UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
OR
( ) Transition Report Pursuant to Section 13 of 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended March 27, 2004 Commission file number 2-28286
The Bureau of National Affairs, Inc.
A Delaware Corporation 53-0040540
(I.R.S. Employer Identification No.)
1231 25th St., N. W., (202) 452-4200
Washington, D.C. 20037 (telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to the filing requirements for
the past 90 days. Yes (X)
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes (X)
The number of shares outstanding of each of the issuer's classes of common
stock, as of March 27, 2004 was 14,302,770 Class A common shares, 18,420,961
Class B common shares, and 13,380 Class C common shares.
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THE BUREAU OF NATIONAL AFFAIRS, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE 12-WEEKS ENDED MARCH 27, 2004 and MARCH 22, 2003
(Unaudited)
(In thousands of dollars, except per share amounts)
12 Weeks Ended
March 27, 2004 March 22, 2003
------------ ------------
OPERATING REVENUES $ 69,913 $ 65,860
------------ ------------
OPERATING EXPENSES:
Editorial, production, and distribution 38,770 38,152
Selling 12,769 12,302
General and administrative 12,496 11,606
------------ ------------
TOTAL OPERATING EXPENSES 64,035 62,060
------------ ------------
OPERATING PROFIT 5,878 3,800
------------ ------------
NON-OPERATING INCOME:
Investment income 1,018 1,049
Interest expense (1,294) (1,338)
------------ ------------
TOTAL NON-OPERATING (EXPENSE) (276) (289)
------------ ------------
INCOME BEFORE INCOME TAXES 5,602 3,511
PROVISION FOR INCOME TAXES 1,901 1,201
------------ ------------
NET INCOME 3,701 2,310
OTHER COMPREHENSIVE INCOME 173 55
------------ ------------
COMPREHENSIVE INCOME $ 3,874 $ 2,365
============ ===========
NET INCOME PER SHARE $ .07 $ .07
============ ===========
WEIGHTED AVERAGE SHARES OUTSTANDING 33,155,723 34,911,042
============ ===========
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THE BUREAU OF NATIONAL AFFAIRS, INC.
CONSOLIDATED BALANCE SHEETS
MARCH 27, 2004 AND DECEMBER 31, 2003
(In thousands of dollars)
March 27,
2004 December 31,
ASSETS (Unaudited) 2003
- -------------------------------- ------------ ------------
CURRENT ASSETS:
Cash and cash equivalents $ 23,705 $ 18,488
Short-term investments, at fair value 22,293 25,450
Receivables (net of allowance for
doubtful accounts of $1,674 in 2004
and $2,135 in 2003) 33,207 40,167
Inventories, at lower of average
cost or market 4,105 3,802
Prepaid expenses 3,194 4,560
Deferred selling expenses 4,470 4,625
Deferred income taxes 8,259 8,197
------------ ------------
Total current assets 99,233 105,289
MARKETABLE SECURITIES 91,692 80,985
PROPERTY AND EQUIPMENT - at cost:
Land 4,250 4,250
Building and improvements 51,693 51,690
Furniture, fixtures and equipment 48,925 49,007
------------ ------------
104,868 104,947
Less-Accumulated depreciation 75,177 74,428
------------ ------------
Net property and equipment 29,691 30,519
DEFERRED INCOME TAXES 23,634 23,368
GOODWILL 73,852 73,852
INTANGIBLE ASSETS 23,249 23,937
OTHER ASSETS 264 239
------------ ------------
Total assets $ 341,615 $ 338,189
============ ============
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THE BUREAU OF NATIONAL AFFAIRS, INC.
CONSOLIDATED BALANCE SHEETS
MARCH 27, 2004 AND DECEMBER 31, 2003
(In thousands of dollars)
March 27,
2004 December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY (Unaudited) 2003
- ------------------------------------ ------------ ------------
CURRENT LIABILITIES:
Accounts payable $ 21,752 $ 15,848
Employee compensation and benefits payable 22,968 25,829
Income taxes payable 2,008 2,053
Deferred revenues 126,859 122,861
Current portion of long-term debt 5,000 5,000
Dividends payable 4,974 --
------------ ------------
Total current liabilities 183,561 171,591
LONG-TERM DEBT 70,000 70,000
POSTRETIREMENT BENEFITS, less current portion 67,665 64,302
OTHER LIABILITIES 7,497 7,793
------------ -----------
Total liabilities 328,723 313,686
------------ -----------
STOCKHOLDERS' EQUITY:
Capital stock, common, $1.00 par value-
Class A - Voting; Authorized 30,000,000
shares; issued 30,000,000 shares 30,000 30,000
Class B - Nonvoting; authorized
30,000,000 shares; issued 24,634,865 share 24,635 24,635
Class C - Nonvoting; authorized
5,000,000 shares; issued 2,531,680 shares 2,532 2,532
Additional paid-in capital 11,966 11,350
Retained earnings 94,358 95,631
Treasury stock, at cost - 24,429,434 shares
in 2004 and 23,513,748 in 2003 (150,597) (139,470)
Elements of other comprehensive income:
Net unrealized loss on marketable securities 152 (17)
Foreign currency translation adjustment (154) (158)
------------ -----------
Total stockholders' equity 12,892 24,503
------------ -----------
Total liabilities and stockholders' equity $ 341,615 $ 338,189
============ ===========
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THE BUREAU OF NATIONAL AFFAIRS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE 12-WEEKS ENDED MARCH 27, 2004 and MARCH 22, 2003
(Unaudited)
(In thousands of dollars)
12 Weeks Ended
March 27, 2004 March 22, 2003
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,701 $ 2,310
Items with different cash requirements
than reflected in net income--
Depreciation and amortization 2,625 4,689
Gain on sales of securities (284) (240)
Capitalized interest (80) (30)
Others (218) (261)
Changes in operating assets and liabilities--
Receivables 7,431 11,985
Deferred revenues 3,998 (2,719)
Payables and accrued liabilities (5,264) (2,881)
Postretirement benefits 3,363 2,821
Deferred income taxes (422) (735)
Deferred selling expenses 155 310
Inventories (303) (785)
Other assets and liabilities--net 1,036 907
------------ ------------
Net cash provided by operating activities 15,738 15,371
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures--
Capitalized software (886) (630)
Purchase of equipment and furnishings (152) (462)
Business purchase price adjustment -- (506)
Proceeds from sale of assets 9 --
------------ ------------
Net cash (used for) capital expenditures (1,029) (1,598)
------------ ------------
Securities investments--
Proceeds from sales and maturities 27,199 26,139
Purchases (30,113) (27,778)
------------ ------------
Net cash (used for) securities investments (2,914) (1,639)
------------ ------------
Net cash (used for) investing activities (3,943) (3,237)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of capital stock to employees 1,015 2,001
Purchases of treasury stock (7,593) (1,250)
------------ ------------
Net cash provided from (used for)
financing activities (6,578) 751
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 5,217 12,885
CASH AND CASH EQUIVALENTS, beginning of period 18,488 11,530
------------ ------------
CASH AND CASH EQUIVALENTS, end of period $ 23,705 $ 24,415
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 1,392 $ 1,412
Income taxes paid 2,367 698
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THE BUREAU OF NATIONAL AFFAIRS, INC.
Notes to Consolidated Financial Statements
March 27, 2004
(Unaudited)
NOTE 1: General
The information in this report has not been audited. Results for the twelve
weeks are not necessarily representative of the year because of the seasonal
nature of activities. The financial information furnished herein reflects all
adjustments (consisting only of normal recurring adjustments) which are, in the
opinion of management, necessary for a fair statement of the results reported
for the periods shown and has been prepared in conformity with generally
accepted accounting principles of the United States of America applied on a
consistent basis.
Notes contained in the 2003 Annual Report to security holders are hereby
incorporated by reference. Note disclosures which would substantially duplicate
those contained in the 2003 Annual Report to security holders have been omitted.
Certain prior year balances have been reclassified to conform to current year
presentation.
The reported amounts of some assets and liabilities, and the disclosures of
contingent assets and liabilities, result from management estimates and
assumptions which are required to prepare financial statements in conformity
with accounting principles generally accepted in the United States of America.
Estimates and assumptions are used for measuring such items as postretirement
benefits, deferred tax assets, and the allowance for doubtful accounts, and for
evaluating the possible impairment of intangible assets and goodwill. Estimates
and assumptions may also affect the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
NOTE 2: Inventories
Inventories consisted of the following (in thousands):
March 27, December
2004 31, 2003
------------ ------------
Materials and supplies $ 1,930 $ 2,089
Work in process 848 436
Finished goods 1,327 1,277
------------ ------------
Totals $ 4,105 $ 3,802
============ ============
NOTE 3: Stockholders' Equity
Treasury stock as of March 27, 2004 and December 31, 2003, respectively,
consisted of: Class A, 15,697,230 and 15,620,011 shares; Class B, 6,213,904 and
5,801,150 shares; and Class C, 2,518,300 and 2,092,587 shares.
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NOTE 4: Segment Information
In thousands of dollars:
12 Weeks Ended
3/27/04 3/22/03
------------ ------------
Revenues from external customers:
Publishing $ 61,069 $ 58,619
Printing 5,092 3,723
Software 3,752 3,518
------------ ------------
Total $ 69,913 $ 65,860
============ ============
Intersegment printing revenues $ 2,817 $ 2,890
============ ============
Intersegment software revenues $ 722 $ 812
============ ============
Operating profit:
Publishing $ 6,415 $ 6,477
Printing 7 (161)
Software (544) (2,516)
------------ ------------
Total $ 5,878 $ 3,800
============ ============
NOTE 5: Goodwill and Intangible Assets
Goodwill assigned to the operating segments is as follows: Publishing
$49,998,000; Printing $917,000; and Software $22,937,000.
Intangible assets that continue to be subject to amortization were as follows
(in thousands of dollars):
March 27, 2004 December 31, 2003
---------------------------- ----------------------------
Gross Carrying Accumulated Gross Carrying Accumulated
Amount Amortization Amount Amortization
---------------------------- ----------------------------
Software $ 26,006 $ (13,798) $ 25,040 $ (13,057)
Customer Lists 14,638 (9,945) 14,638 (9,464)
Copyrights 9,145 (3,098) 9,145 (2,887)
Other 4,816 (4,515) 4,801 (4,279)
---------------------------- ----------------------------
Total $ 54,605 $ (31,356) $ 53,624 $ (29,687)
============================ ============================
Amortization expense for the above assets in the first quarters of 2004 and
2003, respectively, was $1,669,000 and $3,656,000 (including $1,803,000 for
accelerated amortization of a software asset).
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NOTE 6: Employee Benefit Plans
The Company has noncontributory defined benefit pension plans and provides
retiree health care and life insurance benefits (other postretirement benefits)
for certain of its employees. The net periodic benefit cost is based on
estimated values provided by independent actuaries. The components of net
periodic benefit cost were as follows (in thousands of dollars):
12 Weeks Ended
3/27/04 3/22/03
------------ ------------
Pension Benefits:
Service cost $ 1,719 $ 1,426
Interest cost 2,307 2,045
Expected return on plan assets (2,029) (1,615)
Amortization of prior service
cost and net actuarial loss 319 162
------------ ------------
Total $ 2,316 $ 2,018
============ ============
Other Postretirement Benefits:
Service cost $ 872 $ 71
Interest cost 1,233 1,021
Expected return on plan assets (428) (339)
Amortization of prior service
cost and net actuarial gain 34 (12)
------------ ------------
Total $ 1,711 $ 1,387
============ ============
The impact, if any, of the Medicare Prescription Drug, Improvement and
Modernization Act of 2003 has not been recognized in the Consolidated Financial
Statements as of March 27, 2004.
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PART I
Item 2. Management's Discussion and Analysis of Results of Operations
- ------- -------------------------------------------------------------
and Financial Position
----------------------
It is presumed that users of this interim report have read or have access to the
audited financial statements and management's discussion and analysis contained
in the 2003 Annual Report to security holders, hereby incorporated by reference.
This interim report is intended to provide an update of the disclosures
contained in the 2003 Annual Report to security holders and, accordingly,
disclosures which would substantially duplicate those contained therein have
been omitted.
FORWARD-LOOKING STATEMENTS
This management discussion contains and incorporates by reference certain
statements that are not statements of historical fact but are forward-looking
statements. The use of such words as "believes," "expects," "estimates,"
"could," "should," and "will," and similar expressions are intended to identify
forward-looking statements. Such statements are subject to certain risks and
uncertainties, which could cause actual results to differ from those projected.
Readers are cautioned not to place undue reliance on these forward-looking
statements which speak only as of the date hereof.
RESULTS OF OPERATIONS
Twelve weeks 2004 compared to twelve weeks 2003
BNA achieved strong first-quarter financial results for 2004, easily exceeding
last year's weak start. Solid revenue increases for each segment led to a record
first quarter operating profit and to record-tying first quarter earnings per
share.
Consolidated revenues were up 6.2 percent to $69.9 million in the first quarter
of 2004, compared to 2003, reflecting increases in all three segments.
Consolidated operating expenses increased just 3.2 percent. The consolidated
operating profit of $5.9 million was 54.7 percent above last year, which had
included a software asset writedown. Net income for the first quarter was $3.7
million, a 60.2 percent increase over 2003 results. Excluding the effects of the
writedown, the operating profit and net income were up 8.4 percent and 11.5
percent, respectively. Earnings per share were $.11 for the quarter, versus $.07
in 2003.
Publishing segment revenues were up 4.2 percent compared to the prior year's
first quarter with all operating units recording increases. Higher books and
online revenues accounted for nearly half of the increase. Publishing operating
expenses were up 4.8 percent mostly due to higher employee compensation and
benefit expenses. The operating profit for the Publishing segment declined 1.0
percent for the first quarter to $6.4 million.
Printing segment total revenues were up 19.6 percent compared to 2003.
Intersegment revenues, expected to decline as Publishing segment subscribers
continue to migrate from print to electronic products, were down 2.5 percent.
But commercial sales were up 36.8 percent, despite a very price-sensitive
competitive environment, due mostly to an upturn in financial printing work.
Operating expenses were up 16.7 percent, reflecting higher variable costs. The
operating profit was $7,000 in 2004 compared to a $161,000 loss in last year's
first quarter.
Software segment revenues were up 6.7 percent compared to 2003 and expenses
decreased 28.8 percent. STF earns most of its revenues and profits in the first
and fourth quarters. STF total revenues declined 2.6 percent compared to 2003.
Revenues from external customers
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were essentially unchanged while intersegment sales declined. Operating expenses
decreased 8.5 percent due mainly to lower staffing costs, and STF achieved a 4.7
percent increase in its operating profit. BNA Software earns the majority of its
revenues and all of its profits in the second half of the year. For the first
quarter, revenues grew 18.3 percent due to higher sales of BNA Fixed Assets
products and services, while ongoing expenses increased 3.7 percent. BNA
Software recorded a $2.0 million operating loss in the first quarter of 2004; it
had a $2.1 million loss in the first quarter of 2003, excluding the $1.8 million
writedown of capitalized development costs. The total software segment had a
$544,000 operating loss in 2004 compared to a $2.5 million loss in 2003.
Excluding the 2003 writedown, the first quarter operating loss was $169,000
lower in 2004.
A slight decrease in investment and other income was offset by slightly lower
interest expense. Other comprehensive income reflected a higher unrealized
holding gain in 2004 compared to 2003.
Outlook
The improved first quarter financial results represent a strong beginning toward
achieving our 2004 profit goals. We do expect to see improved revenue growth
this year, albeit not at the levels recorded in the first quarter, as the
stronger economy helps to convince our markets that they can afford to buy more
of our products. Our subsidiary companies, which were particularly hard hit by
the weak business economy over the three previous years, are expected to see the
quickest revenue turnaround, and we did see some of that in the first quarter.
If the economy stays strong, improved revenue growth should expand to all of our
business units. Over the last three years, cost controls have been crucial to
preserving profits, and they will be continued.
Our 2004 budget calls for a 20% increase in operating profit and a 25% increase
in earnings per share. We believe that is achievable, partly because 2003 final
results were less than expected, but also because of brighter business
prospects. Encouragingly, actual first quarter results are tracking above
budget. So, although there is a long way to go, we are very positive about our
chances to achieve strong profit growth this year.
FINANCIAL POSITION
Cash provided from operating activities was $15.7 million in the first twelve
weeks of 2004, a 2.2 percent increase over the $15.4 million provided from the
first twelve weeks of 2003. Customer receipts were up 11.4 percent, and
operating expenditures increased 13.8 percent from 2003. Four additional
business days in the first quarter of 2004 partially accounted for these
increases. Cash used for investing activities was $3.9 million. Capital
expenditures amounted to $1 million and cash used for the investment portfolio
totaled $2.9 million. During the quarter, sales of capital stock to employees
totaled $1 million. Capital stock repurchases amounted to $7.6 million.
With almost $138 million in cash and investment portfolios the financial
position and liquidity of the Company remains very strong. The cash flows from
operations, along with existing financial reserves and proceeds from the sales
of capital stock, have been sufficient in past years to meet all operational
needs, new product introductions, debt repayments, most capital expenditures,
and, in addition, provide funds for dividend payments and the repurchase of
stock tendered by shareholders. Should more funding become necessary or
desirable in the future, the Company believes that it has sufficient additional
debt capacity based on its operating cash flows and real estate equity.
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Item 3. Quantitative and Qualitative Disclosures about Market Risk
- ------- ----------------------------------------------------------
There have been no material changes to our market risk since December 31, 2003.
Item 4. Controls and Procedures
- ------- -----------------------
The Company carried out an evaluation, under the supervision and with the
participation of its management, including the Company's Chief Executive Officer
and Chief Financial Officer, of the effectiveness of the Company's disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the
Securities Exchange Act of 1934), as of the end of the period covered by this
report. Based on this evaluation, the Company's Chief Executive Officer and
Chief Financial Officer have concluded that the Company's disclosure controls
and procedures are effective in timely alerting them to material information the
Company is required to disclose in its periodic SEC filings.
During the period covered by this report there have been no significant changes
in the Company's internal controls over financial reporting that have materially
affected, or were reasonably likely to materially affect, the Company's internal
control over financial reporting.
PART II
Item 1. Legal Proceedings
- ------- -----------------
There were no material legal proceedings during the first twelve weeks of 2004.
Item 2. Change in Securities
- ------- --------------------
There were no changes in securities.
Item 3. Defaults upon Senior Securities
- ------- -------------------------------
There were no defaults upon senior securities.
Item 4. Submission of Matters to a Vote of Securities Holders
- ------ -----------------------------------------------------
The annual meeting for stockholders was held April 17, 2004. A proxy statement
pursuant to Rule 14a was distributed to all stockholders in connection with this
meeting.
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Results of the election of directors:
Stockholder Candidates
Nominee Shares Voted For
------------------------------------------------------
Paul A. Blakely 6,652,724
Cynthia J. Bolbach 6,484,389
Eunice L. Bumgardner 5,848,553
Sandra C. Degler 5,796,210
Neil R. Froemming 5,842,063
George J. Korphage 7,608,626
Gregory C. McCaffery 7,838,745
David P. McFarland 5,568,531
Robert L. Velte 5,638,813
Paul N. Wojcik 7,827,027
David Foster 5,308,882
Non-stockholder Candidates
Nominee Shares Voted For
------------------------------------------------------
Gerald S. Hobbs 6,083,993
Jonathan Newcomb 5,963,775
Susan E. Rice 5,862,993
Ellen Taus 6,609,623
Daniel W. Toohey 6,027,991
Item 5. Other Information
- ------- -----------------
No other information is presented herein.
Item 6. Exhibits and Reports on Form 8-K
- ------- --------------------------------
(a) Exhibits
31.1 Certification of the Chief Executive Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002, 18 U.S.C. section 1350.
31.2 Certification of the Chief Financial Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002, 18 U.S.C. section 1350.
32.1 Certification of the Chief Executive Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, 18 U.S.C. section 1350.
32.2 Certification of the Chief Financial Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, 18 U.S.C. section 1350.
(b) No reports were filed on Form 8-K during the quarter ended
March 27, 2004.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
The Bureau of National Affairs, Inc.
Registrant
April 23, 2004 s/Paul N. Wojcik
- ------------------ ----------------------------------
Date Paul N. Wojcik
President and Chief Executive Officer
April 23, 2004 s/George J. Korphage
- ------------------ ---------------------------------
Date George J. Korphage
Vice President and Chief Financial Officer