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 and regulatory information. BNA was founded in 1929, and was incorporated in its present form as an employee-owned company in 1946. BNA is independent, for profit, and is the oldest fully employee-owned company in the United States.
BNA and its publishing subsidiaries, Tax Management Inc., Pike & Fischer, Inc., and Institute of Management 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, West Publishing Company, Dialog, and Legislate. 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 48 percent of its business is derived from the BNA publishing companies.
BNA Communications Inc. is engaged in the business of producing, publishing, and marketing multimedia programs for training in the equal employment opportunity and safety and health related fields. The programs promote awareness, facilitate regulatory compliance, and develop skills for managers and employees in industry and government.
Continued
Review Of Operations
BNA's financial results for 1998 reflected ongoing business growth, as revenues advanced at a double-digit rate. The company was able to absorb significant expenses, including Year 2000 costs and an adverse judgment in a civil lawsuit, yet still show an increase in operating profit over 1997. 1998 earnings per share rose to $2.34, a 4.5 percent increase over 1997, and 70 percent higher than just three years ago.
Consolidated revenues increased 10.1 percent to nearly $269 million. The acquisition of the Institute of Management and Administration, Inc. (IOMA), a newsletter publisher, accounted for 5.2 percent of the increase. Internal revenue growth was 4.9 percent, led by the strong advances of Tax Management, BNA Software, and The McArdle Printing Co., Inc.
Year 2000 costs, the adverse judgment, acquisition-related amortization expenses, and an otherwise modest increase in operating expenses resulted in the consolidated operating profit increasing only 2.7 percent. All business units achieved higher operating profits and margins, however, except for the parent company, which bore the brunt of the Year 2000 costs and the adverse judgment, and BNA Communications, which suffered from declining revenues.
Investment income grew 13.2 percent. However, interest expenses on the IOMA purchase loan, as well as equipment write-offs, resulted in non-operating income being $.6 million lower than in 1997, a year in which non-operating income included a gain from the sale of a publication.
Net income of $19.6 million was unchanged from the prior year. Earnings per share rose 4.5 percent, however, because there were fewer shares outstanding. The 1998 earnings margin of 7.3 percent and the return on equity of 26.6 percent, although down slightly from the decade highs achieved in 1997, nevertheless remain historically impressive.
Cash and investment balances increased slightly to $145.8 million, despite a higher-than-usual expenditure of cash funds for capital expenditures, including the internally-financed portion of the IOMA acquisition. Stock repurchases, primarily mandatory redemptions from the estates of Class B shareholders and from Class C shareholders, continued at a high level. Cash flows from operations constituted the primary source of funds needed for the capital expenditures and stock repurchases, and for dividends paid to shareholders.
BNA's financial strength and liquidity, in addition to providing current investment income, ensures that the Company has the resources to respond to business challenges and opportunities, to make the investments needed to maintain continued future growth, and to meet the stock repurchase obligations inherent in an employee-owned company.
A review of the 1998 operations of the parent company and each subsidiary follows. (Continued)
Parent Company
Successful new products -- both traditional and non-traditional -- and a big boost from the Web versions of our established services helped grow parent revenues in 1998. This growth in turn helped fund aggressive technology investments that position us well for future growth.
The magnitude of the investments needed to bolster our electronic infrastructure and remedy Year 2000 problems, support and improve existing products and create new ones, and develop a whole new generation of products for the Web, proved to be great, however, and led to a decline in the parent's operating profit. An adverse judgment in a civil lawsuit also had a negative impact on operating profit.
The investments began to bear fruit in 1998. Our new Medicare/Medicaid Compliance Library, a CD product designed to go head-to-head with well-established competitive products, was launched in July and easily surpassed initial sales projections. The heart of this product is an innovative legal research tool, Roadmaps(TM) Researcher. This tool guides researchers through lengthy and complex laws, regulations, and administrative materials to get to the answers they need. The early market success of this product shows that, even in a world where government information is widely available, there remains a critical need for what BNA does best: organize and analyze. The Roadmaps(TM) Researcher will be an important part of future electronic reference services.
BNA launched its first Web reference products, Human Resources Library on the Web and Export Reference Guide on the Web, in 1998. Both products garnered Information Industry Association Hotshot Awards for being the best new Web products in their class. A number of other major reference products will be launched in a Web format in the first half of 1999.
The Web is a great delivery platform for BNA's notification services. The ability to get BNA information on a daily or weekly basis without having to wait for the print copy to arrive and be routed has proven to be popular. Product enhancements, such as e-mail summaries that link directly into the stories they describe, along with innovative selling techniques and creative pricing policies, have made these Web products the fastest growing part of the parent company.
Three new notification services were launched in 1998. Responding to a resurgence in corporate merger activity, BNA launched Mergers & Acquisitions Law Report in March. That same month saw the start of BNA's Year 2000 Law Report. The subject matters struck a chord; both products were among the year's best-selling products. The third notification service, Business Law Adviser, was introduced in September. This biweekly is designed for attorneys who need notification, as well as practice-oriented information to advise business clients, but who do not need the depth and frequency of more specialized BNA services.
To meet the needs of in-house counsel, BNA introduced two related products, Corporate Governance Manual and Corporate Governance Library on CD. The manual is a one-binder service that provides practical, expert guidance on shareholder meetings, boards of directors, and other corporate governance matters. The Corporate Governance Library on CD, in addition to the manual, features the full text of federal and state court decisions and statutes. (Continued)
Investments in the functionality and editorial quality of BNA's Human Resources Library on CD helped maintain BNA's position as the premier publisher in this area. New sales of that product increased for the third straight year. Contributing to this momentum were two significant additions to the HR product line. February saw the launch of HR Practitioners Guide, a service designed for HR managers whose information needs do not match the comprehensive scope of HRCD. The end of the year saw the launch of Human Resources Library -- Lawyers Edition. By providing the full text of judicial decisions cited in HRCD, the lawyers edition meets the specialized information needs of attorneys.
Much work was done in 1998 on a Web version of our environment and safety CD products. A first generation of the Environment & Safety Library on the Web was released to select customers last year. An improved version with considerably enhanced functionality will be released in 1999.
The emergence of the Web product platform, increasing demands from our biggest customers for more specialized service and support, and the ability to provide enterprise-wide information solutions led to the evolution of a new kind of field sales representative--the National Account Manager. These account executive-like positions helped solidify and expand the business we do with our largest customers. Later in the year, some of the same considerations led to the creation of Regional Account Development Managers, who are trained to work with traditional sales reps to offer specialized solutions to specific information needs. These new resources played a significant role in quickly establishing the Web as a major revenue source for BNA.
Electronic products and new ways of doing business placed unprecedented demands on the Information Technology Department. That, along with the need to prepare BNA for the Year 2000, necessitated big investments in both people and equipment in 1998. While the challenges were great, the successes were many. A record number of electronic products were launched, good progress was made on the Year 2000 front, and much new talent was brought into the organization. BNA is well on its way to having the IT Department it needs to compete in this technology-intensive industry.
Great progress also was made on BNA's multi-year effort to implement a single publishing system to create all of BNA's diverse product line. That system, PS2000, is now used by four out of every five of BNA's reporters and editors. All notification and newsletter publications of the parent company, as well as most reference publications, are published from PS2000. The implementation of PS2000 means that BNA's most vital commity, its information, is now stored and uniformly coded, ready to be delivered to subscribers by any means desired. The system provides the flexibility needed to respond to marketplace demands for multiple product types.
Once again BNA ended the year by being named one of Fortune magazine's "100 Best Companies to Work for in America." BNA also made, for the ninth straight year, Working Mother magazine's list of the "100 Best Companies for Working Mothers." The fact that we received these honors in the past does not make their continued receipt any less of an accomplishment. In fact, it's an important reminder from an outside perspective that, because we are employee-owned, "shareholder value" means more than simply business success. (Continued)
BNA Books
For the fifth year in a row, BNA Books produced record profits. Revenues grew over 9 percent to $7.9 million in 1998.
Supplements to Employment Discrimination Law and Developing Labor Law, co-published with the ABA Section of Labor and Employment Law, contributed heavily to the division's success in 1998. Sales of Covenants Not to Compete, Employee Duty of Loyalty, and Trade Secrets, also co-published with the ABA, continued to do well. The division's biannual Equal Employment Law Update has become a steady best seller.
Other successful titles in 1998 included Patents in the Federal Circuit, 4th Edition; BNA's Directory of State and Federal Courts; Patent, Trademark, and Copyright Laws and Regulations; and ERISA: The Law and the Code.
Finally, at year's end, the division completed its transition to a new Year 2000-compliant book fulfillment system. The new system is much more flexible and efficient, enabling us to provide our customers with greatly improved service.
Subsidiary Companies
Tax Management Inc.
Tax Management had another banner year in 1998 as revenues, including those of BNA Software, rose more than 12 percent to a new record of $61.8 million.
Operating revenues for the print and CD-ROM services increased nearly 11 percent, with slightly more than half of the subscribers relying on electronic delivery. The fall introduction of a beta version of the Portfolios on the Web was well received by customers and won positive industry reviews. A greatly enhanced version is rolling out during the first half of 1999.
Tax Practice Series continues to grow in industry acceptance, and circulation reached new highs in 1998. The major product enhancement for this service and for Tax Management Multistate was the addition of state tax codes and regulations in the final quarter of the year. There has been a great deal of enthusiasm for these new combinations and we look forward to greater market penetration.
New advertising campaigns, an effective field sales effort, creative packaging, and increased market presence helped continue the strong new sales trend of recent years, while renewal sales were encouraged through a significant increase in client relations activity and training sessions.
A new Editorial Technology Division was created to fulfill an ambitious product development plan that includes migrating the TM services to PS2000, enhancing TM's Web publishing capability, ensuring Year 2000 compliance, and increasing CD-ROM publishing activities.
(Continued)
BNA Software
BNA Software again posted strong double-digit growth in sales and profits. Revenues were up 16 percent and total value of existing subscriptions expanded a healthy 13 percent for the year.
New sales reached a new high, with the Fixed Asset and Tax Planning products finishing among the top ten best sellers for all of BNA. The Sales Tax segment also continued to post positive growth.
Late in the year, the Enterprise Edition of the BNA Fixed Assets Next Dimension product was introduced to reach a higher-end customer group with more demanding needs. Early signs of customer acceptance have been positive. Customers are also positive about the fee-based training curriculum introduced earlier this year for the Fixed Asset product line.
Also contributing to the division's success in 1998 was the introduction of a new per-user licensing program. This new licensing approach gives customers the flexibility to license just the number of users they need at more affordable rates. Looking forward to 1999, we expect favorable overall results and increased emphasis on new product development to ensure long-term growth.
BNA International Inc.
BNAI experienced record growth in 1998. Revenues increased by 19 percent. Revenues from BNAI services were 16 percent higher than the previous year due to continuing growth from established products and the launch of new ones such as Asia-Pacific Focus, International Securities Law, and World Telecom Law Report. Sales of BNA and Tax Management services were at the highest level ever recorded.
The continuous refinement of direct marketing techniques resulted in high sales of Tax Planning International and several other products, and the strategy of developing loose-leaf reference services, like International Licensing, related to existing services, resulted in a very good return for every marketing dollar spent.
The drive to develop new products as one means of growth continued in 1998. The International Securities Law loose-leaf was introduced mid-year and extensive market research resulted in three new publications which were launched in January 1998. BNAI's international tax offering will be significantly enhanced by the quarterly European Union Focus and monthly Tax Planning International's e-commerce. The new World Licensing Law Report has been introduced to capitalize on the success of International Licensing.
The acquisition of three newsletters from FT Finance in August generated additional revenues. FT World Tax Report was merged with Tax Planning International and added 18 percent to its circulation. Emerging European Markets and East European Business Law were merged with Eastern Europe Reporter, doubling the circulation of that service. Efforts will continue to identify suitable acquisition targets.
BNAI will continue to focus on growth of its own product line and of international sales of parent company and Tax Management products while maintaining a solid profit base.
(Continued)
Pike & Fischer, Inc.
1998 was a year of transition for Pike & Fischer, with the biggest change being the company's relocation from Bethesda to nearby Silver Spring, MD. Moving to Silver Spring promised more reasonably priced space with little disruption to the commuting patterns of employees.
That wasn't the only change. Pike & Fischer launched three new subscription services in 1998 and set in motion major new product development initiatives. UT Digest is a biweekly newsletter covering electric and gas utilities' strategic repositioning of their businesses. Telecom Land Management Law Report is a single-binder reference-plus-notification service covering the contentious intersection of zoning law and telecommunications regulation. FR Today is a daily e-mail alert providing subscriber-selected portions of the daily Federal Register. It is Pike & Fischer's first electronic-only publication and reflects the company's decision to accelerate its commitment to Web publishing. The company also published two books on the subject of alternative dispute resolution: Mediation Practice Guide and Court-Annexed Mediation.
Even with the additional expenses associated with both relocation and product development, Pike & Fischer posted an increase in operating profit, the result of nearly 12 percent revenue growth in 1998. This growth came from an increase in royalty payments and the first full year of revenues from the food safety publications acquired in late 1997.
With the move completed, Pike & Fischer looks forward in 1999 to continuing to build new revenue sources from new products and new types of products. This will ensure that it continues to be an important contributor to BNA's bottom line.
Institute of Management and Administration, Inc.
IOMA finished its first year as a BNA company with record new product launches, revenues, and profits. The first year was also characterized by the development of new publishing strategies linked to BNA's editorial and market strengths.
Foremost among the year's accomplishments was the launch of ten new subscription newsletters, with titles ranging from Managing HR Information Systems to Security Director's Report to Managing Logistics. IOMA published 31 newsletters at the beginning of the year, and 41 at the end. In addition to subscription newsletters, IOMA launched six Yearbooks and over a dozen special reports, and test-marketed 24 newsletter product ideas.
IOMA's telemarketing-based product test department added a series of tests to develop new information services in the mid-price business-to-business market. In addition to traditional IOMA products, this new line will capitalize on BNA and IOMA editorial talent, while taking advantage of IOMA's mail and telephone sales capabilities.
IOMA added nearly $12.6 million in revenues to BNA's consolidated total in 1998. Despite heavy expenses related to its aggressive, growth-oriented marketing plan, IOMA also improved its operating profit. Strong growth in IOMA revenues and profits are projected for 1999.
Much effort this year also went into developing synergies with the parent company. These efforts included marketing select TM lists late in 1998, working with BNA's Business Development staff to identify and evaluate a number of high-quality acquisition opportunities, cooperative marketing efforts, and developing programs to enable IOMA to achieve the strategic goal of leveraging BNA's strengths.
(Continued)
BNA Washington Inc.
BNAW, BNA's real estate subsidiary, had another successful year. Revenues from outside tenants were $1.8 million again in 1998, and total operating expenses for all facilities were virtually the same as the prior year. Most importantly, BNAW continued to provide the facilities and support services to accommodate BNA's operations, growth, and changing business requirements.
During June, the Accounting & Finance and Human Resources Departments were moved to new offices in the 23rd Street building (BNA 4). Included in the new space are greatly expanded training facilities. This relocation was a major step in BNA's long-range facilities goal of providing editorial and support services growth space in the 25th Street buildings for the next several years.
A long-range facilities plan was completed in 1998. It will be an invaluable planning tool in effectively anticipating and meeting office space requirements in future years. Also completed was a comprehensive evaluation of the operating systems (mechanical, electrical, and plumbing) of the aging North and South Buildings. The resulting plan will serve as a guideline for timely and economical replacement or overhaul of equipment over the next four to five years.
The company is well positioned to handle foreseeable space needs in the future.
The McArdle Printing Co., Inc.
In 1998, McArdle achieved a significant increase in commercial sales and a rebound in profitability. For the first time in its history as a BNA company, over half of McArdle's revenues came from non-BNA work.
Total revenues increased to $31.6 million. Commercial sales continued to grow strongly, up 25 percent in 1998 after a 24 percent increase in 1997. Total 1998 sales to BNA and Tax Management for printing, binding, and mailing services declined 7.4 percent in 1998 reflecting the migration to electronic products. Total sales to BNA, Tax Management, and IOMA, a new McArdle customer, made up 48 percent of total revenues.
McArdle continued investing in new equipment to expand the capacity, capability, and scope of the printing operation to meet customer needs and provide opportunities for revenue growth. New equipment purchased during the year significantly enhanced McArdle's electronic pre-press and bindery operations.
With an excellent facility, modern equipment, and knowledgeable and productive employees, McArdle's growth and profitability is expected to continue to advance in 1999. In 1998, McArdle ranked 196 in the top U.S. printing companies, making it one of the largest printers on the East Coast. Its commitment to produce competitively priced, superior quality products and services to BNA and to the commercial markets it serves will ensure continued success.
(Continued)
BNA Communications Inc.
BNAC spent 1998 repositioning itself in the Human Resource market from a producer of video-based training programs to a provider of full-service training and consulting solutions. Though the company continued to build its image and profile in the Human Resource market, the effort presented numerous challenges.
The loss of a seasoned product development manager in late 1997 resulted in significant delays in new product launches. As a result, no new products were released on the Human Resources side of the business in 1998. The year also saw the loss of some top-producing sales reps whose talent and experience were difficult to replace.
New product delays, transitions in strategic direction, and personnel turnover resulted in declining revenues for the first part of 1998 and a net loss for the year. The repositioning efforts began to pay off in the second half of the year when the company was solidly profitable.
BNAC begins 1999 with three major new Human Resource products ready for market. Jack Cade's Nightmare III: Caught in the Crossfire and Roadmap to Success build on BNAC's successful line of management development programs with a legal emphasis. Diverse Communications: Investing in Relationships is a groundbreaking training program that unites diversity and communications skills to help build more productive work relationships.
PART I
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 professional 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 10 percent of total revenue.
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 professional 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 2,055 at December 31, 1998.
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 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 and BNA Communications Inc. operate 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. 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. IOMA conducts its operations from leased offices at 29 West 35th Street, New York, New York.
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.
(Continued)
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, 1998.
Item X. EXECUTIVE OFFICERS OF THE REGISTRANT
The following persons were executive officers of The Bureau of National Affairs, Inc., at December 31, 1998. 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 69 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 49 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 38 Vice President and General Counsel Elected Vice President in 1996 and General Counsel in 1995. Joined BNA in 1994 as Associate General Counsel. From 1991 to 1994 was senior associate at LeBoeuf, Lamb, Greene & MacRae, LLP.
Kathleen D. Gill 52 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 43 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 47 Treasurer Elected to present position in 1998. Joined BNA in 1985.
George J. Korphage 52 Vice President and Chief Financial Officer Elected Vice President in 1988 and Chief Financial Officer in 1989. Joined BNA in 1972.
Mary Patricia Swords 53 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 51 Vice President for Strategic Development Elected to Vice President in 1995. Previously was President of BNA Communications since 1986. Joined BNA Communications in 1976.
Paul N. Wojcik 50 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 establishes semi-annually 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, 1999, there were 1,584 Class A shareholders, 246 Class B shareholders, and 26 Class C shareholders. The company repurchased 235,766 shares of Class B stock and 104,654 shares of Class C stock from retired employees or their estates in the 12 months ending March 1, 1999.
Established stock price and dividends declared during 1998 and 1997 were as follows:
Stock Price January 1, 1997 - March 23, 1997 27.00 March 24, 1997 - September 21, 1997 28.50 September 22, 1997 - March 22, 1998 29.75 March 23, 1998 - September 27, 1998 32.50 September 28, 1998 - December 31, 1998 34.00
Record Date and Dividend Amount March 22, 1997 $ .55 September 20, 1997 .55 March 21, 1998 .60 September 26, 1998 .60
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)
1998 1997 1996 1995 1994 -------- -------- -------- -------- --------
Operating Revenues ............ $268,829 $244,061 $232,632 $226,497 $215,491 Operating Expenses ............ 248,229 223,999 218,074 218,628 204,507 -------- -------- -------- -------- -------- Operating Profit .............. 20,600 20,062 14,558 7,869 10,984 Non-operating Income : Investment Income, net ...... 8,178 7,957 6,989 6,452 4,614 Other Income ................ (432) 427 82 3,257 459 -------- -------- -------- -------- -------- Income from Operations Before Income Taxes ................ 28,346 28,446 21,629 17,578 16,057 Income Taxes .................. 8,753 8,885 7,041 5,487 4,397 -------- -------- -------- -------- -------- Net Income .................... $ 19,593 $ 19,561 $ 14,588 $ 12,091 $ 11,660 ======== ======== ======== ======== ======== Profit Ratios (b): % of Operating Revenues ..... 7.3 8.0 6.3 5.3 5.4 % of Average Stockholders' Equity ................. 26.6 26.9 20.9 19.8 21.7 -------- -------- -------- -------- -------- Total Earnings Per Share ...... 2.34 2.24 1.65 1.38 1.36 Dividends Per Share ........... 1.20 1.10 1.00 0.94 0.90 ======== ======== ======== ======== ======== Balance Sheet Data: Total Assets ................ $324,449 $300,900 $299,311 $278,752 $270,599 Long-Term Debt .............. 14,000 -- -- -- 107 ======== ======== ======== ======== ======== Employee Data: Number of Employees ......... 2,055 1,893 1,915 1,863 1,854 Total Employment Costs ...... $137,386 $128,095 $124,322 $119,488 $120,599 ======== ======== ======== ======== ======== Stockholder Data at Year-End: Book Value Per Share ........ $ 9.00 $ 8.65 $ 8.15 $ 7.59 $ 6.36 Number of Stockholders ...... 1,791 1,752 1,741 1,717 1,627 Common Shares Outstanding (In thousands) 8,228 8,500 8,848 8,858 8,652 ======== ======== ======== ======== ========
PART II
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
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.
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.
PROFESSIONAL PUBLISHING operating segment (including the Parent, Tax Management Inc., IOMA, Pike & Fischer, Inc., BNA International Inc., and BNA Washington Inc.) 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 (see note 11 of the consolidated financial statements). 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 (includes The McArdle Printing Company, Inc.) 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 Professional 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.
(Continued)
1997 VS. 1996 CONSOLIDATED revenues increased 4.9 percent over the prior year to $244 million. Operating profit of $20.1 million in 1997 was significantly higher than in 1996. Net income, at $19.6 million, was a record high for the fourth straight year.
Investment income was 13.9 percent higher than in 1996 due to larger portfolios. Other non-operating income for 1997 included a gain of $.4 million on the sale of a publication.
The consolidated federal, state, and local effective income tax rate was 31.2 percent in 1997 compared to 32.6 percent in 1996. Earnings per share were $2.24, a 35.8 percent increase over 1996.
PROFESSIONAL PUBLISHING revenues increased 3.9 percent over 1996 due to modest business growth in the combined subscription revenue base for print and electronic products. Revenues for electronic products continued to grow, while print products--although still the dominant service revenue source--declined. Publishing revenues were 92.4 percent of consolidated revenues in 1997 and 93.4 percent in 1996.
Thirteen new subscription services were launched in 1997. Development expenses for new products, improvements on existing products, and new delivery methods were $4.6 million compared to $6.4 million in 1996. Operating expenses in 1997 also include an identifiable $5.1 million for developing improved business and publishing systems and the write-off of an abandoned business system. Overall, operating expenses were only 1.3 percent higher in 1997 than in 1996, as direct expenses (editorial, production and distribution) were essentially unchanged.
PRINTING revenues increased 11.5 percent, reflecting a 23.8 percent increase in revenues from external customers and a 3 percent increase in intersegment revenues. Printing operating profit decreased 42.9 percent due to higher operating expenses related to increasing plant capacity, higher volume, and an expansion of the sales force.
(Continued)
DEFERRED TAX ASSETS
The Company has recorded $23.4 million of net deferred tax assets as of year-end 1998. 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, cash expenditures for operations and to support employee ownership. Cash provided from operating activities declined 13 percent in 1998, reflecting a 7 percent increase in collections, but a 10.3 percent increase in expenditures. Excluding IOMA, collections increased 1.9 percent compared to 1997, which had increased 6.2 percent over 1996, and expenditures increased 4.8 percent.
Cash outlays for investing activities netted to $29.6 million, reflecting $18.3 million for the acquisition of a business, other capital expenditures of $4.4 million, and $6.9 million reinvested in the Company's investment portfolio. Capital expenditures for 1999 are budgeted to be over $6 million.
Cash used for financing activities netted to $5.1 million. The Company borrowed $15 million to partially finance the IOMA acquisition and repaid $1 million of that debt during 1998. Sales of Class A capital stock to employees totaled $5.7 million. Capital stock repurchases amounted to $14.7 million, most of which were mandatory redemptions. In addition, the Company paid cash dividends of $10.1 million in 1998. During 1999, the Company will redeem over $3 million of capital stock.
With $145.8 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. This capacity was partially utilized to finance the acquisition of IOMA.
(Continued)
YEAR 2000 READINESS
The Year 2000 (Y2K) readiness issue concerns the inability of older computer programs to properly recognize a date using "00" for the applicable year as the year 2000 rather than the year 1900. This could result in miscalculations, system failures, or other business disruptions. The Company has projects underway to address Y2K readiness of its products and internal systems, and with material third parties.
The Company has inventoried and assessed all major categories of information technology systems (i.e. electronic products and publishing and business systems) and non-information technology systems (i.e., equipment with embedded microprocessors such as elevators, phones and copiers) in use by the Company. With respect to its information technology systems, the Company has been replacing its business and publishing systems for the last several years. The various business systems are either in the process of being renovated (replaced or remediated through code changes); or have completed renovation and are in the Y2K validation testing phase. Most of the publishing systems have been renovated and are in the validation phase. In addition, the Company has many products that are delivered in an electronic format, such as CD-ROM, diskette, e-mail, or via the worldwide Web, representing over one-third of consolidated revenues. The Company believes that its products, and the third-party software used to create, use, and/or deliver those products, are Y2K ready, and is currently devising plans to validate each product. With respect to its non-information technology systems, the Company is in the validation testing phase. Validation of all areas as to the integrity of the Company's Y2K readiness is expected to be completed by late 1999. The Company expects to have all products and all internal mission-critical information technology and non-information technology systems Y2K ready by late 1999.
The Company has initiated communications with its key suppliers, including financial institutions and other data interface sources, to assess the potential impact on the Company's operations if those third parties fail to become Y2K compliant in a timely manner. Risk assessments, action steps and contingency plans related to significant third party relationships are expected to be completed by late 1999.
Based on updated estimates, the cost in 1999 to replace business systems with Y2K ready systems, and for testing to ensure that the publishing systems and products are also ready, is expected to be $2.4 million. Of this amount, an estimated $1.5 million for software will be capitalized. The cost to remediate other business systems is expected to be $3 million. In 1998, Y2K readiness efforts cost $4.3 million, of which $360,000 was capitalized.
(Continued)
The Company's readiness projects also include the development of contingency plans to protect its business and operations from Y2K-related interruptions. These plans should be complete by September 1999 and, by way of examples, may include back-up procedures, identification of alternate suppliers, where practical, and increases in inventory levels. Based upon the Company's current assessment of its non-information technology systems, the Company does not believe it necessary to develop an extensive contingency plan for those systems. There can be no assurances, however, that all of the Company's contingency plans will be sufficient to handle all problems or issues that may arise.
The Company believes that it is taking reasonable steps to identify and address those matters that could cause serious interruptions in its business and operations due to Y2K issues. However, delays in the implementation of new systems, a failure to fully identify all computations which are year dependent in the Company's systems or in the systems of its material suppliers, a failure of such suppliers to adequately address their respective Y2K issues, or a failure of a contingency plan, could have a material adverse effect on the Company's business, financial condition and results of its operations. The Company believes the most reasonably likely worst case scenario may be that the failure of a supplier, including an energy supplier, to be Y2K ready could lead to the temporary disruption in the production of some of the Company's products, resulting in lost revenues and profits.
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 10 percent adverse change 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, 1998 was as follows:
Expected Maturity Date ($ thousands) -------------------------------------------------------------- 1999 2000 2001 2002 2003 Thereafter -------- -------- -------- -------- -------- ------------
Municipal Bonds $17,399 $1,130 $582 $4,469 $4,383 $68,321 Average Interest Rate 5.3% 5.4% 5.0% 5.2% 5.6% 5.1%
Corporate Debt $8,316 --- $1,510 $2,004 --- --- Average Interest Rate 5.0% 5.7% 5.6%
The Company manages interest rate risk in its investment portfolio by diversifying the maturities of its fixed-income investments. Approximately 24 percent of these instruments at year-end 1998 mature within one year, and 36 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, 1998 and 1997
(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. and subsidiaries as listed in the accompanying index in Part IV, Item 14(a)(1). In connection with our audits of the consolidated financial statements, we have also audited the financial statement schedule as listed in the accompanying index in Part IV, Item 14(a)(2). These consolidated financial statements and the financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and the financial statement schedule based on our audits.
We conducted our audits in accordance with 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. and subsidiaries as of December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1998 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 19, 1999
THE BUREAU OF NATIONAL AFFAIRS, INC. CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1998 AND 1997 (In thousands of dollars)
ASSETS
December 31, ------------------------
1998 1997 -------- -------- CURRENT ASSETS: Cash and cash equivalents (Note 5) ............. $ 15,259 $ 19,421 Short-term investments (Note 5) ................ 25,715 9,013 Receivables (Note 9) ........................... 43,934 41,307 Inventories (Note 9) ........................... 4,999 5,440 Prepaid expenses ............................... 3,447 3,368 Deferred selling expenses (Note 3) ............. 21,586 23,244 -------- --------
Total current assets ........................... 114,940 101,793
MARKETABLE SECURITIES (Note 5) ................. 104,838 115,809 PROPERTY AND EQUIPMENT (Note 9) ................ 44,791 47,852 DEFERRED INCOME TAXES (Note 8) ................. 25,019 22,296 GOODWILL (Note 7) .............................. 28,702 8,924 OTHER ASSETS (Note 9) .......................... 6,159 4,226 -------- --------
Total assets ................................... $324,449 $300,900 ======== ========
(Continued)
THE BUREAU OF NATIONAL AFFAIRS, INC. CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1998 AND 1997 (In thousands of dollars)
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31, -----------------------------
1998 1997 ---------- ---------- CURRENT LIABILITIES: Payables and accrued liabilities (Note 9) $ 33,901 $ 33,529 Deferred income taxes (Note 8) 1,577 3,120 Deferred subscription revenue (Note 3) 127,592 121,934 ---------- ----------
Total current liabilities 163,070 158,583
LONG-TERM DEBT (Note 10) 14,000 --- POSTRETIREMENT BENEFITS, less current portion (Note 4) 69,230 65,410 OTHER LIABILITIES 4,128 3,356 ---------- ----------
Total liabilities 250,428 227,349 ---------- ----------
COMMITMENTS AND CONTINGENCIES (Notes 11 & 12)
STOCKHOLDERS' EQUITY (Notes 5 & 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 39,782 35,668 Retained earnings 69,734 60,242 Treasury stock, at cost (50,418) (37,329) Elements of other comprehensive income: Net unrealized gain on marketable securities 3,081 3,126 Foreign currency translation adjustment (70) (68) ---------- ----------
Total stockholders' equity 74,021 73,551 ---------- ----------
Total liabilities and stockholders' equity $ 324,449 $ 300,900 ========== ==========
See accompanying notes to consolidated financial statements.
THE BUREAU OF NATIONAL AFFAIRS, INC. CONSOLIDATED STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996 (In thousands of dollars)
Percent of Operating Revenue --------------------
1998 1997 1996 1998 1997 1996 --------- --------- --------- ------ ------ ------
OPERATING REVENUES (Notes 1 and 3) $ 268,829 $ 244,061 $ 232,632 100.0% 100.0% 100.0% --------- --------- --------- ------ ------ ------
OPERATING EXPENSES (Notes 1,3,4,7,9 and 11): Editorial, production, and distribution 143,989 134,179 131,295 53.5 55.0 56.4 Selling 59,626 51,362 50,828 22.2 21.0 21.9 General and administrative 42,646 36,371 34,681 15.9 14.9 14.9 Profit sharing 1,968 2,087 1,270 0.7 0.9 0.5 --------- --------- --------- ------ ------ ------
248,229 223,999 218,074 92.3 91.8 93.7 --------- --------- --------- ------ ------ ------
OPERATING PROFIT 20,600 20,062 14,558 7.7 8.2 6.3 --------- --------- --------- ------ ------ ------
NON-OPERATING INCOME: Investment income (Note 5) 9,077 8,016 7,012 3.4 3.2 3.0 Interest expense (Note 10) (899) (59) (23) (0.3) 0.0 0.0 Other income(expense) (Note 6) (432) 427 82 (0.2) 0.2 0.0 --------- --------- --------- ------ ------ ------
TOTAL NON-OPERATING INCOME 7,746 8,384 7,071 3.4 3.0 2.9 --------- --------- --------- ------ ------ ------
INCOME BEFORE PROVISION FOR INCOME TAXES 28,346 28,446 21,629 10.6 11.6 9.3
PROVISION FOR INCOME TAXES (Note 8) 8,753 8,885 7,041 3.6 3.0 3.3 --------- --------- --------- ------ ------ ------
NET INCOME $ 19,593 $ 19,561 $ 14,588 % 8.0 % 6.3 % 7.3 ========= ========= ========= ====== ====== ======
EARNINGS PER SHARE (Note 12) $ 2.34 $ 2.24 $ 1.65 ========= ========= =========
See accompanying notes to consolidated financial statements.
THE BUREAU OF NATIONAL AFFAIRS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996 (In thousands of dollars)
1998 1997 1996 ---------- ---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 19,593 $ 19,561 $ 14,588 Items with different cash requirements than that reflected in net income Depreciation and amortization 10,533 8,798 8,887 (Gain) on sales of securities (1,423) (948) (542) (Gain)/loss on sales of assets 432 (427) (82) Others 48 197 233 Changes in operating assets and liabilities Receivables (1,806) 3,947 (1,970) Deferred subscription revenue (349) 2,445 2,295 Payables and accrued liabilities 1,663 642 2,643 Postretirement benefits 3,786 2,133 7,357 Deferred income taxes (4,275) (1,530) (4,110) Deferred selling expenses 1,658 465 1,385 Inventories 441 (47) 871 Other assets and liabilities--net 240 (111) (1,800) ---------- ---------- ----------
Net cash provided from operating activities 30,541 35,125 29,755 ---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures Acquisition of a business (net of $750 cash acquired) (18,289) --- --- Purchases of equipment and furnishings (4,272) (5,670) (4,002) Building improvements (170) (256) (132) Proceeds from the sales of property 71 17 37 Proceeds from sales of publishing assets 25 184 17 Purchase of publishing assets (132) (185) --- --------- ---------- ----------
Net cash used for capital expenditures (22,767) (5,910) (4,080) --------- ---------- ----------
(Continued)
THE BUREAU OF NATIONAL AFFAIRS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996 (In thousands of dollars)
1998 1997 1996 --------- --------- --------- Securities investments Proceeds from sales and maturities 75,267 58,075 75,250 Purchases (82,127) (66,824) (90,587) --------- --------- ---------
Net cash used for securities investments (6,860) (8,749) (15,337) ---------- --------- ---------
Net cash used for investing activities (29,627) (14,659) (19,417) ---------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings 15,000 --- --- Repayment of borrowings (1,000) --- --- Sales of capital stock to employees 5,727 5,313 5,306 Purchases of treasury stock (14,702) (15,568) (5,625) Dividends paid (10,101) (9,688) (8,884) ---------- --------- ---------
Net cash used for financing activities (5,076) (19,943) (9,203) ----------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (4,162) 523 1,135
CASH AND CASH EQUIVALENTS, beginning of year 19,421 18,898 17,763 ----------- --------- ---------
CASH AND CASH EQUIVALENTS, end of year $ 15,259 $ 19,421 $ 18,898 =========== ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Interest paid $ 678 $ 41 $ 23 Income taxes paid 13,627 9,490 10,884
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.
THE BUREAU OF NATIONAL AFFAIRS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
(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) ACQUISITION
On January 13, 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 recoverability of these intangible assets will be evaluated periodically by comparing their amortized balances to IOMA's expected cash flows.
The following unaudited pro forma information for 1997 and 1996 presents a summary of consolidated results of operations of the Company and IOMA as if the acquisition had occurred at the beginning of 1996. 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 (in thousands, except per share data).
Unaudited ------------------------------ 1998 1997 1996 ------------ ------------ ------------ Revenues $ 268,829 $ 255,920 $ 243,838 Net Income $ 19,593 $ 18,058 $ 12,977 Earnings Per Share $ 2.34 $ 2.07 $ 1.46
On a pro forma basis for 1997 and 1996, earnings per share would have decreased by $.17 and $.19, respectively. However, these pro forma results may not be indicative of the results of operations which would have resulted had IOMA and the Company been a consolidated entity during 1996 and 1997 or of future results of operations of the consolidated entities.
(Continued)
THE BUREAU OF NATIONAL AFFAIRS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(3) RECOGNITION OF SUBSCRIPTION 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 item; however, the fulfillment of the Company's subscription liability will use substantially less current assets than the liability amount shown. Advertising expenses, which are expensed as incurred, were $10,666,000 in 1998, $5,488,000 in 1997 and $5,302,000 in 1996.
(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):
1998 1997 1996 --------- --------- --------- Service cost benefits earned during the year $ 4,415 $ 3,862 $ 4,131 Interest cost 6,249 5,769 5,437 Expected return on plan assets during the year (6,372) (5,651) (5,292) Recognized net actuarial loss and amortization of transition assets and prior service costs (50) (101) (117) --------- --------- ---------
Net pension expense $ 4,242 $ 3,879 $ 4,159 ========= ========= =========
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):
1998 1997 1996 --------- --------- ---------- Service cost benefits earned during the year $ 1,927 $ 1,659 $ 1,980 Interest cost 2,800 2,609 2,636 Expected return on plan assets during the year (240) --- --- Recognized net actuarial gain (655) (793) (451) Amortization of prior service cost (55) (55) (55) ---------- --------- ----------
Other postretirement benefits expense $ 3,777 $ 3,420 $ 4,110 ========== ========= ==========
(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 ------------------- -------------------
1998 1997 1998 1997 --------- --------- --------- --------- Change in benefit obligation: Benefit obligation--January 1 $ 84,426 $ 75,313 $ 40,785 $ 34,763 Service cost 4,415 3,862 1,927 1,659 Interest cost 6,249 5,769 2,800 2,609 Actuarial (gain)/loss 8,212 4,805 (373) 2,946 Plan amendment (1,364) --- --- --- Benefits paid (6,444) (5,323) (1,131) (1,192) --------- --------- --------- ---------
Benefit obligation--December 31 95,494 84,426 44,008 40,785 --------- --------- --------- ---------
Change in plan assets: Fair value of plan assets--January 1 81,146 72,055 3,000 --- Actual return on plan assets 9,921 13,437 378 --- Employer contribution --- 872 3,000 3,000 Benefits paid (6,339) (5,218) --- --- --------- --------- --------- --------- Fair value of plan assets--December 31 84,728 81,146 6,378 3,000 --------- --------- --------- ---------
Projected benefit obligation in excess of plan assets 10,766 3,280 37,630 37,785 Unrecognized transition asset 1,502 1,878 --- --- Unrecognized net gain 6,994 11,594 13,264 13,408 Unrecognized prior service cost (137) (1,765) 464 517 --------- --------- --------- --------- Accrued liability 19,125 14,987 51,358 51,710 Less current portion 129 105 1,124 1,182 --------- --------- --------- ---------
Long-term portion $ 18,996 $ 14,882 $ 50,234 $ 50,528 ========= ========= ========= =========
Assumed discount rate 6.50% 6.75% 6.50% 6.75% Assumed rate of compensation increase 5.0% 5.0% --- --- Expected long term rate of return on assets 8.0% 8.0% 8.0% 8.0%
Plan assets include equity securities, fixed income securities, and temporary investments. Calculations of benefit obligations as of December 31, 1998 have been estimated by an independent actuary and are subject to revision upon completion of a detailed actuarial study.
(Continued)
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 1998 or 1996 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 established in 1997. The Company contributed $3 million to the VEBA in 1998 and in 1997.
The December 31, 1998 postretirement benefit obligation was determined using an assumed health care cost trend rate of 5 percent in 1999 and 2000, declining to 4.5 percent per year in the year 2001 and thereafter over the projected payout period of the benefits. The effect of a one percent change in the assumed health care cost trend rate at December 31, 1998 would have resulted in a $7,594,000 increase or a $6,040,000 decrease in the postretirement benefit obligation and a $1,057,000 increase or a $723,000 decrease in the 1998 postretirement benefit expense.
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. Total contributions under these plans were $1,001,000 in 1998, $946,000 in 1997, and $825,000 in 1996.
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 $1,968,000 in 1998, $2,087,000 in 1997, and $1,270,000 in 1996.
(5) INVESTMENTS AND INVESTMENT INCOME
Cash and investments were as follows (in thousands of dollars):
December 31, -----------------------
1998 1997 -------- --------
Cash and cash equivalents $ 15,259 $ 19,421 Short-term investments .. 25,715 9,013 Marketable securities ... 104,838 115,809 -------- --------
Total ................... $145,812 $144,243 ======== ========
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.
(Continued)
Investment income consisted of the following (in thousands of dollars):
1998 1997 1996 ------ ------ ------
Interest income ............... $6,096 $5,380 $4,929 Dividend income ............... 1,558 1,688 1,541 Net gain on sales of securities 1,423 948 542 ------ ------ ------
Total ......................... $9,077 $8,016 $7,012 ====== ====== ======
Proceeds from the sales and maturities of securities were $75,267,000, $58,075,000, and $75,250,000 in 1998, 1997, and 1996, respectively. Gross realized gains and (losses) from these sales were $1,614,000 and $(191,000) in 1998, $1,096,000 and $(149,000) in 1997, and $713,000 and $(171,000) in 1996. The specific identification method is used in computing realized gains and losses.
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, 1998 Cost Gains Losses Value - ----------------- ----------- ---------- ---------- -----------
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 =========== ========== ========== ===========
December 31, 1997
Equity securities $ 26,067 $ 1,776 $ --- $ 27,843 U.S. Government securities 6,014 7 (5) 6,016 Municipal bonds 83,558 3,013 (77) 86,494 Corporate debt 4,406 70 (7) 4,469 ----------- ---------- ----------- -----------
Total $ 120,045 $ 4,866 $ (89) $ 124,822 =========== ========== ========== ===========
The differences between amortized cost and fair value result in unrealized gains or losses, which are reported, net of tax, as a component of Stockholders' Equity.
(Continued)
Fair values of the Company's investment 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, 1998 were as follows (in thousands of dollars):
Amortized Fair Cost Value ---------- ---------- Within one year ...... $ 25,469 $ 25,715 One through five years 13,695 14,078 Five through ten years 21,365 22,283 Over ten years ....... 44,299 46,038 ---------- ----------
Total ................ $ 104,828 $ 108,114 ========== ==========
In addition, the Company held mutual bond fund investments (amortized cost; $1,058,000, fair value; $1,038,000) with no single maturity date.
(6) OTHER INCOME (EXPENSE)
Other income (expense) was comprised of the following (in thousands of dollars):
1998 1997 1996 ----- ----- -----
Gain on sales of publishing assets ....... $ --- $ 420 $ 58 Gain (loss) on disposals of other property and equipment ......................... (432) 7 24 ----- ----- -----
Total .................................... $(432) $ 427 $ 82 ===== ===== =====
(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 $5,090,000 in 1998 and $4,209,000 in 1997.
Goodwill acquired prior to November 1, 1970, 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 $881,000 for 1998, and $313,000 for 1997 and 1996.
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 most likely recoverable value (Continued)
(8) INCOME TAXES
The total income tax expense (benefit) was allocated as follows (in thousands of dollars):
1998 1997 1996 ------- ------- -------
Income Statement-Provision for Income Taxes ..... $ 8,753 $ 8,885 $ 7,041 Stockholders' Equity--Change in: Unrealized gain (loss) on marketable securities (24) 957 (220) Foreign currency translation adjustment ....... (1) 16 (27) ------- ------- -------
Total ........................................... $ 8,728 $ 9,858 $ 6,794 ======= ======= =======
The provision for income taxes consisted of the following (in thousands of dollars):
1998 1997 1996 -------- -------- -------- Taxes currently payable: Federal ............. $ 11,296 $ 9,158 $ 9,365 State and local ..... 1,732 1,257 1,786 -------- -------- --------
13,028 10,415 11,151 -------- -------- -------- Deferred tax provision: Federal ............. (2,811) (927) (3,364) State and local ..... (1,464) (603) (746) -------- -------- --------
(4,275) (1,530) (4,110) -------- -------- --------
Total .................. $ 8,753 $ 8,885 $ 7,041 ======== ======== ========
Reconciliation of the U.S. statutory rate to the Company's consolidated effective income tax rate was as follows:
Percent of Pretax Income ---------------------------- 1998 1997 1996 ------ ------ ------
Federal statutory rate ...................... 35.0% 35.0% 35.0% State and local income taxes, net of federal income tax benefit ................ 0.6 1.4 3.1 Goodwill amortization and other nondeductible expenses .................... 2.0 1.2 1.5 Tax exempt interest exclusion ............... (5.3) (4.9) (5.3) Dividends received exclusion ................ (1.4) (1.5) (1.7) ------ ------ ------
Total ....................................... 30.9% 31.2% 32.6% ====== ====== ======
(Continued)
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, -------------------- 1998 1997 --------- --------- Deferred tax assets: Other postretirement benefits ....................... $ 20,814 $ 20,828 Pension expense ..................................... 7,889 6,143 Inventories ......................................... 2,161 2,070 Annual leave ........................................ 1,867 1,871 Tax loss carryforwards .............................. 1,337 --- Others .............................................. 3,402 2,308 --------- ---------
Total deferred tax assets .............................. 37,470 33,220 --------- ---------
Deferred tax liabilities: Deferred selling expenses ........................... (8,584) (9,169) Depreciation ........................................ (2,219) (2,859) Others .............................................. (3,225) (2,016) --------- ---------
Total deferred tax liabilities ......................... (14,028) (14,044) --------- ---------
Net deferred tax assets ................................ $ 23,442 $ 19,176 ========= =========
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):
1998 1997 -------- -------- Receivables: Customers ..................... $ 41,166 $ 37,958 Others ........................ 4,482 4,925 Allowance for doubtful accounts (1,714) (1,576) -------- --------
Total ............................ $ 43,934 $ 41,307 ======== ========
(Continued)
1998 1997 ------ ------ Inventories: Materials and supplies $3,251 $3,742 Work in process ...... 460 218 Finished goods ....... 1,288 1,480 ------ ------
Total ................... $4,999 $5,440 ====== ======
Inventories are valued at the lower of cost (principally average cost method) or market.
1998 1997 -------- -------- Property and Equipment (at cost): Land ............................ $ 4,250 $ 4,250 Buildings and improvements ...... 49,367 49,197 Furniture, fixtures and equipment 61,285 63,195 Accumulated depreciation ........ (70,111) (68,790) -------- --------
Total .............................. $ 44,791 $ 47,852 ======== ========
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 $7,657,000 in 1998, $7,358,000 in 1997, and $7,577,000 in 1996. Expenditures for maintenance and repairs are expensed while major replacements and improvements are capitalized.
1998 1997 ------ ------ Other assets: Amortizable assets-- Customer lists ........... $2,764 $ 620 Film production costs .... 739 498 Lease commissions ........ 253 307 State information database 1,000 1,000 Software ................. 1,109 1,299 Others ................... 32 197 ------ ------
5,897 3,921 Notes and other receivables ... 262 305 ------ ------
Total ......................... $6,159 $4,226 ====== ======
(Continued)
Film production costs are amortized using the revenue-forecast method. Other amortizable assets are expensed evenly over their respective estimated lives, ranging from 3 to 10 years. Amortization expense for these assets was $1,995,000 in 1998, $1,127,000 in 1997, and $997,000 in 1996. Accumulated amortization for customer lists was $1,953,000 in 1998 and $789,000 in 1997.
1998 1997 ------- ------- Payables and accrued liabilities: Accounts payable ................. $18,300 $18,060 Employee compensation and benefits 13,826 13,216 Postretirement benefits .......... 1,253 1,287 Income taxes ..................... 522 966 ------- -------
Total ............................... $33,901 $33,529 ======= =======
(10) LONG-TERM DEBT
Long-term debt outstanding as of December 31, 1998 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 effective rate for 1998 was 5.88%. The current rate, effective through April 12, 1999, is 5.26%.
The Company has a $1,500,000 unsecured line of credit. As of December 31, 1998, $450,000 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, computing and office equipment, and vehicles. Total rent expense was $5,671,000 in 1998, $4,786,000 in 1997, and $3,944,000 in 1996.
As of December 31, 1998, future minimum lease payments under non-cancelable operating leases were as follows: 1999 - $5,690,000; 2000 - $5,178,000; 2001 - $4,499,000; 2002 - $4,392,000; 2003 - $4,383,000; thereafter - $13,006,000. These amounts are net of sub-lease income of $402,000 in 1999, and $175,000 in 2000.
The Company has accrued $1.7 million for an adverse verdict in a civil lawsuit. On February 10, 1999, a District of Columbia Superior Court jury awarded damages to an employee who had claimed unspecified damages for alleged age discrimination. The plaintiff was awarded $500,000 in compensatory damages, $1 million in punitive damages, and legal fees. The Company intends to vigorously pursue all legal options to contest the case.
The Company is involved in certain other 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.
(Continued)
(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, 1998 and 1997, 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 Class B and Class C stock tendered by shareholders. As of December 31, 1998, the total market value of Class B and Class C stock known or expected to be tendered in the future was as follows: 1999--$2,657,000, 2000--$32,000, 2001--none, 2002--$1,056,000, 2003--$250,000, and 2004--$8,837,000. The Company, as a matter of policy, is also committed to repurchase any Class A stock tendered by shareholders to the Stock Purchase & Transfer Plan Trustee, which the Trustee is unable to purchase with proceeds from the sale of Class A stock to employees.
Treasury share transactions were as follows:
Treasury Stock Shares
Class A Class B Class C ---------- ---------- ---------
Balance, January 1, 1996 ............... 2,915,110 54,771 84,693
Sales of shares to employees ........... (204,932) --- --- Repurchases of shares .................. 29,490 177,780 6,964 Conversions of Class A shares to Class B shares ............................ 148,092 (148,092) --- ---------- ---------- ---------
Balance, December 31, 1996 ............. 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 =========== ========== =========
(Continued)
Earnings per share have been computed based on the aggregate weighted average number of all outstanding shares of stock, which was 8,367,904 in 1998, 8,733,778 in 1997, and 8,859,586 in 1996.
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
During 1998, the Company adopted Financial Accounting Standard No. 130, Reporting Comprehensive Income. This statement establishes standards for the presentation of comprehensive income and its components. Comprehensive income encompasses all changes in Stockholders' Equity except those arising from transactions with shareholders, and includes net income, net unrealized gains or losses on marketable securities and foreign currency translation adjustments. This standard only requires additional information in the financial statements and notes; it does not affect the Company's financial position or results of operations.
Elements of other comprehensive income are shown below:
1998 1997 1996 ------- ------- -------
Unrealized holding gains (losses) on securities arising during the year ..................... $ 1,354 $ 3,683 $ (86) Less reclassification adjustment for amounts included in net income ...................... 1,423 948 542 ------- ------- ------- (69) 2,735 (628) Less income taxes ............................. (24) 957 (220) ------- ------- ------- Net unrealized gains(losses) .................. (45) 1,778 (408) ------- ------- -------
Currency translation adjustment ............... (3) 46 (77) Less income taxes ............................. (1) 16 (27) ------- ------- ------- Net currency translation adjustment ........... (2) 30 (50) ------- ------- -------
Other comprehensive income .................... $ (47) $ 1,808 $ (458) ======= ======= =======
(Continued)
(14) SEGMENTS AND RELATED INFORMATION
During 1998, the Company adopted Financial Accounting Standard No. 131, Disclosures about Segments of an Enterprise and Related Information. This statement changes the requirements for disclosures about business segments from an industry segment approach to an operating segment approach. 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, Professional Publishing and Printing. Professional Publishing operations consist primarily of the creation, production and marketing of legal and regulatory and general business advisory information, in print and electronic formats. Professional Publishing includes the operations of the Parent and its 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 of BNA Communications Inc., a media-based training enterprise. Intersegment revenues and transfers approximate current market prices. The Company did not derive 10 percent or more of its revenues from any one customer or government agency or from foreign sales, nor did it have ten percent or more of its assets in foreign locations.
Operating segment information is presented below:
Professional Year Ended December 31, 1998 Publishing Printing All Other Total - ---------------------------- -------- -------- --------- -------- Revenues from external customers .. $247,709 $ 16,523 $ 4,597 $268,829 Intersegment revenues ............. --- 15,073 --- 15,073 Investment income ................. 9,468 45 --- 9,513 Interest expense .................. 899 419 17 1,335 Depreciation and amortization ..... 9,107 1,053 373 10,533 Operating profit (loss) ........... 18,845 1,894 (139) 20,600 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 Expenditures for segment assets ... 28,237 439 563 29,239
Year Ended December 31, 1997 - ---------------------------- Revenues from external customers ... $225,561 $ 13,226 $ 5,274 $244,061 Intersegment revenues .............. --- 16,052 --- 16,052 Investment income .................. 8,427 28 --- 8,455 Interest expense ................... 59 408 31 498 Depreciation & amortization ........ 7,339 882 577 8,798 Operating profit ................... 18,844 1,074 144 20,062 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 Expenditures for segment assets .... 4,614 2,926 160 7,700
Year Ended December 31, 1996 - ---------------------------- Revenues from external customers ... $217,166 $ 10,680 $ 4,786 $232,632 Intersegment revenues .............. --- 15,585 --- 15,585 Investment income .................. 7,335 33 --- 7,368 Interest expense ................... 13 291 75 379 Depreciation & amortization ........ 7,480 872 535 8,887 Operating profit (loss)............. 13,036 1,882 (360) 14,558 Income tax expense (benefit) ....... 6,482 709 (150) 7,041 Net income (loss)................... 13,958 915 (285) 14,588 Assets ............................. 287,288 15,865 2,896 306,049 Expenditures for segment assets .... 3,669 526 310 4,505
SCHEDULE V - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
THE BUREAU OF NATIONAL AFFAIRS, INC. YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996 (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, 1998 $ 1,576 $876 $ 51(a,c) $ 834 (b) $ 1,714 Year ended December 31, 1997 1,658 841 107 (a) 816 (b) 1,576 Year ended December 31, 1996 1,628 742 92 (a) 804 (b) 1,658
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, 1998 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, 1998. 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 "III. Executive Compensation" and "IV. 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 "III. 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 23
Consolidated Balance Sheets as of December 31, 24 1998 and 1997.
Consolidated Statements of Income, Consolidated 26 Statements of Cash Flows, and Consolidated Statements of Changes in Stockholders' Equity for each of the years ended December 31, 1998, 1997, and 1996
Notes to Consolidated Financial Statements 30
(2) Financial Statement Schedule:
Report of Independent Auditors as to the 23 financial statement schedule
V Valuation and Qualifying Accounts and Reserves 43
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 1998 Consolidated Financial Statements in the Notes to Consolidated Financial Statements, Note 12, "Stockholders' Equity," at page __ 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 17, 1999**
28.2 Annual Report on Form 11-K related to the Company's Deferred Stock Purchase Plan for the fiscal year ended December 31, 1998.*
* Filed herewith.
** Incorporated by reference to the Company's Definitive Proxy Statement, to be filed with the SEC within 120 days of December 31, 1998.
*** 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.
**** Incorporated by reference to the Company's 1997 Form 10-K, Commission File Number 2-28286, filed on March 27, 1998. 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, 1998.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
THE BUREAU OF NATIONAL AFFAIRS, INC.
By: s\Paul N. Wojcik ---------------- Paul N. Wojcik, Chief Executive Officer
Date: March 11, 1999 --------------
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 11, 1999 Date: March 11, 1999 -------------- --------------
By: s\William A. Beltz 3/11/99 By: s\Gregory C. McCaffery 3/11/99 ------------------ ------- ---------------------- ------- William A. Beltz Date Gregory C. McCaffery Date Chairman of the Board of Directors Director
By: s\Jacqueline M. Blanchard 3/11/99 By: s\Frederick A. Schenck 3/11/99 ------------------------- ------- ---------------------- ------- Jacqueline M. Blanchard Date Frederick A. Schenck Date Director Director
By: s\Richard H. Cornfield 3/11/99 By: s\Mary P. Swords 3/11/99 ---------------------- ------- ---------------- ------- Richard H . Cornfield Date Mary P. Swords Date Director Director
By: s\Sandra C. Degler 3/11/99 By: s\Daniel W. Toohey 3/11/99 ------------------ ------- ------------------ ------- Sandra C. Degler Date Daniel W. Toohey Date Director Director
By: s\Kathleen D. Gill 3/11/99 By: s\Loene Trubkin 3/11/99 ------------------ ------- --------------- ------- Kathleen D. Gill Date Loene Trubkin Date Director Director
By: s\John E. Jenc 3/11/99 By: s\Robert L. Velte 3/11/99 -------------- ------- ----------------- ------- John E. Jenc Date Robert L. Velte Date Director Director
By: s\Eileen Z. Joseph 3/11/99 ------------------ ------- Eileen Z. Joseph Date Director
EXHIBIT INDEX
Sequential Page Number Exhibit Description Number
3.1 Certificate of Incorporation, as amended ***
3.2 By laws, as amended 49
11 Statement re: Computation of Per Share Earnings is contained in the 1998 Consolidated Financial Statements in the Notes to Consolidated Financial Statements, Note 12, "Stockholders' Equity," 40
22 Subsidiaries of the Registrant 157
28.1 Proxy Statement for the Annual Meeting of Stockholders to be held on April 17, 1999 **
28.2 Annual Report on Form 11-K related to the Company's Deferred Stock Purchase Plan for the fiscal year ended December 31, 1998. 158
* Incorporated by reference to the Company's 1988 Form 10-K, Commission File Number 2-28286, filed on March 30, 1989. The exhibit numbers indicated above correspond to the exhibit numbers in that filing.
** The Definitive Proxy Statement is expected to be filed with the SEC within 120 days of December 31,1998.
*** 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.
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 three to five 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. No member of the Committee shall serve as chairman for more than two consecutive years.
The duties and functions of the Audit Committee shall be as follows: (i) to make recommendations to the Board of Directors concerning the selection, retention, or termination of the independent auditors; (ii) review with the Board of Directors and the independent auditors the accounting principles bearing upon the financial statements, and in particular with respect to any changes in accounting principles; (iii) review the proposed scope of the audit and the report of the independent auditors, and review the auditors' statements, if any, regarding weaknesses in internal accounting controls, and the corrective action taken by management; (iv) review the audit and non- audit services performed by the independent auditors and the related fees; (v) review with
management and the independent auditors recommendations made by the auditors with respect to changes in accounting procedures and internal accounting controls, growing out of the results of the audit; (vi) maintain minutes of each meeting of the Audit Committee, copies of which should be furnished to the Board of Directors, and report regularly on Committee activities to the Board of Directors and make recommendations as appropriate; and (vii) perform such other duties as may be directed or authorized by the Board of Directors from time to time.
Vacancies in the membership of the Audit Committee shall be filled by a majority of the Board of Directors at the first regular meeting of the Board of Directors following the occurrence of a vacancy or vacancies on the Committee.
(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
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.
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 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. 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 TOD form that occurs upon the death of the holder thereof shall be deemed to be made "by the person named in the certificate," 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" may be either (a) limited, to be satisfied at the price currently established, in which case they shall become void at any time the price of the stock is changed, or (b) unlimited, to be satisfied at any price which may prevail at the time stock becomes available for purchase from the Fund, in which case the offer shall remain in effect until withdrawn or satisfied.
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 Communications Inc. Delaware 100% owned by Registrant
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.
EXHIBIT 28.2
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, 1998 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 DEFERRED STOCK PURCHASE 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 161 Statements of Net Assets Available for Benefits 162 December 31, 1998 and 1997 Statements of Changes in Net Assets Available 163 for Benefits - Years Ended December 31, 1998, 1997, and 1996 Notes to Financial Statements - December 31, 164 1998, 1997, and 1996 Financial Statement Schedules 167
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 18, 1999 - -------------
By s\G. Christopher Cosby - -------------- G. Christopher Cosby Chairman of the Administrative Committee
THE BNA DEFERRED STOCK PURCHASE PLAN
Financial Statements
December 31, 1998 and 1997
(With Independent Auditors' Report Thereon)
Independent Auditors' Report
The Administrative Committee of The BNA Deferred Stock Purchase Plan:
We have audited the accompanying statements of net assets available for benefits of The BNA Deferred Stock Purchase Plan (the Plan) as of December 31, 1998 and 1997, 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, 1998. 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, 1998 and 1997, and the changes in net assets available for benefits for each of the years in the three-year period ended December 31, 1998 in conformity with generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental schedules of investments at fair value 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
February 1, 1999
THE BNA DEFERRED STOCK PURCHASE PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
DECEMBER 31, 1998 AND 1997
1998 1997 ----------- ----------- Investments, at fair value (Note 2) (Cost of $ 30,451,554 in 1998 and $26,776,601 in 1997) ...................... $50,851,964 $42,231,999 Cash and cash equivalents .................... 427,292 310,679 Accrued Interest ............................. 1,234 -- ----------- -----------
Net assets available for benefits ........ $51,279,256 $42,543,912 =========== ===========
See accompanying notes to financial statements.
THE BNA DEFERRED STOCK PURCHASE PLAN
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
1998 1997 1996 ----------- ----------- ----------- Additions to net assets attributed to: Investment income Dividends (Note 1) ................. $ 1,731,842 $ 1,515,099 $ 1,300,662 Interest ........................... 15,957 13,057 6,809 Unrealized appreciation of investments (Note 2) ............. 6,116,389 3,782,258 2,922,045 ----------- ----------- ----------- 7,864,188 5,310,414 4,229,516
Contributions by participants (Note 1) .......................... 4,100,333 3,939,638 3,645,888 ----------- ----------- -----------
Total additions ..................... 11,964,521 9,250,052 7,875,404 ----------- ----------- -----------
Deductions from net assets attributed to: Distributions to participants (Note 1) ............................ 3,228,940 2,793,141 2,911,627 Administrative costs (Note 3) ........ 237 226 357 ----------- ----------- -----------
Total deductions .................... 3,229,177 2,793,367 2,911,984 ----------- ----------- -----------
Net increase ...................... 8,735,344 6,456,685 4,963,420
Net assets available for benefits: Beginning of year ................. 42,543,912 36,087,227 31,123,807 ----------- ----------- -----------
End of year ....................... $51,279,256 $42,543,912 $36,087,227 =========== =========== ===========
See accompanying notes to financial statements.
THE BNA DEFERRED STOCK PURCHASE PLAN
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(1) SUMMARY DESCRIPTION OF PLAN
The BNA Deferred Stock Purchase Plan (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.
Employees are eligible to participate in the Plan upon completion of one full year of service. To participate, eligible employees authorize the Company to contribute, on their behalf, a salary reduction amount to a Trust (the "Trust") established by the Plan. Such contributions may be between 1% and 15% of the participant's compensation for each Plan year, subject to certain ceiling limitations provided in the Plan, by tax laws, and by ERISA.
The Trust maintains separate accounts for each participant in the Plan. These accounts are credited with the participants' salary reduction contributions and dividend income. These cash balances are used to purchase shares of Company Class A Common Stock, which are credited to the accounts of the individual participants. Share and cash balances in the participants' accounts are fully vested. Distributions of participants' equity 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 59 1/2.
The Company's Class A Common Stock, which is voting, may only be purchased by employees. 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. Proceeds from such transactions are held for the Plan participants in their accounts. Dividends received from Class B and Class C Common Stock are not reinvested in Company stock, but earn interest income.
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.
(Continued)
THE BNA DEFERRED STOCK PURCHASE PLAN
NOTES TO THE FINANCIAL STATEMENTS
(2) INVESTMENTS
At December 31, 1998, the Trust held 1,370,268 shares of the Company's Class A Common Stock and 125,378 shares of the Company's Class B Common Stock, each valued at $34.00 per share, for 1,282 plan participants. At December 31, 1997, the Trust held 1,328,349 shares of the Company's Class A Common Stock and 91,214 shares of the Company's Class B Common Stock, each valued at $29.75 per share, for 1,252 plan participants.
The fair value of the 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 then most current price fixed for the SPTP market.
The following information summarizes the Plan's investment and distribution transactions during 1997 and 1998 involving the Company's Common Stock.
Number Fair of Shares Value ---------- -------------
Balance, January 1, 1997 ....................... $ 1,327,524 $ 35,843,148
Acquired ....................................... 185,961 5,313,443
Distributed to participants .................... (93,922) (2,706,850)
Appreciation during the year in the market value of shares of Company stock held at year end .... 3,782,258 ------------ -------------
Balance, December 31, 1997 ..................... 1,419,563 42,231,999 ------------ ------------
Acquired ....................................... 174,405 5,660,110
Distributed to participants .................... (98,322) (3,156,534)
Appreciation during the year in the market value of shares of Company stock held at year end .... 6,116,389
------------ ------------
Balance, December 31, 1998 ..................... 1,495,646 $ 50,851,964 ============ ============
The Company's Board of Directors have fixed the fair value of the stock at $37.00 per share, effective March 29, 1999.
(3) ADMINISTRATIVE COSTS
The Company pays most of the administrative costs of the Plan. Such costs are not reflected in the accompanying financial statements.
(Continued)
(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.
(5) SUBSEQUENT EVENT
Effective January 1, 1999, the Plan was renamed to "The BNA 401(k) Plan", and was amended and restated to include a number of new investment options. The Plan will now permit investment in selected mutual funds and a money market fund in addition to Company stock. A separate trust will be established for these new mutual fund investments. Other changes include provisions for loans and for rollovers, and employees will become eligible to participate after 30 days of service. The Plan Sponsor will pay the additional trustee and record keeping fees associated with these changes, except for fees charged for loans.
THE BUREAU OF NATIONAL AFFAIRS, INC. THE BNA DEFERRED STOCK PURCHASE PLAN
Line 27a -- Schedule of Assets Held for Investment Purposes December 31, 1998
Fair Identity of Issue Description of Investment Cost Value - ------------------- ------------------------- ------------ ------------ *Bureau of National Affairs, Inc. 1,495,646 Sh Common Stock $ 30,451,554 $ 50,851,964
*Party-in-Interest to the Plan
THE BUREAU OF NATIONAL AFFAIRS, INC. THE BNA DEFERRED STOCK PURCHASE PLAN
Line 27d -- Schedule of Reportable Transactions For Year Ended December 31, 1998
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 174,405 $5,660,110 --- $5,660,110 $5,660,110 --- National Shares Affairs, Common Stock Inc.
Bureau of 98,322 --- $3,156,534 $1,985,157 $3,156,534 $1,171,377 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, 1998, ($2,127,196) and are reportable under Section 2520.103.6 of Chapter XXV of the Department of Labor Employee Retirement Income Security Act annual reporting requirements.
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