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 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended March 26, 2005 Commission file number 2-28286
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THE BUREAU OF NATIONAL AFFAIRS, INC. 53-0040540
- ------------------------------------ ------------------------------------
A Delaware Corporation (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 26, 2005 was 13,674,623 Class A common shares, 17,905,545
Class B common shares, and 12,440 Class C common shares.
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THE BUREAU OF NATIONAL AFFAIRS, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE 12-WEEKS ENDED MARCH 26, 2005 and MARCH 27, 2004
(Unaudited)
(In thousands of dollars, except per share amounts)
12 Weeks Ended
March 26, 2005 March 27, 2004
------------ ------------
OPERATING REVENUES $ 70,247 $ 69,913
------------ ------------
OPERATING EXPENSES:
Editorial, production, and distribution 39,122 38,770
Selling 11,711 12,769
General and administrative 12,876 12,496
------------ ------------
TOTAL OPERATING EXPENSES 63,709 64,035
------------ ------------
OPERATING PROFIT 6,538 5,878
------------ ------------
NON-OPERATING INCOME (EXPENSE):
Investment income 1,022 1,018
Interest expense (1,382) (1,294)
------------ ------------
TOTAL NON-OPERATING (EXPENSE) (360) (276)
------------ ------------
INCOME BEFORE INCOME TAXES 6,178 5,602
PROVISION FOR INCOME TAXES 2,221 1,901
------------ ------------
NET INCOME 3,957 3,701
OTHER COMPREHENSIVE INCOME (991) 173
------------ ------------
COMPREHENSIVE INCOME $ 2,966 $ 3,874
============ ============
NET INCOME PER SHARE $ .13 $ .11
============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING 31,603,433 33,155,723
============ ============
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THE BUREAU OF NATIONAL AFFAIRS, INC.
CONSOLIDATED BALANCE SHEET
MARCH 26, 2005 and DECEMBER 31, 2004
(In thousands of dollars)
March 26,
2005 December 31,
ASSETS (Unaudited) 2004
- --------------------------------------- ------------ ------------
CURRENT ASSETS:
Cash and cash equivalents $ 21,007 $ 8,442
Short-term investments 12,605 11,752
Receivables (net of allowance for
doubtful accounts of $1,676 in
2005 and $2,097 in 2004) 26,580 30,827
Inventories 3,778 3,535
Prepaid expenses 2,639 3,864
Deferred selling expenses 3,803 3,474
Deferred income taxes 8,420 8,554
------------ ------------
Total current assets 78,832 70,448
MARKETABLE SECURITIES 104,250 99,817
PROPERTY AND EQUIPMENT:
Land 4,250 4,250
Building and improvements 51,759 51,759
Furniture, fixtures and equipment 46,822 46,693
------------ ------------
102,831 102,702
Less-Accumulated depreciation 75,221 74,405
------------ ------------
Net property and equipment 27,610 28,297
DEFERRED INCOME TAXES 25,281 22,955
GOODWILL 73,452 73,452
INTANGIBLE ASSETS 21,941 23,237
OTHER ASSETS 145 141
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Total assets $ 331,511 $ 318,347
============ ============
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THE BUREAU OF NATIONAL AFFAIRS, INC.
CONSOLIDATED BALANCE SHEET
MARCH 26, 2005 and DECEMBER 31, 2004
(In thousands of dollars)
March 26,
2005 December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY (Unaudited) 2004
- --------------------------------------- ------------ ------------
CURRENT LIABILITIES:
Current portion of long-term debt $ 7,500 $ 7,500
Accounts payable 18,392 18,324
Employee compensation and benefits payable 22,444 24,678
Income taxes payable 5,703 1,961
Dividends payable 5,079 --
Deferred revenues 118,572 112,085
------------ ------------
Total current liabilities 177,690 164,548
LONG-TERM DEBT 62,500 62,500
POSTRETIREMENT BENEFITS, less current portion 71,790 67,518
OTHER LIABILITIES 8,624 8,682
------------ -----------
Total liabilities 320,604 303,248
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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 shares 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 17,449 15,910
Retained earnings 106,908 108,030
Treasury stock, at cost - 25,573,937
shares in 2005 and 25,448,032 in 2004 (169,772) (166,154)
Elements of other comprehensive income:
Net unrealized (loss)/gain
on marketable securities (683) 354
Foreign currency translation adjustment (162) (208)
------------ ------------
Total stockholders' equity 10,907 15,099
------------ ------------
Total liabilities and stockholders' equity $ 331,511 $ 318,347
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THE BUREAU OF NATIONAL AFFAIRS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE 12-WEEKS ENDED MARCH 26, 2005 and MARCH 27, 2004
(Unaudited)
(In thousands of dollars)
12 Weeks Ended
March 26, 2005 March 27, 2004
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,957 $ 3,701
Items with different cash requirements
than reflected in net income--
Depreciation and amortization 2,373 2,625
Gain on sales of securities (252) (284)
Capitalized interest -- (80)
Others (79) (218)
Changes in operating assets and liabilities--
Receivables 4,113 7,246
Deferred revenues 6,487 4,183
Payables and accrued liabilities (3,824) (5,264)
Postretirement benefits 4,272 3,363
Deferred income taxes (1,659) (422)
Deferred selling expenses (329) 155
Inventories (243) (303)
Other assets and liabilities--net 1,234 1,036
------------ ------------
Net cash provided by operating activities 16,050 15,738
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures--
Capitalized software (237) (886)
Purchase of equipment and furnishings (154) (152)
Proceeds from sale of assets -- 9
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Net cash (used for) capital expenditures (391) (1,029)
------------ ------------
Securities investments--
Proceeds from sales and maturities 18,188 27,199
Purchases (19,203) (30,113)
------------ ------------
Net cash (used for) securities investments (1,015) (2,914)
------------ ------------
Net cash (used for) investing activities (1,406) (3,943)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of capital stock to employees 2,930 1,015
Purchases of treasury stock (5,009) (7,593)
------------ ------------
Net cash (used for)financing activities (2,079) (6,578)
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 12,565 5,217
CASH AND CASH EQUIVALENTS, beginning of period 8,442 18,488
------------ ------------
CASH AND CASH EQUIVALENTS, end of period $ 21,007 $ 23,705
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 1,378 $ 1,392
Income taxes paid 216 2,367
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THE BUREAU OF NATIONAL AFFAIRS, INC.
Notes to Consolidated Financial Statements
March 26, 2005
(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 2004 Annual Report to security holders are hereby
incorporated by reference. Note disclosures which would substantially duplicate
those contained in the 2004 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 26, December
2005 31, 2004
----------- -----------
Materials and supplies $ 2,171 $ 2,130
Work in process 565 304
Finished goods 1,042 1,101
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Totals $ 3,778 $ 3,535
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NOTE 3: Stockholders' Equity
Treasury stock as of March 26, 2005 and December 31, 2004, respectively,
consisted of: Class A, 16,325,377 and 16,345,261 shares; Class B, 6,729,320 and
6,583,531 shares; and Class C, 2,519,240 and 2,519,240 shares.
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NOTE 4: Segment Information
In thousands of dollars:
Total Intersegment External
Operating Operating Operating Operating
12 Weeks Ended: Revenues Revenues Revenues Profit
- ------------------ ----------- ----------- ----------- -----------
March 26, 2005
Publishing $ 59,859 $ -- $ 59,859 $ 6,258
Printing 9,306 2,565 6,741 671
Software 4,374 727 3,647 (391)
----------- ----------- ----------- -----------
Total $ 73,539 $ 3,292 $ 70,247 $ 6,538
=========== =========== =========== ===========
March 27, 2004
Publishing $ 61,069 $ -- $ 61,069 $ 6,415
Printing 7,909 2,817 5,092 7
Software 4,474 722 3,752 (544)
----------- ----------- ----------- -----------
Total $ 73,452 $ 3,539 $ 69,913 $ 5,878
=========== =========== =========== ===========
NOTE 5: Goodwill and Intangible Assets
Goodwill assigned to the operating segments is as follows: Publishing
$49,998,000; Printing $917,000; and Software $22,537,000.
Intangible assets that continue to be subject to amortization were as follows
(in thousands of dollars):
March 26, 2005 December 31, 2004
----------------------------- -----------------------------
Gross Carrying Accumulated Gross Carrying Accumulated
Amount Amortization Amount Amortization
----------------------------- -----------------------------
Software $ 29,445 $ (16,395) $ 29,208 $ (15,555)
Customer Lists 13,733 (11,076) 13,733 (10,632)
Copyrights 9,145 (4,012) 9,145 (3,801)
Other 2,182 (1,081) 2,182 (1,043)
----------------------------- -----------------------------
Total $ 54,505 $ (32,564) $ 54,268 $ (31,031)
============================= =============================
Amortization expense for the above assets in the first quarters of 2005 and
2004, respectively, was $1,533,000 and $1,669,000.
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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
3/26/05 3/27/04
----------- -----------
Pension Benefits:
Service cost $ 1,807 $ 1,719
Interest cost 2,294 2,307
Expected return on plan assets (2,406) (2,029)
Amortization of prior service
cost and of net actuarial loss 386 319
----------- -----------
Total $ 2,081 $ 2,316
=========== ===========
Other Postretirement Benefits:
Service cost $ 1,187 $ 872
Interest cost 1,729 1,233
Expected return on plan assets (472) (428)
Amortization of prior service
cost and of net actuarial loss 566 34
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Total $ 3,010 $ 1,711
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PART I
Item 2. Management's Discussion and Analysis of Results of Operations
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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 2004 Annual Report to security holders, hereby incorporated by reference.
This interim report is intended to provide an update of the disclosures
contained in the 2004 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 2005 compared to twelve weeks 2004
- -----------------------------------------------
Profit growth continued into the first quarter of 2005. BNA achieved records for
first quarter operating profit and net income per share due to a strong
performance by the printing segment.
Consolidated revenues were up 0.5 percent to $70.2 million in the first quarter
of 2005, compared to 2004, reflecting a sharp increase in commercial printing
revenues which more than offset decreases for the publishing and software
segments. Consolidated operating expenses decreased 0.5 percent. The
consolidated operating profit of $6.5 million was 11.2 percent above last year.
Net income for the first quarter was $4.0 million, a 6.9 percent increase over
2004 results. Net income per share was $.13 for the quarter versus $.11 in 2004.
Publishing segment revenues were down 2.0 percent compared to the prior year's
fast start. Kennedy Information recorded strong revenue growth, but the other
units had flat or lower revenues. A substantial portion of the revenue decline
is attributable to timing differences, and segment revenues are still expected
to increase for 2005. Publishing operating expenses were down 1.9 percent mostly
due to lower fulfillment expenses and lower staffing expenses. The operating
profit for the Publishing segment declined 2.4 percent for the first quarter to
$6.3 million.
Printing segment total revenues were up 17.7 percent compared to 2004.
Commercial sales were up 32.4 percent, due to additional sales to existing
customers, sales to new customers, and an upturn in financial printing work.
Intersegment revenues, expected to decline as Publishing segment subscribers
continue to migrate from print to electronic products, were down 8.9 percent.
Operating expenses were up 9.3 percent, reflecting higher variable costs. The
operating profit was $671,000 in 2005 compared to $7,000 in last year's first
quarter.
Software segment total revenues were down 2.2 percent compared to 2004 and
expenses decreased 5.0 percent. STF earns most of its revenues and profits in
the first and fourth quarters. STF total revenues declined 5.6 percent compared
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to 2004. Intersegment sales were essentially unchanged while license revenues
from external customers declined. Operating expenses decreased 14.6 percent due
mainly to lower marketing and amortization expenses, and STF achieved a 4.3
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 5.2 percent mainly due to higher sales of BNA Estate and
Gift Tax Preparer software, while operating expenses decreased 0.4 percent. BNA
Software recorded a $1.9 million operating loss in the first quarter of 2005; it
had a $2.0 million loss in the first quarter of 2004. The total software segment
had a $391,000 operating loss in 2005 compared to a $544,000 loss in 2004.
A slight increase in investment and other income was offset by higher interest
expense. Other comprehensive income reflected an unrealized holding loss in 2005
compared to a gain in 2004.
Outlook
- -------
The first quarter results are a good start on 2005, with higher revenues and
profits from the printing and software segments. We expect to see similar
results from the publishing operations when year-to-year timing differences
reverse.
Our financial goal for 2005 is to improve on the strong 2004 financial results.
This won't be easy. But we will use the same formula that has served us well in
the past; that is, finding ways to grow profitable revenues and a strong
commitment to containing costs.
FINANCIAL POSITION
Cash provided from operating activities was $16.0 million in the first twelve
weeks of 2005, a 2.0 percent increase over the $15.7 million provided from the
first twelve weeks of 2004. Customer receipts were up 0.7 percent, and operating
expenditures increased 0.4 percent from 2004. Cash used for investing activities
was $1.4 million. Capital expenditures amounted to $0.4 million and cash used
for the investment portfolio totaled $1.0 million. During the quarter, sales of
capital stock to employees totaled $2.9 million. Capital stock repurchases
amounted to $5.0 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 in market risk since December 31, 2004.
Item 4. Controls and Procedures
- ------- -----------------------
As of the end of the period covered by this report, the Company conducted 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), 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. There was no change
in the Company's internal controls over financial reporting during the period
covered by this report that has materially affected, or is 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.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
- ------- -----------------------------------------------------------
During the twelve weeks ended March 26, 2005, the Company purchased shares of
its common stock, as noted in the table below. The Company is not engaged in
share repurchases related to a publicly announced plan or program.
Total Number Average Price
of Shares Paid per
Four-Week Period Purchased Share
- ---------------------------------------------------------------------------
January 1, 2005-
January 29, 2005 167,840 $12.00
January 30, 2005-
February 26, 2005 50,222 $12.00
February 27, 2005-
March 26, 2005 190,004 $12.59
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 16, 2005. 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 for ten stockholder directors and five non-stockholder
directors:
Stockholder Candidates
Nominee Shares Voted For
------------------------------------------------------
Gregory C. McCaffery 7,496,851
Paul N. Wojcik 7,156,763
George J. Korphage 6,693,117
Cynthia J. Bolbach 6,470,272
Paul A. Blakely 5,677,669
Eunice L. Bumgardner 5,574,218
Neil R. Froemming 5,468,537
Sandra C. Degler 5,403,884
Robert L. Velte 5,095,538
Margret S. Hullinger 4,689,731
John R. Small 3,278,074
Non-stockholder Candidates
Nominee Shares Voted For
------------------------------------------------------
Susan E. Rice 6,466,567
Ellen Taus 6,430,482
Daniel W. Toohey 5,756,129
Jonathan Newcomb 5,515,471
Gerald S. Hobbs 5,388,986
Item 5. Other Information
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No other information is presented herein.
Item 6. Exhibits and Reports on Form 8-K
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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 Certification of the CEO and CFO pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, 18 U.S.C. section 1350.
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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
5/4/2005 s/Paul N. Wojcik
- ----------------------- ----------------------------------
Date Paul N. Wojcik
President and Chief Executive Officer
5/4/2005 s/George J. Korphage
- ----------------------- ---------------------------------
Date George J. Korphage
Vice President and Chief Financial Officer