UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended: March 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-315
CCH Incorporated
(Exact Name of Registrant as
specified in its charter)
Delaware 36-0936850
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
2700 Lake Cook Road
Riverwoods, Illinois 60015
(Address of principal executive offices)
(Zip Code)
(708) 267-2000
(Registrant's telephone number, including area code)
Indicate by checkmark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for at least the past 90 days.
Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Outstanding as of
Class of Common Stock May 10, 1995
Class A, $1.00 par value 16,795,212 shares
Class B, $1.00 par value 16,415,722 shares
This document is comprised of 12 pages
CCH INCORPORATED AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
The following financial statements reflect the operations of CCH
INCORPORATED and its subsidiaries for the three months ended March 31, 1995,
with comparative statements for the corresponding period ended March 31, 1994.
They also include comparative balance sheets for March 31, 1995 and December
31, 1994 and the related statements of cash flows for the three months ended
March 31, 1995 and 1994. The consolidated financial statements should be read
in conjunction with the accompanying notes. In the opinion of management, all
adjustments which are necessary for a fair statement of financial results for
these interim periods have been included.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share data)
(Unaudited)
Three Months Ended
March 31
1995 1994
REVENUES:
Publishing $ 96,583 $ 97,815
Computer processing services 24,007 29,467
Legal information services 32,395 27,967
152,985 155,249
COSTS AND EXPENSES:
Editorial, production and
distribution costs 70,435 70,773
General and administrative 32,215 35,092
Commissions 12,426 11,859
Advertising and other selling
expenses 18,930 17,562
Pensions and profit sharing 3,072 2,026
137,078 137,312
OPERATING EARNINGS 15,907 17,937
OTHER INCOME, NET 1,800 1,516
EARNINGS BEFORE INCOME TAXES 17,707 19,453
INCOME TAXES 7,350 8,100
NET EARNINGS $ 10,357 $ 11,353
NET EARNINGS PER SHARE $ .31 $ .33
CASH DIVIDENDS DECLARED $ .175 $ .175
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 33,729,031 34,209,898
See Notes to Consolidated Financial Statements
- -2-
CCH INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
(Unaudited)
ASSETS
March 31, December 31,
1995 1994
CURRENT ASSETS:
Cash and cash equivalents $ 40,229 $ 43,302
Short-term investments 3,157 39,918
Accounts receivable, less allowance
for doubtful accounts 174,974 204,295
Prepaid employee health care 23,927 23,416
Prepaid commissions 28,012 29,415
Inventories 7,673 8,877
Prepaid expenses and other 7,063 5,876
TOTAL CURRENT ASSETS 285,035 355,099
PROPERTY, PLANT AND EQUIPMENT:
Land and improvements 13,581 13,588
Buildings and leasehold improvements 96,256 96,358
Machinery and equipment 124,922 119,436
Furniture and office equipment 63,491 65,939
298,250 295,321
Accumulated depreciation and amortization (179,063) (175,818)
119,187 119,503
Construction in progress 4,679 4,500
123,866 124,003
OTHER ASSETS:
Deferred tax assets 40,914 40,852
Intangible assets 14,432 15,629
Commissions on unfilled orders
not recorded in the financial
statements 21,366 22,236
Prepaid pension costs 7,940 8,919
Purchased software 6,722 5,853
Other 8,768 8,565
$509,043 $581,156
See Notes to Consolidated Financial Statements
- -3-
LIABILITIES AND STOCKHOLDERS' INVESTMENT
March 31, December 31,
1995 1994
CURRENT LIABILITIES:
Accounts payable $ 22,024 $ 20,164
Accrued expenses 27,827 33,083
Payroll and related withholdings 12,906 18,877
Taxes other than income taxes 7,956 13,193
Dividends payable 5,838 5,972
Income taxes 4,323 978
Current portion of long-term
obligations 633 791
Reserve for restructuring 5,106 7,522
Unearned revenue 213,456 263,234
TOTAL CURRENT LIABILITIES 300,069 363,814
LONG-TERM LIABILITIES:
Accrued postretirement benefits 96,097 94,639
Reserve for restructuring 24,886 25,259
Other long-term liabilities 5,526 5,630
TOTAL LONG-TERM LIABILITIES 126,509 125,528
STOCKHOLDERS' INVESTMENT:
Class A common stock, par value $1
per share; authorized 40,000,000
shares; issued 17,418,202 shares 17,418 17,418
Class B common stock, par value $1
per share; authorized 40,000,000
shares; issued 17,418,202 shares 17,418 17,418
Retained earnings 80,167 75,632
Cumulative translation adjustments (6,423) (5,159)
Treasury Stock, at cost; 570,890 shares
of Class A and 999,780 shares of
Class B at March 31, 1995; 294,390
shares of Class A and 507,380 shares
of Class B at December 31, 1994 (26,115) (13,495)
82,465 91,814
$509,043 $581,156
CCH INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended
March 31
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
Receipts from customers $131,358 $174,632
Interest income 1,688 699
Payments to suppliers (67,007) (76,323)
Payments to employees (73,884) (60,397)
Income taxes paid, net of refunds received (3,923) 3,423
Payments to pension and profit
sharing plans (1,041) (1,841)
Interest paid on long-term
obligations (5) (183)
Other (742) 272
NET CASH PROVIDED BY (USED FOR)
OPERATING ACTIVITIES (NOTE C) (13,556) 40,282
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (5,956) (5,987)
Purchase of Treasury shares (12,620) 0
Payments on long-term obligations (291) (1,203)
NET CASH USED IN FINANCING ACTIVITIES (18,867) (7,190)
CASH FLOWS FROM INVESTING ACTIVITIES:
Changes in short-term securities, net 36,467 (32,271)
Cash paid for property, plant and equipment (5,566) (6,633)
Cash paid for capitalized purchased
software (869) (1,279)
Proceeds from sale of property, plant and
equipment 55 89
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 30,087 (40,094)
EFFECT OF EXCHANGE RATE CHANGES (737) 418
NET DECREASE IN CASH AND CASH EQUIVALENTS (3,073) (6,584)
CASH AND CASH EQUIVALENTS AT JANUARY 1 43,302 32,322
CASH AND CASH EQUIVALENTS AT MARCH 31 $ 40,229 $ 25,738
See Notes to Consolidated Financial Statements
- -4-
CCH INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1995
(Unaudited)
A. Basis of Presentation:
The accompanying financial statements reflect the operations of CCH
INCORPORATED and its subsidiaries for the three-month period ended March 31,
1995, with comparative statements for the corresponding period ended March 31,
1994. They also include comparative balance sheets for March 31, 1995 and
December 31, 1994. The consolidated financial statements should be read in
conjunction with the accompanying notes. The financial statements have been
prepared in accordance with Regulation S-X pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed
or omitted pursuant to such rules and regulations, although management
believes that the disclosures are adequate to make the information presented
not misleading.
In the opinion of management, all adjustments (consisting only of normal
recurring accruals) which are necessary for a fair statement of financial
results for these interim periods have been included. The results of
operations for the three-month period ended March 31, 1995 are not necessarily
indicative of the results of the full year.
The accounting policies of the Registrant, summarized in Note A of the
Notes to Consolidated Financial Statements in the 1994 Annual Report and
incorporated by reference in Form 10-K for the year ended December 31, 1994,
are herein incorporated by reference. In addition, items such as payroll,
bonuses, and certain production costs are accrued ratably during the year for
interim reporting purposes and are included in current liabilities.
Unearned Revenue:
The Company's subscription and representation revenues are generally
billed to customers at the beginning of the period of service, and, to the
extent that the service period does not exceed one year, a receivable is
recorded at that time. Orders for periods of service beyond one year which
have not been invoiced are not reflected in the financial statements (such
orders amount to $188.9 million at March 31, 1995, $156.6 million at December
31, 1994 and $209.3 million at March 31, 1994), except that commissions paid
on these orders are recorded as an other asset.
Revenues are recognized in the statement of operations when the service is
performed. Costs and expenses other than commissions are recorded in the
statement of operations as incurred. Unearned revenue on the balance sheet
reflects the revenue to be recognized in the future (primarily within one
year) on subscription and representation contracts.
- -5-
CCH INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
THREE MONTHS ENDED MARCH 31, 1995
(Unaudited)
B. Segment Information:
Comparative information about the Company's segments is as follows (in
thousands):
Three Months Ended
March 31
1995 1994
REVENUES:
Publishing:
United States $ 66,710 $ 70,650
International 29,873 27,165
96,583 97,815
Computer processing services 24,007 29,467
Legal information services 32,395 27,967
$152,985 $155,249
OPERATING EARNINGS:
Publishing:
United States $ (6,033) $ (426)
International 7,045 5,613
1,012 5,187
Computer processing services 10,320 11,784
Legal information services 4,575 966
15,907 17,937
Other income, net 1,800 1,516
Income before income taxes $ 17,707 $ 19,453
CAPITAL EXPENDITURES:
Publishing:
United States $ 3,046 $ 4,473
International 508 661
3,554 5,134
Computer processing services 161 305
Legal information services 1,851 1,194
$ 5,566 $ 6,633
DEPRECIATION:
Publishing:
United States $ 2,178 $ 1,664
International 1,001 939
3,179 2,603
Computer processing services 598 757
Legal information services 1,318 1,188
$ 5,095 $ 4,548
- -6-
CCH INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
THREE MONTHS ENDED MARCH 31, 1995
(Unaudited)
C. Supplementary Statements of Cash Flows Information:
Reconciliation of Net Earnings with Cash Flows from Operating Activities:
Three Months Ended
March 31
1995 1994
(In thousands)
NET EARNINGS $ 10,357 $ 11,353
ADD (DEDUCT) NONCASH ITEMS:
Depreciation 5,095 4,548
Bad debt expense 1,625 1,898
Amortization of intangibles 1,600 1,813
Deferred income taxes (247) (235)
Other - (172)
18,430 19,205
CHANGES IN ASSETS AND LIABILITIES:
Decrease in unearned revenue (48,733) (28,327)
(Increase) decrease in trade
accounts receivable (28,781) 48,206
Decrease in other current assets 57,214 11,190
Decrease in current liabilities
excluding restructure (10,695) (2,425)
Decrease in restructure reserve (2,789) (4,288)
Increase in accrued postretirement
and postemployment benefits 1,450 1,462
Increase in prepaid employee health care (511) (186)
Increase/decrease in other assets
and liabilities 809 (4,555)
NET CASH FLOWS PROVIDED BY(USED FOR)
OPERATING ACTIVITIES $(13,556) $ 40,282
- -7-
CCH INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
THREE MONTHS ENDED MARCH 31, 1995
(Unaudited)
D. 1993 Long-Term Incentive Plan:
The Company's 1993 Long-Term Incentive Plan (the Plan) was adopted
February 11, 1993 and amended and restated January 6, 1994 to take into
account certain amendments to the Internal Revenue Code.
The Company has reserved 2,000,000 shares of Class B common stock for
issuance under the Plan. The Plan will expire on February 10, 2003 and no
additional awards or grants can be made after that date.
Awards and grants under the Plan may be made in the form of nonqualified
stock options, "incentive stock options" (within the meaning of Section 422 of
the Internal Revenue Code), stock appreciation rights, performance shares,
stock units, restricted stock, or cash. The Board presently anticipates that
awards will generally be made in the form of stock options. The exercise
price of a nonqualified stock option may be equal to, less than or greater
than the fair market value of a share of Class B common stock on the date of
grant of the option.
Options outstanding are summarized as follows:
Option Price
Options Per Share
Balance at January 1, 1994 820,000 $16.625
Options granted 266,250 $17.000
Balance at December 31, 1994 1,086,250
Options granted 290,000 $16.25-$16.75
Options forfeited (193,750) $16.625-$17.00
Balance at March 31, 1995 1,182,500
Vesting provisions are determined by the Board of Directors compensation
committee at the time of grant. All options expire ten years from the date of
grant. Options granted in 1993 generally become exercisable at the rate of
one-eighth per year beginning at the end of the second year from the date of
grant, and at one-fourth per year beginning at the end of the fourth year from
the date of grant. Options granted in 1994 generally become exercisable at the
rate of one-half on the second anniversary of the date of grant and one-fourth
on each the third and fourth anniversaries of the date of grant. Some options
in 1995 generally become exercisable at the rate of one-third on each of the
second, third and fourth anniversaries of the date of grant. Other options
granted in 1995 generally become exercisable at the rate of one-eighth on each
of the second and third anniversaries and one-fourth on each of the fourth,
fifth and sixth anniversaries. A few key executives have accelerated vesting
for the 1993 and 1994 grants, due to their proximity to retirement age. At
March 31, 1995, 151,250 options were exercisable. At December 31, 1994 no
options were exercisable.
E. Reclassifications:
Certain 1994 amounts have been reclassified to conform to 1995
presentation.
- -8-
CCH INCORPORATED AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Financial Condition: March 31, 1995 Compared to December 31, 1994
Liquidity and Capital Resources. The Company's publishing and legal
information services segments generally require payment in advance for
services, and accordingly, the Company maintains a liquid financial position.
Management believes that cash and short term investments decreased during
the first quarter of 1995 due to billing and collection delays arising from
conversion to a new order management system in late 1994. Additionally, Legal
information services experienced delays in releasing their renewal billings in
late 1994, resulting in delayed collections. The impact of these delays on
the Companys cash flow is estimated to be approximately $50.0 million and is
expected to be recovered throughout the remainder of 1995.
During the first quarter of 1995, the Companys Board of Directors
authorized an additional $10.0 million for the purchase of treasury stock; at
March 31, 1995, $3.9 million was available under this authorization. From
April 1, 1995 through May 10, 1995, an additional $0.9 million was used for
the purchase of 54,800 shares of treasury stock.
The $5.6 million used for capital expenditures during the quarter ended
March 31, 1995 was primarily used for upgrading computer equipment in domestic
publishing and legal information services.
Results of Operations: Three Months Ended March 31, 1995 Compared to
Three Months Ended March 31, 1994
Consolidated revenues for the quarter ended March 31, 1995 were $153.0
million, a $2.3 million or 1.5% decrease from the comparable 1994 quarter. A
$4.4 million increase in Legal information services segment (LIS) was offset
by a $5.5 million decrease in the Computer processing services segment and a
$1.2 million decrease reported by the Publishing segment.
Consolidated operating income of $15.9 million in the first quarter of
1995 declined $2.0 million from the 1994 quarter. The $3.6 million
improvement by LIS could not fully offset a $1.4 million decrease by Computer
processing services, and a $4.2 million decrease in Publishing. Consolidated
net income of $10.4 million or $.31 per share in 1995 compares to $11.4
million or $.33 per share in 1994.
- -9-
CCH INCORPORATED AND SUBSIDIARIES
Results of Operations: Three Months Ended March 31, 1995 Compared to
Three Months Ended March 31, 1994 (cont')
Publishing: Publishing revenue of $96.6 million decreased $1.2 million
from 1994; the decrease was comprised of a $3.9 million decrease in the United
States and a $4.7 million increase internationally. The $4.2 million
operating profit decrease in publishing was comprised of a $5.6 million
decrease in the United States and a $1.4 million increase internationally.
Domestic publishing revenue of $66.7 million decreased by $3.9 million or
5.6% from the first quarter of 1994. Sales of electronic products remained
strong and now comprise over 15 percent of domestic publishing revenues.
Revenues from traditional print looseleaf products declined at an accelerating
rate as customers continue to migrate to electronic media, particularly in the
federal income tax areas. While new sales of subscription products remained
strong, renewal of subscriptions declined during the first quarter.
Management believes that some of this decrease is the result of disruptions
and delays in fulfillment, customer service, billing and renewal solicitation
activities caused by the conversion of the Companys order management system.
The $6.0 million operating loss reported by domestic publishing in 1995
compares to a loss of $0.4 million in 1994. The decrease is the result of
lower revenue and increases in customer service and marketing which have
offset savings from reductions in operations and order processing arising from
completed reeingineering initiatives.
International publishing reported revenues of $29.9 million, a $2.7
million or 10.0% increase over 1994. In constant dollars, sales increased
$1.5 million or 5.4% principally in Europe and Australia.
International publishing reported 1995 operating income of $7.0 million, a
$1.4 million increase over the prior year primarily due to the revenue
increase.
Computer Processing Services: In mid 1994, the Computer processing services
segment discontinued its 1040 Solutions product line which had contributed
revenues of approximately $7.0 million and operating earnings of approximately
$5.0 million in the first quarter of 1994. This product line was expected to
be only marginally profitable on an annual basis.
Revenue for the quarter, adjusted for the discontinued product line,
increased $1.5 million or 6.9% over 1994 levels. Operating income in the
first quarter of 1995, adjusted for the discontinued product line, was $3.5
million higher than the first quarter of 1994. Reengineering initiatives
implemented by the Company in 1993 and 1994 have resulted in significantly
lower operating costs for this segment.
Legal Information Services: LIS revenue of $32.4 million showed a $4.4
million or 15.8% increase from 1994. The increase resulted from gains in
representation services as well as strong sales of UCC and trademark searches.
LIS contributed operating earnings of $4.6 million in 1995 compared to
$1.0 million in 1994. This substantial increase in performance is a result of
both revenue increases and a reduced cost structure arising from
implementation of key reengineering initiatives during 1994.
- -10-
CCH INCORPORATED AND SUBSIDIARIES
Results of Operations: Three Months Ended March 31, 1995 Compared to
Three Months Ended March 31, 1994 (cont')
Known Trends, Events and Commitments: In February 1995, the Company announced
a voluntary early retirement program for employees who will have completed 25
years or more of credited service by the end of 1995. This program, which
provided an enhanced pension and benefits package, was offered to
approximately 260 employees. During the second quarter of 1995, the Company
will record a one time operating cost charge of approximately $9.1 million
including a non-cash charge of approximately $3.0 million to cover the costs
of the 123 participating employees.
- -11-
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders was held on March 30, 1995, and all
nominees to the Board of Directors named in the Registrant's Proxy Statement
were elected. Approximately 77.9% of the outstanding shares of Class A common
stock were voted. The vote on such resolution was as follows:
Director Votes For Votes Withheld
John C. Burton 13,166,798 107,560
William C. Egan, III 13,147,791 126,567
Edward L. Massie 13,166,644 107,714
Robert H. Mundheim 13,166,833 107,525
Daniel K. Thorne 13,166,738 107,620
Oakleigh B. Thorne 13,166,103 108,255
Oakleigh Thorne 13,166,736 107,622
Ralph C. Whitley 13,166,785 107,573
A resolution to appoint Deloitte & Touche LLP to conduct the annual audit
of the financial statements of the Registrant for the year ending December 31,
1995. The result of such vote was as follows:
For - 13,247,307 shares of Class A common stock
Against - 21,630 shares of Class A common stock
Abstain - 5,421 shares of Class A common stock
Item 6. Exhibits and Reports on Form 8-K
(b) No report on Form 8-K was filed by the Registrant during the three
months ended March 31, 1995.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned in his capacity as a duly authorized officer and chief financial
officer of the registrant.
CCH INCORPORATED
(Registrant)
Date: May 15, 1995
/s/ John I. Abernethy
John I. Abernethy
Chief Financial Officer
- -12-
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