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: September 30, 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) 267-7000
- ---------------------------------------------------
(Registrants 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 issuers
classes of common stock, as of the latest practicable date.
Outstanding as of
Class of Common Stock November 8, 1995
---------------------- ------------------
- -
Class A, $1.00 par value 16,638,512 shares
Class B, $1.00 par value 16,397,122 shares
This document is comprised of 13 pages
Page 1
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 and nine-
months ended September 30, 1995, with comparative statements for
the corresponding periods ended September 30, 1994. These
statements also include comparative balance sheets for September
30, 1995 and December 31, 1994 and the related statements of cash
flows for the nine months ended September 30, 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)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30 Ended September 30
------------------ -------
- -----------
1995 1994 1995 1994
<S> <C> <C> <C> <C>
REVENUES:
Publishing $ 93,175 $ 93,292 $283,180 $281,886
Tax compliance software 4,650 4,384 39,546 44,240
Legal information services 33,624 28,777 99,372 84,871
------- ------- ------- -------
131,449 126,453 422,098 410,997
------- ------- ------- -------
COSTS AND EXPENSES:
Editorial, production and
distribution costs 66,532 63,730 203,523 207,451
General and administrative 28,972 35,449 96,036 100,884
Commissions 11,705 10,977 35,479 33,828
Advertising and other
selling expenses 20,926 20,963 59,537 58,661
Pensions and profit sharing 785 1,827 5,665 6,019
Recovery of 1992 and 1993
restructuring reserves (Note F) (4,700) - (4,700) -
Provision for voluntary early
retirement program (Note E) - - 9,700 -
------- ------- ------- -------
124,220 132,946 405,240 406,843
------- ------- ------- -------
OPERATING EARNINGS (LOSS) 7,229 (6,493) 16,858 4,154
OTHER INCOME, NET 6 1,816 3,106 5,244
------ ------ ------ -------
EARNINGS (LOSS) BEFORE
INCOME TAXES 7,235 (4,677) 19,964 9,398
INCOME TAXES EXPENSE (BENEFIT) 2,610 (1,900) 7,890 3,900
------ ------- ------- -------
NET EARNINGS (LOSS) $ 4,625 $ (2,777) $12,074 $ 5,498
======= ======= ======= =======
NET EARNINGS (LOSS) PER SHARE $ .14 $ (.08) $ .36 $ .16
======= ======== ======= =======
CASH DIVIDENDS DECLARED $ .175 $ .175 $ .525 $ .525
======= ======= ======= ========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 33,046,396 34,056,199 33,316,861 34,140,552
========== ========== ========== ==========
<FN>
See Notes to Consolidated Financial Statements
</TABLE>
Page 2
CCH INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- ----------------------------
(In thousands, except share amounts)
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
September 30, December 31,
1995 1994
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 31,951 $43,302
Short-term investments 300 39,918
Accounts receivable, less allowance
for doubtful accounts 187,898 197,295
Prepaid employee health care 24,291 23,416
Prepaid commissions 28,785 29,415
Inventories 10,618 8,877
Prepaid expenses and other 10,065 5,876
-------- -------
TOTAL CURRENT ASSETS 293,908 348,099
-------- -------
PROPERTY, PLANT AND EQUIPMENT:
Land and improvements 13,742 13,588
Buildings and leasehold improvements 97,778 96,358
Machinery and equipment 129,847 119,436
Furniture and office equipment 65,427 65,939
-------- --------
306,794 295,321
Accumulated depreciation and
amortization (189,973) (175,818)
------- -------
116,821 119,503
Construction in progress 7,685 4,500
-------- --------
124,506 124,003
-------- --------
OTHER ASSETS:
Deferred tax assets 41,944 40,852
Commissions on unfilled orders not
recorded in the financial statements 22,060 22,236
Intangible assets 12,148 15,629
Prepaid pension costs 7,320 8,919
Capitalized software 6,673 5,853
Other 8,831 8,565
-------- --------
98,976 102,054
-------- --------
TOTAL ASSETS $517,390 $574,156
======== ========
<FN>
See Notes to Consolidated Financial Statements
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERSINVESTMENT
--------------------------------------
September 30, December 31,
1995 1994
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 8,116 $ 20,164
Accrued expenses 38,803 34,061
Payroll and related withholdings 17,151 18,877
Taxes other than income taxes 4,059 6,193
Dividends payable 5,797 5,972
Current portion of long-term
obligations 223 791
Reserve for restructuring and
voluntary early retirement
program (Notes E and F) 8,233 7,522
Unearned revenue (Note A) 244,510 263,234
------- -------
TOTAL CURRENT LIABILITIES 326,892 356,814
------- -------
LONG TERM LIABILITIES:
Accrued postretirement benefits 99,015 95,013
Reserve for restructuring (Note F) 17,021 25,259
Other liabilities 4,783 4,987
Long-term obligations 82 269
------- -------
TOTAL LONG-TERM LIABILITIES 120,901 125,528
------- -------
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 70,312 75,632
Cumulative translation adjustments (5,341) (5,159)
Treasury stock, at cost: 779,690
shares of Class A and 1,021,080
shares of Class B at September 30,
1995; 294,390 shares of Class A
and 507,380 shares of Class B at
December 31, 1994 (30,210) (13,495)
------- -------
TOTAL STOCKHOLDERS INVESTMENT 69,597 91,814
------- -------
TOTAL LIABILITIES AND
STOCKHOLDERS INVESTMENT $517,390 $574,156
======= =======
<FN>
See Notes to Consolidated Financial Statements
</TABLE>
Page 3
CCH INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months
Ended September 30
1995 1994
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Receipts from customers $407,159 $433,724
Interest income 1,979 3,381
Payment to suppliers (202,374) (181,985)
Payments to employees (190,888) (197,383)
Income taxes paid, net of
refunds received (10,095) (903)
Payments to pension and profit
sharing plans (3,561) (4,439)
Interest paid on long-term
obligations (27) (541)
Other 1,031 713
-------- --------
NET CASH PROVIDED BY
OPERATING ACTIVITIES (NOTE C) 3,224 52,567
------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (17,568) (17,935)
Purchase of treasury shares (16,715) (3,060)
Payments on long-term obligations (985) (1,794)
-------- --------
NET CASH USED IN FINANCING ACTIVITIES (35,268) (22,789)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Change in short-term investments 39,551 5,436
Cash paid for property,
plant and equipment (16,428) (21,456)
Cash paid for capitalized software (3,090) (2,891)
Proceeds from sale of property,
plant and equipment 286 931
------- -------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 20,319 (17,980)
-------- --------
EFFECT OF EXCHANGE RATE CHANGES 374 939
------- ---------
NET INCREASE (DECREASE)IN CASH AND
CASH EQUIVALENTS (11,351) 12,737
CASH AND CASH EQUIVALENTS AT JANUARY 1 43,302 32,322
-------- ---------
CASH AND CASH EQUIVALENTS AT SEPTEMBER 30 $ 31,951 $45,059
======== ========
<FN>
See Notes to Consolidated Financial Statements
</TABLE>
Page 4
CCH INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
NINE MONTHS ENDED SEPTEMBER 30, 1995
- ------------------------------------
(Unaudited)
A. Basis of Presentation:
---------------------
The accompanying financial statements reflect the operations of
CCH INCORPORATED and its subsidiaries for the three and nine-
month periods ended September 30, 1995, with comparative
statements for the corresponding periods ended September 30,
1994. They also include comparative balance sheets for September
30, 1995 and December 31, 1994. Beginning in the second quarter
of 1995, the computer processing services segment was renamed to
tax compliance software. 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. Certain 1994 amounts have been reclassified to
conform to 1995 presentation.
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 and nine-
month periods ended September 30, 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 Companys 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 $180.2 million at September 30, 1995, $156.6
million at December 31, 1994 and $224.6 million at September 30,
1994), except that commissions paid on these orders are recorded
in other assets.
Revenues are recognized in the statements of operations when the
service is performed. Costs and expenses other than commissions
are recorded in the statements of operations as incurred.
Unearned revenue on the balance sheets reflect the revenue to be
recognized in the future (primarily within one year) on
subscription and representation contracts.
Page 5
CCH INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
- --------------------------------------------------------
NINE MONTHS ENDED SEPTEMBER 30, 1995
- ------------------------------------
(Unaudited)
B. Segment Information:
-------------------
Comparative information about the Companys segments is as follows
(in thousands):
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30 Ended September 30
1995 1994 1995 1994
<S> <C> <C> <C> <C>
REVENUES:
Publishing:
United States $ 66,709 $ 67,457 $200,517 $203,343
International 26,466 25,835 82,663 78,543
------- ------- ------- -------
93,175 93,292 283,180 281,886
Tax compliance software 4,650 4,384 39,546 44,240
Legal information services 33,624 28,777 99,372 84,871
------- ------- ------- -------
$131,449 $126,453 $422,098 $410,997
======= ======= ======= =======
OPERATING EARNINGS (LOSS):
Publishing:
United States $ (919) $ (9,348) $(10,558) $(21,434)
International 4,085 4,905 14,684 14,134
------- ------- ------ ------
3,166 (4,443) 4,126 (7,300)
Tax compliance software (6,561) (6,206) 2,393 3,716
Legal information services 5,924 4,156 15,339 7,738
------- ------- ------ ------
2,529 (6,493) 21,858 4,154
Recovery of 1992 and 1993
restructuring reserves 4,700 - 4,700 -
Provision for voluntary early
retirement program - - (9,700) -
------- ------- ------- -------
$ 7,229 $ (6,493) $ 16,858 $ 4,154
======= ======= ======= =======
CAPITAL EXPENDITURES:
Publishing:
United States $ 1,240 $ 5,595 $ 8,280 $12,711
International 279 498 1,467 1,753
------- ------- ------- --------
1,519 6,093 9,747 14,464
Tax compliance software 548 300 1,025 790
Legal information services 1,154 2,691 5,656 6,202
------- ------- ------- -------
$ 3,221 $ 9,084 $ 16,428 $ 21,456
======= ======= ======= =======
DEPRECIATION:
Publishing:
United States $ 2,453 $ 1,982 $ 6,978 $ 5,522
International 1,004 966 2,995 2,882
------- ------- ------- -------
3,457 2,948 9,973 8,404
Tax compliance software 391 629 1,579 2,083
Legal information services 1,473 1,205 4,409 3,779
------- ------- ------- -------
$ 5,321 $ 4,782 $ 15,961 $ 14,266
======= ======= ======= =======
<FN>
</TABLE>
Page 6
CCH INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
- --------------------------------------------------------
NINE MONTHS ENDED SEPTEMBER 30, 1995
- ------------------------------------
(Unaudited)
C. Supplementary Statements of Cash Flows Information:
Reconciliation of Net Earnings with Cash Flows from Operating
Activities:
<TABLE>
<CAPTION>
Nine Months
Ended September 30
------------------
1995 1994
---- ----
(in thousands)
<S> <C> <C>
NET EARNINGS $12,074 $5,498
ADD (DEDUCT) NONCASH ITEMS:
Depreciation 15,961 14,266
Bad debt expense 6,561 5,077
Amortization of intangibles 4,127 6,034
Deferred income taxes (3,091) 564
------ ------
35,632 31,439
CHANGES IN ASSETS AND LIABILITIES:
Decrease in unearned revenue (18,504) (51,113)
Decrease in trade accounts
receivable 9,564 73,411
Increase in other current assets (12,179) (10,249)
Increase (decrease)in current
liabilities excluding restructure (11,427) 18,472
Decrease in restructure reserve (7,528) (11,504)
Increase in accrued postretirement
and postemployment benefits 3,867 5,583
Increase in prepaid employee health care (875) (490)
Increase/decrease in other assets
and liabilities 4,674 (2,982)
------- -------
NET CASH FLOWS PROVIDED BY
OPERATING ACTIVITIES $ 3,224 $52,567
======= =======
<FN>
</TABLE>
Page 7
CCH INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
- -------------------------------------------------------
NINE MONTHS ENDED SEPTEMBER 30, 1995
- ------------------------------------
(Unaudited)
D. 1993 Long-Term Incentive Plan:
-----------------------------
The Companys 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:
<TABLE>
<CAPTION>
Option Price
Options Per Share
------- -----------
<S> <C> <C>
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 417,000 $16.25-$21.00
Options forfeited (286,250) $16.25-$17.00
Balance at September 30, 1995 1,217,000
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 of the
third and fourth anniversaries of the date of grant. Some options
granted in 1995 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 September 30, 1995, 143,750 options were
exercisable. At December 31, 1994 no options were exercisable.
E. Provision for Voluntary Early Retirement Program:
-------------------------------------------------
During the second quarter of 1995, the Company recorded a $9.7
million provision for costs related to a voluntary early
retirement program. Announced in February 1995, the early
retirement program was offered to employees who will complete 25
years or more of credited service by the end of 1995. This
program provided an enhanced pension and benefits package and was
offered to approximately 260 employees. At the conclusion of the
program, 128 employees accepted the offer.
Page 8
CCH INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NINE MONTHS ENDED SEPTEMBER 30, 1995
(Unaudited)
E. Provision for Voluntary Early Retirement Program (Continued):
-------------------------------------------------------
The Company expects to realize annual cost savings of
approximately $9 million by replacing less than 30% of all
positions affected by the program. The provision of $9.7 million
includes the costs for enhanced pension benefits, medical,
severance and outplacement services. The program was offered to
all eligible employees in each of the Companys domestic business
segments. The cost for the publishing, tax compliance software
and legal information services segments were $8.4 million, $.4
million and $.9 million, respectively. At September 30, 1995,
$2.3 million is included in the reserve for restructuring for
costs associated with employees who accepted the retirement offer
but elected a late 1995 separation date.
F. Reserve for Restructured Operations:
-----------------------------------
During 1993 and 1992, the Company recorded restructuring charges
totaling $86 million. The 1993 charge of $36 million included
$24.5 million for the publishing segment to consolidate its North
American printing and fulfillment operations in 1994, streamline
editorial processes and consolidate the separate direct sales
organizations of publishing and tax compliance software in 1993;
$4.5 million for legal information services to reconfigure its
branch and central office operations throughout 1994; and $7.0
million for the tax compliance software segment to close the
corporate mainframe data center located in Torrance, California.
The 1992 charge of $50 million included the estimated costs the
tax compliance software segment would incur shifting its primary
product line from mainframe-based service bureau processing of
tax returns to tax return software and services using
microcomputer-based tax processing software. The segment closed
29 of its 31 tax processing centers, discontinued its mainframe
service bureau product line, disposed of ancillary products,
reduced its selling, general and administrative staffs, and
vacated excess space at the segments leased headquarters facility
in Torrance, California.
During the first nine months of 1995, the Company incurred
expenditures of approximately $5.1 million related to the 1992
and 1993 restructuring charges. Over half the expenditures were
incurred for severance and other related costs arising from
domestic publishing workforce reductions. Lease payments for
vacated facilities comprised the majority of the remaining
expenditures. Over the next twelve months, approximately $6.0
million is expected to be incurred for vacant space lease
payments and severance costs due to closing of the data center.
During the third quarter of 1995, the Company recorded a $4.7
million recovery from the 1992 and 1993 restructuring reserves.
The closing of the corporate mainframe data processing center in
the third quarter and successful subleasing of excess space at
the former tax compliance software headquarters facility in
Torrance, California allowed management to finalize the needed
reserve requirements relating to these initiatives. Domestic
publishing and LIS reflected a recovery of $7.4 million and $.9
million, respectively, offsetting a $3.6 million charge for tax
compliance software. Lower than anticipated severance payments
due to attrition and lower cost reengineering alternatives
resulted in the recovery of reserves for domestic publishing and
LIS. The additional provision for tax compliance software is
attributed to total sublease rentals for excess space in the
Torrance, California facility that are lower than the amount the
Company is obligated to pay over the remaining eleven years of
the lease. Management believes that established reserves are
adequate to cover the expected remaining costs to be incurred.
Page 9
CCH INCORPORATED AND SUBSIDIARIES
Item 2. Managements Discussion and Analysis of Financial
Condition
and Results of Operations
Financial Condition: September 30, 1995 Compared to December 31,
1994
- ---------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES. The Companys publishing and
legal information services segments generally require payment in
advance for services and, accordingly, the Company maintains a
liquid financial position.
Cash and short term investments decreased approximately $51.0
million during the nine months ended September 30, 1995. The
installation of the new order management, billing and accounts
receivable systems in 1994 delayed billing and dunning processes
in the domestic publishing and legal information services (LIS)
segments. Domestic publishing completed issuance of delayed
invoicing and in July, completed the first statementing cycle on
the new computer system. Domestic publishing is now able to
invoice weekly compared to monthly invoicing under the old order
management system. LIS segment completed issuance of delayed
invoices during the first quarter of 1995 and activated its new
dunning processes using the new system during the second quarter
of 1995. Management believes that concerted collection efforts
will reduce the accounts receivable balances by year-end, but
that the accounts receivable balances will not return to
historical levels until mid-1996.
During the second quarter of 1995, the Company recorded a $9.7
million provision for costs related to a voluntary early
retirement program which includes a non-cash charge of $4.7
million primarily from a pension settlement loss. The Company
believes that it has sufficient liquid assets to absorb the
working capital requirements of the voluntary early retirement
charges and the continued expenditures from the 1992 and 1993
restructuring charges.
For the nine months of 1995, the Company purchased $16.7 million
of treasury stock, 485,300 shares of Class A and 513,700 shares
of Class B. At September 30, 1995, $4.8 million remains in unused
treasury stock authorization.
During the nine months ended September 30, 1995, the Company
purchased $16.4 million of capital expenditures, compared with
$21.1 million in 1994. The 1995 capital expenditures were
primarily for upgrading computer equipment in domestic publishing
and legal information services.
RESULTS OF OPERATIONS: THREE MONTHS ENDED SEPTEMBER 30, 1995
COMPARED TO
THREE MONTHS ENDED SEPTEMBER 30, 1994
Consolidated revenue for the quarter of $131.4 million increased
$5.0 million or 4.0 percent as compared to 1994. Revenue
increases of $4.8 million at LIS, $.6 million in international
publishing, and $.3 million in tax compliance software revenue
more than offset a $.7 million decrease at domestic publishing.
Prior to the recovery of 1992 and 1993 restructuring reserves,
third quarter operating earnings of $2.5 million increased $9.0
million over 1994 operating losses. The improvements over 1994
reflect strong revenue growth in LIS accompanied by improvements
in domestic publishing cost structure reflecting the benefits of
reengineering and the reduced spending in support of these
efforts. Third quarter results include a $4.7 million ($2.8
million after tax or $.09 per share) recovery from 1992 and 1993
restructuring reserves. Closing of the corporate mainframe data
processing center in the third quarter and successful subleasing
of excess space at the former tax compliance software
headquarters facility in Torrance, California allowed management
to finalize the needed reserve requirements relating to these
initiatives.
Consolidated net income of $4.6 million or $.14 per share in 1995
compares to a loss of ($2.8) million or ($.08) per share in 1994.
Page 10
CCH INCORPORATED AND SUBSIDIARIES
RESULTS OF OPERATIONS: THREE MONTHS ENDED SEPTEMBER 30, 1995
COMPARED TO
THREE MONTHS ENDED SEPTEMBER 30, 1994 (Continued)
PUBLISHING: Revenue for the quarter of $93.2 million decreased
$.1 million from 1994, as increases in international publishing
revenue of $.6 million were offset by decreases in domestic
publishing of $.7 million. Decreases in domestic books and lower
renewals in tax and business law products were offset by
increases in on-line and state tax and non-tax content areas.
Operating earnings of $3.2 million, before recovery of 1992 and
1993 restructuring reserves, improved $7.6 million from 1994
primarily from reduced costs in domestic publishing. Domestic
publishing operating improvements of $8.4 million reflect reduced
manufacturing costs associated with outsourcing a significant
percent of domestic products and closing two printing facilities
during 1994 and reduced direct material costs as a greater
percentage of new sales are delivered on less expensive CD-ROM
media. In addition, 1994 operating losses included significant
costs that were incurred supporting new order processing systems,
sales force automation, content management initiatives and new
product introduction costs. International operating earnings
decreased $.8 million for the quarter. Decreased operating
profits from our Australian operations from investment in
electronic products more than offset improved earnings in
European and Canadian operations. Exchange rate movements had an
immaterial effect on international publishing results for the
quarter.
TAX COMPLIANCE SOFTWARE: Revenue for the quarter of $4.6 million
increased $.3 million from 1994. Increased revenues in software
sales offset the anticipated declines in service bureau revenue.
Operating losses, before recovery of 1992 and 1993 restructuring
reserves, of $6.6 million declined $.4 million from 1994. The
decline was the result of increased operating costs in technology
related activities, offsetting slight revenue increases.
LEGAL INFORMATION SERVICES: Revenue of $33.6 million increased
$4.8 million or 16.8 percent over 1994. Statutory representation
services, sales of new electronic products and services
supporting recent merger and acquisition activity among U.S.
businesses dramatically improved revenue growth.
Operating profit, before recovery of 1992 and 1993 restructuring
reserves, of $5.9 million increased $1.8 million from 1994.
Substantial operating profit increases were generated by both
revenue increases and a reduced cost structure arising from the
reengineering initiatives concluded during mid 1994.
OTHER INCOME, NET: Other income decreased $1.8 million from 1994
due to declines in investment income as a result of delayed cash
receipts and the impact of a $.9 million exchange loss on
intercompany cash advances to domestic publishing from Australian
and Canadian operations.
INCOME TAX EXPENSE: Third quarter income tax expense reflects an
adjustment to bring the overall effective tax to an annual rate
of 39.5 percent. The rate reduction reflects a one-time tax
benefit utilizing state tax loss carryforwards and increased
research and development credits.
Page 11
CCH INCORPORATED AND SUBSIDIARIES
RESULTS OF OPERATIONS: NINE MONTHS ENDED SEPTEMBER 30, 1995
COMPARED TO
NINE MONTHS ENDED SEPTEMBER 30, 1994
Consolidated revenues for the nine months ended September 30,
1995 were $422.1 million, a $11.1 million or 2.7 percent increase
from the comparable 1994 period. A $14.5 million increase in the
LIS segment and a $1.3 million increase in the publishing segment
were offset by a $4.7 million decrease in the tax compliance
software segment.
Consolidated operating income of $21.9 million for the first nine
months of 1995 increased $17.7 million from 1994, prior to the
$9.7 million voluntary early retirement provision and the $4.7
million recovery of the 1992 and 1993 restructuring reserves.
Significant increases in operating earnings in LIS of $7.6
million and publishing of $11.4 million were offset by declines
in tax compliance software of $1.3 million.
Operating results for the second quarter included a pre-tax
charge of $9.7 million ($5.7 million after taxes, or $.17 per
share) for a previously announced voluntary early retirement
program. The annual payroll and benefits savings from the program
will be approximately $5 million for 1995 and $9 million in 1996.
Net earnings of $12.1 million or $.36 per share compared to $5.5
million, or $.16 per share, in 1994.
PUBLISHING: Publishing revenue of $283.2 million increased $1.3
million from 1994. International revenues increased $4.1 million
or 5.2 percent although domestic revenues decreased $2.8 million,
or 1.4 percent. Domestic publishing revenue decreased due to
expirations on calendar year products, delays in renewal programs
and declines in federal income tax products which more than
offset increased revenue in books and on-line fees and growth in
non-tax content areas. Sales of books and electronic products
remain strong. Revenues from traditional print looseleaf
products declined as customers continue migrating to electronic
media, particularly CD-ROM. However, print products continue to
provide a significant revenue base.
The $11.4 million increase in operating profit, prior to the
voluntary early retirement provision and recovery of 1992 and
1993 restructuring reserves, was comprised of a $10.9 million
domestic increase and a $.5 million international increase. The
improvement in domestic operating results for the nine-month
period reflects reduced manufacturing costs associated with
outsourcing a significant percent of domestic publishing
products, the closing of two printing locations during 1994, and
reduced direct material costs as a greater percentage of new
sales are delivered on less expensive CD-ROM media. In addition,
1994 operating losses included significant costs that were
incurred supporting the new order processing system, sales force
automation, content management initiatives and new product
introduction costs. International publishing operating earnings
increased over the prior year primarily due to revenue increases
arising in the European region.
TAX COMPLIANCE SOFTWARE: Revenues decreased $4.7 million over
1994 and operating earnings decreased $1.3 million from 1994. The
Company discontinued its 1040 Solutions product line in mid-1994,
converting a large number of customers to its principal product
line, ProSystem fx. For the first quarter of 1994, 1040 Solutions
contributed approximately $7 million of revenues and $5 million
of operating earnings to this segments financial results.
However, the product line was expected to be only marginally
profitable in 1994. After eliminating the impacts of the product
line discontinuation, revenues increased $2.3 million or 6.2% and
operating profits increased $3.7 million, prior to the provision
for the voluntary early retirement program and recovery of 1992
and 1993 restructuring provisions.
LEGAL INFORMATION SERVICES: LIS revenue of $99.4 million showed
a $14.5 million or 17.1 percent increase from 1994. The strong
growth in revenue from this segment is due to statutory
representation services, sales of new electronic products and
services supporting recent merger and acquisition activity.
Page 12
CCH INCORPORATED AND SUBSIDIARIES
RESULTS OF OPERATIONS: NINE MONTHS ENDED SEPTEMBER 30, 1995
COMPARED TO
NINE MONTHS ENDED SEPTEMBER 30, 1994 (Continued)
LIS contributed operating earnings of $15.3 million in 1995,
prior to the provision for the voluntary early retirement program
and recovery of 1992 and 1993 restructuring reserves, an increase
of $7.6 million from 1994. This substantial increase in
performance is a result of both continued revenue increases and a
reduced cost structure arising from implementation of key
reengineering initiatives over the last few years.
OTHER INCOME, NET: Other income decreased $2.1 million from 1994
due to a $1.2 million decline in investment income as a result of
reduced funds available for investment.
KNOWN TRENDS, EVENTS AND COMMITMENTS: As a result of stronger
than expected third quarter results, the Company now expects 1995
operating earnings to exceed $50 million, after recovery of
restructuring reserves and the provision for a voluntary early
retirement program. This estimate contemplates that delays in
tax legislation will adversely impact fourth quarter publishing
results.
The Company is presently in the 1996 budget process. Although
the budgets have not been finalized, management now believes that
1996 financial performance could exceed the $70 to $75 million
1996 operating profit target previously announced. LIS revenue
growth is now expected to continue in 1996, providing better than
previously expected operating earnings potential.
PART II - OTHER INFORMATION
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 September 30, 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)
/s/ John I. Abernethy
-----------------------
John I. Abernethy
Chief Financial Officer
Date: November 9, 1995
Page 13
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