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: June 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 EmployerIdentification No.)
incorporation or organization)
2700 Lake Cook Road
Riverwoods, Illinois 60015
- ---------------------------------------
(Address of principal executive offices)
(Zip Code)
(708) 267-7000
- ---------------------------------------------------
(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 August 1, 1995
--------------------- -----------------
Class A, $1.00 par value 16,652,912 shares
Class B, $1.00 par value 16,397,122 shares
This document is comprised of 14 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 and six-
months ended June 30, 1995, with comparative statements for the
corresponding periods ended June 30, 1994. These statements also
include comparative balance sheets for June 30, 1995 and December
31, 1994 and the related statements of cash flows for the six
months ended June 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)
Three Months Six Months
Ended June 30 Ended June
30
------------- ------------
- -
1995 1994 1995 1994
REVENUES:
Publishing $ 93,422 $90,780 $190,005 $188,594
Tax compliance software 10,889 10,389 34,896 39,856
Legal information services 33,353 28,127 65,748 56,094
-------- -------- -------- --------
137,664 129,296 290,649 284,544
COSTS AND EXPENSES:
Editorial, production and
distribution costs 66,556 69,000 136,991 140,484
General and administrative 34,849 34,088 67,064 68,468
Commissions 11,348 11,095 23,774 22,954
Advertising and other
selling expenses 19,681 20,244 38,611 37,805
Pensions and profit sharing 1,808 2,160 4,880 4,186
Provision for voluntary early
retirement program Note E) 9,700 - 9,700 -
-------- ------- -------- ---------
143,942 136,587 281,020 273,897
-------- ------- -------- ---------
OPERATING EARNINGS (LOSS) (6,278) (7,291) 9,629 10,647
OTHER INCOME, NET 1,300 1,912 3,100 3,427
-------- ------- -------- ---------
EARNINGS (LOSS) BEFORE INCOME
TAXES (4,978) (5,379) 12,729 14,074
INCOME TAXES EXPENSE (BENEFIT) (2,070) (2,300) 5,280 5,800
-------- ------- ------- ---------
NET EARNINGS (LOSS) $(2,908) $(3,079) $ 7,449 $ 8,274
======== ======= ======= =========
NET EARNINGS (LOSS) PER SHARE (.09) $ (.09) $ .22 $ .24
======== ======= ======= =========
CASH DIVIDENDS DECLARED $ .175 $ .175 $ .35 $ .35
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 33,182,659 34,157,248 33,454,336 34,183,427
========== ========== ========== ==========
<FN>
See Notes to Consolidated Financial Statements
Page 2
CCH INCORPORATED AND SUBSIDIARIES
---------------------------------
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
(Unaudited)
ASSETS
------
June 30, December 31,
1995 1994
-------- ------------
CURRENT ASSETS:
Cash and cash equivalents $ 22,502 $ 43,302
Short-term investments 584 39,918
Accounts receivable, less allowance
for doubtful accounts 192,293 197,295
Prepaid employee health care 23,927 23,416
Prepaid commissions 28,306 29,415
Inventories 10,271 8,877
Prepaid expenses and other 11,222 5,876
--------- ---------
TOTAL CURRENT ASSETS 289,105 348,099
--------- ---------
PROPERTY, PLANT AND EQUIPMENT:
Land and improvements 13,646 13,588
Buildings and leasehold improvements 96,720 96,358
Machinery and equipment 127,833 119,436
Furniture and office equipment 64,498 65,939
--------- --------
302,697 295,321
Accumulated depreciation and
amortization (183,821) (175,818)
--------- ---------
118,876 119,503
Construction in progress 6,498 4,500
--------- ---------
125,374 124,003
--------- ---------
OTHER ASSETS:
Deferred tax assets 43,794 40,852
Intangible assets 13,290 15,629
Commissions on unfilled orders not
recorded in the financial statements 20,251 22,236
Prepaid pension costs 13,568 8,919
Capitalized software 7,050 5,853
Other 8,816 8,565
---------- ---------
106,769 102,054
---------- ---------
TOTAL ASSETS $521,248 $574,156
========== =========
<FN>
See Notes to Consolidated Financial Statements.
Page 3
CCH INCORPORATED AND SUBSIDIARIES
---------------------------------
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
(Unaudited)
LIABILITIES AND STOCKHOLDERS INVESTMENT
----------------------------------------
June 30, December 31,
1995 1994
-------- ------------
CURRENT LIABILITIES:
Accounts payable $ 11,210 $20,164
Accrued expenses 33,020 33,083
Payroll and related withholdings 14,332 18,877
Taxes other than income taxes 2,724 6,193
Dividends payable 5,807 5,972
Income taxes 2,626 978
Current portion of long-term
obligations 179 791
Reserve for restructuring and
voluntary early retirement
program (E and F) 15,801 7,522
Unearned revenue (Note A) 240,301 263,234
--------- --------
TOTAL CURRENT LIABILITIES 326,000 356,814
--------- --------
LONG TERM LIABILITIES:
Accrued postretirement benefits 97,257 94,639
Reserve for restructuring (Note F) 22,251 25,259
Other liabilities 5,277 5,361
Long-term obligations 148 269
--------- ---------
TOTAL LONG-TERM LIABILITIES 124,933 125,528
--------- ---------
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 71,469 75,632
Cumulative translation adjustments (6,889) (5,159)
Treasury stock, at cost: 744,890
shares of Class A and 1,004,080
shares of Class B at June 30, 1995,
294,390 shares of Class A and
507,380 shares of Class B at
December 31, 1994 (29,101) (13,495)
--------- --------
TOTAL STOCKHOLDERS INVESTMENT 70,315 91,814
--------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS INVESTMENT $521,248 $574,156
========= =========
CCH INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(In thousands)
(Unaudited)
Six Months
Ended June 30
-------------
1995 1994
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Receipts from customers $270,054 $315,537
Interest income 2,361 1,477
Payment to suppliers (152,422) (128,964)
Payments to employees (119,234) (130,258)
Income taxes paid, net of refunds
received (7,998) 207
Payments to pension and profit
sharing plans (6,207) (3,593)
Interest paid on long-term
obligations (79) (377)
Other (62) 453
-------- --------
NET CASH PROVIDED BY (USED FOR)
OPERATING ACTIVITIES (NOTE C) (13,587) 54,482
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (11,778) (11,973)
Purchase of treasury shares (15,606) (2,476)
Payments on long-term obligations (843) (1,320)
---------- ----------
NET CASH USED IN FINANCING ACTIVITIES (28,227) (15,769)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Changes in short-term securities, net 39,023 (11,719)
Cash paid for property, plant and
equipment (13,207) (12,372)
Cash paid for capitalized software (2,311) (2,067)
Proceeds from sale of property,
plant and equipment 123 886
--------- --------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 23,628 (25,272)
--------- --------
EFFECT OF EXCHANGE RATE CHANGES (2,614) 593
--------- --------
NET INCREASE (DECREASE)IN CASH AND
CASH EQUIVALENTS (20,800) 14,034
CASH AND CASH EQUIVALENTS AT JANUARY 1 43,302 32,322
-------- --------
CASH AND CASH EQUIVALENTS AT JUNE 30 $22,502 $46,356
======== ========
<FN>
See Notes to Consolidated Financial Statements
Page 4
CCH INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
SIX MONTHS ENDED JUNE 30, 1995
(Unaudited)
- --------------------------------
A. Basis of Presentation:
- -------------------------
The accompanying financial statements reflect the operations
of CCH INCORPORATED and its subsidiaries for the three and six-
month periods ended June 30, 1995, with comparative statements
for the corresponding periods ended June 30, 1994. They also
include comparative balance sheets for June 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 six-
month periods ended June 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 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 $143.5 million at June 30, 1995, $156.6 million
at December 31, 1994 and $230.7 million at June 30, 1994), except
that commissions paid on these orders are recorded as an other
asset.
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)
--------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 1995
------------------------------
(Unaudited)
B. Segment Information:
Comparative information about the Company's segments is as
follows (in thousands):
Three Months Six Months
Ended June 30 Ended June 30
------------- -------------
1995 1994 1995 1994
---- ---- ---- ----
REVENUES:
Publishing:
United States $ 67,098 $ 65,235 $133,808 $135,886
International 26,324 25,545 56,197 52,708
-------- -------- --------- ---------
93,422 90,780 190,005 188,594
Tax compliance software 10,889 10,389 34,896 39,856
Legal information services 33,353 28,127 65,748 56,094
-------- -------- --------- ---------
$137,664 $129,296 $290,649 $284,544
========= ======== ========= =========
OPERATING EARNINGS (LOSS):
Publishing:
United States $ (3,606) $(11,661) $ (9,639) $(12,087)
International 3,554 3,616 10,599 9,229
-------- -------- --------- ---------
(52) (8,045) 960 (2,858)
Tax compliance software (1,366) (1,862) 8,954 9,922
Legal information services 4,840 2,616 9,415 3,583
-------- -------- --------- ---------
$ 3,422 $ (7,291) $ 19,329 $ 10,647
Provision for voluntary early
retirement program 9,700 - 9,700 -
--------- -------- --------- --------
$ (6,278) $ (7,291) $ 9,629 $ 10,647
========= ======== ========= ========
CAPITAL EXPENDITURES:
Publishing:
United States $ 3,994 $ 2,643 $ 7,040 $ 7,116
International 680 594 1,188 1,255
-------- -------- --------- ---------
4,674 3,237 8,228 8,371
Tax compliance software 316 185 477 490
Legal information services 2,651 2,317 4,502 3,511
-------- -------- --------- ---------
$ 7,641 $ 5,739 $ 13,207 $ 12,372
======== ======== ========= =========
DEPRECIATION:
Publishing:
United States $ 2,347 $ 1,876 $ 4,525 $ 3,540
International 990 977 1,991 1,916
-------- -------- --------- ---------
3,337 2,853 6,516 5,456
Tax compliance software 590 697 1,188 1,454
Legal information services 1,618 1,386 2,936 2,574
-------- -------- --------- ---------
$ 5,545 $ 4,936 $ 10,640 $ 9,484
======== ======== ========= =========
Page 6
CCH INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(Continued)
------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 1995
------------------------------
(Unaudited)
C. Supplementary Statements of Cash Flows Information:
Reconciliation of Net Earnings with Cash Flows from Operating
Activities:
Six Months
Ended June 30
---------------
1995 1994
---- ----
(in thousands)
NET EARNINGS $ 7,449 $ 8,274
ADD (DEDUCT) NONCASH ITEMS:
Depreciation 10,640 9,484
Bad debt expense 3,875 3,320
Amortization of intangibles 3,011 3,901
Deferred income taxes (2,971) (7)
---------- ----------
22,004 24,972
CHANGES IN ASSETS AND LIABILITIES:
Decrease in unearned revenue (20,919) (43,390)
Decrease in trade account
receivable 4,200 (74,501)
Increase in other current assets (10,037) (5,719)
Increase (decrease)in current
liabilities excluding restructure (14,880) 12,346
Increase (decrease)in restructure
reserve 5,270 (7,768)
Increase in accrued postretirement
and postemployment benefits 2,551 3,374
Increase in prepaid employee health
care (511) (250)
Increase/decrease in other assets
and liabilities (1,265) (3,584)
--------- ---------
NET CASH FLOWS PROVIDED BY (USED FOR)
OPERATING ACTIVITIES $(13,587) $ 54,482
========= =========
Page 7
CCH INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
- --------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 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:
Options Option Price
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 413,000 $16.25-$16.75
Options forfeited (281,250) $16.625-$17.00
----------
Balance at June 30, 1995 1,218,000
==========
<FN>
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 June 30, 1995, 136,250 options were
exercisable. At December 31, 1994 no options were exercisable.
Page 8
CCH INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SIX MONTHS ENDED JUNE 30, 1995
(Unaudited)
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 would have
completed 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, 127 employees accepted the offer.
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 Company's business
segments. The cost of each segment's participants for publishing,
tax compliance software and legal information services segments
were $8.4 million, $.4 million and $.9 million, respectively. At
June 30, 1995, $6.8 million is included in the reserve for
restructuring for costs associated with employees that 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 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 segment's leased headquarters
facility in Torrance, California.
During the first six months of 1995, the Company incurred
expenditures of approximately $4.8 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 $5
million is expected to be incurred for vacant space lease
payments and severance costs when the data center is planned to
close by December 31, 1995.
Page 9
CCH INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SIX MONTHS ENDED JUNE 30, 1995
(Unaudited)
F. Reserve for Restructured Operations:(cont')
The Company has been actively marketing approximately 100,000
square feet of excess space in its Torrance facility. Through
June 30, 1995, approximately 40,000 square feet have been sublet
at current market rates that are considerably less than the rates
the Company is obligated to pay. In addition, the restructuring
activities in domestic publishing and legal information services
segments, that were contemplated in the 1993 restructuring are
expected to conclude by the end of 1995. Management believes
that established reserves are adequate to cover the expected
remaining costs to be incurred. With continued success in
subleasing excess space and the completion of the planned closing
of the corporate data center later in 1995, management expects to
finalize the reserve requirements and, if necessary, record any
adjustments to the restructuring reserves.
Page 10
CCH INCORPORATED AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial
Condition
and Results of Operations
Financial Condition: June 30, 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.
Cash and short term investments decreased approximately $60
million during the six months ended June 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. The Company estimates that these delays have adversely
impacted cash flows by approximately $70 million. During the
second quarter, domestic publishing completed issuance of delayed
invoicing and in July, completed the first statementing cycle on
the new computer 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 during the third and fourth quarters will bring cash and
short term investment balances back to historical levels.
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 six months of 1995, the Company purchased $15.6
million of treasury stock, 450,500 shares of Class A and 496,700
shares of Class B. At June 30, 1995 $.9 million remains in
accumulated treasury stock authorization. In July 1995, the
Company's Board of Directors authorized an additional $5.0
million for the repurchase of treasury stock.
During the six months ended June 30, 1995, the Company
purchased $13.2 million of capital expenditures, primarily for
upgrading computer equipment in domestic publishing and legal
information services.
Results of Operations: Three Months Ended June 30, 1995 Compared
to
Three Months Ended June 30, 1994
-----------------------------------------
Consolidated revenue for the quarter of $137.7 million is $8.4
million or 6.5 percent higher than 1994. Revenues increased in
all three business segments with a $5.2 million increase in LIS,
$2.7 million in publishing, and $.5 million in tax compliance
software revenue.
Second quarter operating earnings of $3.4 million increased
$10.7 million over 1994 operating losses, prior to the provision
for the voluntary early retirement program. The improvements over
1994 reflect strong revenue growth in LIS accompanied with
increased revenues in publishing and tax compliance software. In
addition, the operating results reflect large reductions in
operating costs from re-engineering initiatives in domestic
publishing and LIS segments. Operating results for the second
quarter include a pre-tax charge of $9.7 million, 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.
Consolidated net loss of $2.9 million or $.09 per share in
1995 compares to a loss of $3.1 million or $.09 per share in
1994.
Page 11
CCH INCORPORATED AND SUBSIDIARIES
Results of Operations: Three Months Ended June 30, 1995 Compared to
Three Months Ended June 30, 1994 (cont')
------------------------------------------
Publishing: Revenue for the quarter of $93.4 million increased
$2.6 million from 1994, primarily from domestic publishing
revenue improvements of $1.8 million. Increased revenue is due
primarily to improved sales in books and electronic products and
the recapture of expirations that occurred in the first quarter
of 1995. International publishing revenue of $26.3 million
increased $.8 million for the quarter. Revenue increases from
our European operations were offset by decreases in our
Australian operations. Exchange rate movements had an immaterial
effect on international publishing results for the quarter.
Prior to the voluntary early retirement provision charge of
$8.4 million, the operating loss of $.1 million improved $8.0
million from 1994 primarily from reduced costs in domestic
publishing. Domestic publishing operating improvements reflect
reduced manufacturing costs associated with outsourcing a
significant percent of domestic products and closing 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 new order
processing, sales force automation, content management
initiatives and new product introduction costs. International
operating earnings decreased $.1 million for the quarter.
Decreased operating profits from our Australian operations more
than offset improved earnings in Canadian and European
operations.
Tax Compliance Software: Revenue for the quarter of $10.9 million
increased $.5 million from 1994. Increased revenues in software
sales offset the declines in service bureau revenue.
Operating losses of $1.4 million improved $.5 million from
1994, prior to the provision of $.4 million for the voluntary
early retirement program in 1995. The operating earnings increase
reflects the increased revenues.
Legal Information Services: Revenue of $33.4 million increased
$5.2 million or 18.6 percent over 1994. Statutory representation
services, sales of new electronic products and services
supporting recent merger and acquisition activity contributed to
the increases.
Operating profit of $4.8 million increased $2.2 million from
1994, prior to the provision of $.9 million for the voluntary
early retirement program in 1995. Operating profit increases
were generated by significant revenue increases and an improved
cost structure as benefits from the completion of reengineering
efforts were realized.
Other Income, net: Other income decreased $.6 million from 1994
due to declines in investment income as a result of delayed cash
receipts and generally lower interest rates.
Results of Operations: Six Months Ended June 30, 1995 Compared to
Six Months Ended June 30, 1994
------------------------------------------
Consolidated revenues for the six months ended June 30, 1995
were $290.6 million, a $6.1 million or 2.2 percent increase from
the comparable 1994 period. A $9.7 million increase in the LIS
segment and a $1.4 million increase in the publishing segment
were offset by a $5.0 million decrease in the tax compliance
software segment.
Consolidated operating income of $19.3 million for the first
six months of 1995 increased $8.7 million from 1994, prior to the
voluntary early retirement provision. Significant increased
operating earnings in legal information services of $5.9 million
and publishing of $3.8 million were slightly offset by declines
in tax compliance software of $1.0 million.
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CCH INCORPORATED AND SUBSIDIARIES
Results of Operations: Six Months Ended June 30, 1995 Compared to
Six Months Ended June 30, 1994 (cont')
------------------------------------------
Net earnings of $7,449,000 or $.22 per share compared to
$8,274,000, or $.24 per share, in 1994.
Publishing: Publishing revenue of $190.0 million increased $1.4
million from 1994; the increase was comprised of a $2.1 million
domestic decrease and a $3.5 million international increase.
Domestic publishing revenue decrease was due to expirations on
calendar year products, delays in renewal programs and declines
in federal income tax and business law revenue which more than
offset increased revenue in books and on-line fees. Sales of
books and electronic products remain strong. Revenues from
traditional print looseleaf products declined at an accelerated
rate as customers continue migrating to electronic media,
particularly CD-ROM. However, print products continue to provide
a significant revenue base. International publishing revenues
increased $3.5 million or 6.6% over 1994, principally in Europe
and Australia.
The $3.8 million increase in operating profit, prior to the
voluntary early retirement provision, was comprised of a $2.4
million domestic increase and a $1.4 million international
increase. The improvement in domestic operating results for the
six-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 the revenue
increases.
Tax Compliance Software: Revenues decreased $5.0 million over
1994 and operating earnings decreased $1.0 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 segment's 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 $2.1 million or 4.5% and
operating profits increased $4.0 million, prior to the provision
for the voluntary early retirement program.
Legal Information Services: LIS revenue of $65.7 million showed
a $9.7 million or 17.2% 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.
LIS contributed operating earnings of $9.4 million, prior to
the provision for the voluntary early retirement program, in 1995
compared to $3.6 million in 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.
Known Trends, Events and Commitments: During the second quarter,
the Company completed a mid-year reforecast. Based on the
continued strong revenue growth in LIS and tax compliance
software, an upgrade from the original 1995 target of $42 million
in consolidated operating profit was warranted. The Company has
revised the internal target to $50.0 million in operating
earnings for 1995, excluding the provision for early retirement
charges. The Company expects to set a target of $70 to $75
million in operating profits for 1996 primarily from continued
improvements in LIS and improved operating earnings in domestic
publishing, from the impacts of reengineering.
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CCH INCORPORATED AND SUBSIDIARIES
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 June 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
- -------------------------
Chief Financial Officer
Date: August 11, 1995
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