Annual Report (Form 10-K), fiscal year 1994

ITEM 1. Business.
Dow Jones & Company, Inc. (the company) is a global provider of business news and information. Its operations are 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 the Financial Statements on pages 44 and 45 of this report.
The company currently has approximately 10,300 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 industry 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, business and individual investor needs by delivering its information products and services on a wide range of electronic media, including desktop and portable personal computers, pagers, facsimile machines and radio. This group's products include Dow Jones News/Retrieval, DowVision 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 85 countries. About 60% of Dow Jones Telerate's revenues are generated by its foreign operations. Dow Jones Telerate Holdings, Inc., formerly 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 Trading Room Systems (TRS) provide advanced decision-support tools. Designed to serve the needs of large trading rooms, TRS have networking capabilities which enable customers to link trading rooms world-wide. Running on powerful desktop workstations using software compatible with Microsoft's Windows, TRS consolidates several information, transaction and analytic services into a single platform at a trader's desk.
In 1994 a single-user and multiuser version of this workstation concept was developed. The Telerate Workstation, introduced in early 1995, provides the full range of Dow Jones Telerate's real-time and historical market data, decision-support products and transaction services, as well as the Dow Jones Investor Network, a video business-news service. The Telerate Workstation has been customized to meet the specific needs of professionals in the fixed- income, foreign exchange, equity and energy markets.
Digital Page Feed (DPF) fills the needs of customers who prefer to receive any or all of 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. DPF offers these customers highly reliable, timely and selective information feeds combined with the flexibility required by their custom distribution systems.
Matrix employs the power of a personal computer to allow customers to build customized, full-color, market-specific pages using Dow Jones Telerate data. 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.
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 1994 Liberty Brokerage Investment Corp. started supplying Treasury securities prices, further strengthening Dow Jones Telerate's position as the leading provider of real-time U.S. Treasury prices.
Dow Jones Telerate is the exclusive distributor 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.
TeleTrac is a technical analysis product favored by dealers in the foreign exchange and fixed income markets. It is a leading technical analysis tool in Europe and Asia. Telerate Charting, a Windows-based analytical tool, is also available in Europe.
Dow Jones holds an equity stake in the Japanese consortium Minex Corp. and Dow Jones Telerate serves as exclusive world-wide sales and distribution agent outside of Japan for Minex's foreign exchange trading service.
Telerate Equities Service (TES) product line offers quotes and news on thousands of securities traded on stock, futures and options exchanges around the world. TES, 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. TES combines in one service all Dow Jones Telerate data, including information on equities, foreign exchange and U.S. Government issues.
Dow Jones Telerate Emerging Markets Report, introduced in 1993, nearly doubled its staff in 1994. This service 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 public telephone networks and includes access to Dow Jones News/ Retrieval; hand-held quotation devices that deliver current prices, rates and other data; 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. 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. 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 56 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. In 1994 AP- Dow Jones increased the speed of its distribution network and enhanced its global staff by opening news bureaus in Beijing, Lisbon, New Delhi, Oslo, Prague and Vienna.
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 Federal Filings Business News, a real-time newswire covering SEC filings; Daily Bankruptcy Review, a compendium of large bankruptcy filings throughout the U.S.; and 13F Advance, which analyzes the equity portfolio changes of prominent money managers. In 1994 Federal Filings introduced Edgar Direct which provides real-time access to the full text of SEC filings.
In 1994 the company launched the Dow Jones Asian Equities Report, which covers 12 Asian-Pacific stock markets and news of 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 recognized as one of the nation's leading suppliers of electronic business and financial news and information to financial professionals, private investors, corporate executives and managers, as well as to information specialists in corporate libraries. Business Information Services in 1994 formed an alliance with West Publishing in which West's product Westlaw became the exclusive computer-assisted legal research service to offer integrated access to Dow Jones News/Retrieval. Also, in 1994 the news content on the day of publication, with availability for 24 hours, of the New York Times was added to News/Retrieval. In early 1995, on-line availability on day of publication of the Financial Times, along with two years of back editions, was made available. In 1995 an "electronic gateway" was opened to Nikkei Telecom Japan News & Retrieval, offering access to news and information about Japan and the Pacific Rim. In 1994 News/Retrieval introduced an enhanced Dow Jones Text Library that gives added flexibility and precision in searching the vast databases which contain more than 1,800 publications and 35 million articles.
The Business Information Services group in early 1995 introduced 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 directly to personal computers. The Wall Street Journal Interactive Edition, currently under development, builds on Personal Journal. It will be a true "interactive newspaper," combining the editorial qualities of the Journal with the immediacy and depth of the electronic medium.
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 users in the corporate and financial marketplaces to tailor information to their own needs.
In 1994 Business Informations Services broadened its access to consumer markets by signing agreements to provide Dow Jones news to CompuServe, owned by H&R Block Inc., and eWorld, Apple Computer Inc.'s new on-line service. The company and Aegon USA Inc. formed a partnership in 1994 which plans to gather and distribute commercial real estate data, information and analytics through on-line services.
Because of declining demand for telephone-based business news services, Business Information Services discontinued DowPhone and the Voice Information Network audio service for newspapers in early 1995. At the same time, it continued to expand the distribution of text-based news and information on paging and wireless electronic mail services.
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 are carried on 150 stations and reach 80% of the country.
In January 1995, ESPN Inc. acquired an 80% interest in SportsTicker, the real-time sports news and information unit of Dow Jones. Dow Jones retains a 20% interest in the service and plans to develop opportunities with ESPN to provide business-of-sports TV programming.
In March 1995, the company acquired majority ownership in IDD Enterprises L.P., a financial publishing, database, software and consulting company. IDD publishes Investment Dealers' Digest and 16 other magazines, newsletters and directories. Its software and electronic information products are available to investment banks and financial institutions through a variety of services, including Dow Jones Telerate and Dow Jones/News Retrieval.
Business Publications - ---------------------
Dow Jones' best-known publication, The Wall Street Journal, is the country's largest daily newspaper with average circulation for 1994 of 1,808,700. 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 seventeen plants located across the United States. Advertisers can also focus their messages on readers served by sixteen localized editions. In October 1994, Southeast Journal and Florida Journal were introduced. Together with Texas Journal, introduced in 1993, these editions provide Journal-quality reporting on regional business trends and issues. They appear as a four-page weekly section included in copies of The Wall Street Journal distributed in their respective Southern markets each Wednesday. The Journal now provides weekend-oriented coverage every Friday, including Your Money Matters Weekend Report (an expanded personal-finance column), a sports page and a travel page.
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 1994, 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 226,000 copies of the Journal are sold each business day on newsstands.
Barron's, The Dow Jones Business and Financial Weekly, a magazine specializing in reporting and commentary on financial markets, was redesigned in 1994. The new look includes a new cover, a more readable typeface and a new pullout section, Market Week, providing readers with an easy-to-use statistical reference guide. The magazine, which had average circulation of 278,300 in 1994, 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 126,600 copies are sold on newsstands weekly.
The Wall Street Journal Europe is headquartered in Brussels and printed in Brussels, 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 1994 of 59,100. The Central European Economic Review is distributed as an insert in the Wall Street Journal Europe and also sold separately by subscription. Formerly a quarterly, the magazine, which covers political and business developments in the former Soviet bloc, became a monthly publication in 1995. 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, Japan and Bangkok. The Asian Wall Street Journal had average circulation of 46,500 in 1994. The Journal Europe and the Asian Journal draw on the resources of The Wall Street Journal's world-wide news 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.
The Wall Street Journal Americas was launched in 1994. The daily, Spanish-language business news section is included in eight major Latin American newspapers with a combined weekday circulation of 1.2 million.
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 in more than 900 schools 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, was named Magazine of the Year for 1993 by Advertising Age magazine. SmartMoney increased its advertising rate base to 550,000 copies in 1994. BIZ, the monthly magazine introduced in 1994 by Dow Jones and American City Business Journals, Inc., ceased publication with its January 1995 issue.
In early 1995 the company purchased Charter Financial Publishing Corp. of Shrewsbury, New Jersey. Charter is publisher of Investment Advisor, Realty Stock Review and the newly launched Fee Advisor.
Also included in this business segment is The Wall Street Journal's television group which developed European Business News (EBN) in 1994. EBN, which began broadcasting in February 1995, provides 19-hours-a-day coverage of European business, financial and consumer news throughout Europe. EBN is a joint venture, 70% owned by Dow Jones and 30% owned by Flextech PLC, of London, an affiliate of Tele-Communications Inc. The television group also produces "The Wall Street Journal Report" a half-hour, weekly program in the U.S. covering business, consumer and investment topics.
Dow Jones Investor Network is a video business-news service delivered to customers' computer terminals, that includes exclusive interviews with business leaders and coverage of major corporate announcements and events.
Community Newspapers - --------------------
Community newspapers published at year-end 1994 by Ottaway Newspapers, Inc., a wholly-owned subsidiary, include 20 general-interest dailies in Arizona, California, Connecticut, Kentucky, Massachusetts, Michigan, Minnesota, Missouri, New York, Oregon and Pennsylvania. Average circulation of the dailies during 1994 was approximately 551,500; Sunday circulation for 13 newspapers was approximately 527,500. The principal administrative office of Ottaway Newspapers is in Campbell Hall, New York. The primary delivery method for the newspapers is private delivery.
Ottaway Newspapers purchased the Salem (Massachusetts) Evening News in March 1995. The Evening News publishes 30,000 copies Monday through Saturday afternoons in Essex County, where Ottaway has four other dailies with a total circulation of 37,000.
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; VWD-Vereinigte Wirtschaftsdienste GmbH, a German news agency specializing in business and economic news and information; Asia Business News, a business and financial television news channel broadcasting in Asia; and newsprint mills in the United States and Canada. The company also owns a minority interest in Hubbard Broadcasting Inc.'s U.S. Satellite Broadcasting venture which directly broadcasts television programming to viewers in the U.S. via 18-inch dish antennas linked to special home receivers.
Raw Materials - -------------
The primary raw material used by the company is newsprint. In 1994, approximately 221,000 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 18% and 20.6%, 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 its most significant competitor currently providing, 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 on a world-wide basis. The company believes that Dow Jones Telerate 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 electronic data systems which are able to move financial and business news rapidly from one location to another, competing with the company's other information services products. This competition will become more intense as telecommunications systems are improved and new techniques of data transmission are developed.
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. 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.
Research and Development - ------------------------
Research and development expenses were $52,522,000 in 1994, $40,705,000 in 1993 and $32,320,000 in 1992.
ITEM 2.



ITEM 2. Properties.
Dow Jones operates seventeen plants with an aggregate of approximately 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; 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 350,000 square feet, while advertising sales staff occupy 106,000 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 26 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 1,087,000 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 52, 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 50, President of the company and President of The Wall Street Journal 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 57, Senior Vice President since 1986, President of Magazines since February 1988, President of Affiliated Companies Group since 1986, and Chairman of Ottaway Newspapers, Inc. since 1979, served as President of the International Group from February 1988 to January 1995, as Vice President/Community Newspapers from 1980 to 1985 and as President of Ottaway Newspapers, Inc. from 1970 to 1985 and its Chief Executive from 1976 to January 1989.
Peter G. Skinner, age 50, Senior Vice President since November 1989, General Counsel and Secretary since 1985 and President, Television since January 1995, served as Vice President from 1985 to November 1989.
Carl M. Valenti, age 56, Senior Vice President and President and Publisher of Dow Jones Telerate since May 1990, served as Vice President of the company and President/Information Services Group from 1987 to 1990 and as Vice President/Information Services Group from 1980 to 1987.
Kevin J. Roche, age 60, Vice President/Finance since 1986 and Chief Financial Officer since January 1989, served as Comptroller from 1977 to March 1987.
Thomas G. Hetzel, age 39, 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, 1995, was 10,700 for common stock and 4,500 for class B common stock. The company paid $.84 per share in dividends in 1994 and $.80 per share in 1993, which represented an earnings payout of 46.8% in 1994 and 54.1% in 1993.
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 1994 of $178.2 million, or $1.80 per share, increased $30.6 million, or 20.8%, from 1993 net income of $147.5 million, or $1.48 per share. Growth in 1994 earnings was largely driven by robust gains in both revenues and operating income at the information services segment.
Earnings in 1994 included the cumulative effect of the adoption of Statement of Financial Accounting Standards (SFAS) No. 112, "Employers' Accounting for Postemployment Benefits," which reduced net income by $3 million, or three cents per share. Excluding the cumulative effect of this accounting change, net income of $181.2 million would have been $33.6 million, or 22.8%, better than 1993 earnings, continuing the sharp upward trend in earnings begun in 1992.
Earnings in 1993 were up $40 million, or 37.1%, from 1992 net income of $107.6 million, or $1.06 per share. Net income in 1992 included the cumulative effect of the adoption of SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," which reduced net income $32.4 million, or $.32 per share, and SFAS No. 109, "Accounting for Income Taxes," which increased earnings $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 certain investments. Excluding these nonrecurring items, net income in 1993 would have increased $21.1 million, or 16.7%, from 1992 earnings.
Net income in 1992, excluding nonrecurring items, increased $22.4 million, or 21.5%, from 1991.
A summary of the results of operations for each of the company's principal business segments as well as financial data by geographic area is displayed in Note 15 to the financial statements.
OPERATING INCOME
In 1994 operating income increased $41.9 million, or 13.2%, reaching a record $358.3 million. Operating income of $316.5 million in 1993 was up $35.8 million, or 12.7%, from 1992's operating income of $280.7 million. In 1992 operating income increased $40 million, or 16.6%. The operating margin grew to 17.1% in 1994 from 16.4% in 1993 and 15.4% in 1992.
Foreign operations, primarily at Dow Jones Telerate, provided $142.3 million, or roughly 40%, of 1994 operating income. Income from foreign operations was up 12.7% from $126.2 million in 1993. Domestic operating income in 1994 increased 13% to $234.5 million. In 1993 operating income from foreign operations grew 21%, while domestic operating income was up 7.4%.
Operating income at the information services segment, which includes both the Dow Jones/Telerate and Business Information Services groups, grew $41.5 million, or 26.4%, to $199 million in 1994. Information services operating income comprised 55.5% of consolidated operating income, up from 49.7% in 1993. Revenues advanced $114.8 million, or 13.3%, while operating expenses increased $73.3 million, or 10.4%. Operating income in 1994 benefited from fluctuations in foreign currency exchange rates, chiefly in the Asia/Pacific region. Excluding this benefit, 1994 operating income would have still increased 23.4%.
Dow Jones/Telerate operating income grew 30% in 1994; however, operating income at the Business Information Services group was down 3.6%. The operating margin for the information services segment reached 20.4% in 1994, up from 18.3% in 1993 and 18.6% in 1992. Expenses in 1994 continued to include substantial investments in technical improvements, product development and enhanced information.
In 1993 operating income for this segment grew $6.7 million, or 4.5%, as revenues advanced $52.6 million, or 6.5%, and operating expenses increased $45.9 million, or 7%. Operating income at this segment rose 2.1% in 1992.
The business publications segment includes The Wall Street Journal and its overseas editions, Barron's, other domestic and foreign publications and global initiatives into television. This segment's operating income in 1994 decreased $2 million, or 1.4%, to $141.6 million and accounted for 39.5% of the company's 1994 operating profit versus 45.4% in 1993.
The company's global television initiatives include European Business News (EBN), which is 70% owned by Dow Jones and 30% owned by an affiliate of Tele-Communications Inc. EBN launched a European business news channel in the first quarter of 1995. Excluding television operations, business publications operating income would have increased $6.8 million, or 4.5%, in 1994.
Business publications revenues were up $36.8 million, or 4.5%, in 1994. Operating expenses rose $38.8 million, or 5.7%. Operating income for the segment in 1993 increased $28.6 million, or 24.8%, to $143.7 million, after climbing $33.6 million, or 41.3%, to $115.1 million in 1992. The operating margin for the business publications segment was 16.4% in 1994, 17.4% in 1993 and 14.9% in 1992.
Community newspapers segment operating income for 1994 of $36.2 million grew $3.6 million, or 11.1%. This segment contains the Ottaway Newspapers group of 20 daily newspapers. The operating income gain was primarily due to higher advertising revenue and continuing cost controls. Operating income was up $0.9 million, or 2.9%, in 1993 and $4.7 million, or 17.6%, in 1992. The operating margin for the community newspapers segment improved to 14.3% in 1994 compared with 13.3% in 1993 and 13.5% in 1992.
REVENUES
In 1994 revenues advanced $159.2 million, or 8.2%, reaching a record $2.1 billion. Revenues from domestic operations increased 6% to $1.5 billion in 1994, accounting for about 70% of total revenues. Revenues from foreign components grew 14.2% to $602 million in 1994. Total revenues increased $113.9 million, or 6.3%, to $1.9 billion in 1993.
Advertising revenue in 1994 grew $26 million, or 3.7%, to $725 million. In 1993 advertising revenue was up $44.4 million, or 6.8%, from 1992. Circulation revenue in 1994 improved $16.3 million, or 4.7%, growing to $364.2 million. In 1993 circulation revenue increased $14.3 million, or 4.3%, to $347.8 million.
Information services 1994 revenue, which composed about 47% of the company's revenue, climbed $114.8 million, or 13.3%, to $976.8 million. Excluding a net benefit from fluctuations in foreign currency exchange rates, information services revenue would have increased $106.2 million, or 12.3%. In 1993 information services revenue grew $52.6 million, or 6.5%, to $862 million from $809.4 million in 1992.
Dow Jones/Telerate, which primarily serves professionals in the financial services industry and includes Dow Jones Telerate and the company's proprietary newswires, produced 90% of information services revenue in 1994. Dow Jones/Telerate revenues of $877.4 million grew $98.5 million, or 12.6%. About four-fifths of this increase resulted from world- wide volume gains attributable to growth in both the number of terminals and enhanced and expanded services. Dow Jones/Telerate's three regions: Americas; Europe, Middle East, Africa; and Asia/Pacific; all posted double digit revenue growth. Americas revenue climbed 12.1%, revenue from Europe, Middle East, Africa increased 12%, while Asia/Pacific revenue was up 15.1%. In 1993 Americas revenue was up 5.7%, revenues from Europe, Middle East, Africa rose 6.5% and Asia/Pacific revenue increased 5%.
The remaining 10% of information services revenue was earned by Business Information Services, which serves corporate, individual business consumer and private investor needs through Dow Jones News/Retrieval and related services. Business Information Services revenue was up 19.6% in 1994 after increasing 13.1% in 1993. Volume gains at Dow Jones News/ Retrieval were the primary reason for revenue growth in 1994 and 1993.
Business publications 1994 revenues of $862 million advanced 4.5% from 1993 revenues of $825.2 million. Revenues in 1993 were up 6.7% from 1992 revenues of $773.8 million. Advertising revenue increased 3.7% in 1994, with the Journal, its overseas editions and Barron's all posting gains. Advertising linage in 1994 at The Wall Street Journal, the largest component of business publications, declined 1.2% after rising 3.3% in 1993.
The decrease in linage at the Journal was the result of a 9.9% drop in financial advertising in 1994, following an increase of 13.4% in 1993. Financial linage is volatile and fluctuates with the level of new debt and equity offerings, which in 1994 were constrained by the upswing in interest rates. This category comprised 31.7% of total Journal advertising linage in 1994, compared with 34.8% in 1993, 31.2% in 1992 and 39% at its peak in 1987. General linage was up 3.1% in 1994, following declines of 0.9% in 1993 and 1.2% in 1992. Journal advertising rates were raised an average of 4% in 1994, 5% in 1993 and 4.5% in 1992.
Barron's national advertising pages increased 2.4% in 1994 and 6.9% in 1993, after being flat in 1992. Advertising revenue from overseas publications, including The Asian Wall Street Journal, The Wall Street Journal Europe and Far Eastern Economic Review, gained 23.3% in 1994. Overseas advertising revenue advanced 7.7% in 1993.
Circulation revenue at business publications grew 5.4% in 1994. Wall Street Journal revenue in 1994 benefited from a mid-1993 increase of 7.2% to $149 in the Journal's annual subscription price. Effective January 1, 1995, the price of an annual subscription was increased 10% to $164, while an annual Barron's subscription was raised 4.7% to $135 from $129. The newsstand price of the Journal remained at 75 cents in 1994, and it is not scheduled to change in 1995. Barron's newsstand price was raised 20% to $3.00 from $2.50 in June 1994. Including the Journal's European and Asian editions, world-wide average circulation decreased to 1,914,400 in 1994, compared with 1,941,600 in 1993 and 1,920,300 in 1992. Barron's average circulation for 1994 was up 4.9% to 278,300, following a 5.3% gain in 1993.
Revenues at Ottaway Newspapers, Inc., Dow Jones' community newspapers subsidiary, increased $7.6 million, or 3.1%, in 1994. Revenues were up 4.2% in 1993 and 3.4% in 1992. Ottaway's advertising revenue in 1994 grew $6.3 million, or 3.7%, chiefly as a result of rate increases and sales gains in preprinted inserts. Advertising revenue rose 4.1% in 1993 and 2.1% in 1992. Advertising linage edged up 0.2% in 1994 and 0.6% in 1993; linage declined 3.9% in 1992. Circulation revenue improved $1.3 million, or 1.8%, in 1994, after increases of 3.8% and 6.2% in 1993 and 1992, respectively. Average circulation for Ottaway's 20 daily newspapers was essentially flat at about 551,000 from 1991-1994.
OPERATING EXPENSES
Operating expenses in 1994 grew $117.3 million, or 7.3%, to $1.7 billion, primarily due to increases in spending on technical development and product enhancements, fees to outside information providers (royalties), salaries and depreciation. In 1993 operating expenses increased $78.2 million, or 5.1%, in part due to increases in royalties, newsprint costs and depreciation. Operating expenses in 1992 increased $52.8 million, or 3.6%, with higher information services costs moderated by lower newsprint expense.
In 1994 the company spent $52.5 million on research and development compared with $40.7 million and $32.3 million in 1993 and 1992, respectively. In addition to research and development costs, significant enhancements made to existing products resulted in a $22.7 million increase in 1994 expenses.
Information services expenses were up $73.3 million, or 10.4%, to $777.9 million in 1994, mainly due to continuing investments in technical development, network upgrades and product and information enhancements. Excluding the effect of foreign currency rate fluctuations, operating expenses increased $69.4 million, or 9.8%. At December 31, 1994, the number of full-time employees for information services was up 6.4% from year-end 1993.
Business publications expenses increased $38.8 million, or 5.7%, to $720.4 million in 1994. The increase was chiefly due to higher selling and operations costs for print publications and expansion of television operations. In 1994 television and multimedia initiatives increased segment expenses $9.1 million. Excluding television-related expenses, business publications expenses increased $29.7 million, or 4.4%. Newsprint expense was up slightly as consumption and the average cost of newsprint remained stable relative to 1993. However, newsprint prices are expected to increase sharply, possibly in excess of 40%, in 1995 as both the list prices of newsprint increase and currently available discounts decline.
Business publications operating expenses for 1993 of $681.6 million increased $22.9 million, or 3.5%, partially due to higher newsprint expense reflecting increased consumption and a higher average price. In 1992 operating expenses of $658.7 million were essentially flat with the prior year.
Community newspapers expenses were up $4 million, or 1.9%, in 1994. Higher selling costs and depreciation were moderated by slightly lower volume-related costs for printing, distribution and newsprint. Operating expenses increased 4.4% in 1993 and 1.4% in 1992.
In 1994 purchases of newsprint containing recycled fiber reached 70% of total purchases, up from 54% in 1993 and 39% in 1992. The company expects purchases of newsprint containing recycled material to remain high in 1995.
Salaries and wages were 31% of total operating expenses in 1994 and 1993 and 30% in 1992. Salaries and wages increased 5.8% in 1994, following increases of 6.4% in 1993 and 8.4% in 1992. At December 31, 1994, Dow Jones employed 10,265 full-time employees, up 2.6% from 10,006 at year-end 1993.
OTHER INCOME / DEDUCTIONS
Interest expense of $16.9 million decreased $5.7 million, or 25.3%, from 1993 due to a lower average debt level. Long-term debt outstanding averaged $251.1 million during 1994 compared with $339.9 million in 1993 and $385.4 million in 1992.
Equity in losses of associated companies for 1994 was $5.4 million compared with break-even results in 1993. The company's share of earnings from its newsprint affiliates of $1.9 million was 16.7% worse than earnings of $2.2 million in 1993. Equity earnings from newsprint mill affiliates in 1993 improved $6.9 million from losses of $4.7 million in 1992. Results from the newsprint mills should improve in 1995 as price increases and lower discounts for newsprint yield higher revenues.
Equity losses in 1994 included the first full year of operations for Asia Business News (ABN), a business and financial news television channel broadcasting in Asia. ABN, for which Dow Jones provides news and programming, is part of the company's global business television initiative. Also contained in equity results for 1994 were losses for BIZ, a monthly controlled-circulation magazine, which ceased publication with its January 1995 issue.
The fourth quarters of 1993 and 1992 included write-downs of investments totaling $8.2 million ($5.4 million after taxes) and $13.4 million ($8 million after taxes), respectively.
INCOME TAXES
The effective income tax rate was 46.5% in 1994 versus 48.5% in 1993 and 49.5% in 1992. The lower 1994 rate was chiefly caused by the lesser impact of stable nondeductible goodwill amortization on higher 1994 pretax earnings and an easing of state income taxes. Excluding goodwill amortization, the effective income tax rate would have been 41.5% in 1994, 42.4% in 1993 and 42.1% in 1992.
In 1992 SFAS No. 109, "Accounting for Income Taxes," was adopted. The cumulative effect of the accounting change was a benefit of $21.6 million, or $.21 per share, to 1992 earnings.
INVESTMENTS
During 1994, businesses and investments acquired totaled $47.3 million. These investments included acquiring minority stakes in United States Satellite Broadcasting Company, Inc. (USSB), a digital satellite television company, and VWD-Vereinigte Wirtschaftsdienste GmbH, a German news agency. The company also increased the amount of its investments in Asia Business News, Minex Corp., a Tokyo-based consortium offering foreign exchange transaction services, and a newsprint mill affiliate.
In January 1995, Charter Financial Publishing Corp., of Shrewsbury, New Jersey, was acquired. Charter Financial publishes Investment Advisor, a controlled-circulation monthly magazine for financial advisors and Realty Stock Review, a monthly paid-circulation newsletter on real estate.
FINANCIAL POSITION
Cash provided by operations in 1994 was $401.1 million, up $65.4 million, or 19.5%, from $335.7 million in 1993 and up 31.2% from $305.6 million in 1992. The gain in earnings and a change in working capital were chiefly responsible for the increase. In 1994, primarily using cash generated through operations, the company paid dividends of $83.4 million, funded $222.4 million in capital expenditures, made investments of $47.3 million and purchased 3,782,000 shares of its common stock for $118.2 million. The year-end cash balance increased to $10.9 million in 1994 from $5.7 million at year-end 1993.
At December 31, 1994, long-term debt, excluding current maturities, was $295.6 million, an increase of $34.5 million, or 13.2%, from $261.1 million at year-end 1993. The debt-to-equity ratio at December 31, 1994, was 19.9%, compared with 17.5% at 1993's year end. Long-term debt peaked at $719 million on December 31, 1989, when the debt-to-equity ratio was 51.2%. Commercial paper was used to retire long-term notes of $192 million which matured in 1994.
The company expects cash provided by operations in 1995 to be sufficient to meet its normal recurring operating commitments, fund capital expenditures of roughly $200 million and pay dividends of about $90 million. Capital spending in 1995 will include press equipment, which will enable Dow Jones' domestic print publications to offer advertisers limited four-color capability, as well as continued investments in the technical infrastructure of print and electronic services. Depending on business opportunities and market conditions, cash from operations may be used for strategic acquisitions, retirement of long-term debt or treasury share purchases. At December 31, 1994, the company had authorization to acquire an additional 1.6 million shares of its common stock.
The working capital ratio, excluding unearned revenue, was 1 to 1 as of year-end 1994 and 1993. Return on equity rose to 12% in 1994 from 9.9% in 1993 and 7.4% in 1992. On January 18, 1995, Dow Jones announced that it would raise its quarterly dividend to 23 cents per share from 21 cents per share, an increase of 9.5%.
In January 1995, the company sold an 80% interest in SportsTicker, a real-time sports news and information unit, to Entertainment Sports Programming Network, Inc. (ESPN), a subsidiary of Capital Cities/ABC. Dow Jones retains a 20% interest in the service and plans to collaborate with ESPN to produce business-of-sports TV programming.
OUTLOOK
Consolidated earnings are expected to improve in 1995. However, the growth in 1995 will be tempered in comparison to the high growth rates posted in recent years. The company plans a substantial increase in spending to develop new products and enhance existing products. Initiatives in 1995 include expansion of world-wide television activities, four-color printing capability for domestic publications and continued development of advanced platforms for the storage and retrieval of text, user-friendly front-end software for customer terminals and an interactive edition of The Wall Street Journal.
Information services revenues in 1995 are expected to increase at a rate consistent with the annual rates of growth achieved over the past several years. It is expected that a significant portion of the growth will come from Dow Jones Telerate's overseas operations. Dow Jones Telerate's sales of digital feeds and trading room systems should continue to fuel revenue growth.
Information services 1995 expenses will also likely increase at a rate similar to those seen in recent years as this segment continues to invest in expanded information, network enhancements and product improvements. Dow Jones Telerate will move forward in integrating all of its information into its more flexible Telerate Workstation, which was introduced in January 1995.
In 1995 business publications revenues are expected to show improvement, primarily from rate increases. National advertising rates at The Wall Street Journal were raised almost four percent for 1995. Improvement in domestic Journal advertising linage is largely dependent on the continuing strength of the overall U.S. economy and, specifically, on the activity in financial markets. Advertising rates at the Journal's overseas editions were raised an average of about seven percent for 1995. Circulation revenues in 1995 for both The Wall Street Journal and Barron's will begin to reflect the effect of subscription rate increases which went into effect January 1, 1995.
Business publications expenses in 1995 will be affected by price increases in newsprint and second class postage. On average, newsprint prices are expected to increase about 40% in 1995 as list prices increase and discounts given by suppliers decrease. Also, second class postage rates were increased 12.5% effective January 1, 1995. These increases are likely to cause business publications operating income to fall in 1995. However, the effect of newsprint price increases on consolidated net income is expected to be mitigated by improvements in earnings at the company's newsprint mill affiliates. Even with the price increase, newsprint expense is expected to comprise only about 7% of the company's total operating expenses in 1995.
Operating income at business publications will also be held down in 1995 as the expansion of world-wide television initiatives is pursued. European Business News launched its 19-hour a day channel in 1995's first quarter.
Following revenue increases at the community newspapers segment of 3.1% in 1994 and 4.2% in 1993, revenues are expected to grow at a higher level in 1995 as the segment benefits from an improved domestic economy and the acquisition of the Salem (Massachusetts) Evening News. However, community newspapers expenses will also be affected by increased newsprint prices.
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.
RESEARCH AND DEVELOPMENT expenditures are charged to expense as incurred. Research and development expenses were $52,522,000 in 1994, $40,705,000 in 1993 and $32,320,000 in 1992.
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 evaluation include expected future cash flows from operations of businesses acquired and the market value of comparable companies.
FOREIGN CURRENCY TRANSLATION of the assets and liabilities of subsidiaries whose functional currency is not the U.S. dollar is determined at the appropriate year-end exchange rates, while results of operations are translated at the average rates of exchange in effect throughout the year. The resultant translation adjustment is recorded directly to Stockholders' Equity. Gains and losses arising from translation of financial statements for foreign subsidiaries where the U.S. dollar is the functional currency as well as from all foreign currency transactions are included in income.
FORWARD EXCHANGE CONTRACTS are entered into to hedge contracted revenue streams from foreign currency exchange rate fluctuations. As such, these nonspeculative forward exchange contracts are not recorded on the company's balance sheets. Also, unrealized gains and losses on these forward exchange contracts are deferred and recognized upon settlement of the related transactions. 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 hedged (see Note 16).
ACCOUNTING CHANGES were adopted in response to recently issued accounting standards. Effective January 1, 1994, the company adopted Statement of Financial Accounting Standards No. 112, "Employers' Accounting for Postemployment Benefits." The cumulative effect of this change in accounting was a charge against earnings of $3,007,000 (see Note 10).
Effective January 1, 1992, the company adopted Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." A charge against earnings of $32,370,000 was recorded (see Note 10). As of the same date, the company also adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," by recording a benefit to earnings of $21,565,000 (see Note 7).
NOTE 2. OTHER, NET
Other, net includes gains/losses from foreign currency exchange rate fluctuations, write-downs of investments and other miscellaneous non- operating income and expenses.
Foreign exchange losses totaled $3,812,000 in 1994, $5,808,000 in 1993 and $2,247,000 in 1992.
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 investments.
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 investments. The investments 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.
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), 35% owned; Bear Island Timberlands Company, L.P., 35% 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 $41,828,000 in 1994 $39,558,000 in 1993, and $42,918,000 in 1992.
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 $6,449,000 and $4,976,000 higher in 1994 and 1993, respectively.
NOTE 5. LONG-TERM DEBT
Payments on long-term debt are due as follows: $5,318,000 in each year from 1995 through 1998, $268,962,000 in 1999 and $10,636,000 thereafter. Interest payments were $21,989,000 in 1994, $22,459,000 in 1993 and $31,825,000 in 1992.
The company can borrow up to $400 million through November 16, 1999, 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 U.S. dollars with interest that approximates the bank's prime rate, its C/D rate or the federal funds rate. A fee of 0.08% is payable on 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, 1994, the company intends to maintain the commitment at least through December 31, 1995. Accordingly, commercial paper was classified as long-term.
The revolving credit agreement contains various restrictive covenants principally relating to net worth, liabilities and cash flows. At December 31, 1994, consolidated net worth exceeded the minimum by $731 million and total consolidated liabilities were $1.6 billion less than the maximum. The company's cash flow, as defined in the agreement, in 1994 far exceeded that required.
In 1994 notes of $192 million matured. This debt was refinanced by the issuance of commercial paper, which is supported by the company's revolving credit agreement.
The note payable to the Associated Press is 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.
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. 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 to 1993 income tax expense.
The company's combined current and noncurrent deferred taxes at December 31, 1994 and 1993, 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 1994 and 1993 and 34% in 1992.
Income tax payments were $161,551,000 in 1994, $142,988,000 in 1993 and $135,180,000 in 1992.
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, 1994, there were 792,149 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 1994 become exercisable in 1995 and all other options granted were exercisable at December 31, 1994. 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 $943,000 in 1994, $2,826,000 in 1993 and $1,850,000 in 1992, 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 $46,768,000, $44,805,000 and $42,157,000 in 1994, 1993 and 1992, 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 additional 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. As a result, 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 13% annual rate of increase in the per capita costs of covered health care benefits was assumed for 1995, gradually decreasing to 6% by the year 2008 and remaining at that rate thereafter. Increasing the assumed health care cost trend rates by one percentage point in each year would increase the accumulated postretirement benefit obligation as of December 31, 1994, by $15.8 million and increase the aggregate of the service cost and interest cost components of net periodic postretirement benefit cost for 1994 by $2.5 million. A discount rate of 8.25% was used to determine the accumulated postretirement benefit obligation as of December 31, 1994.
At December 31, 1993, the company's accumulated postretirement benefit obligation was calculated using a discount rate of 7% and a health care cost trend rate of 12.5% for 1994 decreasing to 5.5% by the year 2008.
Effective January 1, 1994, the company adopted Statement of Financial Accounting Standards No. 112, "Employers' Accounting for Postemployment Benefits." Accordingly, the company recorded an after-tax charge of $3,007,000, or three cents per share, as the cumulative effect of accounting change as of the date of adoption. This change in accounting had no material effect on 1994 operating expenses.
NOTE 11. COMMITMENTS
Commitments for capital expenditures amounted to $33,974,000 at December 31, 1994.
These leases are principally for office space and equipment and contain renewal and escalation clauses. Total rental expense amounted to $90,286,000 in 1994, $83,853,000 in 1993 and $82,382,000 in 1992.
At December 31, 1994, the company had foreign currency forward exchange contracts settling on various dates through January 1996 to sell 6.5 billion Japanese yen (against $67,827,000). 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 $18.6 million for certain of its investees. At December 31, 1994, loan guarantees of $11,008,000 with remaining terms of up to eight and one-half years were in effect. The company views it as unlikely that its investees will fail to meet the terms of their obligations.
NOTE 12. PER SHARE AMOUNTS
Net income per share has been computed on the basis of the weighted average number of shares outstanding (99,002,000 shares in 1994, 99,773,000 shares in 1993 and 101,150,000 shares in 1992). 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 1994 and 1993 quarterly financial data shown on pages 49 and 50 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 balance sheets. The fair value of these financial instruments as of December 31, 1994 and 1993, was determined primarily by reference to dealer markets.
Nonspeculative forward exchange contracts, which hedge 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 forward exchange contracts at December 31, 1994, was $66,367,000 against a contracted value of $67,827,000, yielding a deferred gain of $1,460,000. The fair value as of December 31, 1993, of forward exchange contracts then in effect was $59,030,000 against a contracted value of $59,501,000, representing a deferred gain of $471,000.
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, 1994 and 1993, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1994. 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, 1994 and 1993, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1994, in conformity with generally accepted accounting principles.
As discussed in Notes 7 and 10 to the consolidated financial statements, the company changed its method of accounting for income taxes and postretirement benefits other than pensions effective January 1, 1992, and postemployment benefits effective January 1, 1994.
COOPERS & LYBRAND L.L.P.
New York, New York January 24, 1995
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 1994 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 independent review of the Internal Audit Department, and by a program of selecting and training qualified staff.
Coopers & Lybrand L.L.P., 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. 112, "Employers' Accounting for Postemployment Benefits," was adopted effective January 1, 1994. Excluding the net effect of this change, net income was $43,182,000, or $.43 per share, in the first quarter of 1994 and $181,180,000, or $1.83 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 is incorporated by reference to the tables, including the footnotes thereto, appearing on pages 8 to 10 of the 1995 Proxy Statement and to the material in footnote 5 on page 5 of the 1995 Proxy Statement. The information required by this item with respect to compliance with Section 16(a) of the Securities Exchange Act of 1934 is incorporated by reference to the material on pages 21 to 22 of the 1995 Proxy Statement under the caption "Compliance with Section 16(a) of the Exchange Act." For the information required by this item relating to executive officers, see Part I, page 13.
ITEM 11. Executive Compensation.
The information required by this item is incorporated by reference to the tables, including the footnotes thereto, appearing under the caption "Executive Compensation" on pages 11 to 13 of the 1995 Proxy Statement and to the material appearing on page 10 of the 1995 Proxy Statement in the two paragraphs immediately following footnote 5 on page 10.
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 1995 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 footnote 2 on page 9 of the 1995 Proxy Statement and to footnotes 4 and 5 on page 10 of the 1995 Proxy Statement.
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