FORM 10-Q.--QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the period ended June 20, 1998
----------------------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
-------------------- -------------------------
Commission File Number: 2-28286
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The Bureau of National Affairs, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 53-0040540
- ---------------------------------- ---------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1231 25th St., N.W., Washington, D.C. 20037
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including Area Code) (202) 452-4200
---------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to the filing requirements for
the past 90 days. Yes X No ______
The number of shares outstanding of each of the issuer's classes of common
stock, as of June 20, 1998 was 3,563,101 Class A common shares, 4,526,426 Class
B common shares, and 312,145 Class Common shares.
<PAGE> 2
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THE BUREAU OF NATIONAL AFFAIRS, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE 24-WEEKS ENDED JUNE 20, 1998 and JUNE 14, 1997
(Unaudited)
(In Thousands of Dollars)
24 Weeks Ended
----------------------------------------
June 20, 1998 June 14, 1997
------------------ ---------------
OPERATING REVENUES $ 119,209 $ 106,612
----------------- --------------
OPERATING EXPENSES:
Editorial, production and
distribution 65,486 60,648
Selling 27,127 22,630
General and administrative 17,908 15,312
Profit sharing 697 752
----------------- ---------------
111,218 99,342
----------------- ---------------
Operating Profit 7,991 7,270
----------------- ---------------
NON-OPERATING INCOME (EXPENSE):
Investment Income 4,129 3,761
Interest Expense (425) (17)
Other Income (Expense), Net (17) 417
----------------- ---------------
TOTAL NON-OPERATING INCOME 3,687 4,161
----------------- ---------------
INCOME BEFORE INCOME TAXES 11,678 11,431
PROVISION FOR INCOME TAXES 3,723 3,662
----------------- ---------------
NET INCOME 7,955 7,769
OTHER COMPREHENSIVE INCOME (EXPENSE) (176) (75)
----------------- ---------------
COMPREHENSIVE INCOME $ 7,779 $ 7,694
================= ===============
EARNINGS PER SHARE $ .94 $ .88
================= ===============
WEIGHTED AVERAGE SHARES OUTSTANDING 8,446,519 8,832,360
================= ===============
<PAGE> 3
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THE BUREAU OF NATIONAL AFFAIRS, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE 12-WEEKS ENDED JUNE 20, 1998 and JUNE 14, 1997
(Unaudited)
(In Thousands of Dollars)
12 Weeks Ended
----------------------------------------
June 20, 1998 June 14, 1997
------------------ ---------------
OPERATING REVENUES $ 60,740 $ 54,376
------------------ ---------------
OPERATING EXPENSES:
Editorial, production and
distribution 32,823 30,674
Selling 13,818 11,663
General and administrative 9,420 7,917
Profit sharing 363 344
------------------ ---------------
56,424 50,598
------------------ ---------------
Operating Profit 4,316 3,778
------------------ ---------------
NON-OPERATING INCOME (EXPENSE):
Investment Income 2,181 2,156
Interest Expense (216) (10)
Other Income (Expense), Net (17) (4)
------------------ ---------------
TOTAL NON-OPERATING INCOME 1,948 2,142
------------------ ---------------
INCOME BEFORE INCOME TAXES 6,264 5,920
PROVISION FOR INCOME TAXES 1,902 1,860
------------------ ---------------
NET INCOME 4,362 4,060
OTHER COMPREHENSIVE INCOME (EXPENSE) 143 407
------------------ ---------------
COMPREHENSIVE INCOME $ 4,505 $ 4,467
================== ===============
EARNINGS PER SHARE $ .52 $ .46
================== ===============
WEIGHTED AVERAGE SHARES OUTSTANDING 8,420,174 8,816,872
================== ===============
<PAGE> 4
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THE BUREAU OF NATIONAL AFFAIRS, INC.
CONSOLIDATED BALANCE SHEETS
JUNE 20, 1998 AND DECEMBER 31, 1997
(Unaudited)
(In Thousands of Dollars)
June 20, December 31,
ASSETS 1998 1997
- ----------------------------------------------- ------------ ------------
CURRENT ASSETS:
Cash and cash equivalents $ 17,842 $ 19,421
Short-term investments, at fair value 23,751 9,013
Accounts receivable (net of
allowance for doubtful accounts
of $1,672 in 1998 and $1,897 in 1997) 35,705 41,307
Inventories, at lower of average
cost or market 5,386 5,440
Prepaid expenses 3,689 3,368
Deferred selling expenses 22,210 23,244
------------ ------------
Total current assets 108,583 101,793
------------ ------------
MARKETABLE SECURITIES 106,389 115,809
------------ ------------
PROPERTY AND EQUIPMENT - at cost:
Land 4,250 4,250
Building and improvements 49,340 49,197
Furniture, fixtures and equipment 62,470 63,195
------------ ------------
116,060 116,642
Less-Accumulated depreciation 70,324 68,790
------------ ------------
Net property and equipment 45,736 47,852
------------ ------------
DEFERRED INCOME TAXES 23,122 22,296
------------ ------------
GOODWILL 28,735 8,924
------------ ------------
OTHER ASSETS 6,191 4,226
------------ ------------
Total assets $ 318,756 $ 300,900
============ ============
<PAGE> 5
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THE BUREAU OF NATIONAL AFFAIRS, INC.
CONSOLIDATED BALANCE SHEETS
JUNE 20,1998 AND DECEMBER 31, 1997
(Unaudited)
(In Thousands of Dollars)
June 20, December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1998 1997
- ----------------------------------------------- ------------ ------------
CURRENT LIABILITIES:
Accounts payable $ 16,880 $ 18,060
Employee compensation and benefits
payable 14,249 14,503
Income taxes payable 841 966
Deferred income taxes 2,407 3,120
Deferred subscription revenue 125,351 121,934
------------ ------------
Total current liabilities 159,728 158,583
LONG TERM DEBT 14,000 --
POSTRETIREMENT BENEFITS, less current portion 68,550 65,410
OTHER LIABILITIES 3,398 3,356
----------- ------------
Total liabilities 245,676 227,349
------------ ------------
STOCKHOLDERS' EQUITY:
Capital stock, common, $1.00 par value-
Class A - Voting; Authorized 6,700,000
shares; issued 6,478,864 shares 6,479 6,479
Class B - Nonvoting; authorized
5,300,000 shares; issued 4,926,973 shares 4,927 4,927
Class C - Nonvoting; authorized
1,000,000 shares; issued 506,336 shares 506 506
Additional paid-in capital 37,585 35,668
Retained earnings 63,104 60,242
Treasury stock at cost - 3,510,501 shares
in 1998 and 3,091,447 in 1997 (42,403) (37,329)
Elements of comprehensive income 2,882 3,058
------------ ------------
Total stockholders' equity 73,080 73,551
------------ ------------
Total liabilities and stockholders' equity $ 318,756 $ 300,900
============ ============
<PAGE> 6
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THE BUREAU OF NATIONAL AFFAIRS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE 24-WEEKS ENDED JUNE 20, 1998 and JUNE 14, 1997
(Unaudited)
(In Thousands of Dollars)
24 Weeks Ended
-------------------------------
June 20, 1998 June 14, 1997
-------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 7,955 $ 7,769
Items with different cash requirements
than reflected in net income--
Deferred subscription revenue (2,590) (3,512)
Depreciation and amortization 4,664 4,301
Accrued postretirement benefits expense 3,082 2,718
Provision for deferred income taxes (1,983) (1,313)
Deferred selling expenses 1,875 793
(Gain) on sales of securities (590) (720)
(Gain) on sales of publishing assets (13) (420)
Others 177 485
Changes in operating assets and liabilities--
Accounts receivable 6,490 7,175
Accounts payable and accrued liabilities (3,867) (3,476)
Inventory 54 (268)
Other assets and liabilities--net 67 595
-------------- -------------
Net cash provided from operating activities 15,321 14,127
-------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures--
Acquisition of a business
(net of $750 cash acquired) (18,289) --
Purchase of equipment and furnishings (945) (3,859)
Building improvements (143) (115)
Proceeds from sales of publishing assets 13 167
Proceeds from sales of property 6 6
-------------- -------------
Net cash (used for) capital expenditures (19,358) (3,801)
-------------- ------------
Investment portfolio--
Proceeds from sales and maturities 27,627 20,064
Purchases (31,760) (27,285)
-------------- -------------
Net cash (used for) investment portfolio (4,133) (7,221)
-------------- -------------
Net cash (used for) investing activities (23,491) (11,022)
-------------- -------------
<PAGE> 7
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THE BUREAU OF NATIONAL AFFAIRS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE 24-WEEKS ENDED JUNE 20, 1998 and JUNE 14, 1997
(Unaudited)
(In Thousands of Dollars)
24 Weeks Ended
-------------------------------
June 20, 1998 June 14, 1997
-------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings $ 15,000 $ --
Repayments of borrowings (1,000) --
Sale of capital stock to employees 2,700 2,271
Purchase of treasury stock (5,016) (3,333)
Dividends paid (5,093) (4,851)
-------------- ------------
Net cash provided by (used for) financing
activities 6,591 (5,913)
-------------- ------------
NET (DECREASE) IN CASH AND CASH EQUIVALENTS (1,579) (2,808)
CASH AND CASH EQUIVALENTS, beginning of period 19,421 18,898
-------------- ------------
CASH AND CASH EQUIVALENTS, end of period $ 17,842 $ 16,090
============== ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 256 $ 17
Income taxes paid 5,753 3,206
<PAGE> 8
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THE BUREAU OF NATIONAL AFFAIRS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 20, 1998
(UNAUDITED)
NOTE 1: General
The information in this report has not been audited. Results for the
twenty-four weeks are not necessarily representative of the year because of the
seasonal nature of activities. The financial information furnished herein
reflects all adjustments (consisting only of normal recurring adjustments) which
are, in the opinion of management, necessary to a fair statement of the results
reported for the periods shown and has been prepared in conformity with
generally accepted accounting principles applied on a consistent basis.
Notes contained in the 1997 Annual Report to security holders are hereby
incorporated by reference. Note disclosures which would substantially duplicate
those contained in the 1997 Annual Report to security holders have been omitted.
Certain prior year balances have been restated to conform to current year
presentation.
NOTE 2: Inventories
Inventories consisted of the following (in thousands):
June 20, 1998 December 31, 1997
-------------- -----------------
Materials and supplies $ 3,612 $ 3,742
Work in process 405 218
Finished goods 1,369 1,480
Totals ------------- -----------------
$ 5,386 $ 5,440
============= =================
NOTE 3: Stockholders' Equity
Treasury stock as of June 20, 1998 and December 31, 1997, respectively,
consisted of Class A, 2,915,763 and 2,959,761 shares; Class B, 400,547 and
349,685 shares; and Class C, 194,191 and 102,923 shares.
NOTE 4: Comprehensive Income
The Company adopted Statement of Financial Accounting Standard No. 130,
Comprehensive Income, effective January 1, 1998. Comprehensive income includes
net income, unrealized gains and losses on marketable securities, and foreign
currency translation adjustments.
NOTE 5: Accounting Pronouncement
During 1997, the Financial Accounting Standards Board issued SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information. SFAS No.
131 is effective for interim financial statements beginning in 1999. The
adoption of SFAS No. 131 is not expected to have a material impact on the
Company's financial reporting.
<PAGE> 9
-9-
NOTE 6: Acquisition
The Company purchased newsletter publisher Institute of Management and
Administration, Inc. (IOMA), on January 13, 1998, and has included IOMA's
operating results since that date in its consolidated results. The purchase cost
was assigned to assets, primarily intangibles, and to goodwill. The
recoverability of the carrying values of the intangible assets and the goodwill
will be evaluated periodically relative to IOMA's projected cash flows.
PART I
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Position
----------------------------------------
It is presumed that users of this interim report have read or have access
to the audited financial statements and management's discussion and analysis
contained in the 1997 Annual Report to security holders, hereby incorporated by
reference. This interim report is intended to provide an update of the
disclosures contained in the 1997 Annual Report to security holders and,
accordingly, disclosures which would substantially duplicate those contained
therein have been omitted.
FORWARD-LOOKING STATEMENTS
This management discussion contains and incorporates by reference certain
statements that are not statements of historical fact but are forward-looking
statements. The use of such words as "believes" and "expects" and similar
expressions are intended to identify forward-looking statements. Such statements
are subject to certain risks and uncertainties, which could cause actual results
to differ from those projected. Readers are cautioned not to place undue
reliance on these forward-looking statements which speak only as of the date
hereof.
RESULTS OF OPERATIONS
- ---------------------
Twenty-four weeks 1998 compared to twenty-four weeks 1997
- ----------------------------------------------------------
BNA's financial performance through the second quarter of 1998 reflects an
emphasis on business growth. Earnings per share rose 6.8 percent, despite
significant systems costs and acquisition related expenses, due to higher
operating profits and fewer shares outstanding. Comprehensive income, which
combines net income with changes in unrealized gains and losses on investment
securities, is slightly higher for 1998.
Consolidated revenues were up 11.8 percent and operating expenses increased
12 percent compared to last year. However, several factors combined to affect
these comparisons. On January 13th, 1998, BNA acquired Institute of Management
and Administration, Inc. (IOMA). IOMA's financial results accounted for
approximately 5 percent of consolidated revenue and operating expense growth
compared to last year. In addition, BNA's 1998 first fiscal quarter was longer
than that of 1997, slightly inflating comparisons of both revenues and expenses;
this effect on year-to-year comparability will diminish as 1998 progresses, and
will reverse in the fourth quarter. Consolidated operating profit increased 9.9
percent.
Service revenues, which constituted 86.8 percent of consolidated revenues,
rose 11.7 percent. Excluding IOMA, service revenues were up 5.7 percent.
Operating expenses of the service businesses were up 11.7 percent. Excluding
IOMA, operating expenses were up 5 percent, mainly in salaries, benefits, and
system-related costs. Operating profit of services increased 12.1 percent.
<PAGE> 10
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Revenues from the non-service businesses (sales of printing services,
software, books, and training products) rose 12.3 percent, with large increases
in printing and software sales. Operating expenses of the non-service businesses
increased 13.5 percent, reflecting costs associated with the increased revenues.
Collectively, these businesses contributed $966,000 to operating profit,
compared to $1 million in 1997. Printing posted a large increase in operating
profit on strong sales growth, but the other non-service business units recorded
lower results.
Non-operating income was $474,000 lower in 1998, due to a gain on the sale
of a publication last year, and interest expense related to the acquisition of
IOMA.
Twelve weeks ended June 20, 1998 compared to twelve weeks ended June 14, 1997.
- -----------------------------------------------------------------------------
Consolidated revenues grew by 11.7 percent while operating expenses were up
11.5 percent. Excluding IOMA, revenues were up 6.0 percent and expenses were up
5.3 percent. Operating profit increased 14.2 percent, net income rose 7.4
percent, and earnings per share grew 13 percent. The revenue and expense factors
mentioned above also affected the second quarter comparison.
Year 2000 Readiness
Based on updated estimates, the 1998-1999 cost to replace business systems
with Year 2000 ready systems, and for testing to ensure that the publishing
systems are also ready, is expected to be $2.7 million. The 1998-1999 cost to
remediate other business systems is expected to be approximately $4.9 million.
In addition, the Company is continuing other ongoing system upgrade and
replacement projects not related to Year 2000 remediation. Relative to 1997, the
Company expects that the incremental negative effect on net income for 1998-1999
due to higher systems expenses, including Year 2000 remediation expenses, will
be $2.5 to $3 million, with over half occurring in 1998.
Financial Position
- ------------------
Cash provided from operating activities was $15.3 million in the first
twenty-four weeks of 1998, compared to $14.1 million for the first twenty-four
weeks of 1997. Customer receipts increased 11.5 percent and operating
expenditures increased 11.9 percent from 1997. Excluding the effect of IOMA's
operations, collections increased 6.6 percent and expenditures were up 6.5
percent, partially due to more days.
Cash used in investing activities netted to $23.5 million, reflecting
expenditures of $18.3 million for the IOMA purchase (net of $0.8 million in cash
acquired), $1.1 million in other capital expenditures, and a $4.1 million
addition to the Company's investment portfolio.
The Company borrowed $15 million to partially fund the IOMA purchase, of
which, $1 million was repaid during the current quarter. The Company received
$2.7 million in cash from the sale of Class A stock to employees and repurchased
$5 million of Class B and Class C stock. Total 1998 repurchases of capital stock
are expected to be approximately $11 million. Almost $5.1 million was paid out
to stockholders as cash dividends.
With almost $148 million in cash and investment portfolios, the financial
position and liquidity of the Company remains very strong.
<PAGE> 11
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PART II
Item 1 Legal Proceedings
-----------------
There were no material legal proceedings during the first twenty-four
weeks of 1998.
Item 2 Change in Securities
--------------------
There were no changes in securities.
Item 3 Defaults upon Senior Securities
-------------------------------
There were no defaults upon senior securities.
Item 4 Submission of Matters to a Vote of Securities Holders
-----------------------------------------------------
See Form 10-Q for the quarter ended March 28, for the results of the
election of directors held at the annual meeting for stockholders on
April 18, 1998.
Item 5 Other Information
-----------------
No other information is presented herein.
Item 6 Exhibits and Reports on Form 8-K
--------------------------------
No reports were filed on Form 8-K during the quarter ended June 20,
1998.
<PAGE> 12
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
The Bureau of National Affairs, Inc.
------------------------------------
Registrant
July 29, 1998 s\ Paul N. Wojcik
-------------- ----------------------------------------------
Date Paul N. Wojcik
President and Chief Executive Officer
July 29, 1998 s\ George J. Korphage
------------- ----------------------------------------------
Date George J. Korphage
Vice President and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary information extracted from The Bureau of National
Affairs, Inc. consolidated balance sheet and consolidated statement of income
for the period ended June 20, 1998 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-20-1998
<CASH> 17,842
<SECURITIES> 23,751
<RECEIVABLES> 37,377
<ALLOWANCES> 1,672
<INVENTORY> 5,386
<CURRENT-ASSETS> 108,583
<PP&E> 116,060
<DEPRECIATION> 70,324
<TOTAL-ASSETS> 318,756
<CURRENT-LIABILITIES> 159,728
<BONDS> 14,000
0
0
<COMMON> 11,912
<OTHER-SE> 61,168
<TOTAL-LIABILITY-AND-EQUITY> 318,756
<SALES> 119,209
<TOTAL-REVENUES> 119,209
<CGS> 65,486
<TOTAL-COSTS> 65,486
<OTHER-EXPENSES> 45,732
<LOSS-PROVISION> 369
<INTEREST-EXPENSE> 425
<INCOME-PRETAX> 11,678
<INCOME-TAX> 3,723
<INCOME-CONTINUING> 7,955
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,955
<EPS-PRIMARY> 0.94
<EPS-DILUTED> 0.94
</TABLE>
