Item 1. Business
General Development of Business and Narrative Description of Business
Business of BNA and Subsidiaries
The Bureau of National Affairs, Inc. (BNA), is a leading publisher of specialized legal & 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 three of its publishing subsidiaries, Tax Management Inc., Pike & Fischer, Inc., and Institute of Management and Administration, Inc. (IOMA), are engaged in providing legal and regulatory and general business advisory information in labor, economic, tax, health care, environment and safety 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, pamphlets, and research reports.
Sales are made principally in the United States through field sales personnel who are supported by direct mail, space advertising, and telemarketing. Customers include lawyers, accountants, business executives, human resource professionals, health care administrative professionals, labor unions, trade associations, educational institutions, government agencies, and libraries mostly in the United States.
Online products are marketed through database vendors such as LEXIS/NEXIS and West Publishing Company. Since 1996, the Company has provided many of its products for electronic delivery via Lotus Notes and the World Wide Web.
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, and others. The products are marketed through direct mail, space advertising, and BNA field sales representatives.
BNA International Inc. is BNA's agent outside of North America for sale of its U.S. products and also engages in independent publishing activity.
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 45 percent of its business is derived from the BNA publishing companies.
Continued
PART I
Review Of Operations
BNA recorded strong financial results again in 1999 despite heavy Year 2000 readiness expenses. New highs were achieved for consolidated revenues and profits. Earnings per share advanced to $2.58 for 1999, up 10.3 percent over the prior year and a full 87 percent higher than four years ago. Just as important, BNA entered the new millennium with all facilities and information systems operating normally.
Consolidated revenues totaled nearly $281 million for 1999. Revenue growth was 5.4 percent, excluding the revenues of a subsidiary sold during the year. Internal growth accounted for most of this revenue gain, but product acquisitions also contributed. Tax Management, IOMA, BNA International, and McArdle commercial printing each recorded strong revenue improvements.
The 1999 consolidated operating profit of $23.3 million was up 13.1 percent over the prior year and was 8.3 percent of revenues, the highest level of the decade. Most business units achieved higher operating profits. Despite heavy systems expenses, total consolidated expenses-excluding those of the disposed subsidiary-increased only 4.8 percent.
Non-operating income was up $.9 million in 1999, reflecting higher investment income and gains from asset sales. Gains from sales of a publication and equipment more than offset a loss from the sale of BNA Communications Inc., a financially troubled subsidiary that was sold in August.
Net income of $21 million was a BNA high. The net profit margin improved to 7.5 percent, and the 28.7 percent return on equity was the highest in nearly 20 years. The higher net income and fewer outstanding shares combined to produce the 10.3 percent rise in earnings per share.
Stock repurchases, primarily mandatory redemptions from estates of Class B shareholders, were high again in 1999. Repurchases over the last three years, net of sales to employees, have totaled $25.5 million. These repurchases are an effective use of cash as they reduce the number of shares outstanding, resulting in a positive effect on earnings per share. BNA's ongoing strong operating cash flows and $142 million in cash and financial investments provide the liquidity to respond to business challenges and opportunities, to make the business investments necessary to ensure future growth, and to meet stock repurchase obligations inherent in an employee-owned company.
Reviews of the parent company and each subsidiary's operations follow.
Parent Company
The Internet was the focus of the parent company's primary efforts in 1999. By year-end, the rewards for those efforts were apparent. Web products are now BNA's fastest growing product line. And, with all major reference and notification services available on the Web, BNA starts the new century poised to fully exploit the potential of the Web across all product lines-with enhanced products, new selling approaches, and better support and service.
Parent company revenue continued to improve and, while revenue growth was slower than hoped, it was sufficient to fund large investments in Web development and Y2K preparedness.
(Continued)
The Web was the overwhelming focus of new product development in 1999 and the engine for that revenue growth. BNA launched seven Web reference products, including Medicare/Medicaid Compliance Library on the Web, Labor and Employment Law Library on the Web, Employee Benefits Library on the Web, Environment and Safety Library on the Web, Payroll Library on the Web, Intellectual Property Library on the Web, and Compensation & Benefits Library on the Web. These new reference products joined two existing Web reference products and complemented the 60 BNA notification services already in a Web format. Altogether, the revenue from all Web-delivered products grew more than 100 percent over the previous year. BNA's Web-delivered products now represent over 12 percent of the parent company's subscription revenue base and show no sign of slowing down.
Strategic decisions made in 1999 to concentrate our development efforts on the Web led to the substantial effort and investment required to create and launch these products. At the same time, however, significant work was done on a new and improved Web platform. The BNA Web Delivery project, known as the BWD, will provide a more stable and more scalable environment for our entire line of Web products, both notification and reference services. It will also give us the ability to dynamically update our services, on a daily basis if appropriate, and give users the ability to access the updated material immediately. The first product on our new platform should be ready for launch at mid-year, and the other reference services will migrate to the new platform over the following 12 months.
Much work was also done in 1999 on the creation of a new e-commerce platform. This platform will make it much easier for subscribers to do business with us on the Web. The reference services launched in the last quarter of 1999 made use of this new platform, and products launched earlier are currently being migrated to it.
The increasing complexity and variety of our product line, the different ways our customers are accessing and using information, and the growing demand from our customers for real help in dealing with both the technology and the variety of information alternatives available to them led BNA to totally reexamine its selling strategy. Building on earlier experimental initiatives, 1999 saw a restructuring of our sales organization and a refocusing of our selling theory. The process of shifting from a single channel sales capability to one consisting of multiple sales channels working as teams began in mid-year. This new structure will allow the Sales & Marketing Department, and others throughout BNA, to work with our subscribers to solve their information resource problems and to create value for customers-not only with our products but also with the service, experience, and knowledge that BNA sales representatives bring to the process. It's a bold and comprehensive effort, but one that by year-end was already bearing fruit. The sales year ended strongly, and that surge continued into the new year.
Another success in 1999 was the completion of our massive Y2K remediation. Millions of dollars went into this effort over the past two years, but the real success was achieved not only with dollars, but with discipline and plain hard work by a lot of BNA people. Just about every major system in the company was repaired or replaced. Everything from the software in the oldest laptop, to our most powerful servers, to our entire product line was inspected and fixed before the new century began. And with very few minor glitches, everything was normal in the new year. This is a very good effort to have behind us, but it would be a mistake to forget the long hours and personal sacrifices of the people who saw us through it.
While most of our new product development resources were devoted to the Web product line, some more traditional BNA products were also created. In January, the Environment & Safety Division launched Food Safety Report, a weekly notification service focusing on the information needs of compliance officials and attorneys representing the food industry. The service is available in both print and electronic formats. The Business Information Division
(Continued)
launched Broker/Dealer Compliance Report in September. This bimonthly notification service for stockbrokers, securities dealers, and others in that field is also available in print and electronic formats, and covers news, compliance strategies, and emerging trends in the very dynamic securities industry.
In response to a market need for faster coverage of breaking developments, three electronic-only daily versions of BNA weekly notification services were launched: Securities Law Daily, Banking Daily, and Antitrust & Trade Regulation Daily. Two custom daily e-mail services, FedReg Today and StateReg Today, which provide subscribers with daily custom regulatory monitoring for federal and state environment and safety issues, were also launched.
Finally, BNA and the economic consulting firm Joel Popkin & Company jointly developed BNA's Wage Trend Indicator, a new index designed to track changes in private industry wage trends, which are a key measure of inflation. This index is regularly available in a number of BNA services.
Increasingly complex products require more intensive support, and BNA PLUS continued its tradition of creating value through support services ranked among the best in the industry. In particular, in 1999 BNA PLUS responded to the increased need for product training. From their offices in Washington, D.C., BNA PLUS conducted close to 400 training sessions reaching nearly 4,000 subscribers. The telephone training program conducted another 1,000 training sessions in 1999. These programs are designed to increase both customer usage of BNA's products and customer satisfaction with them; this, in turn, is what drives renewals.
The year ended with BNA's being named one of Fortune magazine's "100 Best Companies to Work For in America" for the third time. In addition, the company was named one of the best employers in the Washington, D.C. area by Washingtonian magazine. It's rewarding to have this outside recognition that employee ownership creates both financial and nonfinancial benefits. Once again, it was a good year.
BNA Books
For the sixth year in a row, BNA Books produced record profits. Revenues grew 7 percent to almost $8.5 million in 1999.
A new treatise, The Fair Labor Standards Act, co-published with the ABA Section of Labor and Employment Law, contributed heavily to the division's success in 1999. Other ABA Labor Section books published in 1999 included a new edition of Employee Duty of Loyalty, new supplements to Covenants Not to Compete, Trade Secrets: A State-by-State Survey, How Arbitration Works, Occupational Safety and Health Law, and The Developing Labor Law.
Other successful titles published included: Patent, Trademark, & Copyright Laws; Patent Prosecution, 2nd Edition; Intellectual Property Law in Cyberspace; Directory of US Labor Organizations; and BNA's Directory of State and Federal Courts, Judges, and Clerks.
At year's end, the division began preparations with the Legal Publishing Group to develop some of its major treatises as add-ons to BNA's IPLW on the Web. A new publishing relationship with the ABA's Intellectual Property Division holds promise for the division and BNA.
(Continued)
Subsidiary Companies
Tax Management, Inc.
Tax Management continued to surge ahead in 1999 by setting new records for revenues and profits. Total revenues, including those of BNA Software, rose 7.7 percent.
In spite of a slow start, TM and BNA Software products had a record-breaking sales year. Portfolios Plus on the Web was the best-selling product, despite the fact that it debuted in the second half of the year. Tax Practice Series and the BNA Fixed Assets Next Dimension product also posted strong results.
It was a very challenging but successful year for editorial operations. All the federal products were migrated to the PS2000 publishing system. The number of portfolios produced was double that of the previous year. And TM's Web offering, Portfolios Plus on the Web, was extensively improved and enhanced.
New initiatives in marketing, customer relations, and product development, begun late in the year, will enable TM to continue its success in 2000 and the years to come.
BNA Software (a division of Tax Management Inc.)
BNA Software's revenues grew by 5.7 percent for the year.
New sales remained healthy, with BNA Fixed Assets Next Dimension leading the way. In its second year as a profit center, Washington D.C.-based Training Services increased its revenues by 47 percent and contributed to the overall strong performance of the Fixed Asset product line. BNA Software discontinued most of its DOS-based products during the year.
Contributing to this year's results was the newly revised BNA Software website, including a very successful online ordering mechanism. BNA Software looks forward to another exciting year in 2000.
BNA International Inc.
BNA International continued its impressive record of profitable growth in 1999. Successful new products, plus the acquisition of two newsletters, helped to generate record revenues, which were 15 percent higher than in 1998.
Revenues from BNAI services were 23 percent higher than the previous year due to increased revenues from existing services and from new product launches such as Tax Planning International's e-commerce (ECOM) and World Licensing Law Report. ECOM circulation grew very quickly in 1999, and the service is already profitable. The recently introduced International Licensing loose-leaf also became profitable.
The deployment of a new BNAI website has generated increased sales, and the introduction of e-mail alerts for most of the notification services has also proved popular. The website will be further developed to include electronic access to all BNAI information over the next year.
New product activity was intense. In addition to the products mentioned above, the quarterly European Union Focus supplement to Tax Planning International was launched in January, the International Telecommunications Law loose-leaf was launched mid-year, and World Internet Law Report launched near the end of the year.
(Continued) The strategy of augmenting organic growth through acquisition continued with the purchase of two competitive publications which were merged with World Securities Law Report and Eastern Europe Reporter.
BNAI's growth plans are aggressive, but achievable, as increased revenues will provide additional resources for profitable product development.
Pike & Fischer, Inc.
In 1999, Pike & Fischer became a full-fledged Internet publisher. Pike & Fischer created a Web presence for its flagship Communications Regulation service, and separate websites for its Broadcast, Private Radio, Equipment, Cable, and Wireless rules services. It also launched, in print, on CD-ROM, and on the Web, Internet Law & Regulation, a full-text reference service of federal, state, and international laws and decisions affecting the dramatic expansion of commerce communications via the Internet.
The move to Web publishing and the creation of new products to augment Pike & Fischer's product line led to the decision to develop a sales capability centered on telemarketing. This enhanced selling effort should ensure Pike & Fischer's role in BNA's fast-growing subsidiary network.
In November, Pike & Fischer presented The 1999 BNA Public Policy Forum on E-Commerce and Internet Regulation. Promotions for the event showcased BNA's extensive presence in the increasingly competitive Internet law field by spotlighting not only Pike & Fischer's ILR reference service but the parent company's Electronic Commerce and Law Report notification service and BNA International's Tax Planning International's e-commerce. The Forum, which included keynote addresses from Virginia's Governor James Gilmore, Chair of the National Advisory Commission on Electronic Commerce, and John Place, General Counsel of Yahoo!, was a financial success and generated significant publicity.
Two BNA parent company publications were transferred to Pike & Fischer in 1999, Law Officer's Bulletin at mid-year, and Business Law Adviser at year-end.
With most Web launches and the new selling initiatives coming late in 1999, operating revenues were up only slightly above 1998. Earnings, however, remained strong. With increased investment in product and marketing, Pike & Fischer is an integral part of BNA's growth strategy.
BNA Washington Inc.
BNAW, BNA's real estate subsidiary, enjoyed yet another successful year. The end of the millennium found the well-established trend to hold operating expenses flat for all facilities continuing. In fact, operating expenses were 3.5 percent lower than in the prior year.
And, while BNAW continued to provide safe, pleasant, and functional facilities in support of BNA's growth and rapidly evolving business requirements, revenues from outside tenants rose.
A strategic facilities plan developed in 1998 was updated, and has proven to be a valuable planning tool. The plan identified a need for a modest amount of additional leased space in the year 2000 and further needs by 2002. Work has begun on a long-range plan that will support company growth and business objectives for the foreseeable future.
(Continued)
Maintenance of the operating systems (mechanical, electrical, and plumbing) in BNAW buildings also progressed. The cooling systems in the North Building were updated, and design work was completed to update the fire alarm systems.
Significant renovation and relocation projects undertaken during the year included: the Health Care Division's move from the North Building to BNA III; BNA Books from 23rd Street to BNA III; and the TM States Unit to vacant space on 23rd Street. A number of other smaller projects were also completed through the course of the year, responding to growth and changing business requirements.
The McArdle Printing Co., Inc.
For the third year in a row, McArdle Printing Company achieved a double-digit increase in commercial sales. Commercial sales now constitute more than 55 percent of total revenues.
Total revenues increased 6.8 percent from the previous year. Commercial sales grew by 13.3 percent, more than offsetting the continued decline in print business from BNA.
Positioning itself for future growth, McArdle continued to expand the capacity, capability, and scope of the printing operation, adding an additional Heidelberg four-unit web press, electronic pre-press, and bindery equipment. At the same time, the company has been developing strategies to reduce costs, improve productivity, and continue to improve the quality of its services. In addition, McArdle is developing an e-commerce strategy. These endeavors are important to the future success of McArdle and can ensure continued growth by meeting increasing customer demand.
McArdle is one of the largest printing companies on the East Coast and one of the top 200 printers in the nation. It is committed to producing competitively priced, superior quality products and services for BNA and for the commercial markets it serves. With an excellent facility, modern equipment, and knowledgeable and productive employees, McArdle's growth and profitability will continue into the 21st century.
Institute of Management and Administration, Inc.
IOMA finished its second year as a BNA company with an impressive 23 percent increase in revenue. This success was achieved in an environment of increasing interplay between IOMA, BNA's other subsidiaries, and the parent company. After two years, IOMA's product launch, marketing, electronic publishing, Web, and overall publishing strategies are linked closely with BNA's strategic objectives.
High on the list of the year's accomplishments was the launch of five new subscription products, several of which include small repackaged subsets of BNA-generated content combined with IOMA's traditional how-to advice. These titles range from Business Tax Newsbriefs to Managing Training & Development to Managing the General Ledger. Internally generated growth was augmented by two strategic acquisitions. IOMA acquired Washington G-2 Reports, with four newsletters, over a dozen special reports, and two major conferences in the medical laboratory field, in April. And, in December, IOMA acquired HRfocus, one of the leading newsletters in the field, from the American Management Association International. As a result of these efforts, IOMA now publishes 48 subscription newsletters, with plans to add another dozen in 2000.
(Continued) Growth was not limited to subscription newsletters, however. IOMA doubled its Yearbook and Institute Books titles and its offerings in co-sponsored seminars in 1999. It also launched its first e-zine, IOMA's Leadership News, and rebranded all of its current editorial content in a pay-by-the-article database at http://www.managementlibrary.com.
Mid-priced business-to-business newsletters remain the primary focus. Improvements to research, editorial, electronic publishing, fulfillment, telemarketing, and direct mail technologies will protect IOMA's time-to-market advantage and protect against the threat of increased information alternatives.
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 and the printing 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. Activities in other industry segments are less than ten percent of total revenue, and were ended with the sale of BNA Communications Inc., in August, 1999.
As a response to customer demand, advances in technology, and competition, the Company now offers many products in CD-ROM or online delivery formats. CD-ROM's allow the economical addition of value-added features such as searching capabilities and additional information content. Online delivery provides more timely receipt.
The publishing industry is very competitive. Some competitors are much larger and have more resources than BNA. In recent years, mergers and acquisitions of many of the Company's competitors have created even larger organizations with ownership interests outside of the United States. The Company has invested heavily to upgrade its product offerings to take advantage of new technologies. The resulting electronic products, with some features superior to those of print, continue to compete successfully in their markets.
The number of employees of BNA and its subsidiaries was 2,007 at December 31, 1999.
Item 2.
Item 2. Properties
BNA Washington Inc. owns and manages the buildings presently used by BNA and some of its Washington area subsidiaries. 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 Circulation Department 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. 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.
Item 3.
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.
PART I
Item 4.
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, 1999.
Item X. EXECUTIVE OFFICERS OF THE REGISTRANT
The following persons were executive officers of The Bureau of National Affairs, Inc., at December 31, 1999. Executive officers are elected annually by the Board of Directors and serve until their successors are elected.
Name Age Present position and prior experience - ------------------------ --- ---------------------------------------- William A. Beltz 70 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.
Jacqueline M. Blanchard 50 Vice President for Human Resources Elected to Vice President in 1994. Previously was Director of Labor and Employee Relations since 1987. Joined BNA in 1984.
Eunice L. Bumgardner 39 Vice President and General Counsel Elected Vice President in 1996 and General Counsel in 1995. Joined BNA in 1994 as Associate General Counsel.
Kathleen D. Gill 53 Vice President and Editor in Chief Elected to Vice President and Executive Editor in 1993, and Editor in Chief in 1997. Joined BNA in 1970.
Daniel C. Horsey 44 Vice President and Director of Information Technology Elected to Vice President in 1997. Previously was employed by the Thomson Corporation from 1993 to 1997, most recently as Chief Technology Officer of Thomson Electronic Information Resources. Joined BNA in 1997.
Continued
Item X. EXECUTIVE OFFICERS OF THE REGISTRANT (Continued)
Name Age Present position and prior experience - ---------------------- --- ---------------------------------------- Gilbert S. Lavine 48 Treasurer Elected to present position in 1998. Joined BNA in 1985.
George J. Korphage 53 Vice President and Chief Financial Officer Elected Vice President in 1988 and Chief Financial Officer in 1989. Joined BNA in 1972.
Mary Patricia Swords 54 Vice President and Director of Sales and Marketing Elected to present position in 1996. Previously was Regional Manager of Mountain sales region since 1985. Joined BNA in 1977.
Robert L. Velte 52 Vice President for Strategic Development Elected to Vice President in 1995. Previously was President of BNA International from 1994 to 1997. Joined BNA in 1976.
Paul N. Wojcik 51 President and Chief Executive Officer Elected President in 1995 and Chief Executive Officer in 1997. Previously was Chief Operating Officer from 1995 to 1996, and General Counsel from 1988 to 1995. Joined BNA in 1972.
PART II
Item 5.
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 48 years, and they are expected to continue.
As of March 1, 2000, there were 1,550 Class A shareholders, 253 Class B shareholders, and 30 Class C shareholders. During 1999, the company repurchased 257,788 shares of Class B stock and 4,788 shares of Class C stock from retired employees.
Established stock price and dividends declared during 1999 and 1998 were as follows:
Stock Price January 1, 1998 - March 22, 1998 $29.75 March 23, 1998 - September 27, 1998 32.50 September 28, 1998 - March 28, 1999 34.00 March 29, 1999 - September 26, 1999 37.00 September 27, 1999 - December 31, 1999 39.00
Record Date and Dividend Amount March 21, 1998 $.60 September 26, 1998 .60 March 27, 1999 .65 September 25, 1999 .65
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.
PART II
Item 6.
Item 6. Selected Financial Data
The Bureau of National Affairs, Inc. Consolidated Operating and Financial Summary: 1998-1994 (Dollar amounts in thousands, except per share data)
1999 1998 1997 1996 1995 -------- -------- -------- -------- --------
Operating Revenues ............ $280,897 $268,829 $244,061 $232,632 $226,497 Operating Expenses ............ 257,591 248,229 223,999 218,074 218,628 -------- -------- -------- -------- -------- Operating Profit .............. 23,306 20,600 20,062 14,558 7,869 Non-operating Income : Investment Income, net ...... 8,490 8,178 7,957 6,989 6,452 Other Income ................ 112 (432) 427 82 3,257 -------- -------- -------- -------- -------- Income from Operations Before Income Taxes ................ 31,908 28,346 28,446 21,629 17,578 Income Taxes .................. 10,898 8,753 8,885 7,041 5,487 -------- -------- -------- -------- -------- Net Income .................... $ 21,010 $ 19,593 $ 19,561 $ 14,588 $ 12,091 ======== ======== ======== ======== ======== Profit Ratios (b): % of Operating Revenues ..... 7.5 7.3 8.0 6.3 5.3 % of Average Stockholders' Equity ................. 28.7 26.6 26.9 20.9 19.8 -------- -------- -------- -------- -------- Total Earnings Per Share ...... 2.58 2.34 2.24 1.65 1.38 Dividends Per Share ........... 1.30 1.20 1.10 1.00 0.94 ======== ======== ======== ======== ======== Balance Sheet Data: Total Assets ................ $322,728 $324,449 $300,900 $299,311 $278,752 Long-Term Debt .............. 14,000 14,000 -- -- -- ======== ======== ======== ======== ======== Employee Data: Number of Employees ......... 2,007 2,055 1,893 1,915 1,863 Total Employment Costs ...... $146,628 $137,386 $128,095 $124,322 $119,488 ======== ======== ======== ======== ======== Stockholder Data at Year-End: Book Value Per Share ........ $ 8.96 $ 9.00 $ 8.65 $ 8.15 $ 7.59 Number of Stockholders ...... 1,836 1,791 1,752 1,741 1,717 Common Shares Outstanding (In thousands) 8,061 8,228 8,500 8,848 8,858 ======== ======== ======== ======== ========
PART II
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
1999 vs. 1998
Consolidated revenues of $280.9 million were up 4.5 percent over the prior year. Operating expenses increased 3.8 percent, and operating profit increased 13.1 percent to $23.3 million. Net income was $21 million, a 7.2 percent increase from 1998. Earnings per share were $2.58, up 10.3 percent, also reflecting fewer outstanding shares. The consolidated federal, state, and local effective income tax rate increased to 34.2 percent in 1999 from 30.9 percent in 1998, mainly due to higher effective state and local taxes.
Publishing operating segment (including the Parent, Tax Management Inc., IOMA, Pike & Fischer, Inc., BNA International Inc., and BNA Washington Inc.) revenues amounted to 92.5 percent of consolidated revenues. Publishing revenues were up 4.9 percent, reflecting new products and price increases. Operating expenses increased 4.3 percent, mainly due to higher royalties and higher employment and consulting expenses. Twenty-eight new products were launched in 1999. Development expenses for new products and improvements on existing products were $4.9 million compared to $6 million in 1998. Operating expenses in 1999 also include an identifiable $5.6 million for developing improved business and publishing systems and Year 2000-related systems expenses, compared to $8.3 million in 1998. Operating profit was 12.8 percent higher than in 1998.
Printing operating segment (includes The McArdle Printing Company, Inc.) revenues increased 6.8 percent, reflecting a 13.3 percent increase in revenues from external customers and a 0.3 percent decrease in intersegment revenues. Sales to external customers have improved due to increased business from existing customers and to the addition of new customers. Intersegment revenues are expected to continue to decline as the Publishing product sales mix migrates from print to electronic format products. Operating expenses increased 6 percent, including higher selling expenses related to higher external sales. Printing operating profit increased 18.8 percent.
In August, BNA Communications Inc., (BNAC) a training media business, was sold to LearnCom, Inc. An investment far in excess of BNAC's limited strategic and financial significance to the Company would have been required to grow BNAC into an acceptably profitable business, and a sale to another training media business was deemed to be in the best interests of the Company. BNAC's financial results comprise all of the "All Other" segment figures. The sale resulted in a $281,000 pre-tax loss.
Non-operating income was $856,000 higher in 1999 due to increased investment income, a gain on a sale of a publication (partially offset by the loss on the sale of BNA Communications), and a smaller loss from property and equipment disposals. Investment income net of interest expense increased 3.8 percent compared to last year due to higher interest rates.
1998 vs. 1997
Consolidated revenues of $269 million were up 10.1 percent over the prior year. Operating expenses increased 10.8 percent, and operating profit increased 2.7 percent to $20.6 million. Net income was $19.6 million, essentially unchanged from 1997. On January 13th, 1998, BNA acquired Institute of Management and Administration, Inc. (IOMA). IOMA accounted for 5.2 percent of the revenue growth and their expenses, along with purchase-price amortization, added 6 percent to the expense growth. (Continued)
Non-operating income declined 7.6 percent in 1998. Investment income increased $1.1 million, or 13.2 percent in 1998, due to higher portfolio balances and gains on sales. Interest expense increased $.8 million, mainly related to the new borrowing for IOMA's acquisition. Other non-operating income decreased $.9 million, reflecting the absence of last year's gain on the sale of a publication and a write-off of furniture, fixtures, and equipment in 1998.
The consolidated federal, state, and local effective income tax rate was 30.9 percent in 1998 compared to 31.2 percent in 1997. Earnings per share were $2.34, up 4.5 percent over 1997.
Publishing operating segment revenues amounted to 92.1 percent of consolidated revenues, and increased 9.8 percent over 1997. Excluding IOMA, publishing revenues were up 4.2 percent, reflecting new products and price increases. Operating expenses increased 10.7 percent, but excluding IOMA, operating expenses were up 4.2 percent, mainly due to salary increases, higher employee benefit expenses, increased system-related costs, and an adverse judgement in a civil lawsuit. Twenty-seven new products were launched in 1998.
Development expenses for new products and improvements on existing products were $6 million compared to $4.6 million in 1997. Operating expenses in 1998 also include an identifiable $8.3 million for developing improved business and publishing systems and Year 2000-related systems expenses, compared to $5.1 million in 1997. Operating profit in 1998 was even with 1997.
Printing operating segment revenues increased 7.9 percent, reflecting a 24.9 percent increase in revenues from external customers and a 6.1 percent decrease in intersegment revenues. Sales to external customers have improved over the last two years due to increased capacity and an expansion of the sales force. Intersegment revenues are expected to continue to decline as the mix of Publishing products migrates from print to electronic format products. Operating expenses increased 5.3 percent due to higher operating expenses related to increased volume. Printing operating profit increased 76.4 percent.
Deferred Tax Assets
The Company has recorded $24.8 million of net deferred tax assets as of year-end 1999. 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 tax assets will be fully realized and no valuation allowance is necessary.
Financial Resources and Cash Flows
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 improved 4.2 percent in 1999, reflecting a 5.2 percent increase in collections, and a 5.3 percent increase in expenditures.
Cash outlays for investing activities totaled $13.9 million. Capital expenditures netted to $11.2 million including $9.8 million for property and equipment additions and capitalized software, and $2.5 million for the purchase of publishing assets; $1.1 million was received in the sale of BNAC and a publication. In addition, $2.7 million was transferred to the Company's investment portfolio. Capital expenditures for 2000 are budgeted at nearly $12 million.
(Continued) Cash used for financing activities netted to $17 million. Sales of Class A capital stock to employees totaled $6.5 million. Capital stock repurchases amounted to $12.8 million, most of which were mandatory redemptions. In addition, the Company paid cash dividends of $10.6 million in 1999.
With nearly $142 million in cash and investment portfolios, the financial position and liquidity of the Company remains very strong. Since subscription monies are collected in advance, cash flows from operations, along with existing financial reserves and proceeds from the sales of capital stock, have been sufficient in past years to meet all operational needs, new product introductions, debt repayments, most capital expenditures, and, in addition, provide funds for dividend payments and the repurchase of stock tendered by shareholders. Should more funding become necessary or desirable in the future, the Company has substantial debt capacity based on its operating cash flows and real estate equity.
Year 2000 Readiness
The conversion from calendar year 1999 to calendar year 2000 (Y2K) occurred without disruption to the Company's critical business systems, and to date, no material adverse effects have resulted from the date change. The Company will continue to monitor the transition to year 2000 and will act promptly to resolve any problems that occur. The costs incurred over the last two years to renovate or replace non-Y2K compliant business systems, and for testing to ensure that the publishing systems and products were Y2K ready, amounted to $10.1 million, of which $2.5 million was capitalized.
Accounting Pronouncements
During 1999, the Company adopted the American Institute of Certified Public Accountants' Statement of Position No. 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use. Accordingly, the Company capitalized $6.6 million of such costs in 1999. In June 1998, the Financial Accounting Standards Board issued Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended, which is required to be adopted in years beginning after June 15, 2000. The effect of adopting the Statement is not currently expected to have a material effect on the Company's future financial position or overall trends in results of operations.
ITEM 7a.
ITEM 7a. Quantitative And Qualitative Disclosures About Market Risk
The Company is exposed to interest rate risks in its investment portfolio and its term debt liability. A hypothetical ten percent increase in market interest rates would result in higher interest expense on its term debt, but the increase would be immaterial.
The maturity dates and average interest yields for fixed-income securities debt held in the Company's investment portfolio as of December 31, 1999 was as follows:
Expected Maturity Date ($ thousands) -------------------------------------------------------------- 2000 2001 2002 2003 2004 Thereafter -------- -------- -------- -------- -------- ------------
Municipal Bonds $4,120 $2,459 $4,254 $4,113 $2,089 $83,277 Average Interest Rate 4.8% 4.4% 5.4% 6.0% 5.9% 5.9%
Corporate Debt --- $1,486 --- $3,865 $3,890 $5,892 Average Interest Rate 5.8% 6.4% 6.4% 5.9%
The Company manages interest rate risk in its investment portfolio by diversifying the maturities of its fixed-income investments. Approximately 4 percent of these instruments at year-end 1999 mature within one year and 23 percent 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.
PART II
Item 8.
Item 8. Financial Statements and Supplementary Data
THE BUREAU OF NATIONAL AFFAIRS, INC.
Consolidated Financial Statements
December 31, 1999 and 1998
(With Independent Auditors' Report Thereon)
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. 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 generally accepted auditing standards. 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. as of December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1999 in conformity with generally accepted accounting principles. 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.
s\ KPMG LLP ----------- KPMG LLP
Washington, D.C. February 22, 2000
THE BUREAU OF NATIONAL AFFAIRS, INC. CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1999 AND 1998 (In thousands of dollars)
ASSETS
December 31, ------------------------
1999 1998 -------- -------- CURRENT ASSETS: Cash and cash equivalents (Note 5) ............. $ 16,200 $ 15,259 Short-term investments (Note 5) ................ 4,120 25,715 Receivables (Note 9) ........................... 43,930 43,934 Inventories (Note 9) ........................... 4,707 4,999 Prepaid expenses ............................... 4,372 3,447 Deferred selling expenses (Note 3) ............. 20,668 21,586 -------- --------
Total current assets ........................... 93,997 114,940
MARKETABLE SECURITIES (Note 5) ................. 121,670 104,838 PROPERTY AND EQUIPMENT (Note 9) ................ 40,111 44,791 DEFERRED INCOME TAXES (Note 8) ................. 26,548 25,019 GOODWILL (Note 7) .............................. 27,800 28,702 OTHER ASSETS (Note 9) .......................... 12,602 6,159 -------- --------
Total assets ................................... $322,728 $324,449 ======== ========
(Continued)
THE BUREAU OF NATIONAL AFFAIRS, INC. CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1999 AND 1998 (In thousands of dollars)
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31, ---------------------
1999 1998 ---------- --------- CURRENT LIABILITIES: Payables and accrued liabilities (Note 9) ................ $ 32,797 $ 33,901 Deferred income taxes (Note 8) ........................... 1,774 1,577 Deferred subscription revenue (Note 3) ................... 126,938 127,592 -------- --------
Total current liabilities ................................ 161,509 163,070
LONG-TERM DEBT (Note 10) ................................. 14,000 14,000 POSTRETIREMENT BENEFITS, less current portion (Note 4) ... 70,129 69,230 OTHER LIABILITIES ........................................ 4,887 4,128 -------- --------
Total liabilities ........................................ 250,525 250,428 -------- --------
COMMITMENTS AND CONTINGENCIES (Notes 11 & 12)
STOCKHOLDERS' EQUITY (Note 12): Common stock issued, $1.00 par value -- Class A - 6,478,864 shares 6,479 6,479 Class B - 4,926,973 shares 4,927 4,927 Class C - 506,336 shares 506 506 Additional paid-in capital 44,421 39,782 Retained earnings 80,107 69,734 Treasury stock, at cost (61,380) (50,418) Elements of other comprehensive income: Net unrealized gain on marketable securities (2,802) 3,081 Foreign currency translation adjustment (55) (70) ---------- ----------
Total stockholders' equity 72,203 74,021 ---------- ----------
Total liabilities and stockholders' equity $ 322,728 $ 324,449 ========== ==========
See accompanying notes to consolidated financial statements.
THE BUREAU OF NATIONAL AFFAIRS, INC. CONSOLIDATED STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997 (In thousands of dollars)
Percent of Operating Revenue --------------------
1999 1998 1997 1999 1998 1997 --------- --------- --------- ------ ------ ------
OPERATING REVENUES (Notes 1 and 3) $ 280,897 $ 268,829 $ 244,061 100.0% 100.0% 100.0% --------- --------- --------- ------ ------ ------
OPERATING EXPENSES (Notes 3,4,7,9 and 11): Editorial, production, and distribution 152,166 143,989 134,179 54.2 53.5 55.0 Selling 60,307 59,626 51,362 21.5 22.2 21.0 General and administrative 42,856 42,646 36,371 15.2 15.9 14.9 Profit sharing 2,262 1,968 2,087 0.8 0.7 0.9 --------- --------- --------- ------ ------ ------
257,591 248,229 223,999 91.7 92.3 91.8 --------- --------- --------- ------ ------ ------
OPERATING PROFIT 23,306 20,600 20,062 8.3 7.7 8.2 --------- --------- --------- ------ ------ ------
NON-OPERATING INCOME: Investment income (Note 5) 9,516 9,077 8,016 3.4 3.4 3.2 Interest expense (Note 10) (1,026) (899) (59) (0.3) (0.3) 0.0 Other income(expense) (Note 6) 112 (432) 427 --- (0.2) 0.2 --------- --------- --------- ------ ------ ------
TOTAL NON-OPERATING INCOME 8,602 7,746 8,384 3.1 2.9 3.4 --------- --------- --------- ------ ------ ------
INCOME BEFORE PROVISION FOR INCOME TAXES 31,908 28,346 28,446 11.4 10.6 11.6
PROVISION FOR INCOME TAXES (Note 8) 10,898 8,753 8,885 3.9 3.3 3.6 --------- --------- --------- ------ ------ ------
NET INCOME $ 21,010 $ 19,593 $ 19,561 % 7.5 % 7.3 % 8.0 ========= ========= ========= ====== ====== ======
EARNINGS PER SHARE (Note 12) $ 2.58 $ 2.34 $ 2.24 ========= ========= =========
See accompanying notes to consolidated financial statements.
THE BUREAU OF NATIONAL AFFAIRS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997 (In thousands of dollars)
1999 1998 1997 ---------- ---------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income .................................. $ 21,010 $ 19,593 $ 19,561 Items with different cash requirements than that reflected in net income - Depreciation and amortization ........... 10,637 10,533 8,798 (Gain) on sales of securities ........... (1,497) (1,423) (948) (Gain)/loss on sales of assets .......... (112) 432 (427) Others .................................. (407) 48 197 Changes in operating assets and liabilities - Receivables ............................. 773 (1,806) 3,947 Deferred subscription revenue ........... (859) (349) 2,445 Payables and accrued liabilities ........ (1,182) 1,663 642 Postretirement benefits ................. 1,023 3,786 2,133 Deferred income taxes ................... 1,827 (4,275) (1,530) Deferred selling expenses ............... 866 1,658 465 Inventories ............................. (52) 441 (47) Other assets and liabilities-net ........ (209) 240 (111) -------- -------- --------
Net cash provided from operating activities ... 31,818 30,541 35,125 -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures Acquisition of a business (net of $750 cash acquired) ............ -- (18,289) -- Purchases of equipment and furnishings .... (2,803) (4,272) (5,670) Capitalized software ...................... (6,642) -- -- Building improvements ..................... (328) (170) (256) Proceeds from sales of assets ............. 1,120 96 201 Purchase of publishing assets ............. (2,526) (132) (185) -------- -------- --------
Net cash used for capital expenditures .... (11,179) (22,767) (5,910) -------- -------- --------
(Continued)
THE BUREAU OF NATIONAL AFFAIRS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997 (In thousands of dollars)
1999 1998 1997 ---------- ---------- ---------- Securities investments Proceeds from sales and maturities ...... 57,142 75,267 58,075 Purchases ............................... (59,880) (82,127) (66,824) -------- -------- --------
Net cash used for securities investments (2,738) (6,860) (8,749) -------- -------- --------
Net cash used for investing activities ...... (13,917) (29,627) (14,659) -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES: Sales of capital stock to employees ....... 6,493 5,727 5,313 Purchases of treasury stock ............... (12,816) (14,702) (15,568) Dividends paid ............................ (10,637) (10,101) (9,688) Borrowings ................................ -- 15,000 -- Repayment of borrowings ................... -- (1,000) -- -------- -------- --------
Net cash used for financing activities ....... (16,960) (5,076) (19,943) -------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ..................... 941 (4,162) 523
CASH AND CASH EQUIVALENTS, beginning of year 15,259 19,421 18,898 -------- -------- --------
CASH AND CASH EQUIVALENTS, end of year ..... $ 16,200 $ 15,259 $ 19,421 ======== ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Interest paid $ 1,063 $ 678 $ 41 Income taxes paid 8,973 13,627 9,490
NONCASH INVESTING ACTIVITIES- Acquisition: Fair value of assets acquired $ 26,628 Cash paid for capital stock (19,039) ========= Liabilities assumed $ 7,589 =========
See accompanying notes to consolidated financial statements.
See accompanying notes to consolidated financial statements.
THE BUREAU OF NATIONAL AFFAIRS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
(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 subsidiaries (consolidated, the Company). Material intercompany transactions and balances have been eliminated. Certain prior year balances have been reclassified to conform to current year presentation.
The carrying value of financial assets and liabilities reported in the financial statements 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 generally accepted accounting principles. Actual results could differ from those estimates.
(2) ACQUISITIONS AND DISPOSITIONS
In August 1999, the Company sold BNA Communications Inc. (BNAC), a media-based training enterprise. The sales price was $2.1 million, and consisted of cash and royalty receivables. The sale resulted in an after-tax loss of $188,000. BNAC's revenues were $2,262,000 in 1999 (prior to the sale), $4,597,000 in 1998, and $5,274,000 in 1997; operating expenses were $2,460,000 in 1999, $4,736,000 in 1998, and $5,130,000 in 1997.
During 1999, the Company purchased subscriber lists from other publishers. The total cost was $3,085,000, consisting of $2,526,000 in cash and the balance in assumed liabilities. The cost was assigned to subscription lists.
In January 1998, the Company acquired all of the outstanding stock of Institute of Management and Administration, Inc. (IOMA), a newsletter publisher. The acquisition was accounted for as a purchase, and accordingly, IOMA's financial results have been included with those of the Company since the acquisition date. IOMA was acquired for $19 million in cash, partially financed with a $15 million bank loan. A portion of the cost was assigned to subscription lists, which are being amortized over three years. The majority of the cost was assigned to goodwill, which is being amortized over 35 years.
The following unaudited pro forma information for 1997 summarizes consolidated results of operations of the Company and IOMA as if the acquisition had occurred at the beginning of 1997. Revenues, $255,920,000; Net Income, $18,058,000; and Earnings per share, $2.07. The pro forma information includes adjustments for interest expense that would have been incurred to finance the purchase, amortization of goodwill and customer lists, and certain other adjustments, together with related income tax effects.
(3) RECOGNITION OF REVENUES AND SELLING EXPENSES
Subscription revenues and related field selling expenses are deferred and amortized over the subscription terms, which are primarily one year. Deferred subscription revenue is 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. Software revenues are recognized at the time of shipment, net of a reserve for returns. Advertising expenses were $11,963,000 in 1999, $10,666,000 in 1998 and $5,488,000 in 1997.
(Continued)
(4) EMPLOYEE BENEFIT PLANS
The Company has noncontributory defined benefit pension plans covering employees of the Parent and certain subsidiaries. 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.
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):
1999 1998 1997 ------- ------- ------- Service cost benefits earned during the year .... $ 4,689 $ 4,415 $ 3,862 Interest cost ................................... 6,514 6,249 5,769 Expected return on plan assets during the year .. (7,058) (6,372) (5,651) Recognized net actuarial loss and amortization of transition assets and prior service costs ..... (164) (50) (101) ------- ------- ------- Net pension expense ............................. $ 3,981 $ 4,242 $ 3,879 ======= ======= =======
In addition to providing pension benefits, the Company extends certain health care and life insurance benefits (other postretirement benefits) to retired employees. Most of the Company's employees are eligible for these benefits if they retire while working for the Company.
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):
1999 1998 1997 ------- ------- ------- Service cost benefits earned during the year .. $ 2,004 $ 1,927 $ 1,659 Interest cost ................................. 2,889 2,800 2,609 Expected return on plan assets during the year (539) (240) -- Recognized net actuarial gain ................. (734) (655) (793) Amortization of prior service cost ............ (55) (55) (55) ------- ------- ------- Other postretirement benefits expense ......... $ 3,565 $ 3,777 $ 3,420 ======= ======= =======
(Continued)
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 ------------------- ------------------- 1999 1998 1999 1998 --------- --------- --------- --------- Change in benefit obligation: Benefit obligation--January 1 .... $ 95,494 $ 84,426 $ 44,008 $ 40,785 Service cost ..................... 4,689 4,415 2,004 1,927 Interest cost .................... 6,514 6,249 2,889 2,800 Actuarial (gain)/loss ............ (12,251) 8,212 (3,718) (373) Plan amendment ................... -- (1,364) -- -- Benefits paid .................... (5,678) (6,444) (1,311) (1,131) --------- --------- --------- --------- Benefit obligation--December 31 .. 88,768 95,494 43,872 44,008 --------- --------- --------- ---------
Change in plan assets:
Fair value of plan assets--January 1 ... 84,728 81,146 6,378 3,000 Actual return on plan assets ........... 10,205 9,921 1,036 378 Employer contribution .................. -- -- 5,000 3,000 Benefits paid .......................... (5,549) (6,339) -- -- -------- -------- --------- --------- Fair value of plan assets--December 31 . 89,384 84,728 12,414 6,378 -------- -------- --------- --------- Projected benefit obligation in excess of plan assets .......................... (615) 10,766 31,458 37,630
Unrecognized transition asset .......... 1,127 1,502 -- -- Unrecognized net gain .................. 22,536 6,994 16,750 13,264 Unrecognized prior service cost ........ (69) (137) 394 464 -------- -------- --------- --------- Accrued liability ...................... 22,979 19,125 48,602 51,358 Less current portion ................. 143 129 1,311 1,124 -------- -------- --------- --------- Long-term portion ...................... $ 22,836 $ 18,996 $ 47,293 $ 50,234 ======== ======== ========= ========
Assumed discount rate 7.5% 6.5% 7.5% 6.5% Assumed rate of compensation increase 5.0% 5.0% --- --- Expected long term rate of return on assets 8.5% 8.0% 8.5% 8.0%
Plan assets include equity securities, fixed income securities, and temporary investments. The benefit obligations as of December 31, 1999 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. No contributions were allowed in 1999 or 1998 due to Internal Revenue Service funding limitations. The Company contributed $872,000 in 1997. 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. The Company contributed $5 million to the VEBA in 1999 and $3 million in 1998 and 1997.
The December 31, 1999 postretirement benefit obligation was determined using an assumed health care cost trend rate of 5 percent in 2000, and 4.5 percent per 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 $7.4 million and the 1999 postretirement benefit expense by $1 million. A one percent decrease in the assumed health care cost trend rate would decrease the postretirement benefit obligation by $6 million and the postretirement benefit expense by $.8 million.
(Continued) In addition, some acquired subsidiaries 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 subsidiaries. Pension expense for these plans was $1,126,000 in 1999, $1,001,000 in 1998, and $946,000 in 1997.
The Company also has a cash profit sharing plan based on operating profit, as defined, covering employees of the Parent and certain subsidiaries. Profit sharing expense was $2,262,000 in 1999, $1,968,000 in 1998, and $2,087,000 in 1997.
(5) INVESTMENTS AND INVESTMENT INCOME
Cash and investments were as follows (in thousands of dollars):
December 31, ----------------------- 1999 1998 -------- -------- Cash and cash equivalents ..... $ 16,200 $ 15,259 Short-term investments ................ 4,120 25,715 Marketable securities ................. 121,670 104,838 -------- --------
Total ....................... $141,990 $145,812 ======== ========
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):
1999 1998 1997 ------- ------- ------ Interest income ............................ $6,561 $6,096 $5,380 Dividend income ............................ 1,458 1,558 1,688 Net gain on sales of securities ............ 1,497 1,423 948 ------ ------ ------ Total ...................................... $9,516 $9,077 $8,016 ======= ======= =======
Proceeds from the sales and maturities of securities were $57,142,000, $75,267,000, and $58,075,000 in 1999, 1998, and 1997, respectively. Gross realized gains and (losses) from these sales were $1,587,000 and $(90,000) in 1999, $1,614,000 and $(191,000) in 1998, and $1,096,000 and $(148,000) in 1997. The specific identification method is used in computing realized gains and losses.
(Continued)
The Company's investment securities have been 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, 1999 Cost Gains Losses Value - ----------------- ----------- ---------- ---------- ----------- Equity securities ...... $ 11,131 $ 70 $ (946) $ 10,255 Municipal bonds ........ 103,806 525 (4,019) 100,312 Corporate debt ......... 15,163 266 (206) 15,223 -------- -------- --------- --------- Total .................. $130,100 $ 861 $ (5,171) $ 125,790 ======== ======== ========= ========= December 31, 1998
Equity securities ...... $ 19,927 $ 1,474 $ -- $ 21,401 Municipal bonds ........ 93,035 3,411 (162) 96,284 Corporate debt ......... 12,851 38 (21) 12,868 -------- -------- --------- -------- Total .................. $125,813 $ 4,923 $ (183) $ 130,553 ======== ======== ========= =========
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, 1999 were as follows (in thousands of dollars): Amortized Fair Cost Value ----------- ----------- Within one year .......................... $ 4,119 $ 4,120 One through five years ................... 22,352 22,156 Five through ten years ................... 25,164 24,630 Over ten years ........................... 65,484 62,514 -------- --------
Total .................................... $117,119 $113,420 =========== ==========
In addition, the Company held mutual bond fund investments (amortized cost; $1,851,000, fair value; $2,115,000) with no single maturity date.
(6) OTHER INCOME (EXPENSE)
Other income (expense) was comprised of the following (in thousands of dollars):
1999 1998 1997 ------ ------ ------ Gain on sales of publishing assets ............. $ 569 $ -- $ 420 Loss on sale of BNAC ........................... (283) -- -- Gain (loss) on disposals of other property and equipment ............................... (174) (432) 7 ----- ----- -----
Total .......................................... $ 112 $(432) $ 427 ====== ======= =======
(Continued)
(7) GOODWILL
Goodwill represents the excess of the cost of purchased publications and the capital stock of subsidiaries over the fair value of net assets at the dates of their respective acquisitions, net of accumulated amortization of $5,992,000 in 1999 and $5,090,000 in 1998.
Goodwill acquired before mandatory amortization rules, in the amount of $634,000, is not being amortized because, in management's opinion, it has continuing value. Other goodwill is amortized on a straight-line basis, over periods not exceeding forty years. Amortization expense was $902,000 for 1999, $881,000 for 1998, and $313,000 for 1997.
The recoverability of goodwill is evaluated periodically to determine if an impairment has occurred. The Company measures the potential impairment of recorded goodwill by comparing the undiscounted value of expected future operating cash flows to its book value, and records impairments when appropriate. If any impairment has occurred, goodwill will be written down to its fair value.
(8) INCOME TAXES
The total income tax expense (benefit) was allocated as follows (in thousands of dollars):
1999 1998 1997 -------- -------- -------- Income Statement Provision for Income Taxes ...$ 10,898 $ 8,753 $ 8,885 Stockholders' Equity--Change in: Unrealized gain (loss) on marketable securities (3,167) (24) 957 Foreign currency translation adjustment ....... 8 (1) 16 -------- -------- --------
Total .........................................$ 7,739 $ 8,728 $ 9,858 ======== ======== ========
The provision for income taxes consisted of the following (in thousands of dollars):
1999 1998 1997 -------- -------- -------- Taxes currently payable: Federal ............. $ 8,352 $ 11,296 $ 9,158 State and local ..... 850 1,732 1,257 -------- -------- --------
9,202 13,028 10,415 -------- -------- -------- Deferred tax provision: Federal ............. 1,017 (2,811) (927) State and local ..... 679 (1,464) (603) -------- -------- --------
1,696 (4,275) (1,530) -------- -------- --------
Total .................. $ 10,898 $ 8,753 $ 8,885 ======== ======== ========
(Continued) Reconciliation of the U.S. statutory rate to the Company's consolidated effective income tax rate was as follows:
Percent of Pretax Income ------------------------------ 1999 1998 1997 ------ ------ ------
Federal statutory rate ..................... 35.0% 35.0% 35.0% State and local income taxes, net of federal income tax benefit ............... 3.1 0.6 1.4 Goodwill amortization and other nondeductible expenses ................... 2.1 2.0 1.2 Tax exempt interest exclusion .............. (5.0) (5.3) (4.9) Dividends received exclusion ............... (1.0) (1.4) (1.5) ---- ---- ----
Total ...................................... 34.2% 30.9% 31.2% ====== ====== ======
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, -------------------- 1999 1998 -------- -------- Deferred tax assets: Other postretirement benefits ................ $ 19,496 $ 20,814 Pension expense .............. ............... 9,378 7,889 Inventories .................................. 1,825 2,161 Annual leave ................................. 2,084 1,867 Tax loss carryforwards ....................... 946 1,337 Others ....................................... 3,082 3,402 -------- --------
Total deferred tax assets ....................... 36,811 37,470 -------- --------
Deferred tax liabilities: Deferred selling expenses .................... (8,092) (8,584) Depreciation ................................. (1,815) (2,219) Others ....................................... (2,130) (3,225) -------- --------
Total deferred tax liabilities .................. (12,037) (14,028) -------- --------
Net deferred tax assets ......................... $ 24,774 $ 23,442 ======== ========
To the extent not utilized, the tax loss carryforwards expire in 2001 through 2012. 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 will be realized in future years, and no valuation allowance is necessary.
(9) OTHER BALANCE SHEET INFORMATION
Certain year-end balances consisted of the following (in thousands of dollars):
1999 1998 --------- --------- Receivables: Customers ................................. $ 40,706 $ 41,166 Others .................................... 4,675 4,482 Allowance for doubtful accounts ........... (1,451) (1,714) --------- ---------
Total .............................. $ 43,930 $ 43,934 ========= =========
(Continued)
1999 1998 --------- --------- Inventories: Materials and supplies .................... $ 3,178 $ 3,251 Work in process ........................... 313 460 Finished goods ............................ 1,216 1,288 --------- ---------
Total ........................................ $ 4,707 $ 4,999 ========= =========
Inventories are valued at the lower of cost (principally average cost method) or market.
1999 1998 --------- --------- Property and Equipment (at cost): Land ........................................ $ 4,250 $ 4,250 Buildings and improvements .................. 49,695 49,367 Furniture, fixtures, and equipment .......... 58,976 61,285 Accumulated depreciation .................... (72,810) (70,111) --------- ---------
Total .......................................... $ 40,111 $ 44,791 ========= =========
The Company uses straight-line and accelerated methods of depreciation based on estimated useful lives ranging from 5 to 45 years for buildings and improvements, and 3 to 10 years for furniture, fixtures, and equipment. Depreciation expense was $7,114,000 in 1999, $7,657,000 in 1998, and $7,358,000 in 1997. Expenditures for maintenance and repairs are expensed while major replacements and improvements are capitalized.
1999 1998 -------- --------- Other assets: Amortizable assets-- Software .................................. $ 7,018 $ 1,109 Customer lists ............................ 4,210 2,764 Film production costs ..................... -- 739 Lease commissions ......................... 206 253 State information database ................ -- 1,000 Others .................................... 54 32 ------- -------
11,488 5,897 Other receivables .............................. 1,114 262 ------- -------
Total .......................................... $12,602 $ 6,159 ======== ========
During 1999, the Company adopted the American Institute of Certified Public Accountants Statement of Position No. 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use. Accordingly, the Company capitalized $6.6 million of such costs in 1999.
Amortizable assets are expensed evenly over their respective estimated lives, ranging from 3 to 10 years. Amortization expense for these assets was $2,621,000 in 1999, $1,995,000 in 1998, and $1,127,000 in 1997. Accumulated amortization for customer lists was $3,577,000 in 1999 and $1,953,000 in 1998.
(Continued)
1999 1998 ------- ------ Payables and accrued liabilities: Accounts payable ................................ $16,820 $18,300 Employee compensation and benefits .............. 13,953 13,826 Postretirement benefits ......................... 1,446 1,253 Income taxes .................................... 578 522 ------- -------
Total .............................................. $32,797 $33,901 ======= =======
(10) LONG-TERM DEBT
Long-term debt outstanding at December 31, 1999 was $14 million. Half of the outstanding principal is due in 2003 and the remainder in 2004. The operative interest rate on the loan is the London Interbank Offered Rate plus .2%; the average rate was 5.52% for 1999 and 5.88% for 1998. The current rate, effective through March 13, 2000, is 6.32%.
The Company has a $1,500,000 unsecured line of credit. As of December 31, 1999, $500,000 of the line had been used to secure a letter of credit.
(11) COMMITMENTS AND CONTINGENCIES
The Company has non-cancelable operating leases for office space, equipment, and vehicles. Total rent expense was $6,222,000 in 1999, $5,671,000 in 1998, and $4,786,000 in 1997.
As of December 31, 1999, future minimum lease payments under non-cancelable operating leases were as follows: 2000 - $6,003,000; 2001 - $5,260,000; 2002 - $4,937,000; 2003 - $4,836,000; 2004 - $4,067,000; thereafter - $9,005,000. These amounts are net of sub-lease income of $175,000 in 2000.
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, 1999 and 1998, authorized shares of Class A, Class B, and Class C were 6,700,000, 5,300,000, and 1,000,000, respectively.
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. Stock repurchases have ranged from $12.8 to $15.6 million over the last three years, a level that can be expected to continue. In addition, the majority of the outstanding Class C stock, with a market value of $9,965,000 at December 31, 1999, is expected to be tendered in 2003.
(Continued)
Treasury share transactions were as follows:
Treasury Stock Shares Class A Class B Class C ---------- ---------- ---------
Balance, January 1, 1997 ............. 2,887,760 84,459 91,657
Sales of shares to employees ......... (185,961) -- -- Repurchases of shares ................ 114,189 408,999 11,266 Conversions of Class A shares to Class B shares .......................... 143,773 (143,773) -- ---------- ---------- ----------
Balance, December 31, 1997 ........... 2,959,761 349,685 102,923
Sales of shares to employees ......... (174,405) -- -- Repurchases of shares ................ 76,059 265,932 104,154 Conversions of Class A shares to Class B shares .......................... 108,241 (108,241) -- ---------- ---------- ----------
Balance, December 31, 1998 ........... 2,969,656 507,376 207,077
Sales of shares to employees ......... (175,547) -- -- Repurchases of shares ................ 80,069 257,788 4,788 Conversions of Class A shares to Class B and Class C shares .............. 131,304 (128,428) (2,876) ---------- ---------- ----------
Balance, December 31, 1999 ........... 3,005,482 636,736 208,989 ========== ========== ===========
Earnings per share have been computed based on the aggregate weighted average number of all outstanding shares of stock, which was 8,158,816 in 1999, 8,367,904 in 1998, and 8,733,778 in 1997.
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.
(13) OTHER COMPREHENSIVE INCOME
Comprehensive income encompasses all changes in Stockholders' Equity except those arising from transactions with shareholders, and includes net income and other comprehensive income.
(Continued)
Elements of other comprehensive income are shown below:
1999 1998 1997 -------- -------- -------
Unrealized holding gains (losses) on securities arising during the year ...................... $(7,553) $ 1,354 $ 3,683 Less reclassification adjustment for amounts included in net income ....................... 1,497 1,423 948 ------- ------- ------- (9,050) (69) 2,735 Less income taxes .............................. (3,167) (24) 957 ------- ------- ------- Net unrealized gains(losses) ................... (5,883) (45) 1,778 ------- ------- -------
Currency translation adjustment ................ 23 (3) 46 Less income taxes .............................. 8 (1) 16 ------- ------- ------- Net currency translation adjustment ............ 15 (2) 30 ------- ------- -------
Other comprehensive income ..................... $(5,868) $ (47) $ 1,808 ======= ======= =======
(14) SEGMENTS AND RELATED INFORMATION
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 two primary operating segments, Publishing and Printing.
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., and also includes the Parent's other publishing subsidiaries. Customers are primarily lawyers, accountants, human resource professionals, business executives, health care administrative professionals, trade associations, educational institutions, government agencies, and libraries. Printing includes the operations of The McArdle Printing Co., Inc.
The All Other segment includes the operations prior to its sale in 1999 of BNA Communications Inc., a media-based training enterprise. Intersegment revenues approximate current market prices. The Company did not derive ten percent or more of its revenues from any one customer or government agency or from foreign sales, nor did it have ten percent or more of its assets in foreign locations.
Operating segment information is presented below:
All Year Ended December 31, 1999 Publishing Printing Other Total - ---------------------------- --------- -------- -------- -------- Revenues from external customers $259,919 $ 18,716 $ 2,262 $280,897 Intersegment revenues .......... -- 15,022 -- 15,022 Operating profit (loss) ........ 21,253 2,251 (198) 23,306 Investment income .............. 9,845 53 -- 9,898 Interest expense ............... 1,026 353 29 1,408 Income tax expense(benefit) .... 10,262 715 (79) 10,898 Net income (loss) .............. 20,022 1,136 (148) 21,010 Assets ......................... 307,946 19,077 -- 327,023 Depreciation and amortization .. 9,417 1,060 160 10,637 Capital expenditures ........... 12,188 568 129 12,885
(Continued)
All Year Ended December 31, 1998 Publishing Printing Other Total - ---------------------------- --------- -------- -------- --------
Revenues from external customers $247,709 $ 16,523 $ 4,597 $268,829 Intersegment revenues .......... -- 15,073 -- 15,073 Operating profit (loss) ........ 18,845 1,894 (139) 20,600 Investment income .............. 9,468 45 -- 9,513 Interest expense ............... 899 419 17 1,335 Income tax expense(benefit) .... 8,245 559 (51) 8,753 Net income (loss) .............. 18,840 864 (111) 19,593 Assets ......................... 311,268 17,617 2,704 331,589 Depreciation and amortization .. 9,107 1,053 373 10,533 Capital expenditures ........... 28,237 439 563 29,239
All Year Ended December 31, 1997 Publishing Printing Other Total - ---------------------------- --------- -------- -------- --------
Revenues from external customers $225,561 $ 13,226 $ 5,274 $244,061 Intersegment revenues .......... -- 16,052 -- 16,052 Operating profit ............... 18,844 1,074 144 20,062 Investment income .............. 8,427 28 -- 8,455 Interest expense ............... 59 408 31 498 Income tax expense ............. 8,595 284 6 8,885 Net income ..................... 19,044 410 107 19,561 Assets ......................... 288,106 18,230 2,741 309,077 Depreciation and amortization .. 7,339 882 577 8,798 Capital expenditures ........... 4,614 2,926 160 7,700
Reconciliation of items differing from consolidated totals are shown below:
1999 1998 1997 --------- -------- ---------
Total investment income for reportable segments $ 9,898 $ 9,513 $ 8,455 Elimination of intersegment investment income . (382) (436) (439) --------- -------- --------- Consolidated investment income .............. $ 9,516 $ 9,077 $ 8,016 ========= ======== =========
Total interest expense for reportable segments $ 1,408 $ 1,335 $ 498 Elimination of intersegment interest expense .. (382) (436) (439) --------- -------- --------- Consolidated interest expense ............... $ 1,026 $ 899 $ 59 ========= ======== =========
Total assets for reportable segments .......... $ 327,023 $331,589 $309,077 Elimination of intersegment assets ............ (4,295) (7,140) (8,177) --------- -------- --------- Consolidated assets ......................... $ 322,728 $324,449 $300,900 ========= ======== =========
SCHEDULE V - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
THE BUREAU OF NATIONAL AFFAIRS, INC. YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997 (In Thousands of Dollars)
- -------------------------------------------------------------------------------- Column A Column B Column C Column D Column E - -------------------------------------------------------------------------------- Additions -------------------- (1) (2) -------------------- Charged Charged to Balance at to Costs Other Balance Beginning and Accounts-- Deductions-- at 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, 1999 $ 1,714 $ 738 $ 146(a) $ 855 (b) $ 1,415 Year ended December 31, 1998 1,576 876 51(a,c) 837 (b) 1,714 Year ended December 31, 1997 1,658 841 107(a) 816 (b) 1,576
Notes: (a) Charged to deferred subscription revenue; portion of allowance for doubtful accounts receivable not included in revenues.
(b) Net accounts written off.
(c) Includes $30 acquired with IOMA.
PART II
Item 9.
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 two years ended December 31, 1999 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, 1999. Such information is incorporated herein by reference.
Item 10.
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.
Item 11. Executive Compensation
The information required under this Item 11 is contained in the Proxy Statement Under the headings "IV. EXECUTIVE COMPENSATION" and "V. EMPLOYEE BENEFIT PLANS" and is incorporated herein by reference.
Item 12.
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.
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.
PART IV
Item 14.
Item 14. 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 21
Consolidated Balance Sheets as of December 31, 22 1999 and 1998.
Consolidated Statements of Income, Consolidated 24 Statements of Cash Flows, and Consolidated Statements of Changes in Stockholders' Equity for each of the years ended December 31, 1999, 1998, and 1997
Notes to Consolidated Financial Statements 28
(2) Financial Statement Schedule:
Report of Independent Auditors as to the 24 financial statement schedule
V Valuation and Qualifying Accounts and Reserves 40
All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.
(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 1999 Consolidated Financial Statements in the Notes to Consolidated Financial Statements, Note 12, "Stockholders' Equity," at page 40 of this Form 10-K.
22 Subsidiaries of the Registrant.*
28.1 Proxy Statement for the Annual Meeting of security holders to be held on April 15, 2000**
28.2 Annual Report on Form 11-K related to the BNA 401(k) Plan for the fiscal year ended December 31, 1999.*
* Filed herewith.
** Incorporated by reference to the Company's Definitive Proxy Statement, to be filed with the SEC within 120 days of December 31, 1999.
*** Incorporated by reference to the Company's 1993 Form 10-K, Commission File Number 2-28286, filed on March 31, 1994. The exhibit numbers indicated above correspond to the exhibit numbers in that filing.
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:
No reports on Form 8-K were filed during the fourth quarter of the year ended December 31, 1999.
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: __________________________________ Paul N. Wojcik, Chief Executive Officer
Date: __________________________________
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, President and Chief Executive Vice President and Chief Financial Officer Officer Director (Chief Accounting Officer) Director
Date: March 8, 2000 Date: March 8, 2000 -------------- --------------
By: s/William A. Beltz 3/8/00 By:s/Frederick A. Schenck 3/8/00 ------------------ ------- ------------------------- ------- William A. Beltz Date Frederick A. Schenck Date Chairman of the Board of Directors Director
By: s/Richard H. Cornfield 3/8/00 By:s/Mary P. Swords 3/8/00 ------------------------- ------- ---------------------- ------- Richard H . Cornfield Date Mary P. Swords Date Director Director
By: s/Sandra C. Degler 3/8/00 By:s/Daniel W. Toohey 3/8/00 ---------------------- ------- --------------------- ------- Sandra C. Degler Date Daniel W. Toohey Date Director Director
By: s/Kathleen D. Gill 3/8/00 By:s/Loene Trubkin 3/8/00 ------------------ ------- ------------------ ------- Kathleen D. Gill Date Loene Trubkin Date Director Director
By: s/John E. Jenc 3/8/00 By:s/Robert L.Velte 3/8/00 ------------------ ------- -------------------- ------- John E. Jenc Date Robert L. Velte Date Director Director
By: s/Eileen Z. Joseph 3/8/00 By:s/Dean M. Zadak 3/8/00 ------------------ ------- ------------------ ------- Eileen Z. Joseph Date Dean M. Zadak Date Director Director
By: s/Gregory C. McCaffery 3/8/00 ---------------------- ------- Gregory C. McCaffery Date Director
EXHIBIT INDEX
Sequential Page Number Exhibit Description Number
3.1 Certificate of Incorporation, as amended ***
3.2 By laws, as amended 52
11 Statement re: Computation of Per Share Earnings is contained in the 1999 Consolidated Financial Statements in the Notes to Consolidated Financial Statements, Note 12, "Stockholders' Equity," 36
22 Subsidiaries of the Registrant 160
28.1 Proxy Statement for the Annual Meeting of Stockholders to be held on April 15, 2000 **
28.2 Annual Report on Form 11-K related to the BNA 401(k) Plan for the fiscal year ended December 31, 1999. 161
** The Definitive Proxy Statement is expected to be filed with the SEC within 120 days of December 31, 1999.
*** Incorporated by reference to the Company's 1993 Form 10K, commission File Number 2-28286, filed on March 31, 1994. The exhibit numbers indicated above correspond to the exhibit numbers in that filing.
46 Intentionally left blank 47 Intentionally left blank 48 Intentionally left blank 49 Intentionally left blank 50 Intentionally left blank 51 Intentionally left blank
EXHIBIT 3.2
BYLAWS
OF
THE BUREAU OF NATIONAL AFFAIRS, INC.
Page Number Section I - Offices Delaware Office 1 Other Offices 1
Section II - Seal 1
Section III - Meetings of Stockholders 2 Place of Meeting 2 Notice of Meeting 2 Annual Meeting 2 Special Meetings 3 Quorum 4 Voting Rights 4 Manner of Voting 5 Nominations of Directors 6
Section IV - Determination of Eligible Stockholders 7 Closing Transfer Books 7 Record Date for Stockholders 7
Page Number
Section V - Directors 8 Eligibility 8 Powers 8 Number; Election; Term 9 Meetings 10 Quorum 11 Annual Statement 11 Indemnification 11 Indemnification - Fiduciaries 14
Section VI - Executive and Other Committees 17 Powers 17 Meetings 19
Section VII - Compensation of Directors 19
Section VIII - Officers 20 Appointment and Tenure 20 Chairman of the Board 21 President 22 Chief Executive Officer 23 Vice-Presidents 24 President Pro Tem 25 Secretary 25 Treasurer 26 Chief Financial Officer 26 Bonding of Officers 27 Delegation of Powers 27
Page Number
Section IX - Capital Stock 27 Amount 27 Eligible Stockholders 28 Class A Stock 28 Class B Stock 29 Class C Stock 31 Transfer on Death 32 Consideration for Class A Stock 33 Rate of Exchange of Class B Stock 33 Form of Certificates 33 Transfer of Stock 33 Purchase of Class A and Class B Stock by Corporation 34 Redemption of Class B Stock by the Corporation 37 Purchase Price 37 Class A Stock 37 Class B Stock 38 Fractional Shares 40 Dissolution of Distribution of Assets 40 Lost Certificate 40
Section X - Distribution and Marketing of Stock 41 Stock Transfer in Conformity with Section 41 Stock Purchase and Transfer Plan 41 Operation by Trustee 41 Eligibility for Participation 41 Stock Purchase Fund 42 Functions of Stock Purchase Fund 42
Page Number
Priorities in Purchase and Sale of Stock 43 Price of Class A Stock 44 Issuance of Class A Stock to Fund 45 Settlement Dates 45 Payroll Deductions for Purchase of Stock 45 Offers to Buy 47 Place and Sale of Stock 50 Register of Supplemental Bids 50 Stock Transfer Pursuant to Supplemental Bids 51 Priority in Execution 51 Annual Statement of Trustee 51 Sale of Stock of the Corporation 51
Section XI - Optional Agreements For Transfer Of Class A Stock On Termination Of Employment 52
Section XII - Books and Accounts 56 Place 56 Inspection 56
Section XIII - Checks 57
Section XIV - Dividends; Reserves 57 Dividends 57 Reserves 57
Section XV - Definitions 57
Page Number
Section XVI - Notices 58 Form 58 Waiver 58
Section XVII - Amendments 58
Footnotes 59
BY-LAWS OF THE BUREAU OF NATIONAL AFFAIRS, INC.
SECTION I - OFFICES
1. Delaware Office
The principal office of the Corporation in the State of Delaware shall be at 100 West Tenth Street in the City of Wilmington and County of New Castle; and the resident agent in charge thereof shall be the Corporation Trust Company, 100 West Tenth Street, Wilmington, Delaware. (a)
2. Other Offices
The Corporation may also have an office or offices in the City of Washington, District of Columbia, and at such other places as the Board of Directors may from time to time designate or appoint, or as the business of the Corporation may require.
SECTION II - SEAL
The corporate seal shall have inscribed thereon the name of the Corporation, the year of its incorporation, and the words "Incorporated Delaware, 1946."
(a) Footnotes showing prior versions of changed provisions appear at end of By-Laws in numerical and chronological order of the By-Laws changes.
SECTION III - MEETINGS OF STOCKHOLDERS
1. Place of Meeting
Meetings of stockholders shall be held at the main office of the Corporation in the City of Washington, District of Columbia, or at such other place as may be fixed by resolution of the Board of Directors.
2. Notice of Meeting
Written notice of all meetings of stockholders stating the time and place thereof shall be mailed by the Secretary, postage prepaid, to each stockholder of record, at his or her post office address as it appears on the books of the Corporation.
In the case of a regular annual meeting, such notice shall be so mailed at least 40 days in advance thereof; and in the case of a special meeting, such notice shall be so mailed at least 10 days in advance thereof. Notice of any special meeting of stockholders shall also state the purpose or purposes thereof, and may provide for the transaction of such other business as may properly come before the meeting.
3. Annual Meeting
(a) An annual meeting of stockholders shall be held at 10 o'clock A.M. on the succeeding Saturday. At such meeting, the stockholders entitled to vote thereat shall elect a Board of Directors and may transact such other business as may properly be brought before the meeting. If the election for directors is not held on the day designated third Saturday in April of each year, but if that day be a legal holiday then on the next herein, the Board of Directors shall cause the election to be held as soon thereafter as conveniently may be.
(b) No change of the time or place of a meeting for the election of directors as fixed by these By-Laws shall be made within sixty (60) days preceding the day on which such election is to be held. In the event of any change in such time or place for such election of directors, notice thereof shall be given to each stockholder at least twenty (20) days before the election is held, in person or by letter mailed to his or her last known post office address.
(c) At least ten (10) days before every election of directors, the Secretary shall prepare and make a complete list of stockholders entitled to vote at said elections, arranged in alphabetical order (with the residence of each and the number of voting shares held by each). Such list shall be open for said ten (10) days to the examination of any stockholder at the place where said election is to be held and shall be produced at the time and place of election and kept open during the whole time thereof for the inspection of any stockholder who may be present. The original or duplicate stock ledger of the Corporation shall be the only evidence as to the stockholders entitled to examine such list.
4. Special Meetings
Special meetings of the stockholders for any purpose or purposes may be called by the President, and shall be called by the President or Secretary at the request in writing or by vote of a majority of the directors or at the request in writing of stockholders of record owning a majority in amount of the shares of the stock of the Corporation outstanding and entitled to vote. Such request shall state the purpose or purposes of the proposed meeting.
5. Quorum
At any meeting of stockholders the holders of a majority of the Class A stock outstanding and entitled to vote thereat, present in person or represented by proxy, shall be requisite and shall constitute a quorum for the transaction of business, except as otherwise provided by law, by the Certificate of Incorporation, or herein. In the absence of a quorum, the stockholders entitled to vote at said meeting, present in person or represented by proxy, shall have power to adjourn the meeting from time to time until a quorum shall be secured, whereupon any business may be transacted which might have been transacted at the meeting as originally notified or fixed.
6. Voting Rights
(a) At every meeting of stockholders, each stockholder entitled to vote thereat shall have one vote for each share of Class A stock registered in his name on the books of the Corporation.
(b) The original or duplicate stock ledger of the Corporation shall be the only evidence as to the stockholders entitled to vote. The Board of Directors may, however, close the transfer books of the Corporation or fix a record date for the determination of its stockholders entitled to vote, as provided in Section IV of these By-Laws. Except where the transfer books shall have been so closed or a record date for voting stockholders have been so fixed, no share of stock shall be voted on at any election for directors which shall have been transferred on the books of the Corporation within twenty (20) days next preceding such election.
(c) Except as otherwise provided in the Certificate of Incorporation or By-Law, all questions before any meeting of stockholders shall be decided by a vote of the holders of a majority of the shares of stock entitled to vote thereat.
7. Manner of Voting
(a) The vote for directors at any meeting of stockholders shall be by ballot. The vote upon any other question at any meeting of stockholders shall be by ballot or viva voce, as may be determined by the presiding officer: PROVIDED, That if objection be raised by any stockholder to the manner of voting designated by the presiding officer upon any such question, the manner of voting shall be determined by the holders of the majority of the shares of stock present or represented at any such meeting and entitled to vote thereat.
(b) Each stockholder entitled to vote at any meeting of stockholders may vote (i) in person, or (ii) by proxy appointed by an instrument in writing subscribed by him and bearing a date no more than six (6) months prior to said meeting, unless said instrument provides for a longer period, or (iii) at any election for directors, but on no other question, by mail as provided in sub-paragraph (c) of this Paragraph 7.
(c) At any election for directors, any stockholder entitled to vote thereat may submit his vote or votes for directors by mailing to the Secretary of the Corporation or his designees a written ballot subscribed by him setting forth the names of the directors for whom he desires to vote and the number of shares to be voted for each director; PROVIDED, That said ballot in order to be effective as the vote of the stockholder, must be received by the Secretary of the Corporation or his designees not later than the day before the meeting for such election of directors.
(d) If at any meeting of stockholders there shall be presented in behalf of a stockholder more than one proxy signed by him on any question before said meeting, or if at any election for directors there shall be presented in behalf
of a stockholder more than one proxy signed by him authorizing the casting of votes in his behalf or more than one ballot mailed by him pursuant to the preceding subparagraph or both a proxy and a mailed ballot, then all such proxies and mailed ballot signed by such stockholder shall be invalid unless identical.
(e) A proxy may be withdrawn for filing written notice thereof with the Secretary at any time prior to the presiding officer's call for a vote at any meeting of stockholders.
8. Nominations of Directors
(a) At least forty-five (45) days prior to any annual meeting of stockholders a list of nominations for directors, prepared by a Nominating Committee to be appointed by the Board of Directors, shall be mailed by the Secretary to each Class A stockholder. The Committee shall make at least as many nominations as there are directorships to be filled at the annual meeting, but may nominate candidates in excess of such number. Three nominees shall be neither stockholders of the Corporation nor active or retired officers or employees of the Corporation or of one of its subsidiary corporations. Said list shall also state the total number of shares of Class A stock of the Corporation then outstanding.
(b) Any Class A stockholder (or stockholders) who is the record or beneficial owner of at least two (2) percent of the outstanding Class A shares of the Corporation may submit additional nominations to the Nominating Committee not less than thirty (30) days prior to such annual meeting. Each additional nomination made pursuant to this sub-paragraph shall be accompanied by the nominee's written acceptance of his or her nomination.
(c) A final list of nominations, including nominations made in the manner provided by sub-paragraph (b) together with nominations made pursuant to sub-paragraph (a), shall be mailed by the Secretary to Class A stockholders not less than twenty-two (22) days prior to such annual meeting.
SECTION IV - DETERMINATION OF ELIGIBLE STOCKHOLDERS
1. Closing Transfer Books
The Board of Directors may, in its discretion, close the stock transfer books of the Corporation for a period not exceeding fifty (50) days preceding the date of any meeting of the stockholders, or the date for payment of any dividend, or the date for the allotment of rights, or the date when any change, conversion, or exchange of capital stock shall go into effect, or a date for obtaining the consent of the stockholders for any purpose.
2. Record Date for Stockholders
In lieu of closing the stock transfer books as aforesaid, the Board of Directors may fix in advance a date not exceeding fifty (50) days preceding the date of any meeting of stockholders, or the date for the payment of any dividend, or the date for the allotment of rights, or the date when any change, conversion or exchange of capital stock shall go into effect, or a date in connection with obtaining the consent of stockholders for any purpose, as a record date for the determination of the stockholders entitled to notice of, and to vote at, any such meeting and adjournment thereof, or entitled to receive and exercise the other rights and privileges referred to in this paragraph. In such case only stockholders of record on the date so fixed shall be entitled to the notice, voting rights, and other rights and privileges referred to herein above, notwithstanding the transfer of any stock on the books of the Corporation after such record date fixed as aforesaid.
SECTION V - DIRECTORS
1. Eligibility
(a) Three persons who are not stockholders of the Corporation and not active or retired officers or employees of the Corporation or of one of its subsidiary corporations shall be elected or appointed as directors.
(b) Other than the persons elected or appointed as directors pursuant to sub-paragraph (a) above, no person shall be elected or appointed as a director unless he or she is a record or beneficial owner of Class A or Class B stock and, in addition, is an active or retired officer or employee of the Corporation or of one of its subsidiary corporations, and any director elected or appointed pursuant to this Paragraph who ceases to fulfill these requirements shall be disqualified to exercise any of the powers or duties of director and shall be deemed to have resigned from such position.
2. Powers
The property and business of this Corporation shall be managed and controlled by its Board of Directors. The Board of Directors shall have power --
(a) To purchase or otherwise acquire for the Corporation property, real and personal, tangible and intangible, and any rights or privileges, at such prices and upon such terms as the Board may deem proper.
(b) To pay for such property, rights, or privileges in whole or in part with money, services, stock, bonds, debentures, or other securities of the Corporation, or by the delivery of other property of the Corporation.
(c) To create, make, and issue mortgages, bonds, deeds of trust, trust agreements, and negotiable or transferable instruments and securities, secured by mortgages or otherwise, and to do every act and thing necessary to effectuate the same.
(d) To appoint agents, clerks, assistants, factors, and to dismiss them at its discretion, to fix their duties and emoluments and to change them from time to time, and to require security as it may deem proper.
(e) To confer on any officer of the Corporation the power of selecting, discharging, or suspending employees.
(f) To determine by whom and in what manner the Corporation's bills, notes, receipts, acceptances, endorsements, checks, releases, contracts, or other documents shall be signed.
(g) To exercise any and all powers of the Corporation, including the power to do all lawful acts and things on behalf of the Corporation which are not by statute or by the Certificate of Incorporation or by these Bylaws directed or required to be exercised or done by the stockholder.
3. Number; Election; Term
The Board of Directors shall consist of fifteen(15) members who shall be elected by the Class A stockholders at the regular annual meeting of stockholders. The Board of Directors so elected shall be composed of (i) the three (3) nominees eligible only under sub- paragraph (a) of Paragraph 1 hereof who shall have received the highest number of votes among the nominees eligible only under that provision, and (ii) the twelve(12) nominees eligible only under sub-paragraph (b) of Paragraph 1 hereof who shall have received the highest number of votes among the nominees eligible only under that
provision. Each director shall hold office until the succeeding annual election and until his successor shall have been elected and shall have duly qualified: PROVIDED, that if there be a vacancy in the Board by reason of death, resignation, or otherwise, such vacancy shall be filled for the unexpired term by majority vote of all the remaining directors, although less than a quorum.
4. Meetings
(a) After each election of directors at a meeting of stockholders, the newly elected directors shall meet for the purposes of organization, the election of officers, and the transaction of other business, at such place and time as may be designated by the stockholders at such annual meeting, or in the absence of such designation, as may be fixed by written consent of a majority of the newly elected directors. If a majority of the directors be present at such place and time, no prior notice of such meeting need be given to the directors.
(b) Regular meetings of the Board of Directors shall be held at 9:00 a.m. on the Thursday after the first Saturday in each month except January and August at the main office of the Corporation in Washington, District of Columbia, and/or at such other times and places as may be fixed by resolution of the Board or by written waiver of all its members. No other notice of any regular meeting shall be required.
(c) Special meetings of the Board of Directors may be called by the Chairman of the Board or the President at any time upon notice to all the directors; and upon the written request of two or more directors, special meetings shall be called by the President or Secretary upon one day's notice. Such meetings may be held within or without the State of Delaware, at such time and place indicated in the notice or waiver of notice thereof.
5. Quorum
At all meetings of the Board of Directors four directors shall constitute a quorum for the transaction of business, but if less than four be present at any meeting they may adjourn from time to time without further notice until a quorum is secured. The act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, except as may otherwise be specifically provided by statute or by the Certificate of Incorporation or by these By-Laws.
6. Annual Statement
The Board of Directors shall present at each annual meeting of stockholders a full and clear statement of business and conditions of the Corporation.
7. Indemnification
Any person who was or is a party, or who was or is threatened to be made a party, to any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, investigative, or otherwise by reason of the fact that he or she is or was a director or officer of the Corporation or of one of the Corporation's subsidiaries shall be indemnified by the Corporation to the fullest extent now or hereafter permitted by law. Without limiting the generality of the foregoing.
(a) The Corporation shall indemnify any person who was or is a party, or is threatened to be made a party, to any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative (other than an action by or in the right of the Corporation), by reason of the fact that he or she is or was a director or officer of the Corporation or one of its subsidiaries against expenses (including attorney's fees), judgment, fines
and amounts paid in settlement actually and reasonably incurred by him or her in connection with such action, suit, or proceeding, if he or she is acted in good faith and in a manner he or she reasonably believed to be in the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct to be unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he or she reasonably believed to be in the best interests of the Corporation and, with cause to believe that his or her conduct was unlawful.
(b) The Corporation shall indemnify any person who was or is a party, or is threatened to be made a party, to any threatened, pending, or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he or she is or was a director or officer of the Corporation or one of its subsidiaries against expenses (including attorney's fees) actually and reasonably incurred by him or her in connection with the defense or settlement of such action or suit if he or she acted in good faith and in a manner reasonably believed to be in the best interests of the Corporation, except that no indemnification shall be made with respect to any claim, issue, or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of his or her duty of the Corporation unless and only to the extent that the Court of Chancery of Delaware or the Court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery of Delaware or such other Court shall deem proper.
(c) To the extent that a director or officer of the Corporation has been successful on the merits in defense of any action, suit, or proceeding referred to in Subparagraph (a) and (b) of this Paragraph, or in defense of any claim, issue, or matter therein, he or she shall be indemnified against expenses (excluding attorneys' fees) actually and reasonably incurred by him or her in connection therewith.
(d) Any indemnification under Subparagraph (a) or (b) of this Paragraph (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that the indemnification of the director or officer is proper in the circumstances because he or she has met the applicable standard of conduct set forth in Subparagraph (a) or (b). Such determination may be made (i) by the Board of Directors by a majority vote of a quorum consisting of directors who were or are not parties to such action, suit, or proceeding, or (ii) if such a quorum is not obtainable, or even if obtainable quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (iii) by the stockholders. Such determination shall not be arbitrary but shall be made in keeping with the precepts expressed in this Paragraph. Upon such determination, the Board of Directors shall promptly authorize indemnification in accordance with such determination and in accordance with Subparagraphs (a) and (b) of this Paragraph.
(e) Expenses incurred in defending a civil or criminal action, suit, or proceeding may be paid by the Corporation in advance of the final disposition of such action, suit, or proceeding as authorized by the Board of Directors in the manner provided by Subparagraph (d) of this Paragraph upon receipt of an undertaking by or on behalf of the director or officer involved to repay such amounts unless it shall ultimately be determined that he or she is entitled to be indemnified by the Corporation.
(f) The indemnification provided in this Paragraph shall not be deemed exclusive of any other rights to which those indemnified may be entitled under any by-law, agreement, vote of stockholders, or disinterested directors, or otherwise, both as to action in his or her official capacity and as to action in any other capacity while holding such office, and shall continue as to a person who has ceased to be a director or officer and shall inure to the benefit of the heirs, executors, and administrators of such a person.
(g) It shall be conclusively presumed that every person entitled to mandatory indemnification under this Paragraph served the Corporation in reliance hereon. Any such person may continue to rely on the provisions of this Paragraph, as presently constituted, even after its amendment, unless and until he or she is given written notice of such amendment or unless he or she is a member of the Board of Directors which so amends this Paragraph.
(h) For the purposes of this Paragraph, references to the "Corporation" include all subsidiaries of the Corporation and all constituent corporations absorbed in a consolidation or merger as well as the resulting or surviving corporation so that any person who is or was a director or officer of such a constituent corporation shall stand in the same position under the provisions of this Paragraph with respect to the resulting or surviving corporation as he or she would if he or she had served the resulting or surviving corporation in the same capacity.
8. Indemnification-Fiduciaries
Any person who was or is a party, or who was or is threatened to be made a party, to any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, investigative, or otherwise by reason of the fact that he or she is or was serving at the request of the Corporation or at the request of one of the Corporation's subsidiaries as a trustee or as a
"fiduciary" as the term "fiduciary" is defined in the Employee Retirement Income Security Act of 1974, as the Act may be amended, under any employee benefit plan at any time established or maintained by the Corporation shall be indemnified by the Corporation to the fullest extent now or hereafter permitted by law. Without limiting the generality of the foregoing.
(a) The Corporation shall indemnify any person who was or is a party, or is threatened to be made a party, to any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative by reason of the fact that he or she is or was serving at the request of the Corporation or at the request of one of the Corporation's subsidiaries as a trustee or fiduciary against expenses (including attorneys' fees), judgments, fines, and amounts paid in settlement actually and reasonably incurred by him or her in connection with such action, suit, or proceeding, if he or she acted in good faith and in a manner he or she reasonably deemed to be in the best interests of the participants of the employee benefit plan or plans involved and/or their beneficiaries, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct to be unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he or she reasonably believed to be in or not opposed to the exclusive purposes of providing benefits to participants of the employee benefit plan or plans involved and their beneficiaries, and with respect to any criminal action or proceeding, had reasonable cause to believe that his or her conduct was unlawful.
(b) In any proceeding involving a trustee or fiduciary no indemnification shall be provided with respect to any claim, issue, or matter as to which the trustee or fiduciary shall have been adjudged to have dealt with the assets of the employee benefit plan or plans involved in his or her own interest or for
his or her own account or to have received consideration for his or her personal account from a party dealing with the plan. This Paragraph shall not provide indemnification for any bank, trust company, insurance company, partnership, or other entity or person not an officer, director, or employee of the Corporation, even though retained as an investment advisor, actuary, custodian, trustee, or consultant to any plan, or for any director, officer, agent, employee of any such bank, trust company, insurance company, partnership, other entity, or person.
(c) Any indemnification under Subparagraph (a) of this Paragraph (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that the indemnification of the trustee or fiduciary is proper in the circumstances because he or she has met the applicable standard of conduct set forth in Subparagraph (a) of this Paragraph. Such determination may be made (i) by independent legal counsel in a written opinion, or (ii) by the stockholders. Such determination shall not be arbitrary but shall be made in keeping with the precepts expressed in this Paragraph. Upon any such determination, the Board of Directors shall promptly authorized indemnification in accordance with such determination and in accordance with Subparagraphs (a) and (d) of this Paragraph.
(d) Expenses incurred in defending a civil or criminal action, suit, or proceeding, as contemplated by this Paragraph may be paid by the Corporation in advance of the final disposition of such action, suit, or proceeding, upon authorization by the Board of Directors and upon receipt by the Board of Directors of an undertaking by or on behalf of the trustee or fiduciary to repay
such amounts unless it shall ultimately be determined that he or she is entitled to be indemnified by the Corporation.
(e) The indemnification provided in this Paragraph shall not be deemed exclusive of any other rights to which those indemnified may be entitled under any agreement, vote of stockholders, or otherwise, both as to action in his or her official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a trustee or fiduciary and shall inure to the benefit of the heirs, executors, and administrators of such a person.
(f) It shall be conclusively presumed that every person entitled to mandatory indemnification under this Paragraph served the Corporation or other organization or enterprise at the Corporation's request in reliance hereon. Any such person may continue to rely on the provisions of this Paragraph, as presently constituted, even after their amendment unless and until he or she is given written notice of such amendment or unless he or she is a member of the Board of Directors which so amends this Paragraph.
SECTION VI - EXECUTIVE AND OTHER COMMITTEES
1. Powers
(a) The Board of Directors may, by resolution or resolutions passed by a majority of the whole Board, designate an Executive Committee and one or more other committees, each consisting of two or more directors.
(b) The Executive Committee shall have such powers and duties as may be directed or authorized by the Board of Directors from time to time, including
the authority to exercise all powers of the Board when the Board is not in session; and during the intervals between meetings of the Board of Directors the Executive Committee shall advise with and aid the officers of the Corporation in all matters concerning its interest and the management of its business: PROVIDED, That the Executive Committee shall not have the power to make, alter, amend, or repeal the By-Laws, nor to fill any vacancies on the Board of Directors or the Executive Committee. Vacancies in the membership of the Executive Committee shall be filled by the Board of Directors.
(c) The Audit Committee of the Board of Directors shall consist of no fewer than three members of the Board of Directors elected annually by a majority of the Board of Directors at the Directors' meeting immediately following the annual meeting of stockholders. The Committee shall consist, so far as possible, of non-employee directors and in no case shall an operating officer of the Corporation be elected to serve as a member of the Committee. Immediately following election of the Committee, the Board of Directors shall elect one of its members to serve as chairman of the Committee.
The duties and functions of the Audit Committee shall be as specified in the Audit Committee Charter, which shall be adopted by the Board of Directors and shall be reviewed by the Board annually.
(d) Other committees designated by the Board of Directors shall have such powers as may be specifically delegated to them by resolution of the Board.
2. Meetings
The Executive Committee and any other committees shall meet at stated times or on notice to all by any of its members. Each committee shall keep regular minutes of its proceedings, shall report the same to the Board of Directors, and shall fix its rules of procedure, but an affirmative vote of a majority of the whole Committee shall be necessary in every case for the action of the Committee.
SECTION VII - COMPENSATION OF DIRECTORS
Directors and members of committees who are on the payroll of the Corporation or of one of its subsidiary corporations shall not receive any salary or fee for their services as such, but by resolution of the Board they shall be allowed reimbursement for their traveling and other
reasonably necessary expenses for attendance at any regular or special meeting: Provided, That nothing herein contained shall preclude any director or member of a committee from serving the Corporation in any other capacity upon a compensated basis.
SECTION VIII - OFFICERS
1. Appointment and Tenure
(a) The officers of the Corporation shall be a Chairman and a Vice Chairman of the Board, a President, one or more Vice-Presidents, a Secretary, and a Treasurer. The Chairman of the Board and the President may be the same person, the Secretary and the Treasurer may be the same person, and a Vice- President may hold at the same time the office of Vice Chairman of the Board, Secretary, or Treasurer. The Chairman and Vice Chairman of the Board, the President, and one Vice-President shall be chosen from among the directors; the other officers may, but need not be, chosen from among the directors. No person shall be an officer of the Corporation unless he or she, if eligible to purchase stock under the Corporation's By-Laws, is a holder of Class A stock or Class B stock, and any officer who ceases to hold any shares of stock in the Corporation shall be disqualified to exercise any of the powers or duties of an officer and shall be deemed to have resigned from office.
(b) The directors shall at their first meeting after each annual meeting of stockholders choose a Chairman and a Vice Chairman of the Board, a President, a Vice-President, a Secretary, and a Treasurer. They may also choose additional Vice-Presidents, an Assistant Secretary, and one or more Assistant Treasurers. In the event that the Board shall elect two or more Vice-Presidents, it may designate one of them as Senior Vice-President. The directors shall designate either the Chairman of the
Board or the President, in their discretion, as the Chief Executive Officer of the Corporation.
(c) The officers of the Corporation shall hold office until their successors are chosen and qualify in their stead. Any officer chosen or appointed by the Board of Directors may be removed at any time by the affirmative vote of a majority of the whole Board of Directors, with or without cause. If the office of any officer or officers becomes vacant for any reason, the vacancy shall be filled by the affirmative vote of a majority of the whole Board of Directors.
2. Chairman of the Board
(a) The Chairman of the Board shall preside at all meetings of the stockholders and the Board of Directors. He shall serve as chairman of the Executive Committee, if such committee is designated, and of any other committee designated by the Board of Directors, except as otherwise provided by resolution of the Board.
(b) On behalf of the Board of Directors, and in association with the President, he shall make to stockholders an annual statement of the business operations and financial condition of the Corporation and such reports as the Board shall direct.
(c) He shall oversee generally, on behalf of the Board of Directors, the operation and administration of all employee benefit plans and of any plan for the sale and purchase of the stock of the Corporation.
(d) He shall consult with and advise the President, or any officer or manager as the President requests, regarding such matters or problems as mutually may be chosen by him and the President.
(e) He shall perform such other functions and duties as may be prescribed by the Board of Directors.
(f) In the absence or disability of the Chairman of the Board, the foregoing stated functions shall be performed by the Vice Chairman of the Board.
3. President
(a) The President shall be responsible for the active management of the day-to-day business and operations of the Corporation. He shall be the chief administrative officer and shall appoint and have supervision and direction of the operating and staff managers of the business, except as otherwise provided in this Section.
(b) He shall make such undertakings, and execute such contracts and agreements, in the name of the Corporation, as may be necessary to the normal, budgeted operations of the Corporation, subject to any limitations prescribed by the Board of Directors.
(c) He shall be responsible for submitting for approval to the Board of Directors, or to such committee of the Board as it shall determine, not later than 45 days preceding each fiscal year, a proposed operating budget and financial forecast for such succeeding fiscal year.
(d) He shall submit to the Board of Directors an annual report of the operations of the Corporation, not later than the regular meeting of directors next preceding the annual meeting of stockholders, and he shall make to stockholders, in association with the Chairman of the Board, an annual statement of the business operations of the Corporation.
(e) He shall perform such other functions and duties as may be prescribed by the Board of Directors.
(f) In the absence or disability of the President, the foregoing stated functions shall be performed by the Senior Vice-President.
4. Chief Executive Officer
(a) The Chief Executive Officer (the Chairman of the Board or the President, as the Board of Directors may designate) shall have final supervisory power over the business and affairs of the Corporation and ultimate responsibility and accountability to the Board of Directors for the Corporation's total efforts and total results. He shall see that all orders and resolutions of the Board of Directors are carried into effect. It shall be his duty to assure that adequate planning and attention are given to the long-term stability and growth of the Corporation. He shall develop over-all objectives and broad basic policies and plans of the Corporation for the approval of the Board of Directors.
(b) He shall conducts the Corporation's external financial and legal relations and shall be the Corporation's principal representative in its relations with the public, the community, other businesses, and government agencies.
(c) Except where by law the signature of the President is required, he shall execute all deeds, bonds, mortgages, and other obligations and instruments (other than such contracts and agreements that may be necessary to the normal, budgeted operations of the Corporation) in the name of the Corporation.
(d) He shall approve the appointment by the President of the principal operating and staff managers of the business, and shall have final general responsibility for the setting and adjusting of the salaries of all employees of the Corporation.
(e) He shall have general supervision and direction of the other officers in their corporate capacities and shall see that their corporate duties are properly performed.
(f) In the absence or disability of the President, when he has been designated the Chief Executive Officer, the foregoing stated functions shall be performed by the Chairman of the Board. In the absence or disability of the Chairman of the Board, when he has been designated the Chief Executive Officer, the foregoing stated functions shall be performed by the Vice Chairman of the Board. Vice-Presidents
In the absence or disability of both the President and the Chairman of the Board, the Senior Vice-President shall be vested with all the powers and be required to perform all the duties of the President. The Vice-President or Vice-Presidents shall perform such duties as may be prescribed by the Board of Directors.
6. President Pro Tem
In the absence or disability of the President and the Vice-President or Vice-Presidents, the Board may appoint from its own number a president pro tem.
7. Secretary
(a) The Secretary shall attend all meetings of the Board of Directors, the stockholders, and the Executive Committee. He shall act as clerk thereof, and shall record all votes and all of the proceedings of such meetings in a book to be kept for that purpose; and shall perform like duties for the standing committees of the Board of Directors when required.
(b) He shall give or cause to be given proper notice of meeting of stockholders and directors, whenever required.
(c) He shall record and effectuate all proper transfers of stock, and shall keep an account of stock registered and transferred, in such manner and subject to such regulations as the Board of Directors may prescribe.
(d) He shall have custody of the seal of the Corporation and shall affix the seal to contracts, agreements, deeds, mortgages and other instruments of the Corporation requiring a seal; and when the seal is so affixed, it shall be attested by his signature, or by the signature of the Treasurer.
(e) He shall perform all other functions incident to the office of Secretary, and such other functions as the Board of Directors or the Chief Executive Officer may prescribe.
8. Treasurer
(a) The Treasurer shall have custody of the funds and securities of the Corporation and shall deposit all monies and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors. The Treasurer shall disburse the funds of the Corporation as may be ordered by the Board of Directors and either the Chief Executive Officer or the President, in relation to their functions, taking proper vouchers for such disbursements, and shall render to the Chief Executive Officer and the directors, whenever they may require it, an account of all his or her transactions as Treasurer.
(b) The Treasurer shall invest funds of the Corporation pursuant to guidelines established by the Board of Directors and shall perform such other duties as are properly required of him or her by the Board of Directors, including the payment of dividends as declared by the Board of Directors.
9. Chief Financial Officer
The Chief Financial Officer (a vice president) shall have responsibility for the financial management of the business, including: obtaining financing for the business; managing the accounting system and other financial reporting systems; formulating financial plans and evaluating performance under such plans; complying with the financial reporting requirements of appropriate taxing and other regulatory agencies; and consulting with other company units concerning the financial aspects of their activities. The Chief Financial Officer shall also be responsible for maintaining accurate records of all financial transactions of the Corporation. In relation thereto, the Chief Financial Officer shall establish and supervise the functions of the office of the Controller of the Corporation. He or she shall be the primary liaison between the Corporation and its independent auditors and shall render to the Chief Executive Officer and the directors, whenever they may require it, an account of the financial condition of the Corporation, and at the meeting of the
Board of Directors next preceding the annual meeting of stockholders he or she shall make a like report for the preceding fiscal year.
10. Bonding of Officers
Any officer shall give the Corporation a bond at the expense of the Corporation, if required to do so by the Board of Directors, in such sum and in form and with security satisfactory to the Board, for the faithful performance of the duties of his or her office and the restoration to the Corporation, in case of his or her death, resignation, retirement, or removal from office, of all books, papers, vouchers, money and other property of whatever kind belonging to the Corporation in his or her possession or under his or her control.
11. Delegation of Powers
In case of the absence or disability of any officer of the Corporation, or for any other reason deemed sufficient by a majority of the whole Board of Directors, the Board may delegate any or all of the powers or duties of such officer to any other officer, or to any director, for the time being.
SECTION IX - CAPITAL STOCK
1. Amount
The total number of shares of stock which the Corporation is authorized to issue is thirteen million (13,000,000) shares divided into three classes: one class designated as Class A common shares shall consist of six million seven hundred thousand (6,700,000) shares, $1.00 par value per share and with voting rights, another class designated as Class B common shares shall consist of five million three hundred thousand (5,300,000) shares, $1.00 par value per share and
without voting rights, and another class designated as Class C common shares shall consist of one million (1,000,000) shares, $1.00 par value per share without voting rights.
2. Eligible Stockholders
(a) Class A Stock
(i) The shares of Class A stock shall be issued only to persons (1) who are officers or employees of the Corporation or of a subsidiary eighty (80) percent or more of whose stock is owned by the Corporation and (2) who possess such other qualifications as the Board of Directors shall from time to time prescribe by resolution (all such officers and employees being hereinafter in this Section IX referred to as "officers and employees of the Corporation") and to a trustee under a stock bonus plan of the Corporation.
(ii) Except as provided in Sections V and VIII of these By-Laws, in respect of qualifications of directors and officers, no officers and employees of the Corporation shall be obligated or required to subscribe for or own any stock of the Corporation; and the subscription or failure to subscribe for any shares of stock of the Corporation shall in no way affect or prejudice the position, status, tenure, continued employment, or advancement of any officer or employee.
(b) Class B Stock
(i) The Class B stock shall be issued only in exchange for Class A stock (A) to officers or employees of the Corporation upon retirement because of age or disability, or (B) upon the death of officers or employees of the Corporation, to the estates of such officers or employees, to the dependents of such officers or employees, or to persons who are the natural objects of the bounty of such officers or employees: Provided, That death occurs (1) while the officers or employees are in the service of the Corporation or on military or disability leave, or (2) within 90 days after retirement because of age or disability.
(ii) No person shall be obligated or required to accept Class B stock in exchange for Class A stock.
(iii) Any person qualified under sub-paragraph (b)(i) above to receive Class B stock in exchange for Class A stock who elects to exercise such right of exchange shall so notify the Secretary of the Corporation in writing at the following times:
(A) In the case of an officer or employee of the Corporation entitled to exchange Class A stock for Class B stock upon retirement, within ninety (90) days after retirement, and in the case of anyone entitled to exchange Class A stock for Class B stock upon the death of a retired officer or employee, within one hundred eighty (180) days after the death of such officer or employee;
(B) In the case of anyone entitled to exchange Class A stock for Class B stock upon the death of an officer or employee of the Corporation while in the service of the Corporation or on military or disability leave, within one hundred (180) days after such death.
PROVIDED, however, that with respect to an exchange involving stock distributed to a qualified person under a stock bonus plan of the Corporation, the aforesaid ninety (90) day and one hundred and eighty (180) day periods for notification shall begin to run upon distribution of stock by the trustee of said plan.
(iv) In the event that a holder of Class A stock elects to exercise a right to exchange such stock for Class B stock and that at such time the Corporation does not have available authorized Class B stock with which to effectuate such exchange, said holder of Class A stock shall be so informed by the Corporation and such Class A stock may be retained by the holder thereof until receipt of notification from the Corporation that Class B stock is so available. Upon receipt of such notification from the Corporation, the exchange shall promptly be effected: Provided, That nothing contained herein shall preclude such holder of Class A stock prior to receipt of such notification from the Corporation from tendering any or all of such shares of Class A stock (A) to the Corporation for purchase by it in accordance with Paragraph 7 of this Section or (B) for purchase in accordance with the provisions of the Stock Purchase and Transfer Plan of the Corporation.
(c) Class C Stock
The Class C common stock of the Corporation may be issued only in exchange for Class A stock to officers and employees of any subsidiary corporation, eighty (80) percent or more of whose stock is owned by the Corporation or to the officers and employees of the Corporation assigned to such a subsidiary corporation, upon the disposition of that subsidiary or upon reduction of the Corporation's stock ownership to less than eighty (80) percent. The exchange of Class A stock for Class C stock shall be at the option of such officer and employee and shall be on a share for share basis. An election to exercise such right of exchange shall be made by so notifying the Secretary of the Corporation in writing by the later of July 19, 1986, or ninety (90) days after the disposition or reduction.
Any holder of Class C stock may at any time, by written notice to the Secretary of the Corporation, tender any or all shares of such stock to the Corporation for purchase by it. The Board of Directors may accept or reject such tender, in whole or in part; and if it accepts the tender or any part thereof, the Corporation shall purchase the shares of stock so accepted at the price in effect for purchase and sale of shares of Class A stock of the Corporation under the Stock Purchase and Transfer Plan of the Corporation. If the Board of Directors rejects such tender in whole or in part, the shares may be transferred to any person whomsoever, subject, however, to a continuing right of the Corporation to purchase any and all of said shares in the event that, and at such times as, any or all of such shares are presented for transfer, and the price payable by the Corporation shall be the price in effect for the purchase and sale of Class A stock of the Corporation under the Stock Purchase and Transfer Plan of the Corporation. Except as provided above, no shares of Class C stock may be transferred or pledged without the written consent of the Board of Directors.
The Corporation shall have the right to redeem from the holder thereof all or any part of the outstanding shares of Class C stock (a) one (1) year after the death of the officer or employee, or (b) ninety (90) days after the officer or employee has held the Class C stock for the number of years equal to his or her years of service as an officer or employee of the Corporation or the
the subsidiary company while the subsidiary was owned at least eighty (80) percent by the Corporation, whichever shall first occur. Prior to exercising such right of redemption, the Corporation shall notify the holder of the Class C stock by written notice to the address of such holder as it appears on the stock books of the Corporation and shall give the holder the opportunity to tender the shares to the Corporation in accordance with the previous paragraph. If the holder fails to tender the shares, the Corporation may exercise the right to redeem the outstanding shares of Class C stock at a price per share equal to the book value per outstanding share at the close of the next preceding calendar year, as determined by independent auditors, and the said holder shall have no further rights, privileges, or powers in respect of such stock.
(d) Transfer on Death
Notwithstanding any provision of this Paragraph 2 of Section IX to the contrary, any holder of shares of Class A, Class B, or Class C stock shall be entitled to hold such shares in transfer-on-death ("TOD") form pursuant to the provisions of Chapter 8 of Part III, Title 12 of the Delaware Code ("Uniform TOD Security Registration Act") subject to such conditions as the Board of Directors may establish by resolution from time to time and in accordance with registration procedures to be adopted by the Secretary of the Corporation. Upon receipt of (i) an affidavit of the personal representative of the deceased owner's estate or such other proof of death of the deceased owner as may be satisfactory to the Secretary of the Corporation, and (ii) satisfaction of such other requirements as the Corporate Secretary may establish, shares of Class A stock, Class B stock, or Class C stock transferred upon the death of the owner pursuant to TOD registration shall be registered in the name of the surviving beneficiary(ies). Shares of any class of the Corporation's stock received by any person as a surviving beneficiary (or the surviving beneficiary's representatives, if applicable) under a TOD registration of such shares shall be subject to the provisions of the Corporation's Certificate of Incorporation and By-Laws in the same manner as if such shares had been received by such holder under a will or under the laws of descent and distribution. Without limiting the generality of the foregoing sentence, any such shares shall be subject to the Corporation's redemption or repurchase rights applicable to the personal
representative of any deceased holder of the Corporation's stock or to any recipient of the Corporation's stock under a will or under the laws of descent and distribution.
3. Consideration for Class A Stock
The Class A stock shall be issued for money only, at such price as the Board of Directors may from time to time prescribe by resolution, except as issued pursuant to the provisions of a stock bonus plan of the Corporation.
4. Rate of Exchange of Class B Stock
The exchange of Class A stock for Class B stock shall be on a share for share basis.
5. Form of Certificates; Uncertificated Shares
(a) The certificates of stock of the Corporation shall, as to each class of stock, be numbered consecutively and shall be entered in the books of the Corporation as they are issued. Each certificate shall exhibit the holder's name and the number of shares of stock represented thereby, and shall be signed by the President or a Vice-President, and by either the Secretary, the Treasurer, the Assistant Secretary or the Assistant Treasurer.
(b) All shares of the Corporation's Class A, Class B, and Class C stock issued on and after March 25, 2000, shall be uncertificated shares; any shares of the Corporation's Class A, Class B, and Class C stock issued prior to that date shall become uncertificated upon the stockholder's surrender to the Corporation of the certificate representing such shares. Any holder of uncertificated shares shall be entitled, upon request, to a certificate representing those shares.
6. Transfer of Stock
(a) Except as provided in Paragraph 7 of this Section and in Sections X and XI, no shares of Class A and Class B stock may be transferred or pledged without the written consent or authorization of the Board of Directors or of such officer as may be designated by it to grant such consent or authorization.
(b) All transfers of stock of the Corporation represented by certificates shall be made upon its books by the person named in the certificate or by his lawfully constituted representative, and upon surrender of the certificate for cancellation; transfers of stock represented by uncertificated shares shall be made by the person named in the Corporation's records or by his or her lawfully constituted representative, without the need for a surrender of the certificate. For purposes of this Paragraph 6(b) and Article IV, Section 1A, Paragraph 16 of the Corporation's Certificate of Incorporation, a transfer of stock registered in Transfer on Death form that occurs upon the death of the holder thereof shall be deemed to be made by the person named in the certificate, or by the person named in the Corporation's record, provided that the Corporation has received an affidavit of the personal representative of the deceased owner's estate or such other proof of death of the deceased owner as may be satisfactory to the Secretary of the Corporation.
(c) The Corporation shall be entitled to treat the holder of record of any share or shares of stock as the holder in fact thereof, and accordingly shall not be bound to recognize any equitable or other claims to or interest in such shares on the part of any person, whether or not it shall have express or other notice thereof, save as expressly provided by the laws of Delaware.
7. Purchase of Class A and Class B Stock by Corporation
(a) Any holder of Class A stock may at any time, by written notice to the Secretary of the Corporation, tender any or all of his shares to the Corporation for purchase by it. The Board of Directors may accept or reject such tender, in whole or in part; and if it accepts the tender or any part thereof, the Corporation shall purchase the shares of Class A stock so accepted at the price provided for in sub-paragraph (a) of Paragraph 9 hereof, determined as of the date of presentation for transfer.
(b) In the event of (i) the resignation, retirement, dismissal or death of any officer or employee of the Corporation who owns any shares of Class
A stock thereof or (ii) the distribution of shares of Class A stock of the Corporation by a trustee under any stock bonus plan of the Corporation, the Corporation shall have the exclusive right, subject to the provisions of sub-paragraph (b) of Paragraph 2 of this Section and to the provisions of Section X and Section XI of the By-Laws, for a period of ninety (90) days from the occurrence of such event to purchase any or all such Class A stock so owned or so distributed. If the Board of Directors elects to exercise such right of purchase, it shall notify the stockholder or his personal representative or the distributee under a stock bonus plan of the Corporation within said period of ninety (90) days by written notice sent to the stockholder or his representative at the address of the stockholder as it appears on the stock books of the Corporation and by written notice to the distributee at his address as it appears on the records of the Administrative Committee established under the stock bonus plan, and within not more than one (1) year after such exercise of its right to purchase the Corporation shall pay the said stockholder or his representative or the said distributee the applicable price per share specified in sub-paragraph (a) of Paragraph 9 of this Section, determined as of the date of such separation or such distribution and with interest at the rate of six percentum (6%) per annum from the date of such purchase until the date of payment. Upon the exercise by the Corporation of its right to purchase any such shares of Class A stock, the said stockholder or his representative or the said distributee shall have no further rights, privileges, or powers in respect of such stock. If payment of the purchase price for such shares is not made by the Corporation at the time of such purchase, the Corporation shall within a reasonable time thereafter issue to the stockholder or his representative or the distributee a note or other evidence of indebtedness fixing the amount to be paid by the Corporation pursuant to sub-paragraph (a) of Paragraph 9 of this Section and bearing interest at the rate of six percent (6%) per annum from the date of purchase to the date of payment. If the Board of Directors elects not to exercise such right
of purchase within the said period of ninety (90) days, the shares may be retained by or transferred to any person whatsoever, subject to the continuing right of the Corporation to purchase all or any of said shares in the event that, and at such times as, any or all of such shares are presented for transfer to any other person, and the price payable by the Corporation shall be the applicable price per share specified in sub-paragraph (a) of Paragraph 9 of this Section,30 determined as of the date of presentation for transfer.
(c) The Corporation shall have the right to purchase Class A stock through the Stock Purchase Plan for the purposes set forth in Section X, Paragraph 4, of the By-Laws.
(d) Any holder of Class B stock may at any time, by written notice to the Secretary of the Corporation, tender any or all his shares to the Corporation for purchase by it. The Board of Directors may accept or reject such tender, in whole or in part; and if it accepts the tender or any part thereof, the Corporation shall purchase the shares so accepted at a price determined in accordance with the provisions of sub-paragraph (b)(i) of Paragraph 9 hereof. Where shares are tendered by several stockholders, the Board of Directors may accept all or any part thereof as it deems proper, either in the chronological order of tender, or according to a percentage of all shares tendered, or by any combination of these methods, at its discretion. If the Board of Directors rejects such tender in whole or in part, the shares may be transferred to any person whatsoever, subject to the continuing right of the Corporation to purchase any or all of said shares in the event that, and at such times as, any or all of such shares are presented for transfer to any other person, and the price payable by the Corporation shall be a price per share determined in accordance with the provisions of sub-paragraph (b)(ii) of paragraph 9 hereof, determined as of the date of presentation for transfer.
8. Redemption of Class B Stock by the Corporation
The Corporation shall have the right at any time (a) after the expiration of eight (8) years from the date of retirement of an officer or employee or one (1) year after the death of such retired officer or employee, whichever of the two periods is longer, to redeem from the holder thereof all or any part of the outstanding shares of Class B stock issued to such retired officer or employee, and (b) after the expiration of eight (8) years from the date of death of an officer or employee (i) while in the service of the Corporation or on military or disability leave or (ii) who dies within ninety (90) days after retirement, to redeem from the holder thereof all or any part of the outstanding shares of Class B stock issued in exchange for Class A stock to the estate, dependents, or persons who are the natural objects of the bounty of such employee or officer. If the Corporation elects to exercise such right of redemption, it shall so notify the holder of the Class B stock by written notice sent to the address of such holder as it appears on the stock books of the Corporation and, upon such exercise by the Corporation of its right to redeem any of such shares of Class B stock, the said holder shall have no further rights, privileges, or powers in respect of such stock. The Corporation shall make payment for the shares redeemed at a price per share determined in accordance with the provisions of sub-paragraph (b)(iii) of Paragraph 9 hereof, as of the date of redemption.
9. Purchase Price
(a) Class A Stock
The price to be paid by the Corporation for any shares of Class A stock acquired by it pursuant to a tender under Subparagraph (a) of Paragraph 7 of this Section, or pursuant to notice or demand under sub-paragraph (b) of Paragraph 7 of this Section shall be as follows:
(i) During the period ending December 31, 1950, the book value per outstanding share for the next preceding calendar year, as determined by independent auditors.
(ii) From and after January 1, 1951, the book value per outstanding share at the close of the next preceding calendar year, as determined by independent auditors: PROVIDED, That if the book value per outstanding share, as so determined, exceeds ten times the average annual net earnings per outstanding share, if any, of the Corporation (after taxes, including income taxes) for the next preceding three calendar years, as determined by independent auditors then the price shall be the average of such two figures (book value and ten times average net earnings) per outstanding share.
(b) Class B Stock
(i) The price to be paid by the Corporation for any shares of Class B stock acquired by it pursuant to tender under Subparagraph (d) of Paragraph 7 hereof shall be:
(A) The price in effect for purchase and sale of shares of Class A stock of the Corporation under the Stock Purchase and Transfer Plan of the Corporation, if tender is made prior to the time that the Corporation shall first have the right under Paragraph 8 hereof to redeem such Class B stock from the holder thereof; or
(B) The price determined for the purchase of Class A stock in accordance with the provisions of sub-paragraph (a) of Paragraph 9 hereof, if tender is made at a time when the Corporation shall first have the right under
Paragraph 8 hereof to redeem such Class B stock from the holder thereof.
(ii) Except as provided for in Subparagraph (iv) hereof, the price to be paid by the Corporation for any share of Class B stock acquired by it pursuant to the exercise of its right under sub-paragraph (d) of Paragraph 7 hereof after rejection of tender shall be:
(A) The price in effect for the purchase and sale of shares of Class A stock of the Corporation under the Stock Purchase and Transfer Plan of the Corporation, if the stock is presented for transfer prior to the time that the Corporation shall first have the right under Paragraph 8 hereof to redeem such Class B stock from the holder thereof; or
(B) The price determined for the purchase of Class A stock in accordance with the provisions of sub-paragraph (a) of Paragraph 9 hereof, if the stock is presented for transfer at a time when the Corporation shall first have the right under Paragraph 8 hereof to redeem such Class B stock from the holder thereof.
(iii) Except as provided for in sub-paragraph (iv) hereof, the price to be paid by the Corporation for any share of Class B stock acquired by it under Paragraph 8 hereof shall be a price determined in accordance with the provisions of sub-paragraph (a) of Paragraph 9 hereof.
(iv) If the Corporation shall refuse a tender of Class B stock made pursuant to the provisions of sub-paragraph (d) of Paragraph 7 hereof within six
months prior to the time at which the Corporation shall first have the right under Paragraph 8 hereof to redeem such Class B stock from the holder thereof, the price to be paid by the Corporation upon acquisition of such Class B stock either under the provisions of sub-paragraph (d) of Paragraph 7 or Paragraph 8 hereof shall be the price in effect at the time of acquisition for the purchase and sale of Class A stock under the Stock Purchase and Transfer Plan of the Corporation.
10. Fractional Shares
No fractional shares of stock may be subscribed for, issued or exchanged, except as the Board of Directors may by resolution determine to be necessary or advisable in the effectuation of a stock bonus plan of the Corporation. The Board of Directors may, in its discretion, provide for the payment of a sum of money to cover fractional interests arising from an exchange, redemption or acquisition of stock by the Corporation.
11. Dissolution or Distribution of Assets
In the event of dissolution of, or any distribution of the assets of, the Corporation, the holders of Class A stock, Class B stock, and Class C stock shall be entitled to participate ratably, share for share, and without preference of any class over the others.
12. Lost Certificate
If a certificate of stock of the Corporation be lost or destroyed, another certificate of the same tenor and for the same number of shares may be issued in its stead, upon proof of such loss or destruction and the giving of a satisfactory bond of indemnity in an amount sufficient to indemnify the Corporation against any claim: PROVIDED, That the Board of Directors may waive the requirement of a bond if in its judgment it is proper to do so.
SECTION X - DISTRIBUTION AND MARKETING OF STOCK
1. Stock Transfer in Conformity with Section
For all transfers of Corporation stock made in conformity with the requirements of this Section, approval by the Board of Directors shall not be required.
2. Stock Purchase and Transfer Plan
The Board of Directors shall set up a Stock Purchase and Transfer Plan which shall contain the following features:
(a) Operation by Trustee
The Plan shall be operated in accordance with the provisions of this Section by a Trustee, who shall be designated by the Board and shall serve at the pleasure of the Board. The Board may designate one or more Assistant Trustees with powers to perform any of the Trustee's duties herein prescribed in the absence of the Trustee.
(b) Eligibility for Participation
Except as otherwise provided in this Section, officers and employees eligible to participate shall be persons (1) who are officers or employees of the Corporation or of a subsidiary corporation eighty (80) percent or more of whose stock is owned by the Corporation and (2) who possess such other qualifications as the Board of Directors shall from time to time prescribe by resolution (all such officers and employees being hereinafter in this Section X referred to as "officers and employees"). The term "stockholder," used without qualification, means any holder of Class A stock whether he is an officer or employee or not.
(c) Stock Purchase Fund
The Board of Directors shall set up a Stock Purchase Fund under the direction and control of the Trustee. The Trustee is empowered to select a depository with which this fund is to be deposited. Withdrawal of amounts from the account with the depository may be made upon the signature of the Trustee or his duly designated agent.
(d) Functions of Stock Purchase Fund
The functions of the Stock Purchase Fund shall be:
(i) To accept deductions from the weekly or biweekly salary of eligible officers and employees authorizing deductions for the purchase of Class A stock of the Corporation. The deducted amounts shall remain in the Fund to the credit of the respective officers and employees until they are applied to the purchase of stock. In the event of termination of employment, any amount in the Stock Purchase Fund to the credit of the officer or employee shall be refunded.
(ii) To maintain a list of "offers to buy" from eligible officers and employees.
(iii) To purchase from stockholders Class A stock of the Corporation, so far as available, up to the amount sufficient to satisfy the claims of those who (1) have deposited funds with the Fund through payroll deductions and (2) have listed with the Trustee "offers to buy."
(iv) To purchase from the Corporation such treasury Class A stock or unissued Class A stock as the Board of Directors may authorize to be
purchased, for the purpose of satisfying the demands of those who (1) have deposited funds with the Fund through payroll deductions and (2) have listed with the Trustee "offers to buy".
(v) To sell stock to the Corporation for the purposes set forth in Section X, Paragraph 4, of the By-Laws.
(e) Priorities in Purchase and Sale of Stock
The Trustee shall observe the following rules as to priorities in purchase and distribution of Class A stock:
(i) When the number of shares which can be purchased with accumulated funds from payroll deductions and by calling upon officers and employees who have submitted "offers to buy" exceeds the total of shares which are available to the Fund for distribution, the claims of those who have contributed funds through payroll deductions shall be satisfied before satisfaction of any of the claims of those who have submitted "offers to buy".
(ii) When the number of shares offered to the Fund by stockholders plus the shares subject to purchase by the Fund under the optional agreements provided for in Section XI of these Bylaws exceeds the number of shares for which there is a demand through payroll deductions and "offers to buy," the Trustee shall apply such funds as are available to purchase stock in the following order of priority:
(aa) Such shares of stock held by a former officer or employee, or the heirs or legatees of a former officer or employee, whose employment has been terminated for three years or more and whose stock is subject to purchase by the Fund pursuant to the agreement set forth in Section XI of these Bylaws.
(bb) All other stock offered to the Fund for purchase in the chronological order in which such offers have been received in writing by the Trustee: PROVIDED, however, that, whenever the Trustee has unsatisfied offers of stock from two or more stockholders, not more than three thousand two hundred (3,200) shares may be purchased from a stockholder having a higher priority until three thousand two hundred (3,200) shares (or all shares offered, if less than three thousand two hundred (3,200)) have been purchased from each such stockholder having a lower priority. Where two or more offers of stock are received simultaneously by the Trustee, the order shall be determined by lot.
(f) Price of Class A Stock
Not more than 70 days and not less than 15 days prior to (1) the date of record for voting at the regular annual meeting of stockholders and (2) the date which follows such record date by six months, the Board of Directors shall determine the price of the Class A stock for purchase and sale by the fund during the six-month periods beginning with the two dates specified above. The price set shall not be below the book value per share as determined from the most recent period financial statement available to the Board at the time determination is made. The price shall be the same for stock purchase by the Stock Purchase Fund and for stock sold by the Fund. Announcement of the price shall be made to all stockholders and eligible officers and employees at least one week in advance of the effective date.
(g) Issuance of Class A Stock to Fund
The Board of Directors shall determine twice each year whether to make available treasury or unissued Class A stock for purchase by the Stock Purchase Fund and, if it decided to make such stock available, it shall determine the maximum number of shares to be sold to the Fund. The price at which such stock shall be sold shall be the same as the price fixed for purchase and sale of stock by the Stock Purchase Fund.
(h) Settlement Dates
On the dates designated below, money accumulated in the Stock Purchase Fund shall be applied to the purchase of Class A stock in the name of the officers and employees authorizing payroll deductions for the purpose. As of these dates the Trustee of the Fund shall also make available, to those who have submitted "offers to buy," stock to satisfy these offers to the extent that such stock is available to the Fund. Stock certificates shall be issued to each officer or employee for shares then fully paid through payroll deductions or by satisfaction of "offers to buy" as soon as possible after each settlement date. The settlement dates are the days next preceding each of the following dates:
(i) Record date fixed prior to (a) regular stockholders' meetings: (b) special stockholders' meeting; and (c) payment of dividends.
(ii) Date six months after record date of regular stockholders' meetings.
(i) Payroll Deductions for Purchase of Stock
Eligible officers and employees may, upon written authorization, have deducted from their salaries and paid into the Stock Purchase Fund designated amounts each pay period to be applied on purchase of Class A stock of the Corporation, subject to the following rules:
(i) Limitations on Amount
Deductions from salary for such purchase shall not be in excess of 80 times the current price per share and not less than one dollar ($1.00) per week.
(ii) When Deductions Begin
Deductions from payroll for the purpose of this subparagraph shall begin with salary for the first full pay period after receipt of the authorization, except that deductions from payroll authorized within the forty-two days preceding the close of the then current Plan shall begin with salary for the first full week of the succeeding Plan period.
(iii) Change in Amount of Authorized Deduction
Any eligible officer or employee who has authorized a payroll deduction for the purposes of this subparagraph may increase or decrease the amount of the deduction authorized, subject to the limitations of subdivision (i) of this subparagraph, by giving written notice to the Trustee of the Stock Purchase Fund. Such notice shall take effect with salary for the first full pay period after submission of notice, except that if such notice is received within the forty-two days preceding the close of the then current Plan it shall take effect with salary for the first full week of the succeeding Plan period.
(iv) Withdrawal of Authorization
Any eligible officer or employee who has authorized a payroll deduction for the purposes of this subparagraph may withdraw his authorization at any time by giving written notice to the Trustee of the Stock Purchase Fund. Such notice shall take effect with salary for the first full pay period after submission of notice. Upon request, and with two weeks' notice, a person withdrawing from the Plan may have refunded any amount deducted from salary which has not at that time been applied to the purchase of stock.
(v) No Fractional Shares
No fractional shares shall be purchased or distributed. On any settlement date, the Stock Purchase Fund shall refund to any office or employee on request any amount remaining after application of the deductions to the purchase of full shares of stock.
(j) "Offers to Buy"
Eligible officers and employees may at any time before the forty-second day preceding the close of the then current Plan submit to the Trustee "offers to buy" shares of the Class A stock of the Corporation. Such "offers to buy" shall be satisfied at the price of stock currently established, and shall become void at the end of the current stock plan.
Stock may be sold by the Trustee in satisfaction of "offers to buy" whenever he has stock available for sale after the satisfaction of all claims arising from those who have authorized payroll deductions for purchase of stock: PROVIDED, however, that no treasury or unissued stock shall be issued to satisfy
such "offers to buy" except at the following settlement dates: (1) the day next preceding the record date for the regular annual stockholders' meeting and (2) the day next preceding the date six months after such record date.
(i) Filing
"Offers to buy" must be submitted in writing in a form prescribed by the Board of Directors and filed with the Trustee.
(ii) Records
The Trustee shall keep a record of "offers to buy" filed with him, which shall show the name, date of filing, terms of offer, and date and extent of satisfaction or date of withdrawal or decrease. He shall assign to each "offer to buy" a listing number, which shall show the time sequence in which such "offers to buy" have been filed. When two or more offers are received at the same time, priority among them shall be determined by lot.
(iii) Obligations Entailed
"Offers to buy" when filed, shall constitute a binding obligation upon the person filing the same to execute the purchase at any time when called upon by the Trustee to do so. If the offeror does not then execute the purchase, all of his "offers to buy" shall be canceled by the Trustee and the offeror's subsequent "offers to buy" shall not be accepted prior to the beginning of the next Plan period.
(iv) Limitations on Amount
"Offers to buy" may be satisfied by the Trustee, if stock is available for each eligible officer and employee without limitation in amount: PROVIDED however, that shares made available to the Trustee from unissued or treasury stock may not be sold to any one individual in excess of that amount necessary to permit such individual to purchase a total of three thousand two hundred (3,200) shares of stock through "offers to buy" in any period of six months.
(v) Withdrawal or Decrease in Amount
Any person who has filed an "offer to buy" may, on two weeks' written notice, withdraw such offer or decrease the amount thereof.
(vi) Increase in Amount
An "offer to buy" may not be increased in amount, but any person who already has filed an "offer to buy" may file one or more additional "offers to buy" up to the applicable limits. Allotments of stock shall not be made to such additional offer until the first offer has been satisfied.
(vii) Fulfillment
Offers to buy" shall be satisfied in order of priority based on the date when the "offer to buy" is listed according to the following system:
When the Trustee has available shares for sale to makers of "offers to buy," he shall allot to each "live" listing number in numerical sequence one hundred and sixty (160) shares, or the full amount of the "offer to buy" if the "offer" is for fewer than one hundred and sixty (160) shares, until all listing numbers have received their allotments or until all the available shares have been allotted. If additional shares for allotment remain, they shall be allocated in the same manner, one hundred and sixty (160) or fewer (if the unfulfilled "offer to buy" is less than one hundred sixty (160) shares being allotted to each number in rotation until all available shares are sold. After each such allotment the "live" listing shall be reconstituted, beginning with the first "offer to buy" that was not satisfied in the previous allotment, and the same procedure followed on subsequent allotments."
(k) Place and Sale of Stock
All stock under this Plan is to be issued, sold, and paid for in Washington, D.C. No notice of participation in the Plan is effective until received and accepted at the principal office of the Corporation.
3. Register of Supplemental Bids
The Trustee of the Stock Purchase and Transfer Plan shall maintain a Register of Supplemental Bids. In this Register shall be entered bids for Class A of the Corporation which have been communicated in writing to the Trustee by eligible officers and employees. The Register shall show in the order of receipt the name of the bidder, the price at which he bid for stock, the number of shares bid for, and the date as of which the bid expires (unless the bid is open). Any bid may be withdrawn upon one week's written notice to the Trustee. The Register shall be open for inspection at the principal office of the Corporation at all reasonable hours to stockholders and eligible officers
and employees. The Trustee shall reply promptly to mail inquiries of stockholders and eligible officers and employees respecting the Register.
(a) Stock Transfer Pursuant to Supplemental Bids
Whenever the Trustee shall certify that the Stock Purchase Fund is unable to absorb stock subject to purchase by the Fund pursuant to agreements provided for in Section XI of these Bylaws, or offered for sale by stockholders, any stockholder may offer his stock in satisfaction of the registered bids, and transfer shall be made upon the books of the Corporation from the offerer to the bidder.
(b) Priority in Execution
When two or more bids at the same price have been registered, bids at that price will be satisfied in time order of their registration.
(c) Annual Statement of Trustee
The Trustee shall send once each year to all Class A stockholders and eligible officers and employees a statement of the manner in which the system of Supplemental Bids will be operated and the conditions which must be met by those who wish to avail themselves of its use.
4. Sale of Stock of the Corporation.
(a) In the event the Board of Directors, during any six months' period specified in Subparagraph (f) of Paragraph 2 of this Section X, shall determine that the orderly and successful operation of the Stock Purchase and Transfer Plan requires, and that the best interests of the Corporation and its stockholders and employees will be served by, the purchase by the Corporation through the Stock Purchase Fund of the whole, or any part, of the Class A
stock of the Corporation, which, during such six months' period, is subject to purchase by the Fund pursuant to agreements provided for in Section XI of these By-Laws or is offered for sale by stockholders, but which the Fund is unable to absorb unless purchased by the Corporation, the Trustee shall sell to the Corporation all, or such part of, the said unabsorbed stock as the Board, through its designated officer, shall notify the Trustee the Corporation will purchase, at the price determined pursuant to Subparagraph (f) of Paragraph 2 of Section X for the purchase and sale of stock by the Fund during the said six months' period.
(b) In the event that, during any six months' period in sub-paragraph (f) of Paragraph 2 of this Section X, any Class A stock offered for sale by the trustee under a stock bonus plan of the Corporation in order to effectuate the purposes of such plan is not absorbed through the Stock Purchase Fund, including purchases by the Corporation pursuant to Subparagraph (a) of this Paragraph 4, the Trustee shall sell to the Corporation, and the Corporation shall purchase, the stock so offered, at the price determined pursuant to sub-paragraph (f) of Paragraph 2 of Section X for the purchase and sale of stock by the Fund during the said six months' period.
SECTION XI - OPTIONAL AGREEMENTS FOR TRANSFER OF CLASS A STOCK ON TERMINATION OF EMPLOYMENT
1. The Corporation shall, prior to January 1, 1998, offer to all officer and employee holders of Class A stock the option to execute the following agreement:
Agreement between The Bureau of National Affairs, Inc., party of the first part, and _____________, holder of one or more shares of the Class A stock of The Bureau of National Affairs, Inc., party of the second part:
In consideration of mutual advantages accruing therefrom, the parties hereby covenant and agree as follows:
1. The party of the second part will, within not more than three (3) years of his or her separation from employment by The Bureau of National Affairs, Inc. (herein called the Corporation) or by a subsidiary eighty (80) percent or more of whose stock is owned by the Corporation, offer all Class A stock of the Corporation held by him or her to be purchased under the Stock Purchase and Transfer Plan set up pursuant to Section X of the By-laws of the Corporation. Such offer or offers may be made at any time within the said three (3) years for any part or all of the Class A stock so held.
2. In the event that the Stock Purchase Fund, provided for in the said Plan, is unable to purchase any or all of the shares offered, the party of the second part may, at that time, at his or her option, accept Supplemental Bids, if any, registered with the Trustee of the Plan. If such Supplemental Bids are not accepted, the party of the second part may retain his or her shares for later offers through the Stock Purchase and Transfer Plan, including acceptance of Supplemental Bids.
3. If at the end of three (3) years after termination of his or her employment, the party of the second part still retains any Class A stock of the Corporation, she or he shall offer it forthwith for purchase through the Stock Purchase Fund. If the Stock Purchase Fund is unable to purchase any or all of the shares so offered, the Trustee of the Plan shall so notify her or him and she or he may thereafter retain such shares as have not been purchased or may dispose of them by accepting Supplemental Bids. Upon receipt of notification from the Trustee that the Fund is able to purchase any part or all of the shares then held, the party of the second part shall, within sixty (60) days from the mailing of such notification, which shall state the number of shares the Fund
can purchase from the stockholder, present such shares to the Trustee for purchase by the Fund. A like procedure shall be followed until all shares held by the party of the second part have been purchased by the Fund.
4. If the party of the second part, or his/her heirs or legatees, offers any or all of his/her shares for sale other than as herein specified, this agreement shall become null and void.
5. This agreement shall be binding upon the heirs and legatees of the party of the second part.
6. Nothing herein contained shall diminish the right of the party of the second part to exchange Class A stock for Class B stock of the Corporation pursuant to Paragraph 2(b) of Section IX of the By-laws.
7. The provisions of Paragraph 7(b) of Section IX of the By-laws shall not apply to the party of the second part, or his/her heirs or legatees, so long as this agreement is in force and effect.
2. The Corporation shall, on and after January 1, 1998, offer to all officer and employee holders of Class A stock the option to execute the following agreement:
Agreement between The Bureau of National Affairs, Inc., party of the first part, and _____________, holder of one or more shares of the Class A stock of The Bureau of National Affairs, Inc., party of the second part:
In consideration of mutual advantages accruing therefrom, the parties hereby covenant and agree as follows:
1. The party of the second part will, within not more than one (1) year of his or her separation from employment by The Bureau of National Affairs, Inc. (herein called the Corporation) or by a subsidiary eighty (80) percent or more of whose stock is owned by the Corporation, offer all Class A stock of the Corporation held by him or her to be purchased under the Stock Purchase and Transfer Plan set up pursuant to Section X of the By-laws of the Corporation. Such offer or offers may be made at any time within the said one (1) year for any part or all of the Class A stock so held.
2. In the event that the Stock Purchase Fund, provided for in the said Plan, is unable to purchase any or all of the shares offered, the party of the second part may, at that time, at his or her option, accept Supplemental Bids, if any, registered with the Trustee of the Plan. If such Supplemental Bids are not accepted, the party of the second part may retain his or her shares for later offers through the Stock Purchase and Transfer Plan, including acceptance of Supplemental Bids.
3. If at the end of one (1) year after termination of his or her employment, the party of the second part still retains any Class A stock of the Corporation, she or he shall offer it forthwith for purchase through the Stock Purchase Fund. If the Stock Purchase Fund is unable to purchase any or all of the shares so offered, the Trustee of the Plan shall so notify her or him and she or he may thereafter retain such shares as have not been purchased or may dispose of them by accepting Supplemental Bids. Upon receipt of notification from the Trustee that the Fund is able to purchase any part or all of the shares then held, the party of the second part shall, within sixty (60) days from the mailing of such notification, which shall state the number of shares the Fund can purchase from the stockholder, present such shares to the Trustee for purchase by the Fund. A like procedure shall be followed until all shares held by the party of the second part have been purchased by the Fund.
4. If the party of the second part, or his/her heirs or legatees, offers any or all of his/her shares for sale other than as herein specified, this agreement shall become null and void.
5. This agreement shall be binding upon the heirs and legatees of the party of the second part.
6. Nothing herein contained shall diminish the right of the party of the second part to exchange Class A stock for Class B stock of the Corporation pursuant to Paragraph 2(b) of Section IX of the by-laws.
7. The provisions of Paragraph 7(b) of Section IX of the by-laws shall not apply to the party of the second part, or his/her heirs or legatees, so long as this agreement is in force and effect.
SECTION XII - BOOKS AND ACCOUNTS
1. Place
The books, accounts, and records of the Corporation shall be kept at the main office of the Corporation in the City of Washington, District of Columbia, or at such other place or places within or without the State of Delaware as may from time to time be designated by resolution of the Board of Directors, but the original or duplicate stock ledger shall be kept at the principal office of the Corporation in Wilmington, Delaware.
2. Inspection
The directors shall determine from time to time under what conditions and regulations the accounts and books of the Corporation, or any of them, shall be open to the inspection of stockholders, subject to the rights of inspection granted to stockholders by law.
SECTION XIII - CHECKS
All checks, drafts, orders for the payment of money, and notes of the Corporation shall be signed by such officer or officers as the Board of Directors may from time to time designate.
SECTION XIV - DIVIDENDS; RESERVES
1. Dividends
Dividends may be declared by the Board of Directors at any regular or special meeting. The holders of Class A stock, Class B stock, and Class C stock shall be entitled to participate ratably, share for share, and without preference of any class over the others in all dividends when and as declared by the Board of Directors.
2. Reserves
Before declaration of any dividend or any distribution of profits, the Board of Directors may set aside from time to time out of the funds of the Corporation available for dividends such sum or sums as the Board in its discretion may think proper as a reserve fund for any proper purpose, and the Board may alter or abolish any such reserve or reserves.
SECTION XV - DEFINITIONS
Except as the context may otherwise require, the unqualified word "stockholder" as used in these By-Laws shall mean the holders of Class A stock of the Corporation and shall not include holders of Class B stock or Class C stock of the Corporation.
As used in Sections IX, X and XI of these By-Laws, the terms "separation from employment", "dismissal" and other terms of like import do not include a lay-off of less than ninety (90) days' duration.
SECTION XVI - NOTICES
1. Form
Whenever under the provisions of these By-Laws notice is required to be given to any stockholder, director, or officer, it shall not be construed to require personal notice, but such notice may be given in writing by mail, by depositing the same in the post office or letter-box in a postpaid, sealed wrapper, addressed to such stockholder, director, or officer at such address as appears for him on the books of the Corporation, or in default of any such address, to the stockholder, director, or officer at his last known place of address or at the general post office in the City of Wilmington, State of Delaware; and any such notice shall be deemed to be given at the time that the same shall be thus mailed.
2. Waiver
Any stockholder, director, or officer may waive in writing any notice required to be given under these By-Laws, whether before or after the time stated herein.
SECTION XVII - AMENDMENTS
These By-Laws may be supplemented, amended, altered, or repealed by the affirmative vote of the holders of a majority of the stock issued and outstanding and entitled to vote thereat at any regular meeting of the stockholders, or at any special meeting of the stockholders if notice of the proposed action in respect of the By-Laws be contained in the notice of the meeting; or by the affirmative vote of a majority of the whole Board of Directors at a regular meeting.
INDEX
Amending bylaws 58 Annual Meeting 2 Annual Report 11 Audit Committee 18 Board of Directors, see Directors Bonding - - ---Of officers 27 Books and accounts 56 Budget 22 Chairman of the Board - - ---In general 21 - - ---Absence or disability 22 Checks 57 Chief Executive Officer - - ---In general 23 - - ---Absence or disability 24 Chief Financial Officer 26 Class A Stock 28 Class B Stock 29 Class C Stock 31 Committees - - ---Audit 18 - - ---Executive 17 - - ---Meetings 19 - - ---Nominating 6 - - ---Other 19 Compensation - - ---Of directors 19 Controller 26 Directors, Board of - - ---Committees 17 - - ---Compensation 19 - - ---Delegating powers of officers 27 - - ---Electing officers 20 - - ---Eligibility 8 - - ---Nomination of 6 - - ---Meetings 10 - - ---Number, election, terms 9 - - ---Outside directors 8 - - ---Powers 8 - - ---Quorum 11 - - ---Setting price of stock 44 - - ---Voting for 5 Dividends 57 Executive Committee 17 Indemnification 11 List of stockholders 3 Lost stock certificates 40
Meetings - - ---Annual meeting 2 - - ---Board of Directors 10 - - ---Special meeting of stockholders 3 Nominating Committee 6 Notice - - ---In general 58 - - ---Board of Directors meetings 10 - - ---Annual meeting 2 - - ---Special meeting of stockholders 2 - - ---Waiver 58 Offers to buy 47 Officers--See also specific offices - - ---Appointment and tenure 20, 21 - - ---Absence or disability 27 - - ---Bonding 27 - - ---Chairman of the Board 20, 21 - - ---Chief Executive Officer 21, 23 - - ---Chief Financial Officer 26 - - ---Controller 26 - - ---Delegation of powers 27 - - ---President 20, 22 - - ---President pro tem 25 - - ---Secretary 20, 25 - - ---Senior Vice President 23, 24 - - ---Term 21 - - ---Treasurer 20, 26 - - ---Vacancy 21 - - ---Vice Chairman of the Board 20 - - ---Vice Presidents 20, 24 Outside Directors 8 Optional agreements 52 Payroll deductions 45 President - - ---In general 22 - - ---Absence or disability 23 President pro tem 25 Price of stock 44 Proxies 5 Quorum - - ---at stockholders' meetings 4 - - ---at Board of Directors' meetings 11 Record Date 7 Reserves 57 Seal 1, 25 Secretary 20, 25 Senior Vice President 23, 24 Special meetings - - ---Of stockholders 3
Stock - - ---Amount 27 - - ---Certificates - - -----In general 33 - - -----Lost 40 - - ---Class A 28 - - ---Class B 29 - - ---Class C 31 - - ---Dividends 57 - - ---Exchange of A for B 30, 33 - - ---Fractional shares 40 - - ---Price - - -----Purchase of Class A 34, 37 - - -----Purchase of Class B 38 - - -----Set under SPTP 44 - - ---Purchase by corporation 34 - - ---Redemption of Class B stock 37 - - ---Stock Purchase and Transfer Plan 41 - - ---Transfer 33 Stock Purchase and Transfer Plan - - ---In general 41 - - ---Availability of treasury or unissued stock 45 - - ---Eligibility 41 - - ---Offers to buy 47 - - ---Payroll deductions 45 - - ---Priorities in purchase and sale of stock 43 - - ---Sale of stock to corporation 51 - - ---Supplemental bids 50 - - ---Trustee 41 Stockholders - - ---Definition of 57 - - ---Eligibility - - -----Class A 28 - - -----Class B 29 - - -----Class C 31 - - ---List of 3 - - ---Voting rights 4 - - ---Record date 7 Supplemental bids 50 Transfer on Death 32, 34 Treasurer 20, 26 Two percent nominations 6 Vacancy - - ---Board 10 - - ---Officer 21 Vice chairman of the Board 20 Vice presidents 20, 24 Voting - - ----Manner of 5
EXHIBIT 22
SUBSIDIARIES OF REGISTRANT
STATE OF INCORPORATION RELATIONSHIP
BNA International Inc. Delaware 100% owned by Registrant
BNA Washington Inc. Delaware 100% owned by Registrant
The McArdle Printing Co., Inc. Delaware 100% owned by Registrant
Pike & Fischer, Inc. Delaware 100% owned by Registrant
Tax Management Inc. (a) Delaware 100% owned by Registrant
BNA Holdings Inc. Delaware 100% owned by Registrant
Institute of Management and Administration, Inc. New York 100% owned by Registrant
(a) Tax Management Inc. owns 100% of TM Holding Company Inc., a Delaware corporation.
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 11-K
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1999 OR
( ) TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________________ to _____________________
Commission file number 2-28286, as exhibit 28.2
A. Full title of the plan and the address of the plan, if different from that of the issuer named below:
THE BNA 401(k) PLAN
B. Name of issuer of the securities held pursuant to the plan and the address of its principal executive office:
The Bureau of National Affairs, Inc. 1231 25th Street, N. W. Washington, D. C. 20037
Index to form 11-K:
Financial Statements - Report of Independent Auditors 164 Statements of Net Assets Available for Benefits December 31, 1999 and 1998 165 Statements of Changes in Net Assets Available for Benefits - Years Ended December 31, 1999, 1998, and 1997 166 Notes to Financial Statements - December 31, 1999, 1998, and 1997 167 Financial Statement Schedules 169
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Deferred Stock Purchase Plan Administrative Committee has duly caused this annual report to be signed by the undersigned thereunto duly authorized.
THE BNA DEFERRED STOCK PURCHASE PLAN
Date March 22, 2000
By s/G. Christopher Cosby ---------------------- G. Christopher Cosby Chairman of the Administrative Committee
THE BNA 401(k) PLAN
Financial Statements
December 31, 1999 and 1998
(With Independent Auditors' Report Thereon)
Independent Auditors' Report
The Administrative Committee of The BNA 401(k) Plan:
We have audited the accompanying statements of net assets available for benefits of The BNA 401(k) Plan (the Plan) as of December 31, 1999 and 1998, and the related statements of changes in net assets available for benefits for each of the years in the three-year period ended December 31, 1999. These financial statements are the responsibility of the Plan's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. 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 financial statements referred to above present fairly, in all material respects, the net assets available for benefits of the Plan as of December 31, 1999 and 1998, and the changes in net assets available for benefits for each of the years in the three-year period ended December 31, 1999 in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental schedules of assets held for investment purposes and reportable transactions are presented for the purpose of additional analysis and are not a required part of the basic financial statements but are supplementary information required by the Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. The supplemental schedules have been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, are fairly stated in all material respects in relation to the basic financial statements taken as a whole.
s\ KPMG LLP ----------- KPMG LLP
Washington, D.C. February 22, 2000
THE BNA 401(k) PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
DECEMBER 31, 1999 AND 1998
1999 1998 ----------- ----------- Investments, at fair value (Note 2): BNA Common Stock ................................ $59,251,218 $50,851,964 Mutual Funds .................................... 3,954,433 -- Participant notes receivable ................. .. 403,271 -- Cash and cash equivalents ....................... 523,799 427,292 ----------- -----------
Net assets available for benefits ........... $64,132,721 $51,279,256 =========== ===========
See accompanying notes to financial statements.
THE BNA 401(k) PLAN
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
1999 1998 1997 ----------- ---------- ---------- Additions to net assets attributed to: Investment income Dividends (Note 1) .................... $ 2,062,992 $ 1,731,842 $ 1,515,099 Interest .............................. 20,450 15,957 13,057 Net appreciation in fair value of of investments (Note 2): BNA Common Stock .................... 7,609,875 6,116,389 3,782,258 Mutual Funds ........................ 316,574 -- -- ----------- ---------- ----------
10,009,891 7,864,188 5,310,414
Contributions by participants (Note 1) Salary Reduction ...................... 5,784,213 4,100,333 3,939,638 Rollovers.............................. 977,513 -- -- ----------- ---------- ----------
Total additions ........................ 16,771,617 11,964,521 9,250,052 ----------- ---------- ----------
Deductions from net assets attributed to: Distributions to participants (Note 1) .. 3,917,663 3,228,940 2,793,141 Administrative costs (Note 3) ........... 489 237 226 ----------- ---------- ----------
Total deductions ....................... 3,918,152 3,229,177 2,793,367 ----------- ---------- ----------
Net increase ......................... 12,853,465 8,735,344 6,456,685
Net assets available for benefits: Beginning of year .................... 51,279,256 42,543,912 36,087,227 ----------- ---------- ----------
End of year .......................... $64,132,721 $51,279,256 $42,543,912 =========== =========== ===========
See accompanying notes to financial statements.
THE BNA 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(1) SUMMARY DESCRIPTION OF PLAN
The following description of the BNA 401(k) Plan (the "Plan") provides only general information. Participants should refer to the Plan agreement for a more complete description of the Plan's provisions.
The Plan is a contributory benefit plan sponsored by The Bureau of National Affairs, Inc. (the "Company"), for the benefit of employees of the Company and certain of its subsidiaries. The Plan was established in 1982 with an effective date of January 1, 1983, and is subject to the provisions of the Employee Retirement Income Security Act of 1974 ("ERISA"). The Plan is designed to provide benefits to participants or their beneficiaries, and encourages savings through investments in the Company's common stock and, effective January 1, 1999, various other investment options.
Employees are eligible to participate in the Plan upon completion of thirty days of service. To participate, eligible employees authorize the Company to contribute, on their behalf, a salary reduction amount that is up to 15% of their compensation for the Plan year, subject to certain ceiling limitations provided in the Plan, by tax laws, and by ERISA. Effective January 1, 1999, the Plan also accepts rollover contributions from a previous employer for the benefit of new participants.
Two trusts have been established by the Plan, one (the BNA Stock Trust) for holding Company stock, and one (the Mutual Fund Trust) for holding all other investments. The trusts maintain separate accounts for each participant in the Plan. These accounts are credited with the participants' contributions and Plan earnings, and may be charged with certain administrative expenses. Participants' accounts are fully vested. Distributions can be made in the event of retirement, death, qualifying hardships, or other severance of service. If upon terminating employment, a participant's account value exceeds $5,000; the participant may opt to delay distribution until reaching age 65.
An administrative committee appointed by the Company's Board of Directors acts as administrator of the Plan. An officer of the Company serves as the Trustee of the BNA stock trust. Charles Schwab, Inc., is the trustee of the Mutual Fund trust.
(2) INVESTMENTS
Upon enrollment in the Plan, a participant may direct contributions to any of ten investment options. Participants may change their investment options as desired. Investment options include the shares of the Company's common stock, a stable value fund, and eight mutual funds of registered investment companies that invest in various asset mixes of common stocks, debt securities, and/or money market securities.
(Continued)
THE BNA 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
The Plan's investments are stated at fair value. Shares of the registered investment companies are valued at quoted market prices which represent the net asset value of shares held by the Plan at year- end. Participant notes receivable are valued at cost which approximates fair value. The fair value of the Company's common stock is set by the Company's Board of Directors semiannually for the Stock Purchase and Transfer Plan (SPTP). The Plan values its investments in the Company's stock at the price used for SPTP trades. BNA Common Stock represented five percent or more of net assets available for Plan benefits as of December 31, 1999 and 1998.
The Company's Class A Common Stock, which is voting, may only be purchased by employees with a full year of service. Former employees and, in some cases, their beneficiaries may hold Class A Common Stock for up to three years. The Company's Class B Common Stock is issued to employees in exchange for Class A Common Stock upon their retirement. The Company's Class C Common Stock is issued in exchange for Class A Common Stock to employees of any subsidiary, upon disposition of the subsidiary. The Trust may convert Class A Common Stock for cash, or exchange it for Class B or Class C Common Stock, if necessary to comply with the above ownership restrictions.
Effective January 1, 1999, participants may borrow from their fund accounts a minimum of $1,000 up to a maximum of $50,000. Loan terms range from one to five years. The loans are secured by the balance in the participant's account and bear interest at the Prime rate plus one percent, as determined at the loan's inception. The current interest rate is 9.75%. Principal and interest is paid through regular payroll deductions. Loans and loan repayments are treated as Plan asset transfers, not as distributions and contributions.
(3) ADMINISTRATIVE COSTS
The Company pays most of the administrative costs of the Plan. Such costs are not reflected in the accompanying financial statements.
(4) INCOME TAXES
The Plan received its latest favorable determination letter from the Internal Revenue Service on January 19, 1996 indicating that the Plan, as designed, is qualified under the applicable requirements of the Internal Revenue Code and is therefore exempt from federal income taxes. It is the intent of the Plan's management that the Plan remain qualified and its underlying trust remain tax exempt under the applicable provisions of the Internal Revenue Code.
THE BNA 401(k) PLAN
Line 27a -- Schedule of Assets Held for Investment Purposes December 31, 1999
Fair Identity and description of investment Cost Value ----------------------------------------- ----------- -----------
Cash and Cash Equivalents Charles Schwab Stable Value Fund * ..... $ 495,673 $ 495,673 Cash ................................... 28,126 28,126 ----------- ----------- Total Cash and Cash Equivalents ........ 523,799 523,799 Shares ----------- ----------- 1,519,262 BNA Common Stock * ..................... 33,454,037 59,251,218 ----------- -----------
Mutual Funds 8,147 Accessor Small to Mid Cap Portfolio .... 203,873 223,169 6,978 BT International Equity Fund ........... 176,018 223,098 15,536 PIMCO Total Return Fund ................ 157,871 153,804 9,862 T Rowe Price Personal Strategy-Balanced 159,324 160,160 25,473 T Rowe Price Personal Strategy-Growth .. 482,359 496,217 5,674 T Rowe Price Personal Strategy-Income .. 75,220 73,929 16,104 Torray Fund ............................ 667,979 713,584 14,117 Vanguard Index Trust 500 Portfolio ..... 1,751,282 1,910,472 ----------- ----------- Total Mutual Funds ..................... 3,673,926 3,954,433 ----------- ----------- Participant Notes Receivable ........... 403,271 403,271 ----------- -----------
Total Investments ...................... $38,055,033 $64,132,721 =========== ===========
* Party-in-Interest to the Plan
THE BNA 401(k) PLAN.
Line 27d -- Schedule of Reportable Transactions For Year Ended December 31, 1999
Current Value Identity Of Asset on Of Party Description Price Selling Cost of Transaction Involved of Asset Purchase Price Asset Date Net Gain - ----------- ------------ ---------- ---------- ---------- ----------- ----------
Bureau of 150,547 $5,567,885 --- $5,567,885 $5,567,885 --- National Shares Affairs, Common Stock Inc.
Bureau of 126,931 --- $4,778,506 $2,565,402 $4,778,506 $2,213,104 National Shares Affairs, Common Stock Inc.
Note: The items listed above represent transactions or a series of transactions, which are in excess of 5% of the market value of Plan assets, at January 1, 1999, ($2,563,963) and are reportable under Section 2520.103.6 of Chapter XXV of the Department of Labor Employee Retirement Income Security Act annual reporting requirements.