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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, 2002
Commission file number 2-28286
The Bureau of National Affairs, Inc.
A Delaware Corporation 53-0040540
(I.R.S. Employer Identification No.)
1231 25th St., N. W., (202)452-4200
Washington, D.C. 20037 (telephone number)
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 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 . No _____.
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 an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes (X)
The market value of the Class A voting stock held by non-affiliates of the
registrant as of February 22, 2003 was $148,034,056. All voting stock is owned
by employees of the registrant and its subsidiaries. The market value of the
Class B and Class C non-voting stock held by non-affiliates as of February 22,
2003 was $183,005,078 and $12,874,691 respectively.In determining the above, The
Bureau of National Affairs, Inc. (the "Company"), has assumed that all of its
officers, directors, and persons known to the Company to be the beneficial
owners of more than five percent of each class of the Company's common stock are
affiliates. Such assumption should not be deemed conclusive for any other
purpose.
The number of shares outstanding of each of the registrant's classes of
common stock, as of February 22, 2003 was 15,380,356 Class A common shares,
18,277,000 Class B common shares, and 1,226,161 Class C common shares.
Page 1 of 65
2
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's definitive Proxy Statement, to be filed with the
SEC on or about March 28, 2003, are incorporated by reference into Part III of
this Form 10-K.
The Bureau of National Affairs, Inc.
Index to Form 10-K
For the fiscal year ended December 31, 2002
Page No.
PART I.
Item 1. Business............................................... 3
Item 2. Properties............................................. 11
Item 3. Legal Proceedings...................................... 12
Item 4. Submission of Matters to a Vote of Security Holders.... 12
Item X. Executive Officers of the Registrant................... 12
PART II.
Item 5. Market for the Registrant's Common Stock and Related
Security Holder Matters.............................. 14
Item 6. Selected Financial Data and Selected Quarterly Data.... 15
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................. 17
Item 7a. Quantitative and Qualitative Disclosures About
Market Risk.......................................... 21
Item 8. Financial Statements and Supplementary Data............ 22
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure............... 46
PART III.
Item 10. Directors and Executive Officers of Registrant......... 46
Item 11. Executive Compensation................................. 46
Item 12. Security Ownership of Beneficial Owners and Management. 46
Item 13. Certain Relationships and Related Transactions......... 46
PART IV.
Item 14. Controls and Procedures................................ 47
Item 15. Exhibits, Financial Statement Schedules, and
Report on Form 8-K................................... 47
SIGNATURES......................................................... 49
EXHIBIT INDEX...................................................... 52
3
PART I
Item 1. Business
--------
General Development of Business and Narrative Description of Business
Business of BNA and Subsidiary Companies
The Bureau of National Affairs, Inc. (BNA) is a leading publisher of
specialized 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 and four of its publishing subsidiary companies, Tax Management Inc., Pike &
Fischer, Inc., Institute of Management and Administration, Inc. (IOMA), and
Kennedy Information, Inc., provide legal, regulatory, and general business
advisory information in labor, economic, tax, health care, environment and
safety, consulting, recruiting, 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.
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 mostly in the United States.
The Company provides most of its products for electronic delivery via Lotus
Notes and the World Wide Web. Online products also are available through
database vendors such as LexisNexis and West Group.
BNA Software, a division of Tax Management Inc., develops, produces, and markets
tax and financial planning software. Sales are made to accountants, lawyers, tax
and financial planners, government agencies, and others. The products are
marketed through direct mail, space advertising, and BNA field sales
representatives. STF Services Corporation converts government-approved paper
forms into interactive electronic forms that are marketed directly and licensed
to publishers, including BNA and Tax Management.
BNA International Inc. publishes international tax and intellectual property
information in print and electronic formats, and is BNA's agent outside of
North America for sale of its U.S. products.
The McArdle Printing Co., Inc. provides printing services to mid-Atlantic
area customers. It utilizes modern equipment and its customers include
publishers, trade associations, professional societies, other non-profit
organizations, financial institutions, and governmental organizations.
Approximately 39 percent of its business is derived from the BNA publishing
companies.
Continued
4
Review of Operations
2002 was another tough year for BNA and its subsidiary companies, but a
successful one. The lingering economic slowdown negatively affected customer
buying decisions. It also negatively affected financial markets, contributing to
a decline in investment income. However, these challenges were successfully
answered through aggressive cost containment efforts, and BNA finished the year
with strong bottom-line results. Comparative profits and cash flows not only
reflected a strong recovery from the prior year's disappointing results, but
also challenged the all-time highs achieved in 2000. Earnings per share,
excluding the effect of a one-time non-cash change in accounting for goodwill,
were $.53 for 2002, up 51.4 percent over 2001 and the second highest in BNA
history.
Consolidated revenues were $309.8 million, an increase of 1.3 percent. The added
revenues resulting from owning STF for all of 2002, compared to only part of
2001, accounted for all of the growth in consolidated revenues. Recognizing that
revenue growth would be weak, operating expenses were aggressively cut. The
result was a healthy improvement in the operating profit.
The consolidated operating profit for 2002 of $27.9 million was up 92.7 percent
over 2001, and was close to the BNA all-time high. The major reasons for the
improvement were the inclusion of STF for a full year in 2002, including their
highly profitable first quarter, and cost cutting throughout most of the
business units. Overall, the consolidated operating expenses were down 3.3
percent, or over $10 million.
Total non-operating income declined $6.4 million compared to 2001, which had
included a large gain from the sales of publications. Investment income was also
lower due to declining market yields and lower portfolio balances.
Operating expenses now include large amortization expenses, over $10 million in
2002. This amortization, mostly related to the intangible assets of the acquired
businesses, is a non-cash expense. Consequently, cash flow measures have
increased relevance for measuring economic progress. Two cash flow measures show
healthy improvements in 2002. EBITDA, a measure of operating cash flow, was up
17 percent to an all-time high. EBDA, a measure of bottom-line cash flow, rose
21 percent, close to the all-time high; on a per share basis, it was a high.
BNA has made three large acquisitions over the last five years. The acquisition
goals were to diversify business operations and to provide additional avenues
for future growth by adding profitable companies. STF is the least vulnerable to
economic downturns of any of our businesses. It had a stellar first full year as
a BNA company in 2002, generating strong cash flow and adding to bottom line net
income. IOMA and Kennedy fortunes are much more linked with the economy, and
their financial results in the past two years reflected that. We do expect both
to recover and grow along with the economy, and we continue to expect them to
grow at a faster pace than BNA's traditional businesses when the economy is
strong. In the meantime, both have reduced expenses to better match their
immediate revenue expectations.
Stock repurchases, including those from the estates of the two largest Class B
stockholders, were nearly $33 million in 2002. A healthy $7 million of Class A
stock was sold to employees, but total shares outstanding continued to decline.
Over the last six years, shares outstanding have been reduced by 21 percent, and
this has had a positive effect on earnings per share. This trend will continue
for at least another year because the majority of the outstanding Class C stock
must be tendered by early 2004. Operating cash flows and financial reserves have
provided the cash needed for the net buybacks, and are expected to continue to
do so.
5
BNA's cash and financial investments declined $21 million during 2002, due to
the high net stock repurchases, to nearly $124 million. The liquidity provided
by these financial reserves, as well as the strong operating cash flows
generated annually by the businesses, keeps BNA prepared to respond to business
challenges and opportunities, to make the investments necessary to ensure future
growth, to satisfy debt retirement obligations, and to meet the stock repurchase
obligations inherent in an employee-owned company.
Reviews of the parent and subsidiary companies' operations follow.
Parent Company
BNA's ability to adapt to challenging conditions continued to be tested in 2002,
and once again BNA people and products prevailed. The parent company adjusted to
the weak business economy and its dampening effect on revenues to turn in a
record operating profit and to lead the corporation to a strong recovery in
2002.
The lingering economic slowdown resulted in a very poor selling environment.
Consequently, for the second consecutive year, parent company revenues declined
slightly. Cost reductions across a wide range of areas, however, led to a
significant decrease in operating expenses and a historically high operating
profit.
Despite the focus on cost containment, BNA continued to invest in strengthening
Web infrastructure and in ensuring the company's ability to continue operations
in emergency situations. EMPLOYMENT GUIDE, the first product on BNA's new Web
platform (BWD), was released to the public in 2002. PAYROLL GUIDE ON THE WEB
also was completed, and it will be the first major product on the new platform
to be released to subscribers.
2002 saw the upgrading of both performance and capacity of BNA's e-commerce
system, as well as significant improvements to the capacity and stability of Web
products. In addition, critical systems, including the publishing system and Web
products, have now been backed up at the Rockville facility, enabling BNA to
continue to function in the event of a downtown closure or power outage. Web
products continue to be the fastest-growing part of the parent's business. With
nearly half of parent service revenues now coming from electronic products,
continued improvement of BNA's Web infrastructure is essential.
The Publishing Group's Legal and Business Publishing line performed well in
2002, with both revenues and profits coming in ahead of expectations. Part of
this success was due to the launch of several new products. PRIVACY & SECURITY
LAW REPORT; WAGE, HOUR & LEAVE REPORT; and ERISA ENFORCEMENT & COMPLIANCE
LIBRARY all were launched in January 2002. The rest of the year was dedicated to
work on several new products and product revamps for launch in the first quarter
of 2003, including a notification service on corporate accountability, a
notification service on homeland security, and a reference library on employee
benefits.
BNA's Large Law Program launched late in 2002 to better serve the needs of the
company's major law firm subscribers. Seven specialized sales professionals, who
are also attorneys, were hired to focus exclusively on the largest law firms.
Their mandate is to maintain and grow revenue by ensuring that their clients are
leveraging the full power of BNA information. They also are charged with
exploring new business opportunities and with developing ways for law firms to
maximize their value in BNA content and resources.
6
Law schools also were targeted for special attention in 2002 with a new sales
program, two dedicated sales professionals, and a new Law School Relations
Manager. Supporting these sales initiatives was the marketing arm of Legal &
Business Publishing, which developed and produced more than 20 new selling aids
in record time.
A new health care publication, MEDICAL RESEARCH LAW & POLICY REPORT, was
launched in March 2002 and is off to a good start. Another new notification
service, PHARMACEUTICAL LAW & INDUSTRY REPORT, was developed for launch in the
first quarter of 2003.
Environment, Health & Safety Publishing launched "safety.bna.com" in June 2002.
This new topical-access product offers a departure from traditional online
searching. Relying on BNA's expert subject matter analysis and indexing,
safety.bna.com now allows subscribers to link from subject headings to news, BNA
analysis, federal and state regulations, agency documents, cases, military
documents, and other relevant information available on the Web.
Human Resources Publishing released new and revamped products, underscoring its
mission not only to help HR professionals comply with the law, but also to help
them make critical business decisions and develop sound human resource
strategies. The new products and improvements led to a significant increase in
new sales in 2002. All of the unit's major Web products were revised to improve
features and functionalities. New subscription services included HR
ANSWERSOURCE: PROFESSIONAL EDITION, an intuitive, mid-range general reference
product; MANAGING PEOPLE, which provides essential compliance and best-practice
information for line managers and supervisors; and GLOBAL HR REPORT, a service
combining weekly news and a primer on managing a global workforce. The HR
business unit also launched a series of annual, survey-based reports for
individual sale. The first two titles were HR DEPARTMENT BENCHMARKS AND ANALYSIS
and MANAGING EMPLOYEE EXPENDITURES.
Despite the weak selling environment, the Subscriber Relations Group had a
productive year. This group includes the Sales Department and all customer
service, support, and training resources. One major undertaking for the
Subscriber Relations Group in 2002 was the complete analysis of all Customer
Contact Center services. The resulting data led to the development of a cost
allocation methodology which will inform and influence future decisions on the
use of these resources, which should lead to cost efficiencies.
2002 proved to be a very difficult year. There were many obstacles and many
disappointments. However, because of the ability of BNA people to adjust and
adapt in order to be successful in difficult times, the parent company ended the
year with record earnings and with a number of achievements that make BNA
operationally a stronger and better company going forward.
BNA Books
The Book Division closed 2002 with a flurry of activity, publishing 14 titles in
December. Despite the poor economic environment, the division grew its revenues
and improved operating profits by 7 percent over 2001.
New editions of SUPREME COURT PRACTICE and COVENANTS NOT TO COMPETE: A
STATE-BY-STATE SURVEY contributed heavily toward another record-breaking year.
The division published 50 books in 2002, including nine new titles and
supplements to established treatises. New titles include COMPUTER AND IP CRIME:
FEDERAL AND STATE LAW; TRADEMARK DILUTION; NEGLIGENCE IN EMPLOYMENT LAW;
E-HEALTH LAW; and EXECUTIVE COMPENSATION.
7
The division's Website, with e-commerce capabilities, has proven to be a
dramatic success. Sales on the site improved by 34 percent over the previous
year. This trend is expected to continue and already has proven to reduce costs
for the division.
The Book Division has established a respected reputation for publishing
treatises that are authoritative, reliable, and insightful. The division's
mission is to continue to build on that reputation and on the strength of its
highly regarded authors and partners, like the American Bar Association, to
become the treatise publisher of choice in the legal publishing industry.
Tax Management Inc. (TM)
Revenues from TM information services increased 3 percent. New sales were close
to expectations and renewal revenues held up well, reflecting increased
retention efforts. Operating profits were off from their historic highs of 2001,
but Tax Management's operating margin remained healthy and its operating profits
continued to make a significant contribution to BNA's overall bottom line.
During 2002, TM published a record number of new and revised portfolios and
chapters of the Tax Practice Series. It also added more IRS documents and 70,000
federal tax cases going back to 1913. A new "Insights & Commentary" column
written by leading tax practitioners from across the country and around the
world also was created. In addition to enhancing content, TM continued to
improve the automation of its internal production, the stability of its Web
platform, and the functionality and ease of use of its products.
Tax Management is recognized as the leading provider of analytical tax content
in the industry. This strength is built into each of TM's products and makes
them uniquely valuable and essential.
BNA Software
BNA Software's revenues grew by almost 7 percent, led by new sales of BNA FIXED
ASSETS and the BNA CORPORATE TAX AUDIT ANALYZER. Operating profits declined,
however, due to start-up expenses related to the new BNA FIXED ASSETS WEB
product.
The adoption of the Web-based product was slower than anticipated, Management
continues to be optimistic about the growth prospects for the product in 2003.
Greater market acceptance of the new Web product, refinement of new sales
channels, and further development of existing business position the division
for continued growth in 2003.
BNA International Inc.
After years of good growth, the extremely challenging market conditions BNA
International confronted in 2002 led to a slight revenue decline. But
cost-cutting measures implemented early in the year, combined with a strong
focus on customer retention, mitigated the effects of weak new subscription
sales, and BNAI was able to maintain a high level of profitability.
8
The difficult environment did not derail the company's strategy of increasing
revenues by upgrading print subscribers to more comprehensive and higher-priced
Web libraries. Web-derived revenues were double expectations. These came
primarily from sales of tax products on the Web, but the market's response to
two libraries launched late in the year - WORLD INTELLECTUAL PROPERTY LAW
LIBRARY and WORLD INTERNET LAW LIBRARY - also has been encouraging. The new
Web-only EU ACCESSION REPORT and WORLD FINANCIAL LAW LIBRARY will be available
early in 2003.
While new print product launches were postponed until the markets improve,
several existing products were revamped to better meet subscribers' needs. TAX
PLANNING INTERNATIONAL FINANCING was relaunched as WORLD CORPORATE FINANCE
REVIEW to broaden its appeal. WORLD MONEY LAUNDERING REVIEW was refocused and
is being relaunched as WORLD INVESTMENT REGULATION REVIEW.
In 2003, work on refining BNAI's Web offerings and creating new sales channels
should lead to a resumption of growth and continued success.
Pike & Fischer, Inc.
Pike & Fischer began 2002 expecting a rebound in the U.S. economy. When the
recovery failed to materialize, the company altered its plans and instead
focused on strengthening its core businesses and on shoring up its position in
existing markets.
The company's ability to adapt resulted in growth in both revenues and
profitability in 2002. Nearly all the revenue growth came from Pike & Fischer's
conference business, which increased its revenues 67 percent over the prior
year, and from the transfer early in the year of the Food Safety Report from
BNA. Royalty revenues also were up, but revenues generated from the
telecommunications market were down for the second consecutive year. The decline
in telecom revenue was lower than the prior year's, and will likely stabilize
near present levels. Restructuring and careful cost containment also contributed
to better profitability.
Late in the year Pike & Fischer acquired the publishing assets of Rules Service
Company, a competitor Pike & Fischer had been pursuing off and on for nearly a
decade. The purchase not only removes significant competition, but gives Pike &
Fischer an entry into several new markets.
Organizational improvements, continued growth in the conference business, and
the benefits from the new acquisition should enable Pike & Fischer to be a solid
performer for BNA in 2003.
BNA Washington Inc. (BNAW)
BNAW, BNA's real estate subsidiary, continued to successfully provide safe,
comfortable, and productive facilities while holding the line on operating
expenses. Overall, costs were virtually unchanged from the prior year, as
opportunities were found to reduce outside labor, maintenance, and utility
expenses without significantly impacting tenant services.
Keeping BNA employees and property safe and secure in an uncertain world
environment led to a comprehensive review of security programs. Access
procedures were tightened, new security equipment was added, and a new photo
identification badge system was adopted. Safety and security were the top
priorities for BNAW in 2002.
9
BNAW also improved systems and procedures to ensure the ability to continue
operations in emergency situations. With BNA's staff and products dependent on
the constant availability of electronic equipment, an emergency generator was
installed to serve the North and South buildings downtown, and the
Uninterruptible Power Supply battery backup system was replaced at the Rockville
facility. Both systems are scheduled to be operational early in 2003. Critical
data systems will then continue to operate even when there are power failures.
Relocation and renovation activity in 2002 was minimal; requirements were met
using existing office space and furnishings. There is adequate space to satisfy
BNA requirements for the foreseeable future.
In October BNAW began work on a long-range facility plan. This work will focus
on BNA's business needs beyond 2006, when both the lease on the 23rd Street
building and BNA's agreement to stay in the District will expire.
The McArdle Printing Company, Inc.
The McArdle Printing Company's financial performance improved considerably over
the prior year despite a sluggish economy and an extremely competitive printing
market. This recovery was the result of a small increase in revenue and a number
of cost containment measures.
In addition to improved financial results, McArdle launched a company-wide
initiative to review, revise, and improve communications, quality, and service.
This renewed focus should enhance McArdle's service and profitability.
McArdle also continued to use technology to improve productivity and work
product. The introduction of digital plate imaging technology will improve print
quality and readability, allowing customers, including BNA, to use more detailed
graphics, maps, and charts in their publications. The acquisition of a more
robust file server for the processing of customer files and faster addressing
machines also should result in more efficient operation.
McArdle, which is now the second largest printer in the Washington metropolitan
area, is committed to continued revenue growth and profitability by producing
competitively priced, superior quality products and services to BNA and to the
commercial markets it serves.
Institute of Management & Administration, Inc. (IOMA)
The newsletter industry has had a difficult time in the adverse economic
environment, and IOMA was no exception. Subscription revenues and revenues from
list rentals both declined in 2002. Growth in non-subscription revenues and
tight cost controls led to an improved financial performance by year-end.
IOMA's investment in new sales efforts, new products, and new distribution
channels, along with restructuring expenses, contributed to a weak start, but
paid off by the fourth quarter. Revenues from site licenses, royalties,
conferences, audio conferences, custom publishing, research, binder services,
books, Web sales, and special reports all grew, replacing most of the lost
subscription revenues. Non-subscription products grew from 22 percent of
revenues in 2001 to 24 percent in 2002, with significantly higher revenues
forecast for 2003.
10
IOMA's conference program was the highlight among the new product initiatives in
2002. Royalties from third-party distributors of IOMA information also remained
strong throughout the year. In addition, IOMA's nine "e-zines" grew to 35,000
subscribers, reflecting a vastly expanded electronic marketing channel. IOMA
offers 100 percent of its content in pay-by-the-article format, available at
ManagementLibrary.com. Revenues from this database increased nearly every month
during 2002.
The transition of the IOMA business model, from a newsletter publisher to an
information company providing a variety of products through a wide range of
channels, clearly hurt earnings in the first part of 2002, but leaves the
company poised to improve financial performance in 2003.
Kennedy Information, Inc.
The year 2002 was another challenging one for Kennedy Information's core
customers -- consulting and recruiting firms -- and, as a result, for the
company. Magazine advertising and conference fees, important revenue streams for
Kennedy, were hit especially hard.
Kennedy Information responded to weaker demand by reducing costs where possible
Cost control measures such as reducing the frequency of magazine issues, number
of events, and marketing expenditures, can be quickly reversed as the economy
improves. But in 2002 these measures played a large role in enabling Kennedy to
improve upon 2001's operating results despite a decline in revenues.
Profits in the newsletter, research, advisory, conference, and database units
were mostly offset by losses in the magazine division, and the company posted a
small operating loss. Kennedy Information's advisory business turned in a strong
performance during the year as momentum continued to build with large clients.
Products aimed at job seekers also fared well.
The company launched two major products during the year, a directory of tax
professionals and a Web-based executive career tool called "Executive
Registry.com". The benefits of these launches will be realized in 2003.
Significant progress on additional new products and services also was made
during 2002.
These new initiatives, along with any improvement in the economic environment,
should return Kennedy to growth and profitability in 2003.
STF Services Corporation
STF's first full year as part of the BNA family was extremely successful both
financially and operationally. The company's already very profitable performance
was enhanced by a one-time gain resulting from the early termination of a
contract to license STF tax forms. But even without that extraordinary event,
STF was a major contributor to BNA's strong consolidated operating profit.
In 2002, STF redesigned the architecture of its SuperForm tax forms service to
provide better integration with customer workflows and other software. This
allows for seamless and dynamic software updating, which is especially important
as end-users continue their migration from CD to the Web. In addition, these
changes should lower STF's production costs and lead to increased operating
profits.
Plans are underway for the release in 2003 of new products in the human resource
and tax/accounting fields. These products will combine STF forms technology and
content with payroll information products from BNA and IOMA. STF is also
planning the release of several niche products serving more specific needs in
the tax/accounting market.
STF is well positioned to continue to grow by applying the latest forms
technologies to the problems that customers face in complying with a wide
variety of government regulatory requirements. In particular, STF will focus on
adding value by building products that integrate more fully with customer
workflows for greater productivity.
11
Item 1. Business
--------
General Development of Business and Narrative Description of Business,
- ----------------------------------------------------------------------
Continued
- ---------
The Bureau of National Affairs, Inc. ("BNA" or the "Company"), operates
primarily 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 outside customers. Software operations consist of the production
and marketing of software programs and interactive electronic forms. Activities
in other industry segments are less than ten percent of total revenue.
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. Consolidation within the industry in recent years has
resulted in even larger competitors. The expansion of the internet has resulted
in business information becoming increasingly available from both direct and
indirect competitors. In addition, government agencies provide access to a
growing volume of information, resulting in another form of competition. The
Company produces value-added information and competes on the basis of
comprehensiveness and timeliness (quality), product line breadth, brand
reputation, variety of format offerings, price, and customer service.
The Company's subsidiary, The McArdle Printing Company, Inc. (McArdle), competes
with a number of commercial and financial printers for 61 percent of its
business. McArdle competes on the basis of the breadth of its print capabilities
and related services, price, and customer service.
BNA Software competes with a number of tax and financial planning software
publishers. It competes on the basis of product features and functions, quality
and reliability, timeliness of product updates, ease of use, brand recognition,
customer support, and price. STF is the dominant provider of electronic forms
with little direct competition.
The number of employees of BNA and its subsidiary companies was 1,999 on
December 31, 2002.
BNA stock may be purchased only by active employees, and may be held only by
employees, former employees, and by their heirs. Therefore, financial
information and reports filed with the Securities and Exchange Commission (SEC)
are not available to the general public through BNA's corporate internet
website, www.bna.com. The Company provides paper copies of filings to
stockholders free of charge upon request.
Item 2. Properties
----------
BNA Washington Inc. owns and manages the buildings presently used by BNA and
some of its Washington area subsidiary companies. Principal operations are
conducted in three adjacent owned buildings at 1227-1231 25th Street, N.W.,
Washington, D.C. The office building at 1227 25th Street is being used primarily
by BNA and also for commercial leasing. BNA also leases office space for its use
at 1250 23rd Street, N.W., Washington, D.C.
BNA's Subscriber Relations Goup operates in an owned facility at 9435 Key
West Avenue, Rockville, Maryland. Pike & Fischer, Inc. leases office space
for its operations at 1010 Wayne Avenue, Silver Spring, Maryland. IOMA
conducts its operations from leased offices at 29 West 35th Street, New York,
New York. Kennedy Information, Inc. conducts its operations from leased
offices at One Phoenix Mill Lane, Peterborough, New Hampshire. STF Services
Corporation leases office space for its operations at 26 Corporate Circle,
East Syracuse, New York. BNA International Inc. conducts its operations from
leased offices at Heron House, 10 Dean Farrar Street, London, England. The
McArdle Printing Co., Inc. owns its office and plant facilities at 800
Commerce Drive, Upper Marlboro, Maryland.
12
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. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended December 31, 2002.
Item X. EXECUTIVE OFFICERS OF THE REGISTRANT
------------------------------------
The following persons were executive officers of The Bureau of National Affairs,
Inc., at December 31, 2002. Executive officers are elected annually by the Board
of Directors and serve until their successors are elected.
Name Age Present position and prior epxerience
- -------------------- --- -------------------------------------
William A. Beltz 73 Chairman of the Board
Elected chairman in 1994. Served as
president from 1979 to 1995 and
chief executive officer from 1980
until 1996. Joined BNA in 1956.
Cynthia J. Bolbach 55 Vice President and Corporate Secretary
Elected vice president in 2002.
Joined BNA in 1972.
Eunice L. Bumgardner 42 Vice President and General Counsel
Elected vice president in 1996
and general counsel in 1995. Joined
BNA in 1994.
Carol A. Clark 46 Vice President Resource Management
Elected vice president in 2001.
Previously served as Technology
Director since 1997.
Joined BNA in 1983.
Sandra C. Degler 63 Vice Chairman of the Board
Elected vice chairman in 1998.
Served as president of Tax
Management Inc. from 1983 to 2000.
Joined BNA in 1963.
13
Item X. EXECUTIVE OFFICERS OF THE REGISTRANT (Continued)
------------------------------------
Name Age Present position and prior experience
- -------------------- --- -------------------------------------
George J. Korphage 56 Vice President and Chief Financial
Officer
Elected vice president in 1988 and
chief financial officer in 1989.
Joined BNA in 1972.
Gilbert S. Lavine 51 Treasurer.
Elected to present position in 1998.
Joined BNA in 1985.
Gregory C. McCaffery 42 Vice President, Publisher and
Editor-in-Chief.
Elected Publisher in 2002, vice
president and editor in chief in
2000. Previously was director of
marketing and product development
since 1996. Joined BNA in 1986.
Mary Patricia Swords 57 Vice President Subscriber Relations
Elected vice president of sales and
marketing in 1996. Joined BNA in
1977.
Robert L. Velte 55 Vice President Strategic Development
Elected to vice president in 1995.
Joined BNA in 1976.
Paul N. Wojcik 54 President and Chief Executive Officer
Elected president in 1995 and
chief executive officer in 1997.
Joined BNA in 1972.
14
PART II
Item 5. Market for the Registrant's Common Stock and Related Security
-------------------------------------------------------------
Holder Matters
--------------
Market Information, Holders, and Dividends
There is no established public trading market for any of BNA's three classes of
stock, but the Stock Purchase and Transfer Plan provides a market in which Class
A stock can be bought and sold.
The Board of Directors semi-annually establishes the price at which Class A
shares can be bought and sold through the Stock Purchase and Transfer Plan 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 51 years, and they are expected
to continue.
As of February 22, 2003, there were 1,517 Class A shareholders, 292 Class B
shareholders, and 24 Class C shareholders. During 2002, the Company repurchased
2,898,819 shares of Class B stock and 133,749 shares of Class C stock from
retired employees.
Established stock price and dividends declared during 2002 and 2001 were as
follows:
Stock Price
January 1, 2001 - March 25, 2001 $8.85
March 26, 2001 - September 23, 2001 9.60
September 24, 2001 - March 24, 2002 9.75
March 25, 2002 - September 22, 2002 10.00
September 23, 2002 - December 31, 2002 10.50
Record Date and Dividend Amount
March 24, 2001 $.15
September 22, 2001 .15
March 23, 2002 .15
September 21, 2002 .15
The principal market for trading of voting shares of common stock of The Bureau
of National Affairs, Inc., is through the Trustee of the Stock Purchase and
Transfer Plan.
15
PART II
Item 6. Selected Financial Data
-----------------------
The Bureau of National Affairs, Inc.
Consolidated Operating and Financial Summary: 2002-1998
(Dollar amounts in thousands, except per share data)
2002 2001 2000 1999 1998
-------- -------- -------- -------- --------
Operating Revenues $309,790 $305,965 $297,399 $283,959 $271,328
Operating Expenses 281,900 291,489 269,365 260,653 250,728
- -------------------------------------------------------------------------------
Operating Profit 27,890 14,476 28,034 23,306 20,600
Non-operating Income:
Investment Income 6,235 8,542 9,327 9,516 9,077
Interest Expense (5,829) (6,000) (1,654 (1,026) (899)
Other Income (Expense) 191 4,421 (1,200) 112 (432)
- -------------------------------------------------------------------------------
Income Before Income Taxes
and Cumulative Effect of
Accounting Change 28,487 21,439 34,507 31,908 28,346
Income Taxes 9,670 8,177 11,353 10,898 8,753
------------------------------------------------
Income from Operations 18,817 13,262 23,154 21,010 19,593
Cumulative Effect of
Accounting Change (a) (4,440) --- (7,470) --- ---
------------------------------------------------
Net Income $ 14,377 $ 13,262 $ 15,684 $ 21,010 $ 19,593
- -------------------------------================================================
Profit Ratios (b):
% of Operating Revenues 6.1 4.3 7.8 7.4 7.2
% of Avg Stockholders' Equity 43.6 21.9 33.5 28.7 26.6
- -------------------------------------------------------------------------------
Earnings Per Share from Operations $.53 $.35 $.59 $.52 $.47
Cumulative Effect of
Accounting Change (a) (.12) --- (.19) --- ---
------------------------------------------------
Total earnings per share $.41 $.35 $.40 $.52 $.47
================================================
Dividends Per Share $.30 $.30 $.28 $.26 $.24
- -------------------------------================================================
Balance Sheet Data:
Total Assets $347,327 $384,583 $367,900 $319,728 $321,390
Long-Term Debt 75,000 84,000 59,000 14,000 14,000
- -------------------------------================================================
Employee Data:
Number of Employees 1,999 2,121 2,085 2,007 2,055
Total Employment Costs $166,005 $162,060 $150,345 $146,628 $137,386
- -------------------------------================================================
Stockholder Data at Year-End:
Number of Stockholders 1,834 1,807 1,782 1,836 1,791
Common Shares Outstanding
(In thousands) 34,922 37,492 38,797 40,305 41,140
- -------------------------------================================================
Per share figures and number of shares outstanding have been adjusted to reflect
the five-for-one stock split effective September 23, 2001.
(a) Includes the cumulative effects of the changes in accounting for
goodwill in 2002, and for selling expenses in 2000.
(b) Based on net income excluding the cumulative effects of the accounting
changes.
16
Selected Quarterly Data
The following is quarterly financial information (unaudited) for 2002 and 2001
(in thousands of dollars).
First Second Third Fourth
2002 (a) Quarter Quarter Quarter Quarter
Ended Ended Ended Ended
March 23 June 15 Sept. 7 Dec. 31
- ------------------------------------------------------------------------------
Revenues $66,956 $71,601 $68,456 $102,777
Gross Profit 30,103 33,722 30,638 48,552
Income Before Cumulative Effect
of Accounting Change 4,131 4,466 3,789 6,431
Cumulative Effect of Accounting
Change (4,440) --- --- ---
-----------------------------------------
Net Income (Loss) (309) 4,466 3,789 6,431
Earnings Per Share:
Income Before Cumulative Effect
of Accounting Change $ .11 $ .13 $ .11 $ .18
Cumulative Effect of
Accounting Change (.12) --- --- ---
-----------------------------------------
Net Income $ (.01) $ .13 $ .11 $ .18
Quarter Quarter Quarter Quarter
2001 (b) Ended Ended Ended Ended
March 24 June 19 Sept. 11 Dec. 31
- ------------------------------------------------------------------------------
Revenues $65,925 $69,978 $71,366 $98,696
Gross Profit 29,439 29,766 33,401 46,970
Net Income 3,439 1,636 3,305 4,882
Earnings Per Share: $ .09 $ .04 $ .09 $ .13
(a) First quarter, 2002 restated to show cumulative effect of accounting
change for goodwill, effective January 1, 2002.
(b) Earnings per share figures adjusted to reflect the five-for-one stock
split effective September 23, 2001.
17
PART II
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.
2002 vs. 2001
Business was negatively impacted by the lingering economic slowdown in 2002.
BNA's revenue growth continued to slow and investment income was down, but
aggressive cost cutting led to better bottom-line results. Financial results
include a $4.4 million charge recorded as a cumulative effect of an accounting
change, as described in Note 7 to the consolidated financial statements. Net
income was $14.4 million and earnings per share were $.41.
Consolidated revenues of $309.8 million were up 1.3 percent compared to the
prior year, but operating expenses decreased 3.3 percent. The added revenues
resulting from owning STF for all of 2002, compared to only part of 2001,
accounted for all of the growth in consolidated revenues. The consolidated
operating profit was up 92.7 percent, reflecting improvements in each of the
three operating segments. Excluding the cumulative effect of the accounting
change, net income was $18.8 million, a 41.9 percent increase, and earnings per
share were up 51.4 percent, to $.53, compared to 2001.
The Publishing segment - which aggregates the Parent with Tax Management Inc.
(excluding Software), IOMA, Pike & Fischer, Inc., BNA International Inc.,
Kennedy Information, Inc., and BNA Washington Inc. - generated 85 percent of
consolidated revenues. Publishing revenues were down 1.2 percent. Operating
expenses decreased 4.2 percent, reflecting cost containment efforts. Twelve new
products were launched in 2002. Identifiable development expenses for new
products and improvements on existing products were $5.7 million in 2002 and
$4.0 million in 2001. Operating expenses in 2002 also include an identifiable
$3.3 million for developing improved business and publishing systems, compared
to $5.3 million in 2001. Publishing operating profit was up 48.4 percent
compared to 2001.
The Printing segment, which includes The McArdle Printing Company, Inc.,
experienced a 1.1 percent increase in sales, reflecting a 4.9 percent increase
from external customers and a 4.3 percent decrease in intersegment revenues.
Sales to commercial customers suffered from the general economic slowdown,
especially the reduced demand for financial printing caused by subdued capital
markets, but improved nonetheless due to sales to new customers. Intercompany
revenues continue to decline as Publishing segment subscribers migrate from
print to electronic products. Operating expenses decreased 0.5 percent,
reflecting lower variable costs and workforce reductions. Printing operating
profit was $748,000 in 2002, compared to $174,000 in 2001.
18
The Software segment combines BNA Software, a division of Tax Management Inc.,
with STF Services Corporation, which was acquired in April 2001. Segment
revenues increased 32 percent due primarily to the full year inclusion of STF,
but also to a nearly 7 percent growth in BNA Software revenues and to a $1.3
million contract termination settlement. Operating expenses were up 2.2 percent,
reflecting BNA Software's higher staffing costs and expenses related to a major
new product and the inclusion of STF for a full year. The effect of these
expense increases was mitigated by a 2002 abatement of a $450,000 tax penalty
related to STF which had been accrued in 2001. The segment recorded a $5 million
operating profit in 2002 compared to a $.6 million operating loss in 2001.
Non-operating income decreased to $.6 million in 2002, from $7 million in 2001,
mainly due a large gain on the sales of publications on 2001. Investment income
was lower due to lower investment balances and lower market yields. Interest
expense was slightly lower.
The consolidated federal, state, and local effective income tax rate decreased
to 33.9 percent in 2002 from 38.1 percent in 2001, mainly due to lower state and
local taxes and less non-deductible expenses, partially offset by lower tax-
exempt interest.
2001 vs. 2000
Consolidated revenues of $305.9 million were up 2.9 percent compared to the
prior year while operating expenses increased 8.2 percent. The operating profit
was down 48.4 percent due to declines in each of the three operating segments.
Net income was $13.3 million, a decline of 42.7 percent, and earnings per share
were down 40.7 percent, to $.35, compared to the 2000 income before cumulative
effect of accounting change. Excluding the revenues and operating expenses of
two acquired businesses, consolidated revenues were essentially even with 2000,
and operating profit was down 22.7 percent. The consolidated federal, state, and
local effective income tax rate increased to 38.1 percent in 2001 from 32.9
percent in 2000, mainly due to a higher state and local tax assessment, which
accounted for 4.4 percent of the increase.
The Publishing operating segment generated 87 percent of consolidated revenues.
Publishing revenues were up 3.0 percent, reflecting the acquisition of Kennedy,
new products, and price increases. Operating expenses increased 6.0 percent.
Excluding the results of Kennedy, revenues were flat, and operating expenses
were up 1.2 percent. Fifteen new products were launched in 2001. Development
expenses for new products and improvements on existing products were $4.0
million in 2001 and 2000. Operating expenses in 2001 also include an
identifiable $5.3 million for developing improved business and publishing
systems, compared to $4.8 million in 2000. Operating profit was down 30.3
percent compared to 2000.
The Printing operating segment experienced an 11.4 percent decrease in sales,
reflecting a 14.3 percent decrease from external customers and a 7.0 percent
decrease in intersegment revenues. Sales to commercial customers suffered from
the general economic slowdown, especially the reduced demand for financial
printing caused by subdued capital markets. Intercompany revenues continue to
decline as Publishing segment subscribers migrate from print to electronic
products. Operating expenses decreased 5.7 percent, due to lower variable costs
and workforce reductions. Printing operating profit was $174,000 in 2001,
compared to $2.6 million in 2000.
19
The Software operating segment now combines BNA Software, a division of Tax
Management Inc., with STF Services Corporation, which was acquired in April
2001. Software revenues increased 29.4 percent due partially to the addition of
STF, but also because of a $1.9 million sale to a government agency. Operating
expenses were up 85 percent, reflecting higher BNA Software fulfillment costs
and higher staffing costs for product development and support, STF's operating
expenses, and amortization expenses related to the STF acquisition. Excluding
STF's results, revenues were up 16.5 percent and operating expenses were up 33.8
percent. The segment incurred a $.6 million operating loss in 2001 compared to a
$4.1 million operating profit in 2000.
Non-operating income increased $.5 million in 2001. Gains on sales of two
publications totaled $4.4 million. Investment income was lower due to lower
investment balances and lower market yields. Interest expense was up
substantially as a result of borrowings to finance the acquisitions of Kennedy
and STF.
Cash Flows, Liquidity, and Financial Resources
The Company maintains its financial reserves in cash and investment securities,
which, along with its operating cash flows, are sufficient to fund ongoing
expenditures for operations and to support employee ownership. Cash provided
from operating activities increased $1.5 million in 2002, reflecting a 0.8
percent decrease in collections, and a 1.4 percent reduction in operating
expenditures.
Cash provided from investing activities netted to $4.9 million. Capital
expenditures amounted to $5.8 million, including $4.7 million for property and
equipment additions and capitalized software, and $1.1 million related to
acquisitions. Capital expenditures for 2003 are expected to be approximately
$7.6 million. Cash provided from the investment portfolio was $10.7 million.
Cash used for financing activities netted to $40.6 million. Capital stock
repurchases amounted to $33 million, most of which were mandatory tenders. Debt
principal repayments amounted to $4 million, and the Company paid cash dividends
of $10.7 million in 2002. Sales of Class A capital stock to employees totaled
$7.1 million.
The Company's commitment to employee ownership is supported by its policy to
repurchase all stock tendered by stockholders that is in excess of employee
stock plan purchases. As of December 31, 2002, capital stock with a market value
of $16.1 million and $1.8 million are known or expected to be tendered in 2003
and 2004, respectively. The actual amount repurchased will likely be higher.
Contractual cash obligations as of December 31, 2002 were as follows (in
thousands of dollars):
Payments Due by Period
Contractual Less than 1-3 4-5 After 5
Obligations: Total 1 Year Years Years Years
- ------------------- ---------- ---------- ---------- ---------- ----------
Term Debt $ 80,000 $ 5,000 $ 12,500 $ 18,000 $ 44,500
Operating Leases 29,720 8,591 13,072 6,675 1,382
- ------------------- ---------- ---------- ---------- ---------- ----------
Total 109,720 13,591 25,572 24,675 45,882
20
With nearly $124 million in cash and investment portfolios and a $5 million loan
facility, the financial position and liquidity of the Company remain very
strong. The cash flows from operations, along with existing financial reserves
and proceeds from the sales of capital stock, have been sufficient in past years
to meet all operational needs, new product introductions, debt repayments, most
capital expenditures, and, in addition, provide funds for dividend payments and
the repurchase of stock tendered by shareholders. Should more funding become
necessary or desirable in the future, the Company believes that it has
additional debt capacity based on its operating cash flows and real estate
equity.
Other Disclosures
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 and the reported amounts
of revenues and expenses. 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 $73.8 million of goodwill at year-end 2002. As described in Note
7 to the Company's financial statements, goodwill is no longer being amortized.
Instead, the carrying amount of goodwill was subjected to a transition test in
the second quarter of 2002, followed by annual periodic testing in 2002 and
thereafter. The transition test resulted in a $4.4 million write down, recorded
as a cumulative effect of an accounting change. Annual testing requires that
goodwill that is not supported by measures of fair value must be written down,
resulting in an impairment expense. The Company updated its analysis of goodwill
as of December 31, 2002 and determined that there was no further impairment.
Goodwill amortization expense was $3.6 million in 2001.
The Company has $30.6 million of intangible assets at year-end 2002, as
summarized in Note 9 to the Company's financial statements. Most of these are
identified assets of Kennedy and STF at the time of their respective
acquisitions, and their initial values and estimated lives were established by
independent appraisals. In addition, intangible assets include software that is
used internally and software developed for sale. The Company periodically
evaluates the recoverability of the intangible assets, which are amortized, and
their estimated remaining lives. If an impairment in value occurs, an impairment
expense must be recorded, and estimated amortization periods may be reduced.
Amortization expense was $10.3 million in 2002, including a $1.9 million
impairment charge, and $6 million in 2001.
Two businesses which incurred operating losses in 2002, Kennedy and IOMA, have
goodwill and intangible assets totaling $55.6 million. Continuing operating
losses or revenue base deterioration would likely result in future impairment
losses.
The Company has recorded $30.1 million of net deferred income tax assets as of
year-end 2002, 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.
21
The Company has postretirement benefit liabilities totaling $70.7 million at
year-end 2002, as described in Note 4 to the Company's financial statements.
Independent actuaries use a number of assumptions to compute these liabilities,
and related benefit expenses. These include life expectancies, retirement ages,
health care cost trends, compensation increases, discount rates, 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 the actuaries, periodically reviews the assumptions and
revises them when appropriate. Total expenses for the postretirement benefits
that were subject to estimates and assumptions were $10 million in 2002 and $8.1
million in 2001.
Accounting Pronouncements
The Financial Accounting Standards Board (FASB) issued SFAS No. 146, Accounting
for Costs Associated with Exit or Disposal Activities in July 2002. SFAS 146
requires companies to recognize costs associated with exit or disposal
activities when they are incurred rather than at the date of a commitment to an
exit or disposal plan as was the case in prior guidance. SFAS 146 is effective
for exit or disposal activities initiated after December 31, 2002. The company
will adopt the provisions of SFAS 146 as of January 1, 2003. The effect of
adopting this Statement is not expected to have a material effect on the
Company's future financial position or overall trends in results of operations.
The FASB issued SFAS No. 147, "Acquisitions of Certain Financial Institutions",
and SFAS No. 148, "Accounting for Stock-Based Compensation-Transition and
Disclosure-an Amendment of FASB Statement No. 123", in October and December
2002, respectively. These Statements are not expected to have any effect on the
Company's future financial position.
Item 7a. Quantitative And Qualitative Disclosures About Market Risk
----------------------------------------------------------
The Company is exposed to interest rate risks in its investment portfolio and
its term debt liability. A hypothetical ten percent increase in market interest
rates would result in higher interest expense on its term debt, but the increase
would be immaterial.
The maturity dates and average interest yields for fixed-income securities debt
held in the Company's investment portfolio as of December 31, 2002 was as
follows (in thousands of dollars):
Expected Maturity Date
- -------------------------------------------------------------------------------
2003 2004 2005 2006 2007 Thereafter
- ----------------------- -------- -------- -------- -------- -------- ----------
Municipal Bonds $22,566 $9,357 $7,205 $12,426 $19,035 $16,134
Average Interest Rate 3.3% 2.6% 4.2% 3.9% 3.7% 4.7%
Corporate Debt $5,675 $1,038 --- --- --- $3,593
Average Interest Rate 6.6% 5.2% --- --- --- 9.0%
- -------------------------------------------------------------------------------
The Company manages interest rate risk in its investment portfolio by
diversifying the maturities of its fixed-income investments. Approximately 80
percent of these instruments at year-end 2002 mature within five years.
Shorter-term maturity investments reduce the risk that any decline in their fair
value will have a permanent adverse effect on the Company's financial position.
The Company does not hold securities for trading purposes, or use derivative
financial instruments.
22
PART II
Item 8. Financial Statements and Supplementary Data
-------------------------------------------
THE BUREAU OF NATIONAL AFFAIRS, INC.
Consolidated Financial Statements
December 31, 2002 and 2001
(With Independent Auditors' Report Thereon)
23
Independent Auditors' Report
The Board of Directors and Stockholders
The Bureau of National Affairs, Inc.:
We have audited the consolidated financial statements of The Bureau of National
Affairs, Inc. and subsidiaries as listed in the accompanying index in Part IV,
Item 14(a)(1). In connection with our audits of the consolidated financial
statements, we have also audited the financial statement schedule as listed in
the accompanying index in Part IV, Item 14(a)(2). These consolidated financial
statements and the financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and the financial statement schedule based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of The Bureau of
National Affairs, Inc. and subsidiaries as of December 31, 2002 and 2001, and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 2002, in conformity with accounting
principles generally accepted in the United States of America. Also in our
opinion, the related 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 7 to the consolidated financial statements, effective
January 1, 2002, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 142, Goodwill and Other Intangible Assets.
s\ KPMG LLP
-----------
KPMG LLP
Washington, D.C.
February 24, 2003
24
THE BUREAU OF NATIONAL AFFAIRS, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2002 AND 2001
(In thousands of dollars)
ASSETS
December 31,
--------------------------
2002 2001
---------- -----------
Current Assets:
Cash and cash equivalents (Note 5) $ 11,530 $ 21,017
Short-term investments (Note 5) 28,241 7,288
Receivables (Note 9) 42,341 45,097
Inventories (Note 9) 3,598 3,726
Prepaid expenses 3,843 4,440
Deferred selling expenses (Note 3) 5,824 6,265
Deferred income taxes (Note 8) 7,447 5,951
---------- -----------
Total current assets 102,824 93,784
Marketable Securities (Note 5) 84,220 116,656
Property and Equipment (Note 9) 33,209 36,465
Deferred Income Taxes (Note 8) 22,648 23,637
Goodwill (Note 7) 73,782 76,700
Intangible and Other Assets (Note 9) 30,644 37,341
---------- -----------
Total assets $ 347,327 $ 384,583
========== ===========
See accompanying notes to consolidated financial statements.
(Continued)
25
THE BUREAU OF NATIONAL AFFAIRS, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2002 AND 2001
(In thousands of dollars)
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31,
--------------------------
2002 2001
---------- ----------
Current Liabilities:
Payables and accrued liabilities (Note 9) $ 41,180 $ 41,766
Deferred revenues (Note 3) 126,614 132,378
Current portion of long-term debt (Note 10) 5,000 ---
---------- ----------
Total current liabilities 172,794 174,144
Long-Term Debt,less current portion (Note 10) 75,000 84,000
Postretirement Benefits, less current portion 61,460 65,734
(Note 4)
Other Liabilities 6,614 5,829
---------- ----------
Total liabilities 315,868 329,707
---------- ----------
Commitments and Contingencies (Notes 11 & 12)
Stockholders' Equity (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 5,863 1,249
Retained earnings 90,017 86,373
Treasury stock, at cost (119,698) (89,181)
Elements of other comprehensive income:
Net unrealized (loss) on marketable
securities (1,811) (719)
Foreign currency translation adjustment (79) (13)
---------- ----------
Total stockholders' equity 31,459 54,876
---------- ----------
Total liabilities and stockholders' equity $ 347,327 $ 384,583
========== ==========
See accompanying notes to consolidated financial statements.
26
THE BUREAU OF NATIONAL AFFAIRS, INC.
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000
(In thousands of dollars, except per share amounts)
Percent of Operating
Revenue
--------------------
2002 2001 2000 2002 2001 2000
-------- -------- -------- ------ ------ ------
Operating Revenues (Note 3) $309,790 $305,965 $297,399 100.0% 100.0% 100.0%
-------- -------- -------- ------ ------ ------
Operating Expenses (Notes 3,4,7,9 and 11):
Editorial, production, and
distribution 166,775 166,389 157,813 53.8 54.4 53.1
Selling 55,354 66,282 62,776 17.9 21.7 21.1
General and administrative 56,666 55,537 46,156 18.3 18.1 15.5
Profit sharing 3,105 3,281 2,620 1.0 1.1 0.9
-------- -------- -------- ------ ------ ------
Total Operating Expenses 281,900 291,489 269,365 91.0 95.3 90.6
-------- -------- -------- ------ ------ ------
Operating Profit 27,890 14,476 28,034 9.0 4.7 9.4
-------- -------- -------- ------ ------ ------
Non-Operating Income:
Investment income (Note 5) 6,235 8,542 9,327 2.0 2.8 3.1
Interest expense (Note 10) (5,829) (6,000) (1,654) (1.9) (2.0) (0.5)
Other income (expense)
(Notes 2 and 6) 191 4,421 (1,200) 0.1 1.5 (0.4)
-------- -------- -------- ------ ------ ------
Total Non-Operating Income 597 6,963 6,473 0.2 2.3 2.2
-------- -------- -------- ------ ------ ------
Income Before Income Taxes 28,487 21,439 34,507 9.2 7.0 11.6
Provision for Income Taxes 9,670 8,177 11,353 3.1 2.7 3.8
(Note 8)
-------- -------- -------- ------ ------ ------
Income before cumulative
effects of accounting changes 18,817 13,262 23,154 6.1% 4.3% 7.8%
====== ====== ======
Cumulative effects of accounting
changes (Notes 3 and 7) (4,440) --- (7,470)
-------- -------- --------
Net Income $14,377 $13,262 $15,684
======== ======== ========
Earnings Per Share (Note 12)
Income before cumulative
effects of accounting changes $ .53 $ .35 $ .59
Cumulative effects of
accounting changes (.12) --- (.19)
-------- -------- --------
Net Income Per Share .41 .35 .40
======== ======== ========
See accompanying notes to consolidated financial statements.
27
THE BUREAU OF NATIONAL AFFAIRS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000
(In thousands of dollars)
2002 2001 2000
--------- --------- ---------
Cash Flows from Operating Activities:
Net income $ 14,377 $ 13,262 $ 15,684
Items with different cash requirements
than that reflected in net income -
Cumulative effects of accounting changes 4,440 --- 7,470
Depreciation and amortization 15,117 14,794 11,129
(Gain) on sales of securities (1,629) (1,711) (913)
(Gain) loss on sales of assets (191) (4,421) 1,200
Others 580 483 (137)
Changes in operating assets and liabilities -
Receivables 2,971 3,251 (4,248)
Deferred revenues (5,768) (276) 4,301
Payables and accrued liabilities (4,647) (2,896) 4,469
Postretirement benefits (940) 122 (372)
Deferred income taxes 114 (1,392) 246
Deferred selling expenses 441 1,972 72
Inventories 128 772 200
Other assets and liabilities - net 1,266 750 1,814
--------- --------- ---------
Net cash provided from operating activities 26,259 24,710 40,915
--------- --------- ---------
Cash Flows from Investing Activities:
Capital expenditures -
Acquisition of businesses (net of
$1,293 cash acquired in 2001) --- (25,460) (46,360)
Business purchase price adjustments (753) 241 ---
Purchase of equipment and furnishings (1,414) (3,535) (3,316)
Capitalized software (3,122) (4,840) (4,287)
Building improvements (183) (972) (267)
Proceeds from sales of assets 48 4,156 156
Purchase of publishing assets (358) --- (2,255)
--------- --------- ---------
Net cash (used for) capital expenditures (5,782) (30,410) (56,329)
--------- --------- ---------
See accompanying notes to consolidated financial statements.
(Continued)
28
THE BUREAU OF NATIONAL AFFAIRS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000
(In thousands of dollars)
2002 2001 2000
--------- --------- ---------
Securities investments -
Proceeds from sales and maturities 130,355 162,655 102,403
Purchases (119,683) (149,924) (107,805)
--------- --------- ---------
Net cash provided by (used for)
securities investments 10,672 12,731 (5,402)
--------- --------- ---------
Net cash provided by (used for)
investing activities 4,890 (17,679) (61,731)
--------- --------- ---------
Cash Flows from Financing Activities:
Sales of capital stock to employees 7,056 7,552 6,481
Purchases of treasury stock (32,959) (20,163) (19,588)
Dividends paid (10,733) (11,493) (11,187)
Repayment of borrowings (4,000) --- ---
Borrowings --- 25,000 45,000
--------- --------- ---------
Net cash provided by (used for)
financing activities (40,636) 896 20,706
--------- --------- ---------
Net Increase (Decrease) in Cash
and Cash Equivalents (9,487) 7,927 (110)
Cash and Cash Equivalents, beginning
of year 21,017 13,090 13,200
--------- --------- ---------
Cash and Cash Equivalents, end of year $ 11,530 $ 21,017 $ 13,090
========= ========= =========
Supplemental Cash Flow Information:
Interest paid $ 5,802 $ 5,436 $ 968
Income taxes paid 9,360 13,110 11,730
Non Cash Investing Activities:
Acquisitions of businesses -
Fair value of assets acquired $ 33,447 $ 47,561
Cash paid (26,753) (46,360)
--------- ---------
Liabilities assumed $ 6,694 $ 1,201
========= =========
See accompanying notes to consolidated financial statements.
29
THE BUREAU OF NATIONAL AFFAIRS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000
(In thousands of dollars)
Comprehensive Capital Additional Accum.Other
Income Stock Paid-In Retained Treasury Comprehensive
(Note 13) Issued Capital Earnings Stock Income
------------ ------- --------- -------- --------- -------------
Balance, January 1, 2000 $11,912 $ 44,421 $80,107 $ (61,380) $ (2,857)
Net Income $ 15,684 --- --- 15,684 --- ---
Other Comprehensive Income, net
of tax:
Unrealized gain on marketable
securities 2,488 --- --- --- --- 2,488
Currency translation adjustment 32 --- --- --- --- 32
------------
Comprehensive Income $ 18,204
============
Sales of Class A treasury shares
to employees --- 4,499 --- 1,982 ---
Repurchases of shares --- --- (19,588) ---
Cash dividends--$.28 per share --- (11,187) --- ---
------- --------- -------- -------- -----------
Balance, December 31, 2000 11,912 48,920 84,604 (78,986) (337)
Net Income $ 13,262 --- --- 13,262 --- ---
Other Comprehensive Income, net
of tax:
Unrealized (loss) on marketable
securities (405) --- --- --- --- (405)
Currency translation adjustment 10 --- --- --- --- 10
------------
Comprehensive Income $ 12,867
============
Sales of Class A treasury shares
to employees --- 5,103 --- 2,449 ---
Retirement of Class A treasury shares (479) (7,040) --- 7,519 ---
Five-for-One stock split 45,734 (45,734) --- --- ---
Repurchases of shares --- --- --- (20,163) ---
Cash dividends--$.30 per share --- --- (11,493) --- ---
------- --------- -------- --------- -----------
Balance, December 31, 2001 57,167 1,249 86,373 (89,181) (732)
Net Income $ 14,377 --- --- 14,377 --- ---
Other Comprehensive Income, net
of tax:
Unrealized (loss) on marketable
securities (1,092) --- --- --- --- (1,092)
Currency translation adjustment (66) --- --- --- --- (66)
------------
Comprehensive Income $ 13,219
============
Sales of Class A treasury shares
to employees --- 4,614 --- 2,442 ---
Repurchases of shares --- --- --- (32,959) ---
Cash dividends--$.30 per share --- --- (10,733) --- ---
------- --------- -------- --------- ------------
Balance, December 31, 2002 $57,167 $ 5,863 $90,017 $(119,698) $ (1,890)
======= ========= ======== ========= ============
See accompanying notes to consolidated financial statements.
30
THE BUREAU OF NATIONAL AFFAIRS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000
(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). Material intercompany transactions
and balances have been eliminated. Certain prior year balances have been
reclassified to conform to the current year presentation.
The carrying value of financial assets and liabilities reported in the
financial statements, other than long-term debt, approximates fair value.
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.
(2) ACQUISITIONS AND DISPOSITIONS
In April 2001, the Company acquired all of the outstanding stock of STF
Services Corporation (STF). STF converts government-approved paper forms
into interactive electronic forms that are marketed directly and licensed
to publishers, including the Company. The Company paid $26.8 million in
cash and assumed liabilities of $6.7 million. Additional monies could also
be paid if annual performance targets are exceeded through 2003. The
acquisition was partially financed with a $25 million loan from an
insurance company. The acquisition was accounted for as a purchase;
accordingly, STF's financial results have been included with those of the
Company since the acquisition date. Based on an independent appraisal, a
portion of the purchase price was allocated to identifiable intangible
assets that are being amortized on a straight-line basis over three to
five years. The majority of the purchase price was assigned to goodwill.
In November 2000, the Company acquired all of the publishing and operating
assets of Kennedy Information, LLC (Kennedy), a publisher of newsletters,
magazines, directories, and conferences. The Company paid $46.4 million in
cash and assumed liabilities of $1.2 million. Additional monies could also
be paid out if annual performance targets are exceeded through 2004. The
acquisition was partially financed with a $45 million loan from an
insurance company. The acquisition was accounted for as a purchase;
accordingly, Kennedy's financial results have been included with those of
the Company since the acquisition date. Based on an independent appraisal,
a portion of the purchase price was allocated to identifiable intangible
assets that are being amortized on a straight-line basis over three to 10
years. The majority of the purchase price was assigned to goodwill.
The following unaudited pro forma information presents a summary of
consolidated results of operations of the Company combined with STF and
Kennedy as if the acquisitions had occurred at the beginning of 2000. The
pro forma information includes adjustments for interest expense that would
have been incurred to finance the purchases, amortization of goodwill and
other intangible assets, and related income taxes (in thousands, except
per share data).
2001 2000
--------- ----------
Revenues $ 309,678 $ 313,482
Net Income $ 14,766 $ 12,435
Earnings per share $ .39 $ .31
(Continued)
31
On a pro forma basis, earnings per share would have increased by $.04 in
2001 and decreased by $.09 for 2000. However, these pro forma results may
not be indicative of the results of operations which would have resulted
had STF, Kennedy, and the Company been a consolidated entity during those
years or of future results of operations of the consolidated entities.
These pro forma results may not be indicative of what the purchase price
would have been at that time.
During 2002, the Company purchased the publishing assets, primarily
customer lists, from another publisher. The total cost was $846,000,
consisting of $772,000 in cash, payable over four years, and the balance
in assumed liabilities.
During 2000, the Company purchased subscriber lists from other publishers.
The total cost was $3,255,000, consisting of $2,255,000 in cash and the
balance in assumed liabilities. The cost was assigned to customer lists.
The Company sells publications from time to time. Sales of publishing
assets have resulted in gains of $160,000, $4,430,000, and $16,000 for
2002, 2001, and 2000 respectively, which have been recorded as other
income on the consolidated statements of income. The revenues and
operating expenses of the publications sold were not significant.
(3) RECOGNITION OF REVENUES AND SELLING EXPENSES
Subscription revenues and related sales commission expenses are deferred
and amortized over the subscription terms, which are primarily one year.
The deferred revenues, which consist almost entirely of deferred
subscription revenues, are classified on the balance sheet as a current
liability; however, the cost to fulfill the Company's subscription
obligation will be substantially less than the liability amount shown.
Revenues are recognized when products are delivered to customers, net of
appropriate reserve for returns.
Advertising costs are expensed as incurred and were $7,478,000,
$10,275,000 and $8,423,000 in 2002, 2001, and 2000 respectively.
Prior to 2000, the Company deferred all subscription-related field-selling
expenses. Effective January 1, 2000, the Company adopted SEC Staff
Accounting Bulletin No. 101, Revenue Recognition in Financial Statements;
which permits the deferral of only direct and incremental expenses (sales
commissions) when related revenues are deferred. The cumulative effect of
this change in accounting was to write off $12,276,000 in previously
deferred selling expenses, resulting in a non-cash expense of $7,470,000
net of taxes.
(4) EMPLOYEE BENEFIT PLANS
The Company has noncontributory defined benefit pension plans covering
employees of the Parent. Benefits are based on years of service and
average annual compensation for the highest paid five years during the
last 10 years of service. The plans provide for five-year cliff vesting.
(Continued)
32
Pension expense is recorded on an accrual basis in accordance with
financial reporting standards. Components of the net pension expense,
based on the actuarial study as of January 1 for each year, were as
follows (in thousands of dollars):
2002 2001 2000
---------- ---------- ----------
Service cost benefits earned during the year $ 5,807 $ 4,863 $ 4,472
Interest cost 8,024 7,642 7,183
Expected return on plan assets during the year (7,172) (7,409) (7,436)
Recognized net actuarial gain and amortization
of transition assets and prior service costs (334) (454) (1,042)
---------- ---------- ----------
Net pension expense $ 6,325 $ 4,642 $ 3,177
========== ========== ==========
In addition to providing pension benefits, the Company extends certain
health care and life insurance benefits (other postretirement benefits)
to retired employees of the Parent.
Other postretirement benefits expense is recorded in accordance with
financial reporting standards, which require that the present value of
these benefits be accrued during employees' working careers. Components of
the postretirement benefit expense, based on the actuarial study as of
January 1 for each year, were as follows (in thousands of dollars):
2002 2001 2000
---------- ---------- ----------
Service cost benefits earned during $ 2,185 $ 1,989 $ 1,911
the year
Interest cost 3,688 3,611 3,477
Expected return on plan assets during (1,612) (1,489) (1,053)
the year
Recognized net actuarial gain and
amortization of prior service cost (559) (703) (829)
---------- ---------- ----------
Other postretirement benefits expense $ 3,702 $ 3,408 $ 3,506
========== ========== ==========
(Continued)
33
The following table sets forth the changes in benefits obligations and
assets, the funded status of the plans, and the liabilities recognized in
the Company's Consolidated Balance Sheets as of December 31 (in thousands
of dollars, except percentages):
Other
Postretirement
Pension Benefits Benefits
--------------------- ---------------------
2002 2001 2002 2001
---------- ---------- ---------- ----------
Change in benefit obligation:
Benefit obligation--January 1 $ 114,766 $ 101,455 $ 53,046 $ 50,872
Service cost 5,807 4,863 2,185 1,989
Interest cost 8,024 7,642 3,688 3,611
Actuarial (gain) loss 12,530 5,889 11,391 (1,667)
Benefits paid (5,105) (5,083) (1,621) (1,759)
---------- ---------- ---------- ----------
Benefit obligation--December 31 136,022 114,766 68,689 53,046
---------- ---------- ---------- ----------
Change in plan assets:
Fair value of plan assets-Jan. 1 86,831 89,430 18,963 17,520
Actual return on plan assets (5,944) (1,680) (1,694) (557)
Employer contribution 9,180 4,000 --- 2,000
Benefits paid (4,941) (4,919) --- ---
---------- ---------- ---------- ----------
Fair value of plan assets-Dec 31 85,126 86,831 17,269 18,963
---------- ---------- ---------- ----------
Projected benefit obligation in
excess of plan assets 50,896 27,935 51,420 34,083
Unrecognized transition asset --- 376 --- ---
Unrecognized net gain (loss) (27,319) (1,889) (4,424) 10,779
Unrecognized prior service cost (106) 69 233 287
---------- ---------- ---------- ----------
Accrued liability 23,471 26,491 47,229 45,149
Less current portion 7,604 4,165 1,636 1,741
---------- ---------- ---------- ----------
Long-term portion $ 15,867 $ 22,326 $ 45,593 $ 43,408
========== ========== ========== ==========
Assumed discount rate 6.5% 7.0% 6.5% 7.0%
Assumed rate of compensation
increase 5.0% 5.0% --- ---
Expected long term rate of
return on assets 8.5% 8.5% 8.5% 8.5%
Plan assets include cash equivalents, equity securities, and fixed income
securities. The benefit obligations have been calculated by an independent
actuary.
The Company's funding practice with respect to pension benefits is to
contribute amounts which, at a minimum, satisfy ERISA requirements. The
Company contributed $9,180,000 in 2002 and $4,000,000 in 2001. The
Company's policy with respect to other postretirement benefits is to fund
these benefits as claims and premiums are paid or through a Voluntary
Employees' Beneficiary Association (VEBA) trust.
(Continued)
34
The December 31, 2002 postretirement benefit obligation was determined
using an assumed health care cost trend rate of 4.5 percent in 2003 and
each year thereafter over the projected payout period of the benefits. A
one percent increase in the assumed health care cost trend rate for each
year would increase the year-end postretirement benefit obligation by
$12.3 million and the 2002 postretirement benefit expense by $1.2 million.
A one percent decrease in the assumed health care cost trend rate would
decrease the postretirement benefit obligation by $9.8 million and the
postretirement benefit expense by $0.9 million.
In addition, some subsidiary companies have defined contribution pension
plans and union-sponsored multi-employer pension plans. Contributions
under some of these plans are at the discretion of the Board of Directors
of the respective subsidiary companies. Pension expense for these plans
was $1,460,000 in 2002, $1,467,000 in 2001, and $1,282,000 in 2000.
(5) INVESTMENTS AND INVESTMENT INCOME
Cash and investments consisted of the following (in thousands of dollars):
December 31,
-------------------------
2002 2001
---------- ----------
Cash and cash equivalents $ 11,530 $ 21,017
Short-term investments 28,241 7,288
Marketable securities 84,220 116,656
---------- ----------
Total $ 123,991 $ 144,961
========== ==========
Cash equivalents consist of short-term investments, with a maturity of
three months or less at the time of purchase. Short-term investments
consist of other fixed-income investments, maturing in one year or less.
Marketable securities consist of fixed-income securities maturing in more
than one year and equity securities.
Investment income consisted of the following (in thousands of dollars):
2002 2001 2000
---------- ---------- ----------
Interest income $ 3,771 $ 6,066 $ 7,592
Dividend income 835 765 822
Net gain on sales of securities 1,629 1,711 913
---------- ---------- ----------
Total $ 6,235 $ 8,542 $ 9,327
========== ========== ==========
Proceeds from the sales and maturities of securities were $130,355,000,
$162,655,000, and $102,403,000 in 2002, 2001, and 2000 respectively. Gross
realized gains and (losses) from these sales were $1,717,000 and $(88,000)
in 2002, $1,909,000 and $(198,000) in 2001, $1,043,000 and $(130,000) in
2000. The specific identification method is used in computing realized
gains and losses.
(Continued)
35
The Company's investment securities are classified as available-for-sale
and are reported at their fair values (quoted market price), which were as
follows (in thousands of dollars):
Gross Gross
Amortized Unrealized Unrealized Fair
December 31, 2002 Cost Gains Losses Value
----------------- ---------- ---------- ---------- ----------
Equity securities $ 18,568 $ 50 $ (3,186) $ 15,432
Municipal bonds 86,199 1,606 (1,082) 86,723
Corporate debt 10,478 47 (219) 10,306
---------- ---------- ---------- ----------
Total $ 115,245 $ 1,703 $ (4,487) $ 112,461
========== ========== ========== ==========
December 31, 2001
-----------------
Equity securities $ 11,238 $ --- $ (697) $ 10,541
Municipal bonds 100,273 1,248 (1,753) 99,768
Corporate debt 13,538 127 (30) 13,635
---------- ---------- ---------- ----------
Total $ 125,049 $ 1,375 $ (2,480) $ 123,944
========== ========== ========== ==========
Fair values of the Company's fixed-income securities are inversely
affected by changes in market interest rates. Generally, the longer the
maturity of fixed-income securities, the larger the exposure to the risks
and rewards resulting from changes in market interest rates. Contractual
maturities of the fixed-income securities as of December 31, 2002 were as
follows (in thousands of dollars):
Amortized Fair
Cost Value
----------- -----------
Within one year $ 28,157 $ 28,241
One through five years 48,315 49,061
Five through ten years 13,908 13,543
Over ten years 6,297 6,184
----------- -----------
Total $ 96,677 $ 97,029
=========== ===========
(6) OTHER INCOME (EXPENSE)
Other income (expense) was comprised of the following (in thousands of
dollars):
2002 2001 2000
---------- ---------- ----------
Gain on sales of publishing assets $ 160 $ 4,430 $ 16
Loss on sale of BNAC --- --- (1,035)
Gains (losses) on disposals of assets 31 (9) (181)
---------- ---------- ----------
Total $ 191 $ 4,421 $ (1,200)
========== ========== ==========
(Continued)
36
In August 1999, the Company sold BNA Communications Inc. (BNAC), a
media-based training enterprise. The sales price was $2.1 million,
consisting of cash and royalty receivables. In 2000, the collection of the
receivable became doubtful and was fully reserved, resulting in the loss
noted above.
(7) GOODWILL
During 2001 and 2000, goodwill was amortized using the straight-line
method over periods not exceeding 40 years, and the Company assessed the
recoverability of goodwill by comparing the undiscounted value of expected
future operating cash flows to its book value.
Effective January 1, 2002, the Company adopted Statement of Financial
Accounting Standards No. 142, Goodwill and Other Intangible Assets, (SFAS
142) which establishes the accounting and financial reporting standards
for acquired goodwill and other intangible assets. Under SFAS 142,
goodwill and indefinite-lived intangible assets are no longer amortized
but instead are subject to an annual test for asset impairment, which
could result in a charge to operations when their carrying amount exceeds
their estimated fair value.
Under the provisions of SFAS 142, a transition 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 consolidated statements of income as a Cumulative
Effect of Accounting Change. Other changes to goodwill since December 31,
2001, were to reclass $411,000 for assembled workforce from other
intangibles to goodwill as required by SFAS 142, to reclass and write off
$20,000 for a subscription list purchased in 1965, and to record a
$1,131,000 business acquisition purchase price adjustment.
The following reconciles reported net income and earnings per share
amounts to amounts that would have been presented exclusive of
amortization expense recognized for goodwill and intangible assets that
are no longer being amortized (as if SFAS 142 had been effective in 2001
and 2000), in thousands of dollars, except per share data:
2002 2001 2000
---------- ---------- ----------
Reported income before cumulative
effects of accounting changes $ 18,817 $ 13,262 $ 23,154
Goodwill amortization --- 2,577 1,008
Assembled workforce amortization --- 62 10
---------- ---------- ----------
As adjusted $ 18,817 $ 15,901 $ 24,172
========== ========== ==========
2002 2001 2000
--------- ---------- ----------
Reported earnings per share before cumulative
effects of accounting changes $ .53 $ .35 $ .59
Goodwill amortization --- .07 .02
Assembled workforce amortization --- .00 .00
--------- ---------- ----------
As adjusted $ .53 $ .42 $ .61
========= ========== ==========
The Company updated its analysis of goodwill impairment as of December 31,
2002 and determined that there was no further impairment because the
estimated fair value of applicable reporting units was in excess of their
net book value.
(Continued)
37
Goodwill assigned to the operating segments and the changes in the
carrying amount of goodwill for the year ended December 31, 2002 are as
follows:
Publishing Printing Software Total
--------------------------- ---------- ---------- ---------- ----------
Balance, January 1, 2002 $ 54,047 $ 917 $ 21,736 $ 76,700
Reclass assembled workforce 411 --- --- 411
Writeoff subscriber list (20) --- --- (20)
Business acquisition purchase
price adjustments --- --- 1,131 1,131
Impairment charge (4,440) --- --- (4,440)
---------- ---------- ---------- ----------
Balance, December 31, 2002 $ 49,998 $ 917 $ 22,867 $ 73,782
========== ========== ========== ==========
(8) INCOME TAXES
The total income tax expense (benefit) was allocated as follows (in
thousands of dollars):
2002 2001 2000
---------- ---------- ----------
Income Statement Provision for $ 9,670 $ 8,177 $ 11,353
Income Taxes
Stockholders' Equity--Change in:
Unrealized gain (loss) on (587) (217) 1,339
marketable securities
Foreign currency translation adjustment (35) 5 18
---------- ----------- ----------
Total $ 9,048 $ 7,965 $ 12,710
========== =========== ==========
The provision for income taxes consisted of the following (in thousands
of dollars):
2002 2001 2000
---------- ---------- ----------
Taxes currently payable:
Federal $ 8,127 $ 5,746 $ 9,924
State and local 1,373 3,697 1,456
---------- ---------- ----------
9,500 9,443 11,380
---------- ---------- ----------
Deferred tax provision:
Federal 338 (666) 93
State and local (168) (600) (120)
---------- ---------- ----------
170 (1,266) (27)
---------- ---------- ----------
Total $ 9,670 $ 8,177 $ 11,353
========== ========== ==========
(Continued)
38
Reconciliation of the U.S. statutory rate to the Company's
consolidated effective income tax rate was as follows:
Percent of Pretax Income
--------------------------------
2002 2001 2000
-------- -------- --------
Federal statutory rate 35.0% 35.0% 35.0%
State and local income taxes, net
of federal income tax benefit 2.7 9.4 2.5
Goodwill amortization and other
nondeductible expenses 0.3 3.7 1.7
Tax exempt interest exclusion (3.6) (8.2) (5.7)
Dividends received exclusion (0.5) (0.8) (0.6)
Federal tax credit -- (1.0) --
-------- -------- --------
Total 33.9% 38.1% 32.9%
======== ======== ========
Deferred tax assets and liabilities are the future tax effects of
temporary differences between assets and liabilities as reported in the
financial statements and as reported on tax returns. They are estimated by
using enacted tax rates expected to apply in the years in which those
temporary differences are expected to be recovered or settled. Changes in
tax rates are recognized in income in the period that includes the
enactment date. The tax effects of temporary differences that gave rise to
the deferred tax assets and liabilities were as follows (in thousands of
dollars):
December 31,
------------------------
2002 2001
---------- ----------
Deferred tax assets:
Other postretirement benefits $ 19,118 $ 18,214
Pension expense 9,611 10,806
Inventories 1,739 2,179
Annual leave 2,110 2,055
Amortization of acquired intangible assets 1,393 1,133
Tax loss carryforwards 342 703
Others 2,940 2,800
---------- ----------
Total deferred tax assets 37,253 37,890
---------- ----------
Deferred tax liabilities:
Capitalized software (4,235) (4,677)
Deferred selling expenses (2,319) (2,498)
Others (604) (1,127)
---------- ----------
Total deferred tax liabilities (7,158) (8,302)
---------- ----------
Net deferred tax assets $ 30,095 $ 29,588
========== ==========
(Continued)
39
The ultimate realization of deferred tax assets is dependent upon future
taxable income during the periods in which those temporary differences
become deductible. Uncertainties surrounding income tax law changes,
shifts in operations between state taxing jurisdictions, and future
operating income levels may affect the ultimate realization of all or some
of these deferred tax assets. The Company has consistently achieved
profitability and taxable income. In the opinion of management, based on
expected future earnings and available tax planning strategies, it is more
likely than not that the deferred tax assets, which are recorded net of
$317,000 and $182,000 valuation allowances in 2002 and 2001, respectively,
will be fully utilized. To the extent they are not utilized, the tax loss
carryforwards expire in 2005 through 2022.
(9) OTHER BALANCE SHEET INFORMATION
Certain year-end balances consisted of the following (in thousands of
dollars):
2002 2001
---------- ----------
Receivables:
Customers $ 39,101 $ 42,122
Others 5,255 5,172
Allowance for doubtful accounts (2,015) (2,197)
---------- ----------
Total $ 42,341 $ 45,097
========== ==========
2002 2001
---------- ----------
Inventories:
Materials and supplies $ 2,108 $ 2,204
Work in process 277 358
Finished goods 1,213 1,164
---------- ----------
Total $ 3,598 $ 3,726
========== ==========
Inventories are valued at the lower of cost (principally average cost
method) or market.
2002 2001
---------- ----------
Property and Equipment, at cost:
Land $ 4,250 $ 4,250
Buildings and improvements 51,105 50,922
Furniture and equipment 50,801 52,017
Accumulated depreciation (72,947) (70,724)
---------- ----------
Total $ 33,209 $ 36,465
========== ==========
The Company uses the straight-line method of depreciation based on
estimated useful lives ranging from five to 45 years for buildings and
improvements, and three to 10 years for furniture and equipment.
Depreciation expense was $4,843,000 in 2002, $5,227,000 in 2001, and
$6,450,000 in 2000. Expenditures for maintenance and repairs are expensed
while major replacements and improvements are capitalized.
(Continued)
40
Intangible and other assets:
Amortizable assets: 2002 2001
---------- ----------
Gross Carrying Amount--
Software $ 22,438 $ 19,315
Customer lists 14,682 13,846
Copyrights 9,145 9,145
Others 4,801 6,084
----------- ----------
51,066 48,390
----------- ----------
Accumulated amortization
Software (8,620) (5,044)
Customer lists (7,399) (3,320)
Copyrights (1,972) (1,058)
Others (2,575) (1,761)
----------- ----------
(20,566) (11,183)
----------- ----------
Total amortizable assets 30,500 37,207
----------- ----------
Other receivables 144 134
----------- ----------
Total $ 30,644 $ 37,341
=========== ==========
Certain negative circumstances arose in 2002 that indicated the value of
Kennedy Information Inc.'s customer publishing lists may have been
impaired. These circumstances included lower than expected renewals due to
the poor economy and the liquidation of a large public accounting firm
which had been a customer. The lists were revalued at the end of 2002
using projected future profit contributions from the remaining customers,
resulting in a $1,916,000 impairment loss. This writedown, a non-cash
charge to income, is included in amortization expense and classified as
general and administrative expense in the consolidated statements of
income.
Amortization expenses for these assets were $10,274,000 in 2002,
$6,000,000 in 2001, and $3,586,000 in 2000. Amortizable assets are
expensed evenly over their respective estimated lives, ranging from three
to 10 years. Amortizable assets acquired in 2002 (and their estimated
average lives) totaled $3,958,000, including $3,122,000 for software (five
years) and $836,000 for customer lists (seven years). As of December 31,
2002, future estimated amortization expenses were as follows: 2003 -
$8,233,000; 2004 - $6,692,000; 2005 - $5,728,000; 2006 - $4,216,000; 2007
- $2,114,000.
2002 2001
---------- ----------
Payables and accrued liabilities:
Accounts payable $ 15,482 $ 16,744
Employee compensation and benefits 15,574 17,851
Postretirement benefits, current portion 9,240 5,906
Income taxes 884 1,265
---------- ----------
Total $ 41,180 $ 41,766
========== ==========
41
(10) LONG-TERM DEBT
Long-term debt consisted of the following (in thousands of dollars):
December 31,
------------------------
2002 2001
---------- ----------
Note payable, unsecured, variable interest
(LIBOR plus 0.2%; 2.1% for 2002
and 4.6% for 2001), due 2003-2004 $ 10,000 $ 14,000
Notes payable, unsecured, 8.15%, due
2005-2010 45,000 45,000
Notes payable, unsecured, 6.99%, due
2007-2011 25,000 25,000
----------- ----------
80,000 84,000
Less current portion (5,000) ---
----------- ----------
Total $ 75,000 $ 84,000
=========== ==========
Maturities of long-term debt are as follows: 2003 and 2004, $5,000,000
each; 2005 and 2006, $7,500,000 each; 2007 through 2010, $10,500,000 each;
2011, $13,000,000. The current rate of the variable rate note, effective
through March 3, 2003, is 1.61%. Based on the borrowing rates available to
the Company for loans with similar terms and average maturities, the fair
value of long-term debt was $84,150,000 in 2002, and $87,510,000 in 2001.
The Company also has a $5 million loan facility and a $1.5 million
unsecured line of credit, of which $583,000 is being used to secure
letters of credit.
(11) COMMITMENTS AND CONTINGENCIES
The Company has non-cancelable operating leases for office space,
equipment and vehicles. Total rent expense was $7,961,000 in 2002,
$7,981,000 in 2001, and $6,468,000 in 2000.
As of December 31, 2002, future minimum lease payments under
non-cancelable operating leases were as follows: 2003 - $8,591,000;
2004 - $7,062,000; 2005 - $6,010,000; 2006 - $5,198,000;
2007 - $1,477,000; thereafter - $1,382,000.
Certain business acquisition purchase agreements provide for additional
payments if annual performance targets are exceeded. Estimated payments
under these agreements are not expected to be material.
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
consolidated financial statements.
(12) STOCKHOLDERS' EQUITY
Ownership and transferability of Class A, Class B, and Class C stock are
substantially restricted to current and former employees by provisions of
the Parent's certificate of incorporation and bylaws. Ownership of Class A
stock, which is voting, is restricted to active employees. Class B stock
and Class C stock are nonvoting. No class of stock has preference over
another upon declaration of dividends or liquidation. As of December 31,
2002, authorized shares of Class A, Class B, and Class C were 30,000,000,
30,000,000, and 5,000,000 respectively.
(Continued)
42
In April 2001, the stockholders approved an increase in authorized shares
of common stock and approved a five-for-one stock split. All per share
amounts included in the accompanying financial statements have been
restated to reflect the stock split.
Treasury share transactions, adjusted for the stock split, were as
follows:
Treasury Stock Shares
-----------------------------------
Class A Class B Class C
----------- ----------- -----------
Balance, January 1, 2000 15,027,410 3,183,680 1,044,945
Sales to employees (775,920) --- ---
Repurchases 313,300 1,947,500 23,350
Conversions of Class A to Class B 1,568,285 (1,568,285) ---
----------- ----------- -----------
Balance, December 31, 2000 16,133,075 3,562,895 1,068,295
Retirement of Class A shares (2,394,320) --- ---
Sales to employees (799,997) --- ---
Repurchases 267,784 1,809,143 27,315
Conversions of Class A to Class B 1,159,000 (1,159,000) ---
----------- ----------- -----------
Balance, December 31, 2001 14,365,542 4,213,038 1,095,610
Sales to employees (689,055) --- ---
Repurchases 226,956 2,898,819 133,749
Conversions of Class A to Class B 761,408 (761,408) ---
----------- ----------- -----------
Balance, December 31, 2002 14,664,851 6,350,449 1,229,359
=========== =========== ===========
The Company's commitment to employee ownership is supported by its policy
to repurchase all stock tendered by stockholders that is in excess of
employee stock plan purchases. As of December 31, 2002, capital stock with
a market value of $16.1 million and $1.8 million are known or expected to
be tendered in 2003 and 2004, respectively. The actual amount repurchased
will likely be higher.
Earnings per share have been computed based on the weighted average of all
outstanding shares of stock which, adjusted for the stock split, were
35,490,169 in 2002, 38,078,978 in 2001, and 39,564,405 in 2000.
The differences between amortized cost and fair value of the Company's
investment securities result in unrealized gains or losses, which are
reported, net of tax, as a component of Stockholders' Equity. Assets and
liabilities of the Company's United Kingdom subsidiary are denominated in
British pounds and translated into U.S. dollars at year-end exchange
rates. Any resulting gain or loss is reflected, net of taxes, as a
component of Stockholders' Equity.
(Continued)
43
(13) OTHER COMPREHENSIVE INCOME (LOSS)
Comprehensive income encompasses all changes in Stockholders' Equity
except those arising from transactions with shareholders, and includes
net income and other comprehensive income.
Elements of other comprehensive income (loss) are shown below (in
thousands of dollars):
2002 2001 2000
---------- ---------- ----------
Holding gains (losses) on securities
arising during the year $ (50) $ 1,089 $ 4,740
Less net gains included in net income 1,629 1,711 913
---------- ---------- ----------
Changes in unrealized gains (losses) (1,679) (622) 3,827
Less income taxes (587) (217) 1,339
---------- ---------- ----------
Net unrealized gains (losses) (1,092) (405) 2,488
---------- ---------- ----------
Currency translation gains (losses) (102) 15 50
Less income taxes (36) 5 18
---------- ---------- ----------
Net currency translation gains (losses) (66) 10 32
---------- ---------- ----------
Other comprehensive income (loss) $ (1,158) $ (395) $ 2,520
========== ========== ==========
(14) SEGMENTS
Operating segments are components of an enterprise whose separate
financial information is reviewed regularly by the chief operating
decision-maker in deciding how to allocate resources and in assessing
performance. Operating segments may be aggregated for presentation
purposes if they have similar economic characteristics.
The Company has three operating segments, Publishing, Printing, and
Software. Publishing operations consist primarily of the creation,
production, and marketing of legal and regulatory and general business
advisory information in print and electronic formats. Publishing
aggregates the operations of the Parent with Tax Management Inc.
(excluding its BNA Software division) and also includes the Parent's other
publishing subsidiary companies. Customers are primarily lawyers,
accountants, human resource professionals, business executives, health
care administrative professionals, trade associations, educational
institutions, government agencies, and libraries.
The Printing segment is the operations of The McArdle Printing Co., Inc.,
which provides printing and related services to mid-Atlantic customers.
The Software segment combines the operations of BNA Software, which
develops, produces, and markets tax and financial planning software, and
STF Services Corporation, which develops, produces, and markets
interactive, government approved forms software.
Intersegment revenues approximate current market prices and are eliminated
upon consolidation. The Company did not derive 10 percent or more of its
revenues from any one customer or government agency or from foreign sales,
nor did it have 10 percent or more of its assets in foreign locations.
Approximately 10 percent of Software revenues were derived from sales to a
federal government agency.
(Continued)
44
Operating segment information is presented below (in thousands of
dollars):
Year Ended December 31, 2002 Publishing Printing Software Total
-------------------------------- -------- -------- -------- --------
Revenues from external customers $262,929 $ 21,826 $ 25,035 $309,790
Intersegment revenues --- 14,235 2,884 17,119
Operating profit 22,099 748 5,043 27,890
Interest expense 6,037 81 5 6,123
Identifiable assets 299,144 17,454 37,308 353,906
Depreciation and amortization 10,696 913 3,508 15,117
Capital expenditures 4,600 406 824 5,830
Year Ended December 31, 2001 Publishing Printing Software Total
-------------------------------- -------- -------- -------- --------
Revenues from external customers $266,193 $ 20,799 $ 18,973 $305,965
Intersegment revenues --- 14,882 912 15,794
Operating profit 14,896 174 (594) 14,476
Interest expense 5,942 170 56 6,168
Identifiable assets 333,638 17,077 39,612 390,327
Depreciation and amortization 10,571 979 3,244 14,794
Capital expenditures 6,399 478 29,222 36,099
Year Ended December 31, 2002 Publishing Printing Software Total
-------------------------------- -------- -------- -------- --------
Revenues from external customers $258,483 $ 24,258 $ 14,658 $297,399
Intersegment revenues --- 15,995 --- 15,995
Operating profit (loss) 21,357 2,594 4,083 28,034
Interest expense 1,635 268 --- 1,903
Identifiable assets 349,405 18,059 2,865 370,329
Depreciation and amortization 10,037 1,092 --- 11,129
Capital expenditures 55,037 513 1,935 57,485
Reconciliation of items differing from consolidated totals are shown below
(in thousands of dollars):
2002 2001 2000
---------- ---------- ----------
Total interest expense for
reportable segments $ 6,123 $ 6,168 $ 1,903
Elimination of intersegment
interest expense (294) (168) (249)
---------- ---------- ----------
Consolidated interest expense $ 5,829 $ 6,000 $ 1,654
========== ========== ==========
Total assets for reportable segments $ 353,906 $ 390,327 $ 370,329
Elimination of intersegment assets (6,579) (5,744) (2,429)
---------- ---------- ----------
Consolidated assets $ 347,327 $ 384,583 $ 367,900
========== ========== ==========
45
SCHEDULE V - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
THE BUREAU OF NATIONAL AFFAIRS, INC.
YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000
(In Thousands of Dollars)
- --------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
- --------------------------------------------------------------------------------
Additions
-------------------
(1) (2)
-------------------
Balance | Charged| Charged | | Balance
at |to Costs|to Other | | at
Beginning| and |Accounts-|Deductions| End of
Description of Period|Expenses|Describe |-Describe | Period
- ------------------------------- --------|--------|---------|----------|---------
VALUATION ACCOUNTS DEDUCTED FROM
ASSETS TO WHICH THEY APPLY:
- --------------------------------
Allowance for Doubtful Accounts
Receivable:
Year ended December 31, 2002 $2,197 $457 $178(a) $817(c) $ 2,015
Year ended December 31, 2001 2,029 2,255 186(a,b) 2,273(c) 2,197
Year ended December 31, 2000 1,451 1,127 26(a) 575(c) 2,029
Allowance for Obsolete Inventory:
Year ended December 31, 2002 $657 $(209) $ 448
Year ended December 31, 2001 575 82 657
Year ended December 31, 2000 560 15 575
Allowance for Deferred Tax Assets:
Year ended December 31, 2002 $182 $135 $ 317
Year ended December 31, 2001 -0- 182 182
Notes:
(a) Charged to deferred subscription revenue; portion of allowance for
doubtful accounts receivable not included in revenues.
(b) Includes $65 acquired with Kennedy Information, Inc.
(c) Net accounts written off.
46
PART II
Item 9. Changes in and Disagreements with Accountants on Accounting
-----------------------------------------------------------
and Financial Disclosure
------------------------
There were no changes in or disagreements with accountants on accounting and
financial disclosures during the three years ended December 31, 2002 or through
the date of this Form 10K.
PART III
Except as set forth in this Form 10-K under Part I, Item X, "EXECUTIVE OFFICERS
OF THE REGISTRANT," the information required by Items 10, 11, 12, and 13, is
contained in the Company's definitive Proxy Statement (the "Proxy Statement")
filed pursuant to Regulation 14A under the Securities Exchange Act of 1934, to
be filed with the SEC within 120 days of December 31, 2002. Such information is
incorporated herein by reference.
Item 10. Directors and Executive Officers of the Registrant
--------------------------------------------------
The information required under this Item 10 is contained in the Proxy Statement
under the headings "I. Election of Directors" and "Biographical Sketches of
Nominees," and is incorporated herein by reference. Information related to
Executive Officers is omitted from the Proxy Statement in reliance on
Instruction 3 to Regulation S-K, Item 401(b), and included as Item X of Part I
of this report.
Item 11. Executive Compensation
----------------------
The information required under this Item 11 is contained in the Proxy Statement
under the headings "IV. Executive Compensation" and "VI. Employee Benefit Plans"
and is incorporated herein by reference.
Item 12. Security Ownership of Beneficial Owners and Management
------------------------------------------------------
The information required under this Item 12 is contained in the Proxy Statement
under the heading "I. Election of Directors" and is incorporated herein by
reference.
Item 13. Certain Relationships and Related Transactions
----------------------------------------------
The information required under this Item 13 is contained in the Proxy Statement
under the heading "IV. Executive Compensation" and is incorporated herein by
reference.
47
PART IV
Item 14. Controls and Procedures.
-----------------------
Paul N. Wojcik, the Company's Chief Executive Officer, and George J. Korphage,
the Company's Chief Financial Officer, evaluated the effectiveness of the
Company's disclosure controls and procedures as of December 31, 2002. Based on
such evaluation, each of Messrs. Wojcik and Korphage concluded that the
Company's disclosure controls and procedures were effective to ensure that the
information required to be disclosed by the Company in the reports that it files
or submits under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the rules and forms
of the SEC. No significant changes were made in the Company's internal controls
or in other factors that could significantly affect these controls subsequent to
the date of the evaluation by Messrs. Wojcik and Korphage.
Item 15. Exhibits, Financial Statement Schedules, and Report on Form 8-K
---------------------------------------------------------------
The following documents are filed as part of this report:
(a)(1) Financial Statements: Page
--------------------- ----
Report of Independent Auditors 23
Consolidated Balance Sheets as of December 31,
2002 and 2001. 24
Consolidated Statements of Income, Consolidated 26
Statements of Cash Flows, and Consolidated
Statements of Changes in Stockholders' Equity
for each of the years ended December 31, 2002,
2001, and 2000
Notes to Consolidated Financial Statements 30
(2) Financial Statement Schedule:
----------------------------
Report of Independent Auditors as to the
financial statement schedule 23
V Valuation and Qualifying Accounts and Reserves 45
All other schedules are omitted because they are not applicable or
the required information is shown in the financial statements or
notes thereto.
48
(a)(3) Exhibits:
--------
3.1 Certificate of Incorporation, as amended*
3.2 By laws, as amended*
11 Statement re: Computation of Per Share Earnings is contained in the
2002 Consolidated Financial Statements in the Notes to Consolidated
Financial Statements, Note 12, "Stockholders' Equity," at page 41 of
this Form 10-K.
21 Subsidiaries of the Registrant.**
99.1 Proxy Statement for the Annual Meeting of security holders to be
held on April 19, 2003***
99.2 Annual Report on Form 11-K related to the BNA 401(k) Plan for the
fiscal year ended December 31, 2002.**
99.3 Certification Pursuant to 18 U.S.C. Section 1350,
as Added By Section 906 of the Sarbanes-Oxley Act of 2002.**
99.4 Certification Pursuant to 18 U.S.C. Section 1350,
as Added By Section 906 of the Sarbanes-Oxley Act of 2002.**
* Incorporated by reference to the Company's 2001 Form 10-K,
Commission File Number 2-28286, filed on March 29, 2002.
The exhibit numbers indicated above correspond to the
exhibit numbers in that filing.
** Filed herewith.
*** Incorporated by reference to the Company's Definitive Proxy
Statement, to be filed with the SEC within 120 days of December 31,
2002.
Upon written or oral request to the Company's General Counsel, a
copy of any of the above exhibits will be furnished at cost.
(b) Reports on Form 8-K:
-------------------
None.
49
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By:s/Paul N. Wojcik
---------------------------------------
Paul N. Wojcik, Chief Executive Officer
Date:March 6,2003
--------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on dates indicated.
By:s/Paul N. Wojcik By:s/George J.Korphage
------------------------------ ------------------------------
Paul N. Wojcik, George J. Korphage, Vice President
President and Chief Executive and Chief Financial Officer
Officer (Chief Accounting Officer)
Director
Date: March 6, 2003 Date: March 6, 2003
------------------------------ ------------------------------
By:s/William A Belz 3/6/03 By:s/David McFarland 3/6/03
------------------------------ ------------------------------
William A. Beltz Date David P. McFarland Date
Chairman of the Board of Directors Director
By:s/Cynthia J. Bolbach 3/6/03 By:s/Gregory McCaffery 3/6/03
------------------------------ ------------------------------
Cynthia J. Bolbach Date Gregory C. McCaffery Date
Director Director
By:s/Eunice Bumgardner 3/6/03 By:s/ 3/6/03
------------------------------ ------------------------------
Eunice Lin Bumgardner Date Jonathan Newcomb Date
Director Director
By:s/Richard Cornfield 3/6/03 By:s/Ellen Taus 3/6/03
------------------------------ ------------------------------
Richard H. Cornfield Date Ellen Taus Date
Director Director
By:s/ 3/6/03 By:s/Daniel W Toohey 3/6/03
------------------------------ ------------------------------
David L. Foster Date Daniel W. Toohey Date
Director Director
By:s/Sandra C Degler 3/6/03 By:s/Robert L. Velte 3/6/03
------------------------------ ------------------------------
Sandra C. Degler Date Robert L. Velte Date
Director Director
By:s/ 3/6/03
------------------------------
John E. Jenc Date
Director
50
Form of Certification Required
by Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934
I, Paul N. Wojcik, certify that:
1. I have reviewed this annual report on Form 10-K of The Bureau of
National Affairs, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as such
term is defined in paragraph (c) of Exchange Act Rules 13a-14 and 15d-14)
for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
By:s/Paul N.Wojcik Date: March 20, 2003
-------------------------------------- --------------------------------
Paul N. Wojcik,
President and Chief Executive Officer
51
Form of Certification Required
by Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934
I, George J. Korphage, certify that:
1. I have reviewed this annual report on Form 10-K of The Bureau of
National Affairs, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as such
term is defined in paragraph (c) of Exchange Act Rules 13a-14 and 15d-14)
for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
By:s/George J. Korphage Date: March 20, 2003
-------------------------------------- --------------------------------
George J. Korphage,
Chief Financial Officer
52
EXHIBIT INDEX
Sequential Page
Number Exhibit Description Number
- ------ ------------------------------------------- ---------------
3.1 Certificate of Incorporation, as amended *
3.2 By laws, as amended *
11 Statement re: Computation of Per Share Earnings
is contained in the 2002 Consolidated Financial
Statements in the Notes to Consolidated Financial
Statements, Note 12, "Stockholders' Equity," 41
21 Subsidiaries of the Registrant 53
99.1 Proxy Statement for the Annual Meeting of
Stockholders to be held on April 19, 2003 **
99.2 Annual Report on Form 11-K related to the
BNA 401(k) Plan for the fiscal year ended
December 31, 2002 (Incorporated by reference
Into this Form 10-K). 54
99.3 Certification Pursuant to 18 U.S.C. Section 1350, as
Added By Section 906 of the Sarbanes-Oxley Act of 2002. 64
99.4 Certification Pursuant to 18 U.S.C. Section 1350, as
Added By Section 906 of the Sarbanes-Oxley Act of 2002. 65
* Incorporated by reference to the Company's 2001
Form 10-K, Commission File Number 2-28286, filed on
March 29, 2002. The exhibit numbers indicated above
correspond to the exhibit numbers in that filing.
** The Definitive Proxy Statement is expected to be filed
with the SEC within 120 days of December 31, 2002.