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EX-21 - EXHIBIT 21 - BUREAU OF NATIONAL AFFAIRS INCexhibit21.htm
EX-31.1 - EXHIBIT 31.1 - BUREAU OF NATIONAL AFFAIRS INCexhibit31_1.htm
EX-32.1 - EXHIBIT 32.1 - BUREAU OF NATIONAL AFFAIRS INCexhibit32_1.htm
EX-31.2 - EXHIBIT 31.2 - BUREAU OF NATIONAL AFFAIRS INCexhibit31_2.htm
EX-32.2 - EXHIBIT 32.2 - BUREAU OF NATIONAL AFFAIRS INCexhibit32_2.htm
EX-23.1 - EXHIBIT 23.1 - BUREAU OF NATIONAL AFFAIRS INCexhibit23_1.htm
 
UNITED STATES
 SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
(X)
ANNUAL 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 fiscal year ended December 31, 2009
Commission file number 2-28286
   
The Bureau of National Affairs, Inc.
bna logo
 
 
A Delaware Corporation
53-0040540
(I.R.S. Employer Identification No.)
   
1801 South Bell Street
(703) 341-3000
Arlington, Virginia 22202
(telephone number)

Securities Registered pursuant to Section 12(b) of the Act: None
 
Securities registered pursuant to Section 12(g) of the Act: Class A common stock, $1.00 par value.
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.Yes oNo x
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes o No x
 
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 such filing requirements for the past 90 days. Yes x Noo

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o.
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act  (Check One):
 
Large accelerated filer o
Accelerated filer o
Non-accelerated filer x
Smaller reporting company o
 
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Act).  Yes o No x
 
As of June 20, 2009, the last business day of the Registrant’s most recently completed second fiscal quarter, the Company’s common stock was not listed on any exchange or over-the-counter market. The number of shares outstanding of each of the registrant's classes of common stock, as of February 27, 2010 was 10,651,053 Class A common shares, 15,466,598 Class B common shares, and 6,450 Class C common shares.
 

 


FORWARD -LOOKING STATEMENTS
 
This Annual Report 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.
 
DOCUMENTS INCORPORATED BY REFERENCE
 
Portions of the Company's definitive Proxy Statement, to be filed with the SEC on or about  March 26, 2010, are incorporated by reference into Part III of this Form 10-K.
 
 
 
TABLE OF CONTENTS
     
.
 
Page No.
 
PART I.
 
3
Item 1A. Risk Factors
 9
Item 1B.  Unresolved Staff Comments
 10
10
10
10
     
 
PART II.
 
 
 
11
13
 
 
14
22
23
 
 
54
54
54
     
 
PART III.
 
55
56
 
  and Related Stockholder Matters 
56
 
  and Director Independence 
 56
56
     
 
PART IV.
 
57
     
 
59
     
  
60
 
 
2

 
 
 
PART I
 
 
Item 1.
Business
 
 
Business of BNA and Subsidiary Companies
 
The Bureau of National Affairs, Inc. (BNA or "the Company"), is a leading publisher of legal and regulatory information. BNA was founded in 1929, and was incorporated in its present form as an employee-owned company in 1946.  BNA is independent, for profit, and is the oldest fully employee-owned company in the United States.
 
BNA operates in the publishing, printing, and software industries. Publishing operations consist of the production and marketing of information products in print and electronic form. Printing operations consist of printing services to internal and commercial customers. Software operations consist of the production and marketing of software programs and interactive electronic forms.
 
BNA and its publishing subsidiary companies, Tax Management Inc. and BNA Subsidiaries, LLC, provide legal, regulatory, and general business advisory information in labor, economic, tax, health care, environment and safety, consulting, and other markets to business, professional, and academic users. They prepare, publish, and market subscription information products in print, compact disc, and online formats, books, magazines, and research and advisory reports, and hold conferences and conduct professional training.
 
Sales are made principally in the United States through field sales representatives who are supported by direct mail, space advertising, and telemarketing. Customers include lawyers, accountants, business executives, human resource professionals, health care administrative professionals, consultants, labor unions, trade associations, educational institutions, government agencies, and libraries.
 
The Company delivers its electronic products via the web, e-mail, and through online services such as LexisNexis and Westlaw.
 
BNA International Inc. publishes international tax and legal information in print and electronic formats, holds conferences, conducts professional training, and is BNA's sales agent outside of North America for its U.S. products.
 
BNA Software, a division of Tax Management Inc., develops and markets tax, financial planning, and fixed asset management software.  Sales are made to accountants, lawyers, tax and financial planners, corporations, government agencies, and others.  The products are marketed through numerous channels including direct mail, e-mail, the web, and space advertising.  Products are sold through the division’s dedicated sales representatives, field representatives of BNA, and approved resellers.  STF Services Corporation, a subsidiary company, converts government-approved forms into interactive electronic forms that are marketed directly to end users through BNA Software and licensed to publishers, including BNA and Tax Management, for resale.
 
The McArdle Printing Co., Inc. (McArdle), provides printing services to mid-Atlantic area customers. Its customers include publishers, trade associations, professional societies, other non-profit organizations, financial institutions, and governmental organizations. Approximately 31 percent of its business is derived from the BNA publishing companies.
Continued
 
 
 
 
 
Publishing of legal, regulatory, and business advisory information is very competitive. Some of the Company’s publishing competitors are much larger and have greater resources. The internet provides ready access to business information made available by direct and indirect commercial competitors and government agencies. The Company produces value-added information and competes on the basis of quality, comprehensiveness, timeliness, product line breadth, brand reputation, variety of format offerings, price, and customer service.
 
BNA Software competes with a number of tax compliance, financial planning, and fixed asset management software providers.  STF competes with the leading tax research publishers, tax compliance software vendors, and government agencies.  Both software entities compete on the basis of product features and functions, quality and reliability, timeliness of product updates, ease of use, brand recognition, customer support, and price.
 
McArdle competes with a number of commercial and financial printers for 69 percent of its business. McArdle competes on the basis of the breadth of its print capabilities and related services, price, and customer service.
 
The Company’s financial reporting is based on thirteen four-week periods. Operating results are not overly influenced by seasonality, but quarterly results are typically much stronger in the fourth quarter because three periods are in each of the first three fiscal quarters and four periods are in the fourth fiscal quarter.
 
The number of employees of BNA and its subsidiary companies was 1,638 on December 31, 2009.  Approximately 927 of our employees are subject to collective bargaining agreements.  We believe our relations with our employees are good.  As of December 31, 2009, 798 of the Company’s employees were covered by collective bargaining agreements that expired in February 2010.   Subsequently, a new agreement was reached that expires in 2013.  Bargaining agreements covering approximately 129 employees of The McArdle Printing Co., Inc. will expire in 2011.
 
BNA stock may be purchased only by active employees and may be held only by employees and former employees or by their heirs.  Form 10-K annual reports and proxy statements filed with the Securities and Exchange Commission (SEC) are available to the general public on BNA’s corporate website, www.bna.com.  The Company provides paper copies of filings to stockholders upon request, free of charge.
 
Descriptions of the parent and subsidiary companies’ operations follow.
 
Publishing segment
 
Parent Company
The Legal and Business Publishing Group launched three new services in 2009. Infrastructure Investment & Policy Report began publishing in March, just two weeks after President Obama signed into law an economic stimulus package that contained $150 billion in new federal infrastructure spending, and at just the right time to offer critical information to help attorneys and their clients take advantage of the program's new contracting opportunities. Health IT Law & Industry Report, launched in October, reports on federal and state actions related to implementing and maintaining electronic health care and medical records that can be shared securely throughout the U.S. health care system, and on their business impact and legal implications. Both publications are web-only dailies with a weekly pdf issue. International Trade Library integrates into one web collection three established and well-respected BNA publications on U.S. trade law and import and export procedures—International Trade Reporter Decisions, Import Reference Guide, and Export Reference Guide—bringing together full text of judicial decisions affecting U.S. trade law and policy, legal analysis and guidance on the U.S. import process and customs regulations, and market-specific data on exporting to more than 200 countries to create one essential source of international trade and business information.
 
4

 
 
 
For the Human Resources & Payroll Publishing Group, the market acceptance of International HR Decision Support Network, which was launched in late December 2008, was the highlight of 2009.  It experienced the best-selling start of our Decision Support Network (DSN) line of products.  It is also the first to offer “vertical search,” which allows subscribers to search content produced by BNA and from vetted, approved outside sources. Since the search focuses solely on international human resources, it yields vastly superior results than are found on popular search engines such as Google and Yahoo.
 
Given this success, and based on market feedback from customers, prospects, and the field sales force, the group is researching the development of additional DSN products in 2010.
 
In an effort to bring to market more workflow solution tools, which are integrated into an HR manager’s daily routine, the group identified and entered into strategic partnerships with two outside firms, and is working on developing two more such tools internally. One agreement would provide our customers with access to competitive salary data on a transactional basis, filling a gap in content coverage and providing a new revenue stream.  The second agreement is a joint venture to provide online training courses sold individually or bundled into larger, corporate-wide purchases.
 
The Environment, Health & Safety Publishing Group (EHS) posted new sales in 2009 that were virtually identical to the prior year, despite weakness in the corporate market. The group has markedly stepped up development work, and has focused on the formation of strategic alliances with outside partners, on new products and product enhancements.  Further, there has been a recent surge of market activity due to increased enforcement action, both domestically and internationally, which should yield a fertile environment for these efforts.
 
The migration of the entire EHS product line to BWD was completed in 2009, with Environment & Safety Library becoming available on the platform in October. The potential and flexibility made possible by this move was quickly exploited, with Green Incentives Navigator Library, a new offering from Tax Management, being added to this product, along with a state & federal custom Chart Builder. Both of these represent upsell opportunities for existing subscribers, and will help to attract new customers. Further, the safety guide, safety cases, and other OSHR reference files were added to the Labor and Employment Law Library; this ability to readily share content amongst BNA products was not possible prior to migration.
 
EHS Decision Support Network, based on the line of successful HR Decision Support Network products, is scheduled to launch in the second quarter of 2010.  The audioconference program, which commenced in the third quarter of 2009, with two live events per month, will provide a sizeable library of conferences available on demand at launch. Other components will include the 2010 EHS Benchmarks Report, special reports and white papers, quarterly reviews, and custom research answers.
 
One of the highlights of 2009 was the recognition of World Climate Change Report by the United Nations as one of the top three media outlets, along with AP and Reuters, in connection with its Climate Change Conference in Copenhagen in December 2009.  Selection was based on objective criteria, including breadth and depth of coverage of negotiations and climate-related news.  BNA produced a video which was shown in the United Nations booth during the conference; it features various BNA employees and explains how BNA is using information and communications technology to cover climate change issues.
 
BNA Books
The division published 66 titles in 2009.  Some major titles were pushed into 2010 because of delays getting manuscripts in from authors due to tough economic times for law firms.  New titles included American Factoring Law, Anatomy of a Patent Case, Copyright Deskbook, Drafting and Enforcing Covenants Not to Compete, Global Employee Privacy and Data Security Law, and Uniformed Services Employment and Reemployment Rights Act (USERRA).  Best- selling titles included new editions of Patents and the Federal Circuit, Privacy in Employment Law, Employee Duty of Loyalty:  A State-by-State Survey, Patent Prosecution: Law and Practice, and ERISA:  The Law and the Code.
 
 
 
 
Tax Management Services (TM)
2009 was another successful year for the Tax Management publishing services.  The continued strength of the flagship portfolio products, combined with new activities, drove an increase in revenue.  And, while investing in the business to drive future growth, careful cost control improved the already healthy profit margin for the fourth year in a row.
 
Existing products were enhanced in 2009, including expanded content for the State Portfolios Library and a new collection of client development letters for the federal tax services.  Client explanatory letters have long been a popular feature, providing subscribers with sample letters that can be used to answer client questions.  The new collection helps practitioners generate additional revenue by reaching out to prospective clients.  Expertly written in an engaging style, the letters provide recipients with valuable topical information and a call to action to contact the sender for a consultation.
 
Tax Management launched an innovative new service in the fourth quarter, Green Incentives Navigator Library.  The product helps corporations and their advisors research, communicate and keep abreast of federal and state incentives (both tax and non-tax incentives) aimed at encouraging the use of renewable energy and promoting conservation. This Library includes the Green Incentives Navigator (which provides a detailed explanation of each incentive), a chart-builder tool (to create customized charts for user-selected jurisdictions and incentive types), the Green Incentives Monitor (which tracks developments and offers perspective), and instant access to relevant source documents.  It is available on both the BNA Tax and Accounting Center and the Environment & Safety Library.
 
Other notable developments in 2009 include:
 
·  
TM significantly upgraded electronic marketing efforts, including a revamped marketing site www.bnatax.com to generate greater awareness and interest in the marketplace while channeling qualified leads to the field sales force.
 
·  
The BNA Tax and Accounting Center garnered a perfect five-star rating in the annual review of tax research products by The CPA Technology Advisor.
 
·  
In the third quarter, BNA acquired the training seminar and conference businesses of the Council for International Tax Education (CITE), Atlas Information Group, and the Structured Finance Institute (SFI).  These groups, headquartered in White Plains, NY, provide continuing professional education programs and networking opportunities for tax and accounting professionals. These acquisitions, which are being integrated into the BNA Tax & Accounting product and service offerings, mark a continuation of the company’s move into tax education and training.
 
BNA International Inc. (BNAI)
In the face of the most difficult market conditions for many years, BNAI’s financial performance remained stable.  Revenues were ahead of the previous year and on budget when reported in pounds, helped by strong subscription renewals and currency exchange gains created by the stronger dollar.
 
In 2009, BNAI focused on reorganizing editorial and sales resources for a major program of new subscription product launches, which began with the publication of the new Tax Treaties Analysis service in October.  Three additional new tax services will be launched in the first half of 2010, expanding and broadening our tax product line and putting BNAI in a good position to grow its share of the international tax market. Additional publishing opportunities have already been identified and will be developed in 2010 for the international legal market.
 
 
 
 
BNAI web products will be moved to BNA’s web platform in April 2010.  The creation of a new International Tax Center on BNA’s platform, featuring both Tax Management and BNAI tax services, will provide an effective means to cross-sell services and will provide users with a much more intuitive and seamless interface for navigating between content. And, for the first time, all of BNA’s tax information will be presented on a single, globalized platform.
 
BNA Subsidiaries, LLC
The economic downturn that began in the second half of 2008 had a disproportionately negative effect on several IOMA and Kennedy brand product lines. Markets for information and meetings for corporate recruiters, and publications of all types aimed at functional departments in corporations, were particularly depressed. BNA Subsidiaries management conducted a comprehensive review of strategic alternatives. Near the end of 2009, a strategic restructuring plan was adopted, and implementation began immediately.
 
The plan is underway, and most aspects of it will be completed by the second quarter of 2010. As part of the restructuring, the assets of three business units were transferred to the parent company at year end: the former IOMA Human Resources and Payroll business unit, the Pike & Fischer Telecommunications unit, and the Pike & Fischer Legal and Regulatory unit. These product lines fit well with other products and services offered by the parent company. BNA Subsidiaries, LLC will be providing transition services to the parent unit until the product lines and operations can be integrated into existing editorial, production, and distribution functions. Also, the former Kennedy Investor Relations and Recruiting business assets were sold during 2009.
 
Numerous facility and employment changes have occurred in New Hampshire and New Jersey, and most operating functions will be consolidated in New Hampshire in 2010. The restructuring and transition will be completed by year-end 2010. It will create a more focused and more profitable company that serves vertical industry markets with high quality information services. Those markets include consulting firms and other professional services organizations, medical laboratories, and agribusinesses.
 
BNA Washington Inc. (BNAW)
2009 marked BNAW’s second full year of ownership at the headquarters facility in Arlington, Virginia. During the year, BNA’s real estate subsidiary continued to realize the increased cost efficiencies of a modern, energy-efficient building. Standardizing office and work station sizes has allowed the support and publishing units the flexibility to reorganize staff quickly and with little interruption to business, and the building’s proximity to public transit and major highways has proved helpful to most employees.
 
The BNA Conference Center has become an integral part of day-to-day business, with forums, meetings, training sessions, and product demonstrations occurring regularly.  In 2009, use of the conference center expanded to include several successful conferences for BNA customers.
 
During 2009, BNAW began working with a team of BNA employees to identify segments of our operation that could be modified to lessen our impact on the environment, and reduce utility consumption.  Close monitoring of the HVAC system has been implemented to ensure that services are provided only when the building is staffed.
 
At the Rockville facility, BNAW completed an audit of all operations located there to determine the best way to provide a facility that will best serve the needs of our customer contact group.  Analysis of the audit continued into the new year, and recommendations will be presented in the spring of 2010.
 
 
 
 
BNAW remains committed to providing BNA employees and our outside tenants with safe, productive, comfortable, and environmentally sustainable facilities.
 
Printing segment
 
The McArdle Printing Company, Inc
The economy took its toll on the print industry in 2009.  Facing uncertainty, many customers put their marketing plans on hold until the business environment improved and they had a better handle on how to effectively communicate with their own customers in difficult times.
 
McArdle reacted quickly to the weak market for printing services, and cut costs to balance lower revenues.  Despite the lower cost structure and increasingly competitive market, McArdle’s custom solutions strategy enabled it to secure 64 new clients representing $1.6 million in new business during very turbulent times. At the same time, McArdle’s traditional printing services and a consistent emphasis on superior customer service kept its major clients satisfied and loyal to McArdle in the face of determined competitors.
 
Software segment
 
BNA Software
The tax market was comparatively stable when compared to other markets in 2009, but the severe economic downturn still had a significant negative effect on BNA Software’s CPA market, particularly in the first half of the year. The corporate market segment provided the balance and growth needed to allow BNAS, as a whole, to grow modestly for the year. Growth was paced by strong contributions from those products aimed at corporations, such as BNA Corporate Tax Analyzer, BNA Fixed Asset, BNA Fixed Asset Web, and BNA Fixed Asset Services.
 
BNAS also invested in the implementation of several new strategic growth initiatives. One of those initiatives — better tracking and correction of license violations — strongly contributed to new sales and revenue for the Income Tax Planner product.  The investment in these new initiatives, along with greatly increased benefits expense, resulted in an operating profit decline from 2008.
 
This year, management will continue to implement the strategic growth initiatives and the expansion of sales through lower cost channels and partnerships, while at the same time leveraging operational efficiencies with STF Services.
 
STF Services Corporation
Last year’s economic downturn negatively impacted both retail and licensee sales of STF flagship product, SuperForm, as small accounting firms deferred new purchases and delayed product renewals.  Despite this, STF was able to increase revenue and operating profit over 2008 because of the relative stability of the tax market and because of a large one-time sale to a leading CPA firm.
 
Operating margin for STF continued to be one of the highest among all of the BNA companies in 2009.  The restructuring of the organization in 2008 contributed to process improvements and lower costs of production and distribution in 2009.  Additionally, STF continued to leverage resources and cost containment strategies with BNA Software, allowing for additional reductions in selling expense.
 
For 2010, management expects slower revenue growth to continue and thus will focus on implementing additional cost management strategies with BNA Software while ensuring that all the benefits to be derived from STF’s restructuring are achieved.
 

 
 
Item 1A.
Risk Factors
 
There are a wide range of risks and uncertainties that could adversely affect the Company’s businesses and its overall financial performance. In addition to other disclosures included in this Annual Report on Form 10-K, the Company believes the more significant of such risks and uncertainties include the following:
 
Negative Economic Conditions
The current economic downturn has negatively affected all of the Company's businesses to some degree as customers and potential customers reduce their overall spending levels. This environment has impacted the willingness of subscription customers to add new expenditures or renew spending at increased or existing levels. It appears as though negative economic trends are reversing, but if the downturn continues or declines further, these trends may continue or accelerate. The weak economic climate has also led several large law firms to close down. This, combined with recent consolidations among law firms, results in fewer customers, and if it continues could negatively impact revenues. Economic slowdowns have historically affected printing companies by increasing competition and reducing pricing power; if the current slowdown continues or intensifies, recent declines in revenue in the Company's printing subsidiary will continue. Reductions in advertising spending in the current economic environment have impacted the Company's activities that are partially advertising or sponsor supported, such as conferences, and recovery to prior levels is not expected until the environment improves.
 
Competition
Nearly all of the Company’s businesses have significant competition in the markets they serve. The Company’s competitors could introduce new products and services that would adversely affect the relative utility of the Company’s products and services. In addition, competitors could take pricing actions that would adversely affect the relative value prospect of the Company’s products and services. Continued consolidation in our industry exacerbates our scale issues. In addition, as these large competitors gain additional capabilities through mergers, this could impact us in the marketplace or affect our value to our competitors as a business partner.
 
Technological Changes
Advances in information technology affect the Company in both positive and negative ways. With competitors that are much larger and more diverse companies, the Company can be disadvantaged due to differences in the relative size and leverageability of the Company’s technology investments. The Company continues to invest heavily in upgrading its electronic distribution systems and its information databases. There is no assurance that these investments can be made quickly enough so that product offerings do not become obsolete relative to that of competitors who are also upgrading their product offerings.
 
Limitations on our ability to protect our digital content may lead to customers having greater access to our content than warranted by their subscription terms.
 
In addition, the relatively low barriers to entry inherent in an internet environment have spawned non-traditional competition. These include governmental organizations providing information on their websites, and small new competitors providing basic information, either of which certain sectors of the Company’s markets may consider to be good-enough information.
 
Legal and Regulatory Changes
The value of the Company’s publishing and software products depends on the existence of, and changes in, certain legal and regulatory requirements for which the Company’s customers must be informed. If the pace of change slowed a significant degree, that could lessen the perceived need for the Company’s products. Additionally, if certain requirements were significantly reduced, such as the elimination of estate and gift taxes or the adoption of a federal flat tax, the perceived value of the Company’s products could be substantially reduced.
 
 
 
 
Distribution Arrangements
The Company licenses some of its information databases to certain online vendors. While the collective royalty revenues from these licenses are not significant, their contribution to profit is. If all or most of these licenses were discontinued, profits would be adversely affected.
 
Employment Costs
Employment costs are the majority of the Company’s costs. The Company employs highly skilled people to achieve the high quality for which its product and service are known. The Company provides competitive compensation and benefits to attract and retain its employees. If general employment conditions tighten, the Company could have difficulty in filling critical positions, or its employment costs could grow at a faster rate than revenue growth thereby compressing profit margins.  In addition, the Company is employee-owned and has experienced low turnover in recent years, with the result that a significant number of employees are close to retirement age.
 
Outside Authors
The Company supplements internal editorial resources with outside authors to provide content for certain publishing products and to provide updated programs for certain software products. Delays or failures to deliver content and/or programs would negatively affect revenues.
 
Item 1B.
Unresolved Staff Comments
 
 
Item 2.
Properties
 
Publishing segment operations’ facilities consist of the following: as of December 31, 2009, BNA Washington Inc., a wholly owned subsidiary, owns and manages two buildings used by BNA and Tax Management Inc., an 11 story (277,000 square foot) publishing headquarters building, two floors of which is leased to a tenant, and a 110,000 square foot subscriber relations facility. In addition, facilities totaling approximately 44,000 square feet are leased for the operations of BNA International and BNA Subsidiaries, LLC. The Company leases facilities totaling approximately 29,000 square feet for its software segment operations, and owns the 133,000 square foot office and plant facilities for its printing segment.
 
Item 3.
Legal Proceedings
 
The Company is involved in certain legal actions arising in the ordinary course of business.  In the opinion of management the ultimate disposition of these matters will not have a material adverse effect on the Company's consolidated financial statements.
 

Item 4.
Reserved
 

 
 
 
 
PART II
 
 
Item 5.
Market for the Registrant's Common Equity, Related Stockholder Matters and Issuers Purchases of Equity Securities
 
 
The principal market for trading of voting shares of common stock of The Bureau of National Affairs, Inc., is through the company-maintained Stock Purchase and Transfer Plan.
 
There is no established public trading market for any of BNA's three classes of stock. However, employees may purchase the Company’s Class A stock through its Stock Purchase and Transfer Plan and the BNA 401(k) Plan.
 
Semi-annually, the Board of Directors establishes the price at which Class A shares can be bought and declares cash dividends.  In accordance with the corporation's bylaws, the price and dividends on non-voting Class B and Class C stock are the same as on Class A stock.  Dividends have been paid continuously for 59 years, and they are expected to continue.
 
The Company’s stockholders, when selling stock, are required to first tender it to the Company. The Company has supported the continuance of employee ownership through its practice of repurchasing, at the same price established for selling shares, stock tendered by stockholders, but is not required to do so.
 
As of February 27, 2010, there were 1,070 Class A shareholders, 385 Class B shareholders, and 2 Class C shareholders.
 
 
Established stock price and dividends declared during 2009 and 2008 were as follows:
 
Stock Price   
   January 1, 2008 – March 15, 2008         $ 15.00
   March 16, 2008 – September 20, 2008      15.50
   September 21, 2008 – March 21, 2009   15.75
   March 22, 2009 – September 19, 2009    15.75
   September 20, 2009 – December 31, 2009     15.75
 
                                                                                                                                                               
                                                                          
Record Date and Dividend Amount
March 15, 2008    $ .20
  September 20, 2008    .20
  March 21, 2009    .20
  September 19, 2009    .21
                                                                          
During the sixteen weeks ended December 31, 2009, 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.
 
 
Four-week Period
Total Number of Shares  Purchased
Average Price Paid per Share
     
September 13, 2009 – October 10, 2009
69,256
$ 15.75
October 11, 2009 - November 7, 2009
161,014
$ 15.75
November 8, 2009 – December 5, 2009
70,358
$ 15.75
December 6, 2009 - December 31, 2009
171,875
$ 15.75
 
 
 
 
 
The above graph compares the performance of the company’s common stock to Standard and Poor’s (S&P) 500 Composite Index and the Dow Jones Publishing Index for the last five years, assuming $100 was invested in the company’s common stock and each index at Dec. 31, 2004, and that all dividends were reinvested.

 
 
 
 
Item 6.
Selected Financial Data
 
 
Consolidated Operating and Financial Summary:  2009-2005
(Dollar amounts in thousands, except per share data)
 
   
2009
   
2008
   
2007
   
2006
   
2005
 
Operating Revenues
  $ 331,253     $ 352,211     $ 352,224     $ 344,862     $ 329,036  
Operating Expenses (a)
    307,627       303,316       303,669       313,747       287,960  
Gain (Loss) on Dispositions (b)
    148       (12 )     92,133       (19 )     (28 )
Operating Profit
    23,774       48,883       140,688       31,096       41,048  
Investment Income
    4,270       4,579       5,566       5,883       4,132  
Interest Expense
    (2,519 )     (3,277 )     (4,472 )     (5,604 )     (5,907 )
Income Before Income Taxes
    25,525       50,185       141,782       31,375       39,273  
Income Taxes
    8,030       18,744       53,744       11,922       15,696  
Net Income
  $ 17,495     $ 31,441     $ 88,038     $ 19,453     $ 23,577  
Profit Margins (% of revenues):
                                       
  Operating Profit
    7.2       13.9       39.9       9.0       12.5  
  Earnings
    5.3       8.9       25.0       5.6       7.2  
Earnings Per Share
  $ .65     $ 1.11     $ 2.99     $ .65     $ .75  
Dividends Per Share
  $ .41     $ .40     $ .36     $ .34     $ .32  
Balance Sheet Data:
                                       
  Total Assets
  $ 387,430     $ 412,686     $ 399,528     $ 334,426     $ 318,882  
  Long-Term Debt—less current portion
    13,000       23,500       34,000       44,500       55,000  
Employee Data:
                                       
  Number of Employees
    1,638       1,745       1,719       1,728       1,729  
  Total Employment Costs
  $ 192,132     $ 180,931     $ 179,482     $ 182,008     $ 177,138  
Stockholder Data at Year-End:
                                       
  Number of Stockholders
    1,470       1,511       1,557       1,655       1,673  
 Common Shares Outstanding (in
       thousands)
    26,253       27,619       28,734       30,155       30,204  
        
 (a)
Includes goodwill impairment charges of $17,805 in 2009 and $11,576 in 2006.
 (b)
Includes a $92,524 gain ($56,433 net of tax) on the sale of the Company’s headquarters buildings in 2007.
 
 

 
 
 
Item 7.
 Management's Discussion and Analysis of Financial Condition and Results of Operations
 
FORWARD -LOOKING STATEMENTS
 
This Annual Report 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.
 
Overview
 
BNA operates in three business segments: publishing, printing, and software. The publishing segment, which generated 84 percent of consolidated 2009 revenues, provides legal, regulatory, and general business advisory information in tax, labor, economic, health care, environment and safety, consulting, and other markets to business, professional, and academic users. Sales are made principally through field sales representatives. The printing segment provides services to mid-Atlantic area customers, including the BNA publishing segment, other publishers, financial institutions, trade associations, professional societies, other nonprofit organizations, and governmental organizations. The software segment provides tax and financial planning software to accountants, lawyers, tax and financial planners, government agencies, corporations, and others. BNA’s ongoing success is dependent upon: the quality of its products and services; its highly trained and experienced employees; its key relationships with suppliers; and the customers’ need for ongoing information regarding changes and insights in legal, regulatory, tax, and business practices and trends.
 
In addition to ongoing efforts to improve and provide more product offerings and to operate more efficiently, BNA has been engaged in several multi-year strategic initiatives related to its major publishing activities.
 
Electronic products now make up nearly 73 percent of the legal and regulatory subscription base. Their migration to a next-generation web platform, BWD, is nearing completion. Most products are now available on BWD, and the rest will be moved off legacy platforms shortly. In addition, subsidiary company products will be moved to BWD, improving corporate-wide efficiency and increasing our flexibility to combine and customize product offerings for new or more specialized markets.
 
BNA’s high quality, proprietary content remains a competitive strength. But the continued expansion and improvement of our web platform has enabled us to enhance the value of that content and improve the sustainability of our products and services. By concentrating on improving and exploiting our web platform, and on creating new functionalities and tools to work with our respected content, BNA is moving beyond content and positioning itself as a technologically adept provider of information solutions to professional markets.
 
For example, in the fall of 2008, BNA launched “BNA Convergence,” a new delivery platform designed for the legal and corporate markets.  This new platform, produced in partnership with technology partner Llesiant, allows law firms to search all their BNA content along with a large collection of third-party content, utilizing Llesiant’s taxonomy-based search engine.  Results can be delivered in a variety of formats.  This product is a further step in moving beyond being a content provider to delivering information solutions and tools for its key markets. The Company acquired Llesiant in early 2010.
 
 
 
 
To help facilitate the integration of BNA’s quality content with technology, a new Product Research and Development business unit, headed by a Chief Product Officer, was created in 2009. This unit is responsible for developing all new products and services, focusing specifically on how best to integrate the latest technology, processes, and applications with our unique content to provide better products and services to our customers. This unit is also responsible for BNA’s electronic commerce initiatives.
 
Earlier efforts aimed at the Human Resources and Environment markets, which also combined internal resources with technology partners, matured in recent years despite the challenging environment.  New products and more focused sales efforts led to strong growth for our expanding line of HR Decision Support Networks and our set of Environment, Health, and Safety Tools. The economic environment affected the corporate market for these products last year, but information solutions that enable businesses to meet increasingly stringent compliance needs with fewer in-house resources should remain attractive to cost-conscious customers.
 
BNA pursues a web platform-neutral policy in its information content offerings, allowing customers to choose their format preference. BNA's products have been available for transactional access on the major legal online services -- Lexis and Westlaw -- for many years. BNA also sells subscriptions to subject libraries of BNA content on these networks, and these have been very popular with major law firms and law schools. In addition, BNA sells subscriptions to its tax products on Thomson Reuters’ Checkpoint platform and Wolters Kluwer’s IntelliConnect platform. These networks, in addition to BNA's own online platform and print, provide customers with a variety of product delivery options.
 
In an effort to leverage BNA’s strong tax brands, the Company is expanding into the tax training business. In 2008, BNA International (BNAI) acquired European American Tax Institute (EATI), which provides professional training for international tax professionals.  This business was integrated into BNAI, where it complements the Company’s growing portfolio of conferences, special reports, and books for the international tax market. In mid-2009, BNA acquired the assets of the Council for International Tax Education, Inc., (CITE) and the Alliance for Tax, Legal, and Accounting Seminars (ATLAS), both based in White Plains, New York.  The firms are leaders in the creation and delivery of international tax education for multinational companies, offering live instruction courses for legal and tax professionals and financial executives.
 
BNA Subsidiaries, LLC is being restructured, with some products being transferred to the Parent company and others being divested. Operations are being consolidated in New Hampshire, and when the restructuring is complete, the subsidiary will be a smaller company focused on its most profitable and fastest growing businesses.
 
As we face the task of continuing BNA’s success, external factors remain a major concern. The economic environment has improved in general, but key markets, such as the large law firms, will continue to restore spending at a slow pace. The corporate and tax markets also remain cautious. In the second half of 2009, all those markets stabilized, but there have not yet been signs of a strong recovery. Because of BNA’s subscription-based business model, market improvements will not be immediately reflected in revenue.
 
A second significant factor is the rapidly expanding expense related to BNA’s postretirement benefits obligations. Management took a number of steps in 2009 and in early 2010 to address this issue in a way that would continue to provide BNA’s current retirees with superior benefits without endangering BNA’s future success. The beneficial effects of these changes may be reflected in 2010 financial performance.
 
 
 
 
 
 
Segment Information
               
(as of December 31, in thousands of dollars)                 
 
2009
 
2008
 
2007
Revenues from external customers:
               
   Publishing
$
278,773
 
$
290,537
 
$
289,539
   Printing
 
23,437
   
33,125
   
35,673
   Software
 
29,043
   
28,549
   
27,012
                 
Total
$
331,253
 
$
352,211
 
$
352,224
                 
Intersegment printing revenues
$
10,773
 
$
10,536
 
$
10,059
                 
Intersegment software revenues
$
2,470
 
$
2,507
 
$
2,414
                 
Operating Profit
               
   Publishing
$
15,065
 
$
38,613
 
$
130,364
   Printing
 
839
   
1,805
   
2,608
   Software
 
7,870
   
8,465
   
7,716
                 
Total
$
23,774
 
$
48,883
 
$
140,688
                 
 
2009 vs. 2008
 
The economic downturn continued to negatively affect BNA, especially those businesses relying primarily on nonsubscription revenue.   The resulting decline in revenue outpaced cost control measures and led to lower profits. In addition, at the end of the third quarter, the Company recorded a large goodwill impairment expense. This, combined with higher post-retirement expenses, led to a 1.4 percent increase in operating expenses and a sharp decline in reported profits. Net income was $17.5 million in 2009 compared to $31.4 million in 2008, and earnings per share were $0.65 in 2009 versus $1.11 in 2008.
 
2009 Consolidated revenues were $331.3 million, down 6.0 percent compared to 2008. Software revenues were up, but publishing and printing segments’ revenues were both down. Consolidated operating expenses were up 1.4 percent due to the impairment expense and higher postretirement expenses for publishing and software, mitigated by management’s cost containment efforts and a decrease in variable printing expenses.
 
The goodwill that was written down is related to the acquisition of Kennedy Information. At the end of 2008, Kennedy was merged with another BNA subsidiary company, IOMA, to form BNA Subsidiaries, LLC with the intent of combining the separate operations to reduce costs and exploit strategic synergies. While progress was made towards those goals this year, the continuing difficult business environment particularly affected the markets and the nonsubscription product lines of the Kennedy division of the new company. Kennedy’s revenue and profit results since 2007 and the expectations for the near future no longer supported the remaining goodwill, resulting in the recording of a $17.8 million impairment expense ($10.7 million after-tax, or $.40 per share). Management is taking a number of steps to accelerate the integration of the operations of BNA Subsidiaries, LLC and to reevaluate all its business lines to create a more focused, more strategic, more profitable, and faster growing company going forward.
 
 
 
 
The publishing segment—which aggregates the Parent (including BNA Books) with Tax Management Inc. (excluding BNA Software), BNA Subsidiaries, LLC (the company resulting from the merger of Kennedy Information and IOMA), and BNA Washington Inc.—generated 84 percent of consolidated revenues. Publishing segment revenues were down 4.0 percent compared to the prior year.  BNA Parent and Tax Management subscription and online revenues were down 1.3 percent compared to 2008, reflecting lower new sales and weaker renewal sales. BNA International revenues were up 4.0 percent in pounds sterling, but down 11.7 percent due to the stronger U.S. dollar, and BNA Books revenues were down $3.2 million because fewer titles were released.  Revenues of BNA Subsidiaries, LLC were down 17.9 percent due to a decline in conferences and non-subscription product sales, and due to the timing of consulting contracts and research report release dates. Publishing revenues are expected to be slightly lower in 2010. Publishing operating expenses were up 4.7 percent compared to 2008 because of a $17.8 million goodwill impairment expense and higher postretirement benefit plan expenses. Five new products were launched in 2009.  Identifiable development expenses for new products and improvements on existing products were $9.5 million in 2009 and $9.7 million in 2008. The publishing segment’s operating profit was $15.1 million in 2009.
 
The printing segment, which includes results of The McArdle Printing Company, Inc., experienced a revenue decline for the third consecutive year as sales declined 22 percent to $34.2 million. Commercial sales were down 29 percent due to lower print volumes and continuing price competition in the printing industry. Intersegment revenues were up 2.2 percent, but are nonetheless expected to decline as publishing segment subscribers continue to migrate from print to electronic products. Operating expenses were down 20.3 percent, reflecting aggressive steps taken to adjust expenses to lower revenues. Despite these efforts on the cost side, operating profit was $0.8 million in 2009 compared to $1.8 million in 2008. Total printing revenues in 2010 are projected to be higher by a low single-digit percentage.
 
Total revenues for the software segment (which combines the operations of STF Services Corporation and BNA Software, a division of Tax Management Inc.) increased 1.5 percent compared to 2008 while expenses were up 4.7 percent.  BNA Software revenues increased 1.7 percent compared to 2008, but operating expenses were up 7.2 percent due to higher postretirement benefit expenses and investment in strategic initiatives aimed at continued growth.  BNA Software’s operating profit was $5.1 million in 2009 compared to $6.0 million in 2008. STF total revenues increased slightly (0.4 percent) compared to 2008, but operational efficiencies lowered operating expenses by 8.7 percent, leading to a 14.2 percent increase in operating profit. The total software segment’s operating profit was down 7.0 percent to $7.9 million. Software revenues are expected to increase in 2010 by a low single-digit percentage.
 
Investment income decreased slightly, reflecting higher gains on sales of securities but lower yields.  Interest expense was lower due to lower term debt balances.  Other comprehensive income reflected an unrealized holding gain in 2009 compared to an unrealized holding loss in 2008, and a change in unamortized postretirement obligations.
 
As described in Note 8 to the consolidated financial statements, the consolidated federal, state, and local effective income tax rate was 31.5 percent in 2009 and 37.4 percent in 2008, due to a higher proportion of pre-tax income represented by tax-exempt interest and lower effective state and local taxes.
 
2008 vs. 2007
 
BNA’s 2008 consolidated revenues were even and operating expenses were slightly lower when compared to 2007 results. Revenues for the publishing and software segments increased and profit was up for the software segment, while the printing segment had lower revenue and profit. Last year’s gain on the sale of the headquarters buildings led to a decrease in the year-to-year comparison of consolidated profits.
 
 
 
 
2008 consolidated revenue was $352.2 million, operating profit was $48.9 million, net income was $31.4 million, and earnings per share were $1.11. In 2007, revenues were $352.2 million, operating profit was $140.7 million, net income was $88.0 million, and earnings per share were $2.99. 2007 results included a gain on the sale of the headquarters buildings. Net of the related moving costs of $2.0 million, this gain contributed $90.5 million to operating profit, $55.2 million to net income, and $1.88 to earnings per share.
 
In August 2007, BNA completed a Section 1031 tax-deferred “like kind” exchange to simultaneously sell its three Washington, D.C. headquarters buildings and acquire a new headquarters building in Arlington, VA. Net of closing and related costs, BNA received proceeds of $106 million and paid $104 million for the building it acquired.
 
The publishing segment generated 82 percent of consolidated revenues. Publishing revenues were up 0.3 percent in 2008, to $290.5 million. BNA Parent and Tax Management subscription and online revenues were negatively impacted by lower new sales and lower print copyright royalties (reflecting the shift to electronic format products), but were still up 1.4 percent when compared to 2007. BNA International revenues were up 9.2 percent, including additional revenues generated by the newly acquired European American Tax Institute (EATI), a membership organization specializing in tax-related training and conferences. BNA Books revenues were even with 2007, and BNA Subsidiaries, LLC revenues were down; Kennedy Information’s revenues were down 15.3 percent compared to a strong performance in 2007, due in part to the timing of the completion of consulting contracts and to fewer research report releases, and IOMA revenues were down slightly. Publishing revenues are expected to grow by a low single-digit percent in 2009. Publishing operating expenses were up just 0.2 percent compared to 2007 (which included $2.0 million in non-recurring moving costs), as higher employment costs were offset by lower facility costs. Four new products were launched in 2008.  Identifiable development expenses for new products and improvements on existing products were $9.7 million in 2008 and $9.6 million in 2007. The publishing segment’s operating profit was $38.6 million in 2008. Publishing segment operating profit in 2007, which included the gain on the sale of the buildings, was $130.4 million.
 
The printing segment experienced a revenue decline for the second consecutive year. Commercial sales were down 7.1 percent, reflecting continuing price competition in the printing industry and shorter print run sales to existing customers. Intersegment revenues were up 4.7 percent, but are nonetheless expected to decline as publishing segment subscribers continue to migrate from print to electronic products. Sales declined 4.5 percent in 2008 to $43.7 million. Operating expenses were down 2.9 percent, reflecting lower variable production and selling expenses. The segment operating profit was $1.8 million in 2008 compared to $2.6 million in 2007.
 
Total revenues for the software segment increased 5.5 percent compared to 2008 while expenses were up 4.1 percent.  BNA Software revenues increased 6.5 percent compared to 2007 due to improved renewals and the completion of a year-long IRS project. Operating expenses were up 5.4 percent. BNA Software’s operating profit was $6.0 million in 2008 compared to $5.5 million in 2007. STF total revenues increased slightly (1.7 percent) compared to 2007, but operational efficiencies lowered operating expenses by 2.6 percent, leading to a 9.2 percent increase in operating profit. The total software segment’s operating profit was up 9.7 percent to $8.5 million. Software revenues are expected to increase in 2009 by a low single-digit percentage.
 
Investment income decreased $1.0 million due to lower gains on sales of securities and lower investment yields. Interest expense decreased $1.2 million due to lower term debt balances. Other comprehensive (loss) income reflected an unrealized holding loss in 2008 compared to a gain in 2007 and the postretirement benefits adjustment.
 
 
 
 
As described in Note 8 to the consolidated financial statements, the consolidated federal, state, and local effective income tax rate was 37.4 percent in 2008 and 37.9 percent in 2007.
 
Cash Flows, Liquidity, and Financial Resources
 
Cash operating expenditures were down 5.6 percent, but customer cash receipts were down 8.0 percent, leading cash provided from operating activities to decrease 23 percent in 2009 to $35.9 million.
 
Cash provided by investing activities netted to $5.9 million. Net cash provided from securities investments totaled $13.7 million. Net capital expenditures amounted to a $3.5 million outlay, reflecting $2.6 million for property and equipment additions and capitalized software and $0.9 million for purchased publishing assets. The investment in an affiliated company amounted $4.3 million. Capital expenditures for 2010 are expected to be approximately $7.3 million.
 
Cash used for financing activities netted to $43.2 million. Receipts for sales of Class A capital stock to employees totaled $9.7 million. Capital stock repurchases were $31.2 million.  Debt principal repayments amounted to $10.5 million and the Company paid cash dividends of $11.1 million in 2009.
 
The Company's stockholders, when selling stock, are required to first tender it to the Company. The Company has supported the continuance of employee ownership through its practice of repurchasing stock tendered by stockholders, but is not required to do so. Capital stock with a market value of $5.2 million as of December 31, 2009, is known or expected to be tendered in 2010. The actual value of shares tendered will likely be higher.
 
Contractual cash obligations as of December 31, 2009, were as follows (in thousands of dollars):
 
 
Payments Due by Period
 
 
Contractual Obligations:
 
 Total
 
Less than
 1 Year
 
1-3
 Years
 
3-5
 Years
 
After 5
 Years
 
Term Debt (includes interest)
$ 25,579   $ 12,125   $ 13,454   $ ---   $ ---  
Operating Leases
  10,178     2,879     3,394     1,501     2,404  
Planned Pension Contributions
  2,000     2,000     ---     ---     ---  
Total
$ 37,757   $ 17,004   $ 16,848   $ 1,501   $ 2,404  
 
With over $119 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, pension contributions, 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 additional debt capacity based on its operating cash flows and real estate equity.
 
Critical Accounting Estimates
 
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company evaluates its estimates and assumptions on an ongoing basis using a combination of historical information and other information that is believed to be relevant.  Actual results may differ from these estimates based on different assumptions or conditions. The Company believes the critical accounting policies that most impact the consolidated financial statements are described below.
 
 
 
 
The Company has $45.0 million of goodwill assigned to five reporting units at year-end 2009 as described in Note 7 to the consolidated financial statements.  The carrying amount of goodwill is subject to annual impairment testing or on an interim basis if events or circumstances indicate that an impairment is more likely than not to have occurred.  Goodwill that is not supported by measures of fair value must be written down, resulting in an impairment expense.  Fair value is estimated using a combination of the market approach, which uses comparable sales multiples, and the income, or discounted cash flows approach. Due to the current economic downturn, the Company prepared an interim analysis of goodwill as of September 12, 2009, and recorded an impairment expense as described in Note 7 to the consolidated financial statements. At year-end, the Company updated its analysis of goodwill as of December 31, 2009, and determined that there was no further impairment and that none of the reporting units were close to failing step one of the impairment analysis.
 
The Company has $7.0 million of intangible assets at year-end 2009, as summarized in Note 9 to the Company’s financial statements. Most of this is software that is used internally.  In addition, intangible assets include identified assets of Kennedy at the time of its acquisition. These assets are amortized over their estimated useful lives, typically five to seven years. The Company evaluates the recoverability of the intangible assets when events and circumstances indicate an impairment may have occurred, using estimates and assumptions including future revenues, cash flows, and discount rates.  If an impairment in value occurs, an impairment expense must be recorded and amortization periods may be reduced.  Amortization expense was $3.3 million in 2009, $3.3 million in 2008, and $3.7 million in 2007.
 
The Company has recorded $57.3 million of net deferred income tax assets as of year-end 2009, as described in Note 8 to the consolidated financial statements. The ultimate realization of deferred tax assets is dependent upon future taxable income during the periods in which those temporary differences become deductible.  The Company has consistently achieved profitability and taxable income.  In the opinion of management, this trend will continue, and it is more likely than not that the recorded deferred income tax assets will be fully realized.
 
As described in Note 4 to the Company’s financial statements, the Company has pension and other postretirement benefit liabilities totaling $210.6 million at year-end 2009. A number of actuarial assumptions are used to compute these liabilities, the projected benefit obligations, and the related benefit expenses. The assumed discount rates are based on the Citigroup Pension Yield Curve. Other assumptions include life expectancies, retirement ages, health care cost trends, compensation increases, and returns on plan assets. Changes in these assumptions can and do change the amounts of postretirement benefit liabilities and related expenses. The Company, in consultation with its actuaries, periodically reviews the assumptions and revises them when appropriate.  Total expenses for the postretirement benefits that were subject to estimates and assumptions were $33.0 million in 2009, $20.2 million in 2008, and $18.8 million in 2007.
 
The Company has recorded customer receivables of $31.0 million as of year-end 2009, as described in Note 9 to the Company’s financial statements. Accounts receivable are presented net of an allowance for doubtful accounts of $1.6 million, based on historical collection experience and a review of the current status of accounts receivable. It is reasonably possible that the estimate will change.
 
Off Balance Sheet Arrangements and Effects of Inflation and Changing Prices
 
The Company has no off balance sheet arrangements as defined by the Securities Exchange Commission in Regulation S-K,  Item 303(a)(4)(ii).
 
 
 
 
The Company’s results of operations and financial condition have not been significantly affected by inflation, and the company’s principal operating costs have not generally been subject to significant inflationary pressures.
 
Accounting Pronouncements
 
The FASB Accounting Standards Codification (ASC) became the source of authoritative generally accepted accounting principles (GAAP) for nongovernmental entities effective on a prospective basis for financial statements issued for interim and annual periods ending after September 15, 2009.  Rules and interpretative guidance issued by the Securities and Exchange Commission (SEC) also remain sources of GAAP for SEC registrants.  The Codification does not change current GAAP, but organizes pre-existing guidance by topic.  Updates to the ASC will be made using Accounting Standards Updates (ASU).  The Company adopted the Codification as of December 31, 2009.  As such, references to non-SEC GAAP guidance will now refer to Accounting Standards Updates (or to the ASC itself).
 
Accounting Standards Codification 715, Compensation—Retirement Benefits (ASC 715, formerly FASB Statement of Financial Accounting Standards No. 132(R)-1, Employers’ Disclosures about Postretirement Benefit Plan Assets), expands the disclosure requirements about fair value measurements for defined benefit pension and other postretirement plans.  The Company adopted these requirements as of December 31, 2009.
 
Accounting Standards Update 2009-13, Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements—a Consensus of the FASB Emerging Issues Task Force (ASU 2009-13), amends the ASC to require new accounting and reporting requirements for vendors with multiple-deliverable revenue arrangements with their customers.  The amendments in ASU 2009-13 are effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010.  Early adoption is permitted.  The Company does not expect ASU 2009-13 to have a material effect on its financial statements.
 
Accounting Standards Update 2009-14, Software (Topic 985): Certain Revenue Arrangements That Include Software Elements—a Consensus of the FASB Emerging Issues Task Force (ASU 2009-14), amends the ASC to clarify the guidance for vendors that sell or lease tangible products containing software.  The amendments in ASU 2009-14 are effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010.  Early adoption is permitted, but a vendor must adopt the amendments in the same period and using the same transition method as it uses to adopt the amendments in ASU 2009-13.  The Company does not expect ASU 2009-14 to have a material effect on its financial statements.


 
 
 
Item 7A.
Quantitative and Qualitative Disclosures about Market Risk
 
The Company is exposed to interest rate risks in its investment portfolio.  An increase in market interest rates would result in a decline in the market value of the Company’s fixed-income securities.
 
The maturity dates and average interest yields for fixed-income securities debt held in the Company’s investment portfolio as of December 31, 2009 were as follows (in thousands of dollars):
 
Expected Maturity Date
2010
2011
2012
2013
2014
Thereafter
             
Municipal Bonds
$14,446
$15,673
$  3,581
$  6,794
$  3,945
$46,847
             
    Average Interest Yield
     5.2%
      5.0%
       5.0%
      5.0%
      5.2%
    4.1%
             
Corporate Bonds
$     279
---
$     506
       ---
       ---
---
             
    Average Interest Yield
      4.1%
---
       4.1%
       ---
       ---
---
             
Total
$14,725
$15,673
$  4,087
$  6,794
$  3,945
$46,847
    Average Interest Yield
      5.2%
       5.0%
       4.9%
      5.0%
      5.2%
    4.1%
 
The Company manages interest rate risk in its investment portfolio by diversifying the maturities of its fixed-income investments.  Approximately 49 percent of these instruments at year-end 2009 mature within five years.  Shorter-term maturity investments reduce the risk that an increase in market interest rates will have a permanent adverse effect on the Company's financial position.  The Company has no foreign exchange contracts, does not hold securities for trading purposes, and does not use derivative financial instruments.
 
At December 31, 2009, the Company’s investment portfolio included equity securities with a market value of $17.1 million.  With all other factors remaining constant, a hypothetical broad-based decline in equity market prices of 10 percent would reduce the investment portfolio held in equity investments by $1.7 million as of December 31, 2009.

 
 

 
Item 8.
Financial Statements and Supplementary Data

 




THE BUREAU OF NATIONAL AFFAIRS, INC.
 
 
December 31, 2009 and 2008
 
(With Independent Registered Public
Accounting Firm’s Report Thereon)





 
 
 
Report of Independent Registered Public Accounting Firm
 
 
 
Board of Directors and Stockholders
The Bureau of National Affairs, Inc.
Arlington, Virginia
 
We have audited the accompanying consolidated balance sheets of The Bureau of National Affairs, Inc. and subsidiaries (the “Company”) as of December 31, 2009 and 2008 and the related consolidated statements of income, stockholders’ (deficit) equity and comprehensive income (loss), and cash flows for each of the years in the three-year period ended December 31, 2009.  In connection with our audits of the financial statements, we have also audited the financial statement schedule listed in Item 15(a)(2) of the accompanying index.  These financial statements and schedule are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
 
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.  Accordingly, we express no such opinion.  An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and schedule.  We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of The Bureau of National Affairs, Inc. at December 31, 2009 and 2008, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2009, in conformity with accounting principles generally accepted in the United States of America.
 
Also, in our opinion, the financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
 
As discussed in Note 4 to the consolidated financial statements, the Company adopted Accounting Standards Codification 715, Compensation—Retirement Benefits (ASC 715, formerly FASB Statement of Financial Accounting Standards No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans (FAS 158)) in 2007.


 
/s/BDO Seidman, LLP
 
Bethesda Maryland
March 24, 2010

 


THE BUREAU OF NATIONAL AFFAIRS, INC.
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2009, 2008, AND 2007
 
(In thousands of dollars, except per share amounts)

 
2009
 
2008
 
2007
 
                     
Operating Revenues (Note 3)
  $ 331,253   $ 352,211   $ 352,224  
                     
Operating Expenses
                   
   (Notes 3, 4, 7, 9  and 11):
                   
  Editorial, production, and distribution
    177,870     188,114     184,301  
  Selling
    54,264     55,286     57,478  
  General and administrative
    57,691     59,916     61,890  
  Goodwill impairment
    17,805     ---     ---  
                     
    Total Operating Expenses
    307,627     303,316     303,669  
                     
 (Loss) Gain on Dispositions (Note 6)
    148     (12   92,133  
                     
Operating Profit
    23,774     48,883     140,688  
                     
Investment income (Note 5)
    4,407     4,579     5,566  
Interest expense (Note 10)
    (2,519 )   (3,277 )   (4,472 )
Equity loss of affliated company (Note 2)      (137    ---      ---  
                     
Income Before Income Taxes
    25,525     50,185     141,782  
Provision for income taxes (Note 8)
    8,030     18,744     53,744  
                     
Net Income
  $ 17,495   $ 31,441   $ 88,038  
                     
Earnings Per Share (Note 12)   $ .65    $ 1.11    $ 2.99   
                     

See accompanying notes to consolidated financial statements.



 
THE BUREAU OF NATIONAL AFFAIRS, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2009 AND 2008
 
(In thousands of dollars)
 
 
ASSETS


   
December 31,
 
             
   
2009
   
2008
 
Current Assets:
           
  Cash and cash equivalents (Note 5)
  $ 9,757     $ 11,139  
  Short-term investments (Note 5)
    14,445       8,530  
  Receivables, net (Note 9)
    32,604       35,661  
  Inventories, net (Note 9)
    2,935       2,608  
  Prepaid expenses
    3,739       4,966  
  Deferred income taxes (Note 8)
    5,652       7,136  
                 
Total Current Assets
    69,132       70,040  
                 
Marketable Securities (Note 5)
    95,305       106,681  
Property and Equipment, net (Note 9)
    115,036       120,426  
Deferred Income Taxes (Note 8)
    51,601       45,286  
Goodwill (Note 7)
    44,962       61,790  
Intangible and Other Assets, net (Note 9)
    7,231       8,463  
Investment in Affiliated Company (Note 2)
    4,163       ---  
                 
Total Assets
  $ 387,430     $ 412,686  
 
 
See accompanying notes to consolidated financial statements.
 
 

                                                                   (Continued)
 
 


THE BUREAU OF NATIONAL AFFAIRS, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2009 AND 2008
 
(In thousands of dollars)
 
 
LIABILITIES AND STOCKHOLDERS’ DEFICIT


   
December 31,
 
             
   
2009
   
2008
 
Current Liabilities:
           
  Current portion of long-term debt (Note 10)
  $ 10,500     $ 10,500  
  Payables and accrued liabilities (Note 9)
    38,606       40,497  
  Deferred revenues (Note 3)
    125,378       133,630  
                 
Total Current Liabilities
    174,484       184,627  
                 
Long-Term Debt, less current portion  (Note 10)
    13,000       23,500  
Postretirement Benefits, less current portion (Note 4)
    210,533       219,686  
Other Liabilities
    1,381       1,337  
                 
Total Liabilities
    399,398       429,150  
                 
Commitments and Contingencies (Notes 11, and 12)
               
                 
Stockholders’ Deficit (Note 12):
               
  Common stock issued, $1.00 par value —
               
    Class A – 30,000,000 shares
    30,000       30,000  
    Class B – 24,634,865 shares
    24,635       24,635  
    Class C – 2,531,680 shares
    2,532       2,532  
  Additional paid-in capital
    47,511       42,181  
  Retained earnings
    224,406       218,026  
  Treasury stock, at cost – 30,913,320 shares
               
    in 2009 and 29,547,221 in 2008
    (277,749 )     (250,902 )
  Accumulated other comprehensive loss:
               
    Net unrealized gain (loss) on marketable securities
    1,366       (3,701 )
    Foreign currency translation adjustment
    (129 )     (104 )
    Postretirement benefits
    (64,540 )     (79,131 )
                 
Total Stockholders’ Deficit
    (11,968 )     (16,464 )
                 
Total Liabilities and Stockholders’ Deficit
  $ 387,430     $ 412,686  


See accompanying notes to consolidated financial statements.


 
 
 
THE BUREAU OF NATIONAL AFFAIRS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2009, 2008, AND 2007
 
(In thousands of dollars)


                   
   
2009
   
2008
   
2007
 
                   
Cash Flows from Operating Activities:
                 
  Net income
  $ 17,495     $ 31,441     $ 88,038  
                         
  Adjustments to reconcile net income to net
                       
    cash provided by operating activities –
                       
    Goodwill impairment
    17,805       ---       ---  
    Depreciation and amortization
    10,012       9,935       8,319  
    Deferred income taxes
    (15,599 )     721       35,040  
    (Gain) loss on sales of securities
    (464 )     314       (450 )
    Gain on sale of buildings
    ---       ---       (92,524 )
    Equity in loss of affiliated company
    137       ---       ---  
    Others
    463       645       1,545  
                         
  Changes in operating assets and liabilities –
                       
    Receivables
    3,151       7,182       1,918  
    Inventories
    (327 )     535       556  
    Payables and accrued liabilities
    (2,622 )     1,219       (6,284 )
    Deferred revenues
    (8,203 )     (6,414 )     4,384  
    Postretirement benefits
    13,493       1,634       1,090  
    Other assets and liabilities – net
    587       (482 )     650  
                         
Net cash provided by operating activities
    35,928       46,730       42,282  
                         
Cash Flows from Investing Activities:
                       
    Proceeds from sale of buildings
    ---       ---       106,090  
    Purchase of building and improvements
    ---       ---       (103,955 )
    Investment in affiliated company
    (4,300 )     ---       ---  
    Purchase of property and equipment
    (1,319 )     (1,482 )     (10,209 )
    Capitalized software
    (1,371 )     (1,007 )     (343 )
    Acquisition of publishing assets
    (914 )     (831 )     (155 )
    Proceeds from sale of property and equipment
    31       ---       ---  
    Investment security sales and maturities
    55,399       67,765       89,303  
    Investment security purchases
    (41,672 )     (72,633 )     (93,651 )
Net cash provided by (used in) investing activities
    5,854       (8,188 )     (12,920 )

See accompanying notes to consolidated financial statements.


(Continued)


 
 
 
THE BUREAU OF NATIONAL AFFAIRS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2009, 2008, AND 2007
 
(In thousands of dollars)
 
 
                   
   
2009
   
2008
   
2007
 
                   
Cash Flows from Financing Activities:
                 
  Receipts for capital stock sales to employees
    9,690       11,175       9,626  
  Purchases of treasury stock
    (31,239 )     (28,449 )     (29,980 )
  Payment of long-term debt
    (10,500 )     (10,500 )     (10,500 )
  Dividends paid
    (11,115 )     (11,418 )     (10,720 )
                         
Net cash used for financing activities
    (43,164 )     (39,192 )     (41,574 )
                         
Net Decrease in Cash
  and Cash Equivalents
    (1,382 )     (650 )     (12,212 )
                         
Cash and Cash Equivalents, beginning of year
    11,139       11,789       24,001  
                         
Cash and Cash Equivalents, end of year
  $ 9,757     $ 11,139     $ 11,789  
                         
                         
Supplemental Cash Flow Information:
                       
  Interest paid
  $ 2,651     $ 3,430     $ 4,146  
  Income taxes paid
    21,236       19,893       17,230  


See accompanying notes to consolidated financial statements.


 
 
 
THE BUREAU OF NATIONAL AFFAIRS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' (DEFICIT) EQUITY AND COMPREHENSIVE  INCOME (LOSS)
YEARS ENDED DECEMBER 31, 2009, 2008, AND 2007
 
(In thousands of dollars, except per share amounts)
 
   
Comprehensive
 
Capital
   
Additional
           
Accum. Other
   
   
Income (Loss)
 
Stock
   
Paid-In
   
Retained
 
Treasury
 
Comprehensive
   
   
(Note 13)
 
Issued
   
Capital
   
Earnings
 
Stock
 
Loss
   
                             
 Balance, January 1, 2007
      $ 57,167     $ 23,876     $ 120,685   $ (201,034 ) $ 1,155  
                                           
  Net Income
  $ 88,038     ---       ---       88,038     ---     ---  
  Other Comprehensive Income, net of tax:
                                           
    Unrealized gain on marketable securities
    330     ---       ---       ---     ---     330  
    Currency translation adjustment
    (46 )   ---       ---       ---     ---     (46 )
    Minimum pension liability adjustment
    96     ---       ---       ---     ---     96  
  Comprehensive Income
  $ 88,418                                      
                                             
  Adoption of ASC 715 (formerly FAS 158), net of
                                           
    $22,049 tax benefit*
          ---       ---       ---     ---     (31,895 )
  Sales of Class A treasury shares to employees
          ---       5,328       ---     3,812     ---  
  Repurchases of shares
          ---       ---       ---     (29,980 )   ---  
  Share-based liabilities
          ---       6,310       ---     ---     ---  
  Stock-based compensation expense
          ---       258       ---     ---     ---  
  Cash dividends--$.36 per share, class A, B, and C
          ---       ---       (10,720 )   ---     ---  
                                             
 Balance, December 31, 2007,
          57,167       35,772       198,003     (227,202 )   (30,360 )
                                             
  Net Income
  $ 31,441     ---       ---       31,441     ---     ---  
  Other Comprehensive Income, net of tax:
                                           
    Unrealized loss on marketable securities
    (5,523 )   ---       ---       ---     ---     (5,523 )
    Currency translation adjustment
    183     ---       ---       ---     ---     183  
    Post Retirement Benefit adjustment
    (47,236 )   ---       ---       ---     ---     (47,236 )
  Comprehensive Loss
  $ (21,135 )                                    
                                             
  Sales of Class A treasury shares to employees
          ---       6,409       ---     4,749     ---  
  Repurchases of shares
          ---       ---       ---     (28,449 )   ---  
  Cash dividends--$.40 per share, class A, B, and C
          ---       ---       (11,418 )   ---     ---  
                                             
Balance, December 31, 2008
          57,167       42,181       218,026     (250,902 )   (82,936 )
                                             
  Net Income
  $ 17,495     ---       ---       17,495     ---     ---  
  Other Comprehensive Income, net of tax:
                                           
    Unrealized gain on marketable securities
    5,067     ---       ---       ---     ---     5,067  
    Currency translation adjustment
    (25 )   ---       ---       ---     ---     (25 )
    Post Retirement Benefit adjustment
    14,591     ---       ---       ---     ---     14,591  
  Comprehensive Income
  $ 37,128                                      
                                             
  Sales of Class A treasury shares to employees
          ---       5,330       ---     4,392     ---  
  Repurchases of shares
          ---       ---       ---     (31,239 )   ---  
  Cash dividends--$.41 per share, class A, B, and C
          ---       ---       (11,115 )   ---     ---  
                                             
Balance, December 31, 2009
        $ 57,167     $ 47,511     $ 224,406   $ (277,749 ) $ (63,303 )

 
*See Note 17.
 
See accompanying notes to consolidated financial statements.


 
 
 
THE BUREAU OF NATIONAL AFFAIRS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR YEARS ENDED DECEMBER 31, 2009, 2008, AND 2007
 
 
 
(1)  
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
 
 
The accompanying consolidated financial statements include the accounts of The Bureau of National Affairs, Inc. (the “Parent”) and its subsidiary companies (consolidated, the “Company”).  The Company’s primary business is the publishing of legal, regulatory, and general business advisory information. Its printing subsidiary provides printing services, and its software businesses develop, produce, and market tax and financial planning software.  Material intercompany transactions and balances have been eliminated.  Certain prior year balances have been reclassified to conform to the current year presentation.  Accounting changes are described in Note 17.
 
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.
 
The Company has evaluated subsequent events after the balance sheet date through the date the financial statements were issued and did not note any events that would require disclosure or adjustment to the consolidated financial statements other than the acquisition of Llesiant referred to in Note 2 .
 

(2)  
ACQUISITION

In December 2009, the Company acquired 42 percent of the common stock of Llesiant, Inc., a technology partner.  Llesiant is developing the taxonomy-based search engine used by “BNA Convergence,” a delivery platform designed for the legal and corporate markets that allows searching of all BNA content along with a large collection of third-party content.  The investment is recorded using the equity method of accounting, which requires the Company’s percentage interest in Llesiant’s loss ($137,000 for 2009) to be recorded in the Consolidated Statements of Income, and the investment to be recorded in the Consolidated Balance Sheets.  The Company acquired the remainder of Llesiant in February 2010.


(3)
RECOGNITION OF REVENUES, DEFERRED REVENUES, AND SELLING EXPENSES

The Company derives revenues from publishing and software product sales and from printing and other services. Revenues are recognized when all of the following criteria are met: there is persuasive evidence that an arrangement exists; delivery has occurred or services have been rendered; the price to the customer is fixed and determinable; and collectibility is reasonably assured.
 
The majority of publishing sales are by subscription, primarily for one year.  Subscription revenues are deferred and amortized over the subscription terms. The Company licenses information content to certain online service providers for access by their customers. Revenues from these licenses are recognized on either a transactional or subscription basis. Revenues from other publishing products, such as books, research reports, and special reports, are recognized when the products are shipped, net of a reserve for returns when the right of return exists.
 
 
 
 
Revenues from printing services are recognized when the materials are shipped.  Revenues from consulting, software data conversion, and training are recognized when the services have been completed.  Revenues from event-related activities, such as conferences, are recognized when the event has been completed.
 
Software revenues are recognized in accordance with Accounting Standards Codification 985-605, Software—Revenue Recognition (ASC 985-605, formerly AICPA Statement of Position 97-2, Software Revenue Recognition).  The majority of software sales are bundled arrangements which include a one-year software program license term and post-sale support, including telephone support and program updates (when and if available) during the license term.  Revenues are deferred and recognized ratably over the license and post-sale support term.  However, when the sale includes a specified upgrade (a specific future program enhancement promised to customers) revenue is deferred until that specified upgrade is delivered.  Revenues from sales of software products with updates provided periodically over a license term, typically one year, are recognized ratably over the license terms.
 
Deferred revenues at year-end consisted of $109.1 million of deferred subscription revenues and $16.3 million of deferred software revenues in 2009, and $117.4 million of deferred subscription revenues and $16.2 million of deferred software revenues in 2008.
 
Sales tax collections are presented on a net basis (excluded from revenues).  Shipping charges are included in distribution expense.
 
Advertising costs are expensed as incurred and were $6,815,000, $8,185,000, and $8,594,000 in 2009, 2008 and 2007, respectively.
 

(4)
EMPLOYEE BENEFIT PLANS

The Company has two noncontributory defined benefit pension plans covering employees of the Parent.  Benefits are based on years of service and average annual compensation.  One plan is ERISA-qualified, the other is a supplemental plan for certain employees whose benefits are limited under the qualified plan.  The Company also provides other postretirement benefits, consisting of health care and life insurance benefits, to retired employees of the Parent.
 
As of December 31, 2007, the Company adopted Accounting Standards Codification 715, Compensation—Retirement Benefits [ASC 715, formerly FASB Statement of Financial Accounting Standards No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans (FAS 158)].  ASC 715 requires the recognition of the overfunded or underfunded status of defined benefit pension and other postretirement benefit plans as an asset or liability in the consolidated balance sheets and the recognition of changes in that funded status in the year in which the changes occur through comprehensive income.



 
 
 
The following table sets out summarized financial information about the plans as of December 31 (in thousands of dollars):

   
 
Pension Benefits
   
Other Postretirement Benefits
 
                         
   
2009
   
2008
   
2009
   
2008
 
Change in projected benefit obligation:
                       
Benefit obligation - January 1
  $ 212,204     $ 196,621     $ 177,325     $ 155,078  
Service cost
    8,034       7,568       6,470       5,748  
Interest cost
    13,086       12,267       10,983       9,795  
Actuarial loss (gain)
    10,900       4,256       (5,973 )     11,143  
Benefits paid
    (9,359 )     (8,508 )     (5,071 )     (4,439 )
                                 
Benefit obligation - December 31
    234,865       212,204       183,734       177,325  
                                 
Change in plan assets:
                               
Fair value of plan assets - January 1
    153,304       184,966       16,442       25,996  
Actual return on plan assets
    31,819       (37,275 )     1,311       (9,554 )
Employer contribution
    15,000       14,000       ---       ---  
Benefits paid
    (9,262 )     (8,387 )     (633 )     ---  
Fair value of plan assets - December 31
    190,861       153,304       17,120       16,442  
                                 
Funded status
  $ (44,004 )   $ (58,900 )   $ (166,614 )   $ (160,883 )
                                 
Amounts recognized in the balance sheet
                               
  Payables and accrued liabilities
    (85 )     (97 )     ---       ---  
  Postretirement benefits
    (43,919 )     (58,803 )     (166,614 )     (160,883 )
                                 
Net amount recognized
  $ (44,004 )   $ (58,900 )   $ (166,614 )   $ (160,883 )
                                 
Amounts included in accumulated other
  comprehensive loss (pre-tax)
                               
  Net actuarial loss
    (57,459 )     (70,090 )     (50,858 )     (60,811 )
  Prior service cost
    (371 )     (433 )     ---       ---  
                                 
Total
  $ (57,830 )   $ (70,523 )   $ (50,858 )   $ (60,811 )
                                 
Assumed discount rate
    6.00 %     6.25 %     6.00 %