FORM 10-Q.--QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the period ended JUNE 15, 2002 or
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[ ] Transition Report Pursuant to Section 13 of 15(d) of the Securities Exchange
Act of 1934
For the transition period ______________________to______________________________
Commission File Number: 2-28286
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THE BUREAU OF NATIONAL AFFAIRS, INC.
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Exact name of registrant as specified in its charter
DELAWARE 53-0040540
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1231 25TH ST., N.W. WASHINGTON, D.C. 20037
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(Address of principal executive offices) (Zip Code)
(202)452-4200
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(Registrant's telephone number, including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to the filing requirements for
the past 90 days. Yes ___X___ No ______
The number of shares outstanding of each of the issuer's classes of common
stock, as of June 15, 2002 was 15,471,521 Class A common shares, 18,125,066
Class B common shares, and 1,312,825 Class C common shares.
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THE BUREAU OF NATIONAL AFFAIRS, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE 24-WEEKS ENDED JUNE 15, 2002 and JUNE 16, 2001
(Unaudited)
(In thousands of dollars, except per share amounts)
24 Weeks Ended
----------------------------
June 15, 2002 June 16, 2001
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OPERATING REVENUES $ 138,557 $ 135,903
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OPERATING EXPENSES:
Editorial, production, and distribution 74,732 76,698
Selling 25,126 30,611
General and administrative 24,994 23,319
Profit sharing 1,180 784
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126,032 131,412
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OPERATING PROFIT 12,525 4,491
NON-OPERATING INCOME:
Investment income 3,344 4,656
Interest expense (2,805) (2,578)
Other income, net 51 342
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TOTAL NON-OPERATING INCOME 590 2,420
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INCOME BEFORE PROVISION FOR INCOME TAXES AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGE 13,115 6,911
PROVISION FOR INCOME TAXES 4,518 1,836
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INCOME BEFORE CUMULATIVE
EFFECT OF ACCOUNTING CHANGE 8,597 5,075
CUMULATIVE EFFECT OF ACCOUNTING CHANGE (4,440) ---
------------ -------------
NET INCOME 4,157 5,075
OTHER COMPREHENSIVE EXPENSE (525) (142)
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COMPREHENSIVE INCOME $ 3,632 $ 4,933
============ =============
EARNINGS PER SHARE:
INCOME BEFORE CUMULATIVE
EFFECT OF ACCOUNTING CHANGE $ .24 $ .13
CUMULATIVE EFFECT OF ACCOUNTING CHANGE (.12) ---
------------ -------------
NET INCOME $ .12 $ .13
============ =============
WEIGHTED AVERAGE SHARES OUTSTANDING 36,034,797 38,531,710
============ =============
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THE BUREAU OF NATIONAL AFFAIRS, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE 12-WEEKS ENDED JUNE 15, 2002 and JUNE 16, 2001
(Unaudited)
(In thousands of dollars, except per share data)
12 Weeks Ended
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June 15, 2002 June 16, 2001
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OPERATING REVENUES $ 71,601 $ 69,978
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OPERATING EXPENSES:
Editorial, production, and distribution 37,879 40,212
Selling 12,973 16,444
General and administrative 13,091 11,724
Profit sharing 741 339
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64,684 68,719
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OPERATING PROFIT 6,917 1,259
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NON-OPERATING INCOME:
Investment income 1,301 2,275
Interest expense (1,369) (1,467)
Other income, net 52 26
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TOTAL NON-OPERATING INCOME (EXPENSE) (16) 834
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INCOME BEFORE PROVISION FOR INCOME TAXES 6,901 2,093
PROVISION FOR INCOME TAXES 2,435 457
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NET INCOME 4,466 1,636
OTHER COMPREHENSIVE EXPENSE (43) (509)
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COMPREHENSIVE INCOME $ 4,423 $ 1,127
============ =============
EARNINGS PER SHARE $ .13 $ .04
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WEIGHTED AVERAGE SHARES OUTSTANDING 35,418,800 38,368,535
============ =============
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THE BUREAU OF NATIONAL AFFAIRS, INC.
CONSOLIDATED BALANCE SHEETS
JUNE 15, 2002 AND DECEMBER 31, 2001
(In Thousands of Dollars)
June 15,
2002 December 31,
ASSETS (Unaudited) 2001
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CURRENT ASSETS:
Cash and cash equivalents $ 20,481 $ 23,972
Short-term investments, at fair value 12,387 7,288
Receivables (net of allowance for doubtful
accounts of $1,808 in 2002 and $2,197 in 2001) 33,248 45,097
Inventories, at lower of average cost or market 4,022 3,726
Prepaid expenses 3,683 4,440
Deferred selling expenses 6,154 6,265
Deferred income taxes 6,001 5,951
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Total current assets 85,976 96,739
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MARKETABLE SECURITIES 98,811 116,656
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PROPERTY AND EQUIPMENT - at cost:
Land 4,250 4,250
Building and improvements 50,983 50,922
Furniture, fixtures and equipment 50,902 52,017
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106,135 107,189
Less-Accumulated depreciation 71,308 70,724
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Net property and equipment 34,827 36,465
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DEFERRED INCOME TAXES 23,975 23,637
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GOODWILL 73,416 76,700
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INTANGIBLE ASSETS 35,284 37,208
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OTHER ASSETS 139 133
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Total assets $ 352,428 $ 387,538
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THE BUREAU OF NATIONAL AFFAIRS, INC.
CONSOLIDATED BALANCE SHEETS
JUNE 15, 2002 AND DECEMBER 31, 2001
(In thousands of dollars)
June 15,
2002 December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY (Unaudited) 2001
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CURRENT LIABILITIES:
Accounts payable $ 15,752 $ 19,699
Employee compensation and benefits payable 23,620 23,757
Income taxes payable 3,156 1,265
Deferred subscription revenue 125,484 132,378
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Total current liabilities 168,012 177,099
LONG TERM DEBT 84,000 84,000
POSTRETIREMENT BENEFITS, less current portion 67,582 65,734
OTHER LIABILITIES 5,832 5,829
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Total liabilities 325,426 332,662
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STOCKHOLDERS' EQUITY:
Capital stock, common, $1.00 par value-
Class A - Voting; Authorized 30,000,000
shares; issued 30,000,00 shares 30,000 30,000
Class B - Nonvoting; authorized
30,000,000 shares; issued 24,634,865 shares 24,635 24,635
Class C - Nonvoting; authorized
5,000,000 shares; issued 2,531,680 shares 2,532 2,532
Additional paid-in capital 3,319 1,249
Retained earnings 85,043 86,373
Treasury stock at cost - 22,257,133 shares
in 2002 and 19,674,190 in 2001 (117,270) (89,181)
Elements of comprehensive income:
Net unrealized loss on marketable securities (1,225) (719)
Foreign currency translation adjustment (32) (13)
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Total stockholders' equity 27,002 54,876
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Total liabilities and stockholders' equity $ 352,428 $ 387,538
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CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE 24-WEEKS ENDED JUNE 15, 2002 and JUNE 16, 2001
(Unaudited)
(In thousands of dollars)
24 Weeks Ended
----------------------------
June 15, 2002 June 16, 2001
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,157 $ 5,075
Items with different cash requirements
than reflected in net income--
Cumulative effect of accounting change 4,440 ---
Depreciation and amortization 6,119 6,628
(Gain) on sales of securities (999) (1,214)
(Gain) loss on sales of assets (51) (342)
Others (176) (269)
Changes in operating assets and liabilities--
Receivables 12,238 9,381
Deferred subscription revenue (6,846) (1,789)
Payables and accrued liabilities (4,384) (5,562)
Postretirement benefits 3,728 2,600
Deferred income taxes (115) (1,430)
Deferred selling expenses 111 965
Inventories (296) (178)
Other assets and liabilities--net 736 1,664
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Net cash provided from operating activities 18,662 15,529
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures--
Acquisition of a business (net of $1,293
cash acquired) --- (25,460)
Business purchase price adjustments (681) 241
Capitalized software (1,986) (2,057)
Purchase of equipment and furnishings (677) (2,447)
Building improvements (61) (260)
Proceeds from sales of property 5 151
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Net cash used for capital expenditures (3,400) (29,832)
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Securities investments--
Proceeds from sales and maturities 63,360 89,996
Purchases (50,607) (85,461)
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Net cash provided from securities investments 12,753 4,535
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Net cash provided from (used for)
investing activities 9,353 (25,297)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of capital stock to employees 3,135 3,713
Purchases of treasury stock (29,154) (7,283)
Dividends Paid (5,487) (5,830)
Borrowings --- 25,000
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Net cash provided from (used for)
financing activities (31,506) 15,600
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NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (3,491) 5,832
CASH AND CASH EQUIVALENTS, beginning of period 23,972 16,190
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CASH AND CASH EQUIVALENTS, end of period $ 20,481 $ 22,022
============ =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid $ 3,036 $ 2,340
Income taxes paid 2,888 3,674
ACQUISITION OF A BUSINESS:
Fair value of assets acquired $ 33,447
Cash Paid (26,753)
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Liabilities assumed $ 6,694
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THE BUREAU OF NATIONAL AFFAIRS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 15, 2002
(UNAUDITED)
NOTE 1: GENERAL
The information in this report has not been audited. Results for the twenty-four
weeks are not necessarily representative of the year because of the seasonal
nature of activities. The financial information furnished herein reflects all
adjustments (consisting only of normal recurring adjustments) which are, in the
opinion of management, necessary for a fair statement of the results reported
for the periods shown and has been prepared in conformity with generally
accepted accounting principles of the United States of America applied on a
consistent basis.
Notes contained in the 2001 Annual Report to security holders are hereby
incorporated by reference. Note disclosures which would substantially duplicate
those contained in the 2001 Annual Report to security holders have been omitted.
Certain prior year balances have been reclassified to conform to current year
presentation.
The reported amounts of some assets and liabilities, and the disclosures of
contingent assets and liabilities, result from management estimates and
assumptions which are required to prepare financial statements in conformity
with accounting principles generally accepted in the United States of America.
Estimates and assumptions are used for measuring such items as postretirement
benefits, deferred tax assets, the allowance for doubtful accounts, intangible
assets, and goodwill. Estimates and assumptions may also affect the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
NOTE 2: INVENTORIES
Inventories consisted of the following (in thousands):
June 15, December 31,
2002 2001
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Materials and supplies $2,180 $2,204
Work in process 528 358
Finished goods 1,314 1,164
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Totals $4,022 $3,726
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NOTE 3: STOCKHOLDERS' EQUITY
Treasury stock as of June 15, 2002 and December 31, 2001, respectively,
consisted of: Class A, 14,528,479 and 14,365,542 shares; Class B, 6,509,799 and
4,213,038 shares; and Class C, 1,218,855 and 1,095,610 shares.
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NOTE 4: SEGMENT INFORMATION
In thousands of dollars:
12 Weeks Ended 24 Weeks Ended
6/15/02 6/16/01 6/15/02 6/16/01
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Revenues from External Customers:
Publishing $61,983 $63,119 $121,245 $123,482
Printing 5,302 5,497 8,999 9,976
Software 4,316 1,362 8,313 2,445
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Total $71,601 $69,978 $138,557 $135,903
===================== ====================
Intersegment Printing Revenues $ 3,428 $ 3,836 $ 6,713 $ 7,353
===================== ====================
Intersegment Software Revenues $ 697 $ 125 $ 1,544 $ 125
===================== ====================
Operating Profit:
Publishing $ 6,169 $ 3,474 $ 12,163 $ 7,832
Printing 435 146 364 164
Software 313 (2,361) (2) (3,505)
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Total $ 6,917 $ 1,259 $ 12,525 $ 4,491
===================== ====================
NOTE 5: GOODWILL AND INTANGIBLE ASSETS
Effective January 1, 2002, the Company adopted SFAS No. 142, "Goodwill and Other
Intangible Assets," which establishes the accounting and financial reporting
standards for acquired goodwill and other intangible assets. Under SFAS No. 142,
goodwill and indefinite-lived intangible assets are no longer amortized but
instead are subject to a transitional test for asset impairment and annual tests
thereafter. The transitional test of the $77 million of goodwill as of January
1, 2002, resulted in a writedown of $4.4 million; this is recorded on the income
statement as a Cumulative Effect of Accounting Change. If SFAS No. 142 had been
effective in 2001, the 2001 net income and 2001 earnings per share would have
been $6,064,000 and $0.16 per share, for the first two quarters of the year, and
$2,252,000 and $0.06, for the second quarter only.
Goodwill assigned to the operating segments is as follows: Publishing
$49,998,000, Printing, $917,000; and Software, $22,501,000. Changes to goodwill
since December 31, were to reclass $411,000 for assembled workforce from other
intangibles to goodwill as required by SFAS No. 142, to reclass and writeoff
$20,000 for a subscription list purchased in 1965, to record a $765,000 business
acquisition purchase price adjustment, and to record a $4,440,000 impairment
charge.
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Intangible assets that continue to be subject to amortization as of June
15, 2002 were as follows (in thousands of dollars):
Gross Carrying Accumulated
Amount Amortization
--------------------------------
Software $ 21,551 $ (6,749)
Copyrights 9,145 (1,480)
Customer Lists 13,846 (4,314)
Other 5,549 (2,264)
--------------------------------
Total $ 50,091 $ (14,807)
================================
Amortization expense for the above assets was $3,748,000 and $3,153,000 for the
first two quarters of 2002 and 2001, respectively.
Software includes $3.8 million of unamortized development costs for a
web-hosting service that became commercially available at the end of last year.
Sales of this service have been less than expected; however, current discussions
with prospective customers are expected to lead to large sales contracts. The
recoverability of the carrying value of this asset will be regularly evaluated
in light of future sales projections.
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
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FINANCIAL POSITION
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It is presumed that users of this interim report have read or have access to the
audited financial statements and management's discussion and analysis contained
in the 2001 Annual Report to security holders, hereby incorporated by reference.
This interim report is intended to provide an update of the disclosures
contained in the 2001 Annual Report to security holders and, accordingly,
disclosures which would substantially duplicate those contained therein have
been omitted.
FORWARD-LOOKING STATEMENTS
- --------------------------
This management discussion contains and incorporates by reference certain
statements that are not statements of historical fact but are forward-looking
statements. The use of such words as "believes," "expects," "estimates,"
"could," "should," and "will," and similar expressions are intended to identify
forward-looking statements. Such statements are subject to certain risks and
uncertainties, which could cause actual results to differ from those projected.
Readers are cautioned not to place undue reliance on these forward-looking
statements which speak only as of the date hereof.
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RESULTS OF OPERATIONS
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TWENTY-FOUR WEEKS 2002 COMPARED TO TWENTY-FOUR WEEKS 2001
- ---------------------------------------------------------
BNA's consolidated operating profit more than doubled in the first half of 2002
despite the impact the general economic slowdown has had on revenues. This was
made possible due to strong operating results from the parent and the Company's
most recent acquisition, and the earlier shipment of a BNA Software program
update. Excluding the effect of an accounting change, net income and earnings
per share were also sharply higher.
A change in accounting rules for goodwill, effective at the beginning of 2002,
eliminated the ongoing amortization expense, but instead requires a transitional
test for asset impairment and annual impairment testing thereafter. The
transitional test of the $77 million of goodwill as of January 1, 2002, resulted
in a writedown of $4.4 million; this is recorded on the income statement as a
Cumulative Effect of Accounting Change.
Consolidated revenues increased 2 percent to $138.6 million in the first half of
2002 while operating expenses were down 4.1 percent. As a result, the operating
profit increased 179 percent. Excluding the goodwill impairment writedown, net
income was $8.6 million for the first half, a 69 percent increase from 2001, and
earnings per share were $.24 per share, up from $.13. If the change in goodwill
amortization had also been effective in 2001, the consolidated operating profit
would have increased 113 percent and, excluding the goodwill $4.4 million
writedown, net income would have been up 42 percent and earnings per share would
have increased 50 percent.
Publishing segment revenues were down 1.8 percent compared to the prior year's
first half. Parent and Tax Management combined subscription and online revenues
were essentially flat as improvements in legal and tax product lines were offset
by continuing declines in the human resource and the environment, health &
safety product lines. The parent's Books division recorded a healthy revenue
gain, and Pike & Fischer and BNA International registered modest gains. However,
revenues were lower for Kennedy and IOMA, businesses that are particularly
sensitive to the economy. Publishing operating expenses were down 5.7 percent
due to cost reduction efforts, mainly by the parent and Kennedy, and the change
in goodwill accounting. Excluding goodwill amortization in 2001, the publishing
segment operating profit would have increased 38 percent.
Printing segment total revenues were down 9.3 percent compared to 2001,
reflecting a 9.8 percent decline in commercial sales and an 8.7 percent decrease
in intersegment revenues. Sales to external customers were affected by the
general economic slowdown, but especially by reduced demand for financial
printing caused by the subdued capital markets. Intersegment revenues are
expected to decline as Publishing segment subscribers continue to migrate from
print to electronic products. Operating expenses were down 10.6 percent,
reflecting lower variable costs and workforce reductions. As a result, the
operating profit improved to $364,000 in 2002 compared to $164,000 in last
year's first half.
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Software segment revenues were up sharply this year due to the full inclusion of
STF and a large increase from BNA Software. STF, which was acquired in April
2001, records most of its revenues and profits in the first and fourth quarters.
STF recorded revenues from external customers of $3.7 million in the first
twenty-four weeks of this year compared to $249,000 generated during the eleven
weeks of BNA ownership in 2001. STF's operating profit was $2.6 million this
year compared to an $881,000 operating loss in 2001. BNA Software, which records
the majority of its revenues and all of its profits in the second half of the
year, incurred a $2.6 million operating loss in the first half of 2002, a slight
improvement compared to the first half of 2001. BNA Software revenues were $4.6
million in 2002 compared to $2.2 million last year, reflecting earlier renewal
revenues from product updates shipped in the second quarter of 2002; last year
these products were shipped in the third quarter. BNA Software's operating
expenses increased 50 percent due to higher staffing costs and to expenses
related to a major new product. The combined software segment had a $2,000
operating loss in 2002 compared to a $3.1 million loss in 2001, excluding
goodwill amortization.
Investment income and net other income and expense fell $1.6 million due to a
decline in investment income and a gain in 2001 on the sale of a publication.
Interest expense increased $227,000, mainly due to the financing costs of the
STF acquisition. Other comprehensive income and expense reflected a larger
unrealized holding loss in 2002 compared to 2001.
TWELVE WEEKS ENDED JUNE 15, 2002 COMPARED TO TWELVE WEEKS ENDED JUNE 6, 2001
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For the second quarter only, consolidated revenues grew 2.3 percent, while
operating expenses were down 5.9 percent. The revenue and expense factors
mentioned above also affected second quarter comparisons, particularly the
earlier software revenues. Excluding goodwill amortization in 2001, operating
profit was up 221 percent, net income was up 98 percent, and earnings per share
were up 117 percent.
OUTLOOK
- -------
Signs of an economic recovery continue to be elusive, and revenue growth
continues to be difficult. The most economically sensitive businesses, McArdle,
IOMA, and Kennedy have incurred significant revenue declines in the first half
of the year. An improvement in business conditions, expected to some degree by
the fourth quarter, should ultimately result in higher revenue growth. Ongoing
operating expenses have been reduced due to continuing cost containment efforts
and the elimination of goodwill amortization. Operating profits are up sharply
in the first half of the year and full year results are also expected to show a
healthy increase.
Profits, before the transitional goodwill writedown, are also expected to be up
nicely this year. The writedown, which was related to IOMA's goodwill, reflected
their depressed financial results over the last 18 months; steps are being taken
to reduce their costs further in an effort to return to profitability.
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FINANCIAL POSITION
- ------------------
Cash provided from operating activities was $18.7 million in the first
twenty-four weeks of 2002, compared to $15.5 million for the first twenty-four
weeks of 2001. Customer receipts were up 0.7 percent, but operating expenditures
decreased 1.7 percent from 2001.
Cash provided from investing activities netted to $9.4 million. Capital
expenditures amounted to $3.4 million and cash provided from the investment
portfolio totaled $12.8 million. Cash used for financing activities totaled
$31.5 million. Sales of capital stock to employees totaled $3.1 million.
Repurchases of capital stock amounted to $29.2 million, most of which were
mandatory tenders. In addition, the Company paid cash dividends of $5.5 million.
With nearly $132 million in cash and investment portfolios and a $5 million loan
facility, the financial position and liquidity of the Company remains very
strong. Since subscription monies are collected in advance, cash flows from
operations, along with existing financial reserves and proceeds from the sales
of capital stock, have been sufficient in past years to meet all operational
needs, new product introductions, debt repayments, most capital expenditures,
and, in addition, provide funds for dividend payments and the repurchase of
stock tendered by shareholders. Should more funding become necessary or
desirable in the future, the Company believes that it has sufficient additional
debt capacity based on its operating cash flows and real estate equity.
ACCOUNTING PRONOUNCEMENT
- ------------------------
In April 2002, FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4,
44, and 64, Amendment of FASB Statement No. 13 and Technical Corrections". SFAS
No. 145 rescinds previous accounting guidance, which required all gains and
losses from extinguishment of debt be classified as an extraordinary item. Under
SFAS No.145, classification of debt extinguishment depends on the facts and
circumstances of the transaction. SFAS No. 145 will be effective for the
Company's fiscal year beginning January 1, 2003. The Company does not expect
SFAS No. 145 to have a material impact on its financial statements.
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PART II
ITEM 1 LEGAL PROCEEDINGS
- ------ -----------------
There were no material legal proceedings during the first twenty-four
weeks of 2002.
ITEM 2 CHANGE IN SECURITIES
- ------ --------------------
There were no changes in securities.
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
- ------ -------------------------------
There were no defaults upon senior securities.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
- ------ -----------------------------------------------------
See Form 10-Q for the quarter ended March 23, 2002 for the results of
voting on the Directors' proposals and the election of directors held
at the annual meeting for stockholders on April 20, 2002.
ITEM 5 OTHER INFORMATION
- ------ -----------------
No other information is presented herein.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
- ------ --------------------------------
No reports were filed on Form 8-K during the quarter ended June 15,
2002.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE BUREAU OF NATIONAL AFFAIRS, INC.
Registrant
July 23, 2002 s/Paul N. Wojcik
- ---------------- ----------------------------------
Date Paul N. Wojcik
President and Chief Executive Officer
July 23, 2002 s/George J. Korphage
- ---------------- ---------------------------------
Date George J. Korphage
Vice President and Chief Financial Officer