreign currency exchange rate fluctuations. As such, these nonspeculative forward exchange contracts are not recorded on the company's consolidated balance sheet. Also, unrealized gains and losses on these forward exchange contracts are deferred and realized upon settlement. Accordingly, cash flows resulting from forward exchange contract settlements are classified as cash provided by operations as are the corresponding cash flows from the revenue streams being insulated (see Note 16).
ACCOUNTING CHANGES required by two recent accounting standards, Statement of Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," and Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," were adopted by the company effective January 1, 1992. The impact, as of January 1, 1992, of these changes on the consolidated statement of income was recorded as the cumulative effect of accounting changes as follows:
NOTE 2. OTHER, NET
Other, net includes write-downs of assets and gains/losses from foreign currency exchange rate fluctuations, as well as other miscellaneous non- operating income and expenses.
In 1993's fourth quarter, the company recorded a charge of $8.2 million ($5.4 million after taxes) to write down certain of its assets.
In the fourth quarter of 1992, a charge of $13.4 million ($8 million after taxes) was recorded to write down certain of the company's assets. The assets written down included the company's minority position in Groupe Expansion, S.A., a French publisher of business magazines, as well as Groupe Expansion-related companies, and the Chapel Hill News, a community newspaper held by the company's Ottaway Newspapers, Inc. subsidiary.
In 1991's fourth quarter, the company wrote down certain assets of its foreign exchange direct dealing service. This write-down of goodwill, capitalized development costs and equipment resulted in a charge of approximately $45 million ($31.8 million after taxes).
NOTE 3. INVESTMENTS IN ASSOCIATED COMPANIES, AT EQUITY
The operating results of the principal associated companies accounted for by the equity method have been included in the accompanying consolidated financial statements on the following bases: Bear Island Paper Company, L.P. (Bear Island Paper), 33% owned; Bear Island Timberlands Company, L.P., 33% owned; and F.F. Soucy, Inc. & Partners and Company, Limited (Soucy), 40% owned.
The company, as a limited partner in Bear Island Paper and Soucy, has signed long-term contracts with both covering a substantial portion of its annual newsprint requirements. Operating expenses of the company include the cost
of newsprint supplied by Bear Island Paper and Soucy of $39,558,000 in 1993, $42,918,000 in 1992 and $45,750,000 in 1991.
In January 1994, the company increased its ownership in Bear Island Paper Company, L.P. and Bear Island Timberlands Company, L.P. to 35%.
NOTE 4. NEWSPRINT INVENTORY
Newsprint inventory was determined by the last-in, first-out (LIFO) method. If inventory had been valued by the average cost method, it would have been approximately $4,976,000 and $5,085,000 higher in 1993 and 1992, respectively.
NOTE 5. LONG-TERM DEBT
Payments on long-term debt are due as follows: $197,200,000 in 1994, $5,318,000 in 1995, $37,282,000 in 1996, $5,318,000 in 1997, $5,318,000 in 1998 and $15,955,000 thereafter. Interest payments were $22,459,000 in 1993, $31,825,000 in 1992 and $36,637,000 in 1991.
The company can borrow up to $400 million through August 12, 1996, under a revolving credit agreement with several banks. Borrowings may be made either in Eurodollars with interest that approximates the applicable Eurodollar rate or in domestic dollars with interest that approximates either the bank's prime rate or its C/D rate. A fee of 1/8% is payable on the unused portion of the commitment which the company may terminate or reduce at any time. Prepayment of borrowings may be made without penalty. Although there were no borrowings under the agreement as of December 31, 1993, the company intends to maintain the commitment at least through December 31, 1994. Accordingly, commercial paper was classified as long- term.
The bank loan agreement contains various restrictive covenants principally
relating to net worth, liabilities and cash flows. At December 31, 1993, consolidated net worth exceeded the minimum by $742 million and total consolidated liabilities were $1.7 billion less than the maximum.
In December 1989 the company sold $100 million of 8.4% notes due December 1, 1994 and in February 1991 the company sold $100 million of 7.7% notes due February 1, 1994. Based on the company's ability and intent to refinance these notes on a long-term basis, through either long-term debt issuances or the issuance of commercial paper supported by the company's revolving credit agreement, these notes have been classified as long-term. The notes are general unsecured obligations of the company and may not be called prior to maturity. In 1992, at the request of a noteholder, the company redeemed $8 million of its 8.4% notes due December 1, 1994.
The notes payable to the Associated Press are owed by the company in equal annual principal payments of $5,318,000 which commenced in 1991. The company purchased a guaranteed investment contract from an insurance company which is supported by an irrevocable stand-by letter of credit. The contract, which is included in Other Investments, provides for payments to the company of interest and principal that match the payments owed the Associated Press.
The floating rate demand industrial development revenue bonds were repaid during 1993.
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.
NOTE 7. INCOME TAXES
Effective January 1, 1992, the company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." Under Statement No. 109, deferred taxes are determined upon the cumulative differences in bases between financial statement and income tax assets and liabilities. The measurement of deferred taxes resulting from these differences is based on currently enacted tax rates.
It was principally the recalculation of deferred taxes at the lower 34% federal income tax rate enacted in the Tax Reform Act of 1986 that resulted in the 1992 earnings benefit of $21.6 million, or $.21 per share, which has been included in the cumulative effect of accounting changes (see Note 1). During 1993 the Omnibus Budget Reconciliation Act was enacted, which increased the federal corporate income tax rate to 35%. The impact of remeasuring deferred tax assets and liabilities at this higher rate was immaterial.
The company's combined current and noncurrent deferred taxes at December 31, 1993 and 1992, consisted of the following deferred tax assets and liabilities:
The company has not established a deferred tax asset with respect to certain foreign operating loss carryforwards which are not expected to be realized.
The components of income before income taxes and accounting changes were as follows:
The following is a reconciliation of income tax expense to the amount derived by multiplying income before income taxes and the cumulative effect of accounting changes by the statutory federal income tax rate of 35% in 1993 and 34% in 1992 and 1991.
In the table shown above, amortization of excess of cost over net assets of businesses acquired for 1991 includes the write-down of The Trading Service.
Income tax payments were $142,988,000 in 1993, $135,180,000 in 1992 and $83,681,000 in 1991.
NOTE 8. STOCK PURCHASE, STOCK OPTION AND EXECUTIVE INCENTIVE PLANS
STOCK PURCHASE PLAN: Under the terms of the Dow Jones 1990 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.
At December 31, 1993, there were 1,014,350 shares available for future offerings.
STOCK OPTION PLAN: Under the Dow Jones 1991 Stock Option Plan, options for shares of common stock may be granted to key employees at not less than the fair market value of the common stock on the date of grant. Options expire ten years from the date of grant.
EXECUTIVE INCENTIVE PLANS: The executive incentive plans provide for the grant to key executives of stock options, performance awards, which were suspended in 1992, and contingent stock rights. The incentive plans are administered by the compensation committee of the Board of Directors, the members of which may not participate in the plans.
The Dow Jones 1992 Long Term Incentive Plan provides for the grant to key executives of stock options and contingent stock rights (collectively, "plan awards"). Options for shares of common stock may be granted at not less than the fair market value of the common stock on the date of grant. An optionee may purchase shares upon exercise of an option or may surrender exercisable options in return for an amount equal to any excess of the market value over the option price on the day the option is surrendered. Payment to the optionee for such stock appreciation rights may be made in common stock, cash or a combination of both. Options expire ten years after date of grant.
Contingent stock rights entitle the participant to receive future payments in the form of common stock. The number of shares of common stock ultimately received will depend upon the extent to which specified performance criteria are achieved over the performance period, the participant's individual performance and other factors, all as determined by the compensation committee. Accordingly, the number of shares received could be less than or equal to the number specified in the right, but not
greater than 125% of that amount.
Under the stock option plan, options granted in 1993 become exercisable in 1994 and all other options granted were exercisable at December 31, 1993. Under the executive incentive plans, options granted prior to 1991 become exercisable and performance awards and contingent stock rights become payable four years after they are granted. Fifty percent of the options granted in 1991 and thereafter become exercisable in the year following the year of grant; the balance of the options granted become exercisable in the second year following the year of grant.
Compensation expense was $2,826,000 in 1993, $1,850,000 in 1992 and $1,633,000 in 1991, with respect to both the stock option and executive incentive plans.
NOTE 9. PROFIT SHARING AND PENSION PLANS
The company and certain subsidiaries have profit sharing retirement plans for a majority of employees who meet specified length of service requirements. The annual cost of the plans, which are funded currently, is based upon a percentage of consolidated net income, as defined, or compensation but is limited to the amount deductible for income tax purposes.
Substantially all employees of subsidiaries who are not covered by the above plans are covered by noncontributory defined benefit pension plans. These plans are not material in respect to charges to operations.
Total profit sharing and pension plan expenses amounted to $44,805,000, $42,157,000 and $38,420,000 in 1993, 1992 and 1991, respectively.
NOTE 10. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS, AND POSTEMPLOYMENT BENEFITS
For a majority of its 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 other postretirement benefit plans other than its profit sharing and pension plans (see Note 9).
As of January 1, 1992, the provisions of Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," were adopted. The company elected immediate recognition of its liability attributable to service prior to 1992. Accordingly, after-tax earnings for 1992 were lowered $32.4 million, or $.32 per share, which was included in the cumulative effect of accounting changes (see Note 1).
A 12.5% annual rate of increase in the per capita costs of covered health care benefits was assumed for 1994, gradually decreasing to 5.5% by the year 2008. 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, 1993, by $15.4 million and increase the aggregate of the service cost and interest cost components of net periodic postretirement benefit cost for 1993 by $2.3 million. A discount rate of 7% was used to determine the accumulated postretirement benefit obligation as of December 31, 1993.
At December 31, 1992, the company's accumulated postretirement benefit obligation was calculated using a discount rate of 8.5% and a health care cost trend rate of 13.7% for 1993 decreasing to 6.6% by the year 2017.
See Management's Discussion and Analysis regarding Statement of Financial Accounting Standards No. 112, "Employers' Accounting for Postemployment Benefits."
NOTE 11. COMMITMENTS
Commitments for capital expenditures amounted to $24,160,000 at December 31, 1993. Also, the company has a commitment to invest a total of $8,750,000 in certain of its newsprint affiliates in January 1994 (see Note 3).
These leases are principally for office space and equipment and contain renewal and escalation clauses. Total rental expense amounted to $83,853,000 in 1993, $82,382,000 in 1992 and $80,610,000 in 1991.
At December 31, 1993, the company had foreign currency forward exchange contracts settling on various dates through January 1995 to sell 6.6 billion Japanese yen (against $59,501,000). Risk arises from movements in foreign currency exchange rates and from the possible inability of counterparties to meet the terms of their commitments, which the company views as unlikely.
The company has the obligation to furnish financial support in the form of capital contributions, loans and loan guarantees up to a total of $16.6 million to certain of its investees. At December 31, 1993, loan guarantees of $7,344,000 with remaining terms of up to nine and one-half years were in effect. The company views it as unlikely that its investees will fail to meet the terms of their loan obligations.
NOTE 12. PER SHARE AMOUNTS
Net income per share has been computed on the basis of the weighted average number of shares outstanding (99,773,000 shares in 1993, 101,150,000 shares in 1992 and 101,011,000 in 1991). The assumed exercise of outstanding options under the stock purchase, stock option and executive incentive plans does not have a material dilutive effect on earnings per share.
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 1993 and 1992 quarterly financial data shown on
pages 47 and 48 of this report is incorporated herein by reference.
NOTE 16. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following information presents the fair value of the company's financial instruments which are not carried as such on the company's consolidated balance sheets. The fair value of these financial instruments as of December 31, 1993 and 1992, was determined primarily by reference to dealer markets.
Nonspeculative forward exchange contracts, which insulate contracted revenue streams from foreign currency exchange rate fluctuations, are not recorded on the company's consolidated balance sheets (see Note 1). The fair value of the forward exchange contracts at December 31, 1993, was $59,030,000 against a contracted value of $59,501,000. The fair value as of December 31, 1992, of forward exchange contracts then in effect was $59,344,000 against a contracted value of $59,854,000.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Dow Jones & Company, Inc.:
We have audited the accompanying consolidated balance sheets of Dow Jones & Company, Inc. and Subsidiaries as of December 31, 1993 and 1992, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1993. 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 in accordance with generally accepted auditing standards. Those standards 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. An audit also includes assessing the accounting principles used and the significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Dow Jones & Company, Inc. and Subsidiaries as of December 31, 1993 and 1992, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1993, in conformity with generally accepted accounting principles.
As discussed in Notes 7 and 10 to the consolidated financial statements, effective January 1, 1992, the company changed its method of accounting for income taxes and postretirement benefits other than pensions.
COOPERS & LYBRAND
New York, New York January 25, 1994
STATEMENT OF MANAGEMENT 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 in 1993 continued to strengthen, a system of internal accounting and other controls for the company and its wholly owned 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. Underlying the concept of reasonable assurance is the premise that the cost of control should not exceed the benefit derived. The company's system of internal controls is supported by written policies, a program of internal audits, including a periodic review of the Internal Audit Department, and by a program of selecting and training qualified staff.
Coopers & Lybrand, independent accountants, have audited the company's consolidated financial statements, as described in their report. The report expresses an independent opinion of 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.
Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," and Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," were adopted effective January 1, 1992. Excluding the net cumulative effect of these accounting changes, net income was $26,948,000, or $.27 per share, in the first quarter of 1992 and $118,391,000, or $1.17 per share, for the year (see Note 1).
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
Not applicable.
PART III.
ITEM 10. Directors and Executive Officers of the Registrant.
The information required by this item with respect to directors of the company and with respect to compliance with Section 16(a) of the Securities Exchange Act of 1934 is incorporated by reference to the tables, including the footnotes thereto, appearing on pages 8 to 10 of the 1994 Proxy Statement and to the material on pages 19 to 20 of the 1994 Proxy Statement under the caption "Compliance with Section 16(a) of the Exchange Act". For information relating to executive officers, see Part I, page 11.
ITEM 11. Executive Compensation.
The information required by this item is incorporated by reference to pages 11 to 13 of the 1994 Proxy Statement.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management.
The information required by this item is incorporated by reference to the tables, including the footnotes thereto, appearing on pages 2 to 6 of the 1994 Proxy Statement under the captions "Security Ownership of Certain Beneficial Owners" and "Security Ownership of Directors and Management".
ITEM 13. Certain Relationships and Related Transactions.
The information required by this item is incorporated by reference to footnotes (3) and (4) on page 10 of the 1994 Proxy Statement and to the material on page 17 of the 1994 Proxy Statement under the caption "Compensation Committee Interlocks and Insider Participation".
PART IV. ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
14 (a) (1) Financial Statements:
Page Reference --------- Included in Part II, Item 8