BUREAU OF NATIONAL AFFAIRS INC - FORM 10-Q

Attached files

file	filename
EX-32 - EXHIBIT 32 - BUREAU OF NATIONAL AFFAIRS INC	exhibit32.htm
EX-31.1 - EXHIBIT 31-1 - BUREAU OF NATIONAL AFFAIRS INC	exhibit31_1.htm
EX-31.2 - EXHIBIT 31-2 - BUREAU OF NATIONAL AFFAIRS INC	exhibit31_2.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

(X)	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

( )	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 12, 2009	Commission file number 2-28286

The Bureau of National Affairs, Inc.


A Delaware Corporation	53-0040540 (I.R.S. Employer Identification No.)

1801 South Bell Street	(703) 341-3000
Arlington, Virginia 22202	(telephone number)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yesx No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check One):

Large accelerated filer o

Accelerated filer o

Non-accelerated filer x

Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes o No x

The number of shares outstanding of each of the issuer's classes of common stock, as of September 19, 2009 was 10,957,014 Class A common shares, 15,688,477 Class B common shares, and 6,450 Class C common shares.

	TABLE OF CONTENTS


	Part I

Item 1.	Consolidated Financial Statements (Unaudited)
	Condensed Consolidated Statements of Income	3
	Condensed Consolidated Balance Sheets	5
	Condensed Consolidated Statements of Cash Flows	7
	Notes to Condensed Consolidated Financial Statements	8
Item 2.	Management's Discussion and Analysis of Financial Condition and
	Results of Operations	16
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	20
Item 4T.	Controls and Procedures	20

	Part II

Item 1.	Legal Proceedings	20
Item 1A.	Risk Factors	20
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	20
Item 3.	Defaults Upon Senior Securities	21
Item 4.	Submission of Matters to a Vote of Security Holders	21
Item 5.	Other Information	21
Item 6.	Exhibits	21

Signatures		22

Exhibit 31.1		23
Exhibit 31.2		24
Exhibit 32		25

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PART I-FINANCIAL INFORMATION

THE BUREAU OF NATIONAL AFFAIRS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE 36 WEEKS ENDED SEPTEMBER 12, 2009 and SEPTEMBER 6, 2008
(Unaudited)
(All dollars in thousands, except per share amounts)


	36 Weeks Ended
	September 12, 2009			September 6, 2008

OPERATING REVENUES	$	224,105		$	233,166

OPERATING EXPENSES:
Editorial, production, and distribution		121,605			122,425
Selling		36,284			36,858
General and administrative		39,392			39,904
Goodwill impairment		17,805			---

TOTAL OPERATING EXPENSES		215,086			199,187

OPERATING PROFIT		9,019			33,979

INVESTMENT INCOME		2,939			3,063
INTEREST EXPENSE		(1,893	)		(2,337	)

INCOME BEFORE INCOME TAXES		10,065			34,705
PROVISION FOR INCOME TAXES		3,309			12,494

NET INCOME		6,756			22,211

OTHER COMPREHENSIVE INCOME (LOSS)		8,244			(240	)

COMPREHENSIVE INCOME	$	15,000		$	21,971

EARNINGS PER SHARE	$	.25		$	.78

WEIGHTED AVERAGE SHARES OUTSTANDING		27,002,477			28,355,717

See accompanying notes to condensed consolidated financial statements.

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THE BUREAU OF NATIONAL AFFAIRS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE 12 WEEKS ENDED SEPTEMBER 12, 2009 and SEPTEMBER 6, 2008
(Unaudited)
(All dollars in thousands, except per share amounts)


	12 Weeks Ended
	September 12, 2009			September 6, 2008

OPERATING REVENUES	$	72,904		$	78,189

OPERATING EXPENSES:
Editorial, production, and distribution		39,855			41,248
Selling		12,118			12,964
General and administrative		12,959			13,496
Goodwill impairment		17,805			---

TOTAL OPERATING EXPENSES		82,737			67,438

OPERATING (LOSS) PROFIT		(9,833	)		10,751

INVESTMENT INCOME		960			558
INTEREST EXPENSE		(629	)		(756	)

(LOSS ) INCOME BEFORE INCOME TAXES		(9,502	)		10,553
(BENEFIT) PROVISION FOR INCOME TAXES		(3,581	)		3,799

NET (LOSS) INCOME		(5,921	)		6,754

OTHER COMPREHENSIVE INCOME		3,924			28

COMPREHENSIVE (LOSS) INCOME	$	(1,997	)	$	6,782

(LOSS) EARNINGS PER SHARE	$	(.22	)	$	.24

WEIGHTED AVERAGE SHARES OUTSTANDING		26,528,919			28,017,954

See accompanying notes to condensed consolidated financial statements.

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THE BUREAU OF NATIONAL AFFAIRS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 12, 2009 and DECEMBER 31, 2008

(In thousands of dollars)


	(Unaudited)
	September 12,		December 31,
ASSETS	2009		2008

CURRENT ASSETS:
Cash and cash equivalents	$	16,413	$	11,139
Short-term investments		11,963		8,530
Receivables (net of allowance for doubtful accounts of
$1,186 at September 12, 2009 and $1,723 at Dec. 31, 2008)		21,339		35,661
Inventories		2,995		2,608
Prepaid expenses		4,604		4,966
Deferred income taxes		6,963		7,136

Total current assets		64,277		70,040

MARKETABLE SECURITIES		99,978		106,681

PROPERTY AND EQUIPMENT:
Land		23,642		23,642
Building and improvements		95,894		95,857
Furniture, fixtures and equipment		47,133		46,469

		166,669		165,968
Less-Accumulated depreciation		50,178		45,542

Net property and equipment		116,491		120,426

OTHER LONG-TERM INVESTMENT		3,200		---

DEFERRED INCOME TAXES		51,353		45,286

GOODWILL		44,962		61,790

INTANGIBLE AND OTHER AMORTIZABLE ASSETS		7,925		8,377

OTHER ASSETS		126		86

Total assets	$	388,312	$	412,686

See accompanying notes to condensed consolidated financial statements.

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THE BUREAU OF NATIONAL AFFAIRS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 12, 2009 and DECEMBER 31, 2008

(In thousands of dollars)


	(Unaudited)
	September 12,			December 31,
LIABILITIES AND STOCKHOLDERS' DEFICIT	2009			2008

CURRENT LIABILITIES:
Current portion of long-term debt	$	10,500		$	10,500
Payables and accrued liabilities		13,708			18,928
Employee compensation and benefits payable		22,091			20,256
Income taxes payable		6,052			1,313
Dividends payable		5,597			---
Deferred revenues		122,186			133,630

Total current liabilities		180,134			184,627

LONG-TERM DEBT, less current portion		20,500			23,500

POSTRETIREMENT BENEFITS, less current portion		217,784			219,686

OTHER LIABILITIES		1,319			1,337

Total liabilities		419,737			429,150

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' DEFICIT:
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		44,942			42,181
Retained earnings		213,667			218,026
Treasury stock, at cost — 30,743,774 shares at
September 12, 2009 and 29,547,221 at Dec. 31, 2008		(272,509	)		(250,902	)
Accumulated other comprehensive loss:
Net unrealized gain (loss) on marketable securities		791			(3,701	)
Foreign currency translation adjustment		(152	)		(104	)
Postretirement benefits adjustment		(75,331	)		(79,131	)

Total stockholders' deficit		(31,425	)		(16,464	)

Total liabilities and stockholders' deficit	$	388,312		$	412,686

See accompanying notes to condensed consolidated financial statements.

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THE BUREAU OF NATIONAL AFFAIRS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE 36 WEEKS ENDED SEPTEMBER 12, 2009 and SEPTEMBER 6, 2008
(Unaudited)
(In thousands of dollars)

	36 Weeks Ended
	September 12, 2009			September 6, 2008
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	6,756		$	22,211
Adjustments to reconcile net income to net
cash provided by operating activities—
Goodwill impairment		17,805			---
Depreciation and amortization		6,996			6,989
Deferred income taxes		(10,795	)		(2,702	)
(Gain) loss on sales of securities		(197	)		280
Others		(128	)		47
Changes in operating assets and liabilities—
Receivables		14,786			12,210
Deferred revenues		(11,397	)		4
Payables and accrued liabilities		379			1,284
Postretirement benefits		4,394			(3,204	)
Inventories		(387	)		(1,510	)
Other assets and liabilities—net		(440	)		(142	)

Net cash provided by operating activities		27,772			35,467

CASH FLOWS FROM INVESTING ACTIVITIES:
Headquarters purchase price adjustment		---			450
Proceeds from sales of assets		31			---
Purchase of other long-term investment		(3,200	)		---
Purchase of property and equipment		(760	)		(1,600	)
Capitalized software		(1,118	)		(1,005	)
Acquisition of publishing assets		(917	)		(636	)
Investment securities sales and maturities		37,875			48,922
Investment securities purchases		(27,949	)		(52,477	)

Net cash provided by (used in) investing activities		3,962			(6,346	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Receipts for capital stock sales to employees		5,855			7,763
Purchases of treasury stock		(23,796	)		(18,495	)
Payment of long-term debt		(3,000	)		(3,000	)
Dividends paid		(5,519	)		(5,784	)

Net cash used in financing activities		(26,460	)		(19,516	)

NET INCREASE IN CASH AND CASH EQUIVALENTS		5,274			9,605

CASH AND CASH EQUIVALENTS, beginning of period		11,139			11,789

CASH AND CASH EQUIVALENTS, end of period	$	16,413		$	21,394

SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Interest paid	$	2,028		$	2,516
Income taxes paid		9,364			10,599

See accompanying notes to condensed consolidated financial statements.

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NOTE 1: General

The primary business of The Bureau of National Affairs, Inc., (BNA, or the “Company”) is the publishing of 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, mainly in the United States.

BNA also provides printing services to customers in the mid-Atlantic region through its McArdle Printing Co., Inc. subsidiary. The Company’s software businesses develop, produce, and market tax and financial planning software and electronic tax forms for U.S. customers.

The Company’s financial reporting is based on 13 four-week periods. There are three periods (twelve weeks) in each of the first three fiscal quarters and four periods in the fourth fiscal quarter. The information in this report has not been audited. Results for the twelve weeks are not necessarily representative of the year because of the seasonal nature of activities. The financial information furnished herein reflects all adjustments (consisting only of normal, recurring adjustments) which are, in the opinion of management, necessary for a fair statement of the results reported for the periods shown and has been prepared in conformity with generally accepted accounting principles of the United States of America applied on a consistent basis.

These financial statements should be read in conjunction with the Notes to Consolidated Financial Statements contained in the Company’s 2008 Annual Report on Form 10-K. Note disclosures which would substantially duplicate those contained in the 2008 Annual Report on Form 10-K have been omitted. Certain prior year balances have been reclassified to conform to the current year presentation.

The reported amounts of certain 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 post-retirement benefits, deferred tax assets, and the allowance for doubtful accounts, and for evaluating the possible impairment of intangible assets and goodwill. Accordingly, estimates and assumptions may also affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

The Company has evaluated subsequent events after the balance sheet date through the date the financial statements were issued and did not note any events that would require disclosure.

NOTE 2: Revenues and Deferred Revenues

The Company derives revenues from publishing and software product sales and from printing and other services. Revenues are recognized when all of the following criteria are met: there is persuasive evidence that an arrangement exists; delivery has occurred or services have been rendered; the price to the customer is fixed and determinable; and collectibility is reasonably assured.

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The majority of publishing sales are by subscription, primarily for one year. Subscription revenues are deferred and amortized over the subscription terms. The Company also licenses information content to certain online service providers for access by their customers. Revenues from these licenses are recognized on either a transactional or subscription basis. Revenues from other publishing products, such as books, research reports, and special reports, are recognized when the products are shipped, net of a reserve for returns when the right of return exists.

Revenues from printing services are recognized when the materials are shipped. Revenues from consulting, software data conversion, and training are recognized when the services have been completed. Revenues from event-related activities, such as conferences, are recognized when the event has been completed.

Software revenues are recognized in accordance with AICPA Statement of Position 97-2, Software Revenue Recognition. The majority of software sales are bundled arrangements which include a one-year software program license term and post-sale support, including telephone support and program updates (when and if available) during the license term. Revenues are deferred and recognized ratably over the license and post-sale support term. However, when the sale includes a specified upgrade (a specific future program enhancement promised to customers) revenue is deferred until that specified upgrade is delivered. Revenues from sales of software products with updates provided periodically over a license term, typically one year, are recognized ratably over the license terms.

Deferred revenues at the end of the third quarter of 2009 consisted of $105.4 million of deferred subscription revenue and $16.8 million of deferred software revenue. Deferred revenues at the end of 2008 consisted of $117.4 million of deferred subscription revenue and $16.2 million of deferred software revenue.

NOTE 3: Inventories

Inventories consisted of the following (in thousands of dollars):

	September 12, 2009		December 31, 2008
Materials and supplies	$	1,409	$	1,272
Work in process		502		266
Finished goods		1,084		1,070

Total	$	2,995	$	2,608

NOTE 4: Intangible and Other Amortizable Assets

Intangible and other amortizable assets were as follows (in thousands of dollars):

	September 12, 2009					December 31, 2008
	Gross Carrying Amount		Accumulated Amortization			Gross Carrying Amount		Accumulated Amortization
Software	$	26,810	$	(21,345	)	$	25,693	$	(19,963	)
Customer Lists		6,197		(4,889	)		5,582		(4,644	)
Copyrights		9,145		(8,092	)		9,145		(7,459	)
Other		216		(117	)		130		(107	)

Total	$	42,368	$	(34,443	)	$	40,550	$	(32,173	)

Amortization expense for the above assets was $2,270,000 and $2,313,000, respectively, in the first three quarters of 2009 and 2008. During the first three quarters of 2009, gross intangible and other amortizable assets of $1,818,000 were added.

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NOTE 5: Goodwill

The Company performs a goodwill impairment test on an annual basis and, if events or circumstances indicate that an impairment is more likely than not to have occurred, on an interim basis. In view of the current economic downturn, the Company performed an interim test as of September 12, 2009. The fair value of each reporting unit is determined using a multiple of earnings before interest, taxes, depreciation and amortization (EBITDA). The carrying value of the Kennedy Information (Kennedy) division of BNA Subsidiaries, LLC was found to be less than its fair value. As a result, a goodwill impairment expense of $17,805,000, representing the entire remaining balance of goodwill related to the acquisition of Kennedy in 2000, was recorded for the third quarter of 2009.

Goodwill assigned to the reportable segments and the changes in the carrying amount of goodwill for the first three quarters of 2009 are as follows (in thousands of dollars):

	Publishing			Printing		Software		Total

Balance, January 1, 2009	$	38,422		$	917	$	22,451	$	61,790
Goodwill acquired during year		977			---		---		977
Impairment loss		(17,805	)		---		---		(17,805	)

Balance, September 12, 2009	$	21,594		$	917	$	22,451	$	44,962

NOTE 6: Employee Benefit Plans

The Company has noncontributory defined benefit pension plans and provides retiree health care and life insurance benefits (other post-retirement benefits) for certain of its employees. The net periodic benefit expense is based on estimated values provided by third party actuaries.

The components of net periodic benefit expense were as follows (in thousands of dollars):

	12 Weeks Ended						36 Weeks Ended
	09/12/09			09/06/08			09/12/09			09/06/08
Pension Benefits:
Service cost	$	1,854		$	1,747		$	5,562		$	5,240
Interest cost		3,020			2,831			9,060			8,493
Expected return on plan assets		(3,062	)		(3,580	)		(9,187	)		(10,740	)
Amortization of prior service cost
and net actuarial loss		1,164			39			3,492			117

Total	$	2,976		$	1,037		$	8,927		$	3,110

Other Post-Retirement Benefits:
Service cost	$	1,493		$	1,326		$	4,479		$	3,979
Interest cost		2,533			2,260			7,598			6,781
Expected return on plan assets		(323	)		(510	)		(968	)		(1,530	)
Amortization of prior service cost
and net actuarial loss		938			547			2,816			1,640

Total	$	4,641		$	3,623		$	13,925		$	10,870

Pension plan contributions were $14 million in 2008 and $15 million in 2009, contributed during the first three quarters of each year.

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NOTE 7: Segment Information

In thousands of dollars:

12 Weeks Ended:	Total Operating Revenues		Intersegment Operating Revenues		External Operating Revenues		Operating (Loss) Profit
September 12, 2009
Publishing (a)	$	62,248	$	---	$	62,248	$	(11,257	)
Printing		6,762		2,437		4,325		(87	)
Software		6,906		575		6,331		1,511

Total	$	75,916	$	3,012	$	72,904	$	(9,833	)

September 6, 2008
Publishing	$	64,886	$	---	$	64,886	$	8,986
Printing		9,450		2,249		7,201		212
Software		6,710		608		6,102		1,553

Total	$	81,046	$	2,857	$	78,189	$	10,751

36 Weeks Ended:	Total Operating Revenues		Intersegment Operating Revenues		External Operating Revenues		Operating Profit
September 12, 2009
Publishing (a)	$	189,316	$	---	$	189,316	$	2,918
Printing		22,193		7,296		14,897		277
Software		21,606		1,714		19,892		5,824

Total	$	233,115	$	9,010	$	224,105	$	9,019

September 6, 2008
Publishing	$	193,459	$	---	$	193,459	$	27,003
Printing		27,443		7,175		20,268		1,046
Software		21,201		1,762		19,439		5,930

Total	$	242,103	$	8,937	$	233,166	$	33,979

(a) Operating profit includes a goodwill impairment of $17,805 (see Note 5).

NOTE 8: Stockholders' Deficit

There is no established public trading market for any of BNA's three classes of stock. However, employees may purchase the Company’s Class A stock through its Stock Purchase and Transfer Plan and the BNA 401(k) Plan (the “Plans”). Semi-annually, the Board of Directors establishes the price at which shares can be bought or sold and declares dividends. In 2009, dividends of $.21 per share were declared in September and $.20 per share were declared in March, while dividends of $.20 per share were declared in both March and September of 2008.

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Treasury stock as of September 12, 2009 and December 31, 2008, respectively, consisted of: Class A, 19,272,126 and 18,621,895 shares; Class B, 8,946,418 and 8,406,086 shares; and Class C, 2,525,230 and 2,519,240 shares. As of September 12, 2009, authorized shares of Class A, Class B, and Class C shares were 30,000,000, 30,000,000, and 5,000,000, respectively.

The Company’s stockholders, when selling stock, are required to first tender them to the Company. The Company has supported the continuance of employee ownership through its practice of repurchasing stock tendered by stockholders, but it is not required to do so. Capital stock with a market value of $4.3 million as of September 12, 2009 is known or expected to be tendered during the next twelve months. The actual amount will likely be higher.

NOTE 9: Commitments, Contingencies, and Related-Party Transactions

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. The Company indemnifies certain of its customers for potential copyright infringement lawsuits related to the use of its products. Any exposure related to these indemnifications is believed to be remote.

A director of one of the Company's subsidiaries is a shareholder of a law firm that provides the subsidiary with editorial services. Fees incurred for these services were $1,320,000 in the third quarter of 2009 and $1,428,000 in the third quarter of 2008 and $4,007,000 and $4,396,000 in the first three quarters of 2009 and 2008, respectively.

NOTE 10: Fair Value Measurements

In the first quarter of 2008, the Company adopted Statement of Financial Accounting Standards No. 157, Fair Value Measurements (FAS 157) for financial assets and liabilities. In February 2008, the FASB deferred the effective date of FAS 157 until January 1, 2009 for nonfinancial assets and liabilities that are recognized or disclosed at fair value on a nonrecurring basis. The Company adopted FAS 157 as it pertains to such nonfinancial assets and liabilities in the first quarter of 2009. There was no material effect on the financial statements upon adoption of this new accounting pronouncement.

FAS 157 discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow), and the cost approach (cost to replace the service capacity of an asset or replacement cost). The statement utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels:

Level 1:

Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2:

Inputs, other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

Level 3:

Unobservable inputs that reflect the reporting entity’s own assumptions.

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Financial assets carried at fair value measured on a recurring basis as of September 12, 2009 and the necessary disclosures are as follows (in thousands of dollars):

	Balance as of		Fair Value Measures at 09/12/09 Using Fair Value Hierarchy						Fair Value as of
	09/12/09		Level 1		Level 2		Level 3		09/12/09
Cash and cash equivalents	$	16,413	$	16,413		---		---	$	16,413

Short-term investments		11,963		11,963		---		---		11,963
Marketable securities		99,978		99,978		---		---		99,978

Total	$	128,354	$	128,354		---		---	$	128,354

The fair values of short-term investments and marketable securities are based on quoted market prices from various stock and bond exchanges. The Company chose not to elect the fair value option as prescribed by FASB Statement of Financial Accounting Standards No. 159, The Fair Value Option For Financial Assets and Financial Liabilities—Including an Amendment of FASB Statement No. 115 for its financial assets and liabilities that had not been previously carried at fair value. Therefore, material financial assets and liabilities not carried at fair value, such as long-term debt, accounts payable, and customer receivables, are reported at their carrying values. At the end of the third quarter, long-term debt with a carrying value of $31,000,000 had a fair value of $32,598,000. The fair value of long-term debt is based on quotes for like instruments with similar credit ratings and terms.

Assets carried at fair value measured on a nonrecurring basis as of September 12, 2009 and the necessary disclosures are as follows (in thousands of dollars):

	Balance as of		Fair Value Measures at 09/12/09 Using Fair Value Hierarchy						Total Gains
	09/12/09		Level 1		Level 2		Level 3		(Losses)
Goodwill	$	0		---		---	$	0	$	(17,805	)

Total	$	0		---		---	$	0	$	(17,805	)

In accordance with Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (FAS 142), goodwill with a carrying value of $17,805,000 was written down to its implied fair value of $0, resulting in an impairment charge of $17,805,000, which was included in earnings for the period. See Note 5.

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NOTE 11: Investments

Proceeds from the sales and maturities of securities for the first three quarters of 2009 were $37,875,000. Gross realized gains and (losses) from these sales were $399,000 and $(202,000). For the third quarter only, proceeds from the sales and maturities of securities were $6,865,000 and gross realized gains and (losses) from these sales were $87,000 and $(19,000). The specific identification method is used in computing realized gains and losses.

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
September 12, 2009		Cost		Gains		Losses			Value
Equity securities	$	17,616	$	248	$	(2,475	)	$	15,389
Municipal bonds		91,004		3,385		(134	)		94,255
Corporate debt		2,105		220		(28	)		2,297

Total	$	110,725	$	3,853	$	(2,637	)	$	111,941

				Gross		Gross
		Amortized		Unrealized		Unrealized			Fair
December 31, 2008		Cost		Gains		Losses			Value
Equity securities	$	16,859	$	131	$	(5,390	)	$	11,600
Municipal bonds		101,960		1,736		(1,975	)		101,721
Corporate debt		2,085		---		(195	)		1,890

Total	$	120,904	$	1,867	$	(7,560	)	$	115,211

The following table summarizes investments with gross unrealized losses by the length of time those investments have been continuously in a loss position (in thousands of dollars):

				Gross Unrealized Losses
	Fair			Less than				More than
September 12, 2009	Value			12 months				12 Months

Equity securities		$	13,282		$	(331	)		$	(2,144	)
Municipal bonds			3,893			(20	)			(114	)
Corporate debt			568			(28	)			---

Total		$	17,743		$	(379	)		$	(2,258	)

				Gross Unrealized Losses
	Fair			Less than				More than
December 31, 2008	Value			12 months				12 Months

Equity securities		$	10,504		$	(5,390	)		$	---
Municipal bonds			33,162			(1,279	)			(696	)
Corporate debt			1,890			(195	)			---

Total		$	45,556		$	(6,864	)		$	(696	)

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Each quarter, the Company reviews investment securities that have unrealized losses to determine if those losses are other than temporary. Consideration is given to the credit quality and maturities of the fixed income securities, the financial condition and near-term prospects of the issuers of the equity securities, general market conditions, the length of time and extent to which fair values have been below amortized cost, and the Company’s ability and intent to hold the security to allow for anticipated recovery. If a decline in fair value is determined to be other than temporary, an impairment charge is recorded and a new cost basis in the security is established. Accordingly, the Company wrote down to fair market value equity security investments that were determined to be other than temporarily impaired. The write downs amounted to $50,000 in the first three quarters of 2009 and $435,000 for 2008 and are included in investment income in the consolidated statements of income. At September 12, 2009, 19 securities had an aggregated unrealized loss of 12.9 percent from their amortized cost. At December 31, 2008, 59 securities had an aggregated unrealized loss of 16.6 percent from their amortized cost. These securities were reviewed in accordance with the criteria noted above, and their declines in fair value were determined to be not other than temporary.

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 September 12, 2009 were as follows (in thousands of dollars):

	Amortized		Fair
	Cost		Value

Within one year	$	12,082	$	12,254
One through five years		33,799		35,121
Five through ten years		15,368		16,275
Over ten years		31,260		32,330
No fixed maturity date		600		572

Total	$	93,109	$	96,552

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PART I

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read along with the unaudited consolidated financial statements included in this Form 10-Q, as well as the Company’s 2008 Annual Report on Form 10-K, which provides a more thorough discussion of the Company’s business and operations. This interim report is intended to provide an update of the disclosures contained in the 2008 Annual Report on Form 10-K and, accordingly, disclosures which would substantially duplicate those contained therein have been omitted.

Forward-Looking Statements

This management discussion contains 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,” “will,” and similar expressions are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties, which could cause actual results to differ from those projected. Readers are cautioned not to place undue reliance on these forward-looking statements which speak only as of the date hereof.

Overview

Electronic products now make up over 70 percent of the legal and regulatory subscription base. Their migration to a next-generation Web platform, BWD, which was begun in 2001, is nearing completion. Most products are now available on BWD, and the rest will be moved off legacy platforms in 2009. This will improve efficiency and increase our flexibility to combine and customize product offerings for more specialized markets.

In the fall of 2008, BNA launched “BNA Convergence,” a new delivery platform designed for the legal and corporate markets. This new platform, produced in partnership with technology partner Llesiant, allows law firms to search all their BNA content along with a large collection of third-party content, utilizing Llesiant’s taxonomy-based search engine. Results can be delivered in a variety of formats. This product is a further step in BNA’s strategy of moving beyond being a content provider to delivering information solutions for its key markets. In 2009, the Company invested $3.2 million in Llesiant’s preferred stock.

Earlier efforts aimed at the Human Resources and Environment markets, which also combined internal resources with technology partners, matured in 2008 despite the challenging environment. New products and more focused sales efforts led to strong growth for our expanding line of HR Decision Support Networks and our set of Environment, Health, and Safety Tools. The economic environment has affected the corporate market for these products in 2009, but information solutions that enable businesses to meet increasingly stringent compliance needs with fewer in-house resources should remain attractive to cost-conscious customers.

BNA pursues a Web platform-neutral policy in its information content offerings, allowing customers to choose their format preference. BNA's products have been available for transactional access on the major legal online services—Lexis and Westlaw—for many years. Beginning in 2003, based on revised license agreements, BNA began to sell subscriptions to subject libraries on these networks, and these have been very popular with major law firms and law schools. In addition, as a result of new license agreements, BNA began to sell subscriptions to its tax products on CCH's tax platform in late 2005 and on RIA's tax platform in early 2006.

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These networks, in addition to BNA's own online networks and print, provide customers with a variety of product delivery options.

In early 2008, the Corporate and Tax & Accounting sales divisions were combined. The combination eliminates overlapping sales territories and mitigates periods of reduced opportunity for the former Tax & Accounting sales representatives during busy tax seasons. In addition, the Company created a small sales division focusing on the environmental product line.

Early in 2008, BNA International (BNAI) acquired European American Tax Institute (EATI), which provides professional training for international tax professionals. This business was integrated into BNAI, where it complements the company’s growing portfolio of conferences, special reports, and books for the international tax market. In mid-2009, BNA acquired the assets of the Council for International Tax Education, Inc., (CITE) and the Alliance for Tax, Legal, and Accounting Seminars (ATLAS), both based in White Plains, New York. The firms are leaders in the creation and delivery of international tax education for multinational companies, offering live instruction courses for legal and tax professionals and financial executives.

Institute of Management and Administration, Inc. (IOMA), relocated its headquarters from New York City to Newark, New Jersey in 2008. Effective December 31, 2008, IOMA was merged with Kennedy Information, Inc., to form a new subsidiary, BNA Subsidiaries, LLC. While products will continue to be marketed under the IOMA or Kennedy Information brands, the combination of these two BNA subsidiaries will create strategic synergies and administrative efficiencies, while yielding cost and possibly tax savings.

To facilitate the integration of BNA’s quality content with technology to produce information solutions, a new Product Research and Development business unit, headed by a Chief Product Officer, was created in 2009. This unit will be responsible for developing all new products and services, focusing specifically on how best to integrate the latest technology, processes, and applications with our unique content to provide better products and services to our customers. This unit will also be responsible for BNA’s electronic commerce initiatives.

As we face the task of continuing BNA’s success, several external factors loom large.

The first is the general economic environment, which was weak throughout 2008 and then became seriously distressed with the September setbacks in the banking industry. This weakness has continued into 2009 and the effects are being felt throughout our professional, corporate, and government markets, as all of our customers tighten spending and several struggle to survive. Large law firms, BNA’s largest market, have been particularly affected and are aggressively adjusting their cost structures in ways that impact their suppliers, including their information providers.

A second but related factor is the rapidly expanding expenses related to BNA’s post-retirement benefits obligations. It is becoming increasingly difficult to support the expense of BNA’s current benefits program and maintain historic margins.

Management will monitor these factors and take whatever steps are necessary to ensure BNA’s ability to continue its long-term success.

Results of Operations

Thirty-six weeks 2009 compared to thirty-six weeks 2008

The economic downturn continued to negatively affect BNA, especially those businesses relying primarily on non-subscription revenue. The resulting decline in revenue outpaced cost control measures and led to lower profits. In addition, at the end of the third quarter, the Company recorded a large goodwill impairment expense. This, combined with higher post-retirement expenses, led to an 8.0 percent increase in operating expenses and a sharp decline in reported profits. Net income was $6.8 million in 2009 compared to $22.2 million in 2008, and earnings per share were $.25 in 2009 versus $.78 in 2008.

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Consolidated revenues for the first three quarters of 2009 were $224.1 million, down 3.9 percent compared to 2008. Software revenues were up, but publishing and printing segments’ revenues were both down. Consolidated operating expenses were up 8.0 percent due to the impairment expense and higher postretirement expenses for publishing and software, mitigated by management’s cost containment efforts and a decrease in variable printing expenses.

Publishing segment revenues were down 2.1 percent compared to the prior year. BNA Parent and Tax Management subscription and online revenues were up 0.1 percent in the first three quarters of 2009 (aided by the addition of five calendar days to the first quarter), while all other publishing segment businesses, which produce more non-subscription products, were down. BNA International revenues were up 6.5 percent in pounds sterling, but down 15.9 percent due to the stronger U.S. dollar, and BNA Books revenues were down $1.0 million because fewer titles were released. Revenues of BNA Subsidiaries, LLC, the company resulting from the merger of Kennedy Information and IOMA, were down 14.9 percent due to a decline in conferences and non-subscription product sales, and due to the timing of consulting contracts and research report release dates. Publishing operating expenses were up 12.0 percent because of a $17.8 million goodwill impairment expense and higher postretirement benefit plan expenses. Operating profit for the segment declined from $27.0 million in 2008 to $2.9 million.

Printing segment revenues were down 19.1 percent compared to 2008. Commercial sales were down 27 percent due to lower print volumes and continuing price competition in the printing industry, and intersegment revenues were flat. Operating expenses were down 24 percent, reflecting aggressive steps taken to adjust expenses to lower revenues. Despite these efforts on the cost side, operating profit was $0.3 million in the first three quarters of 2009, compared to $1.0 million in 2008.

Software segment total revenues increased 1.9 percent compared to 2008, while expenses were up 3.3 percent. BNA Software revenues increased 2.9 percent from the first three quarters of 2008. Operating expenses were up 4.8 percent due to investment in strategic initiatives aimed at continued growth and higher postretirement benefit expenses. BNA Software’s operating profit was $3.9 million in 2009 compared to $4.0 million in the same period of 2008. STF revenues were down 2.1 percent compared to 2008, due to the timing of product release updates. Operating expenses, however, were down 4.6 percent, and that led to a 1.0 percent increase in operating profit. The total software segment’s operating profit decreased 1.8 percent to $5.8 million.

Investment income decreased slightly, reflecting higher gains on sales of securities but lower yields. Interest expense was lower due to lower term debt balances. Other comprehensive income reflected an unrealized holding gain in 2009 compared to an unrealized holding loss in 2008, and a change in unamortized postretirement obligations.

Twelve weeks 2009 compared to twelve weeks 2008

For the third quarter only, consolidated revenues decreased 6.8 percent. Publishing segment revenues were down 4.1 percent, reflecting declines in all publishing businesses. Software segment revenues were up 2.9 percent, reflecting higher revenues for BNA Software, while printing segment revenues were down 28 percent. Operating expenses include the goodwill impairment writeoff. All other operating expenses included higher postretirement benefit expenses, but nonetheless were down 3.7 percent due to the continued emphasis on cost containment and lower variable printing segment costs. The Company recorded an operating loss of $9.8 million in the third quarter of 2009 compared to $10.8 million operating profit in 2008. (Loss) earnings per share for the quarter were $(.22) in 2009 and $.24 in 2008.

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Goodwill. The goodwill that was written down is related to the acquisition of Kennedy Information. Last year, Kennedy was merged with another BNA subsidiary company, IOMA, to form BNA Subsidiaries, LLC, with the intent of combining the separate operations to reduce costs and exploit strategic synergies. While progress was made towards those goals this year, the continuing difficult business environment particularly affected the markets and the non-subscription product lines of the Kennedy division of the new company. Kennedy’s revenue and profit results since 2007 and the expectations for the near future no longer supported the remaining goodwill, resulting in the recording of a $17.8 million impairment expense ($10.7 million after-tax, or $.40 per share). Management is taking a number of steps to speed up the integration of the operations of BNA Subsidiaries, LLC, and to reevaluate all its business lines to create a more focused, more strategic, more profitable, and faster growing company going forward.

Outlook. This has been a difficult year financially as BNA’s normally recession-resistant markets could not withstand the magnitude or duration of the economic downturn. Non-subscription product lines were affected immediately and significantly. New sales and renewals of subscription products also were affected, but this was not immediately reflected in revenues because subscription revenue is recognized evenly over the term of a subscription.

The third quarter produced some evidence that our primary markets were stabilizing. Any improvement in market conditions, however, will be reflected first in non-subscription revenue and more slowly in revenue generated by subscription sales. Since subscription revenue is by far the largest part of BNA’s consolidated revenue, we do not expect to see any improvement in revenue trends before yearend. In addition, fewer revenue-days in the fourth quarter of 2009 than in the fourth quarter of 2008 will have a negative impact on year-to-year comparisons.

The beneficial effect of cost savings steps taken earlier in the year will positively affect profit comparisons. But increased postretirement benefit expenses continue to significantly impact profit comparisons to last year. If not for the increase in post-retirement benefit expenses, BNA’s third quarter adjusted profit would have improved over 2008.

Financial Position

Cash operating expenditures were down 4.9 percent, but customer cash receipts were down 7.3 percent, leading cash provided from operating activities to decrease 22 percent in the first three quarters of 2009 to $27.8 million. Cash provided by investing activities was $4.0 million. Purchase of other long-term investments amounted to $3.2 million, net capital expenditures were $2.8 million, and net cash provided from securities investments totaled $10.0 million. Cash used in financing activities netted to $26.5 million. Capital stock repurchases were $23.8 million, and receipts for sales of capital stock to employees totaled $5.9 million. Debt principal repayments amounted to $3.0 million and the Company paid cash dividends of $5.5 million.

With over $128 million in cash and investment portfolios, the financial position and liquidity of the Company remains very strong. The cash flows from operations, along with existing financial reserves and proceeds from the sales of capital stock, have been sufficient in past years to meet all operational needs, new product introductions, debt repayments, pension contributions, most capital expenditures, and, in addition, provide funds for dividend payments and the repurchase of stock tendered by shareholders. Should more funding become necessary or desirable in the future, the Company believes that it has sufficient additional debt capacity based on its operating cash flows.

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Item 3.

Quantitative and Qualitative Disclosures about Market Risk

There have been no material changes in market risk since December 31, 2008.

Item 4T.

Controls and Procedures

Evaluation of Disclosure Controls and Procedures. As of the end of the period covered by this report, the Company conducted an evaluation, under the supervision and with the participation of its management, including the Company’s Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934). Based on this evaluation, the CEO and CFO have found such controls to be effective to provide reasonable assurance that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods required by the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to management, including the CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting. There were no changes in the Company’s internal control over financial reporting during the quarter ended September 12, 2009 that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.

PART II Other Information

Item 1.

Legal Proceedings

There were no material legal proceedings.

Item 1A.

Risk Factors

There were no material changes from the risk factors as previously disclosed in Item 1A of Part I of the Company’s 2008 Annual Report on Form 10-K.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

During the twelve weeks ended September 12, 2009, the Company purchased shares of its common stock, as noted in the table below. The Company is not engaged in share repurchases related to a publicly announced plan or program.

	Total Number	Average
	of shares	Price paid
Four-week Period	Purchased	per Share

June 21, 2009–July 18, 2009	215,008	$15.75
July 19, 2009–August 15, 2009	27,874	$15.75
August 16, 2009–September 12, 2009	67,651	$15.75

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Item 3.

Defaults Upon Senior Securities

There were no defaults upon senior securities

Item 4.

Submission of Matters to a Vote of Security Holders

There were no matters submitted to a vote of securities holders during the quarter ended September 12, 2009.

Item 5.

Other Information

No other information is presented herein.

Item 6.

Exhibits

31.1 Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. section 1350.

31.2 Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. section 1350.

32 Certification of the CEO and CFO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. section 1350.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	THE BUREAU OF NATIONAL AFFAIRS, INC.
	Registrant

October 21, 2009	By: s/Paul N. Wojcik
Date	Paul N. Wojcik
	Chairman and Chief Executive Officer

October 21 2009	By: s/Robert P. Ambrosini
Date	Robert P. Ambrosini
	Vice President and Chief Financial Officer

Attached files

BUREAU OF NATIONAL AFFAIRS INC Reports

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