Commerce Clearing House, Inc.

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Commerce Clearing House, Inc.

2700 Lake Cook Road
Riverwoods, Illinois 60015-3888
U.S.A.
(708) 940-4600
Fax: (708) 940-0113

Public Company
Incorporated: 1927
Employees: 6,600
Sales: $659.4 million
Stock Exchanges: NASDAQ
SICs: 2741 Miscellaneous Publishing; 7389 Business Services Nee; 7374 Data Processing and Preparation; 8111 Legal Services

The world’s largest publisher of tax and business law news reports and books, Commerce Clearing House, Inc. (CCH) is a family-dominated service company composed of 18 subsidiaries, chief of which are CCH Computax (part of the company’s Computer Processing Services division) and CCH Legal Information Services (representing the entire Corporate Services division). However, more than half of consolidated revenues for the company are derived from its extensive publishing division, with subsidiaries in Canada, England, Germany, Mexico, Australia, New Zealand, Singapore, and Japan. CCH also owns New York-based Facts on File, which controls U.S. rights for the Guiness Book of World Records and produces a number of general reference texts. Since going public in 1961, CCH has gained a reputation as a top-performing Fortune 500 company—return on shareholder equity from 1979 to 1984 averaged 47 percent.

Commerce Clearing House was founded in Chicago in 1892 to provide various services for lawyers, principally paper filing and document handling—important but bothersome tasks for large law offices. At that time, the legal publishing industry was attaining maturity under Minnesota-based West Publishing, a leader in the reporting of federal and state case law. CCH carved out its own niche in the legal publishing industry some fifteen years later. The catalyst was Oakleigh Thorne, a wealthy local banker who, in 1907, purchased an interest in the business. Thorne saw the publication of legislative reports and other legal and business reference works as an opportunity for future growth. His entry proved fortuitous to the still fledgling firm; six years later federal income tax laws were introduced and CCH was prepared to capitalize on the new demands for information. Like West, CCH had found its place in the lucrative government and legal field.

By 1935 CCH had ousted all major competitors and was blossoming into a major corporation. Thorne died in 1948 and his half ownership in the concern was transferred to a family holding company. Thome’s son Oakleigh L. Thorne ultimately became sole stockholder of the estate. The company went public in 1961 yet has, due to the ongoing ownership and management of the Thorne family, retained a low profile typical of most private companies. Oakleigh B. Thorne, a member of the third generation, has served as chairman since 1975. Oakleigh Thorne, a member of the fourth generation, was elected executive vice-president and group president in 1988 and a member of the executive committee in 1992. Edward L. Massie serves as president and chief executive officer.

CCH’s biggest waves have been on the stock market and in its annual reports. The company’s greatest growth occurred during the 1980s, but its livelihood is ensured indefinitely due to the seemingly paper-addicted federal government. As Fortune writer Stratford P. Sherman explained in 1984: “Thanks to tax laws so voluminous and arcane that even professionals cannot untangle them unaided, CCH has come to derive over half its $379 million annual sales from its tax products alone and now cheerfully counts the IRS as its largest customer.” Sherman estimated the company’s market share at 50 percent, with enviable pretax profit margins of 17 percent and 25 percent in its publishing and legal services divisions, respectively.

Chief Executive Officer Richard T. Merrill was responsible for CCH’s cautious move into database research services, first pioneered by Mead Data’s LEXIS system during the early 1970s. Although CCH had led the field of computerized tax-return processing with Computax, the move to high-tech had brought with it a host of competitors. Computax alone was responsible for a $12-million loss in 1983 due to a saturated software market and an increase in the number of accounting firms now beginning to offer full in-house services. CCH’s quandary was how to remain competitive in the new information age without suffering further losses. While it remained a publishing powerhouse—with nearly double the subscriber base of its closest competitor, Research Institute of America—it struggled on the electronic front behind Mead, Research, and others. Andy Zipser, writing in Barron’s in February of 1991, reflected on CCH’s impending fall: “Once an earnings powerhouse that in 1980 churned out a 63 percent return on equity, CCH went into a decade-long slide that saw 1989 ROE slip to 16 percent and net income fall to $34.3 million from a 1987 high of $52.8 million.” Although “decade-long” overstates the severity of the situation (during the first half of the 1980s corporate profits rose 56 percent on revenue increases of 45 percent), CCH and its stockholders certainly suffered. Zipser noted that an analyst who regularly follows CCH stock, Alan Bird, remains optimistic. Referring to a new on-line research service called ACCESS, Bird remarked, “ This is their first innovation in decades, and if it cost a couple of years’ earnings to do it, I don’t think that’s too high a price to pay.’ “ Bird’s optimism remains warranted in light of CCH’s introduction of 12 CD-ROM editions and a series of practice systems in 1992. Sales of these products have exceeded expectations and CCH Online was successfully upgraded and relaunched late in 1992.

With Computax, ACCESS Online and CCH ACCESS CD-ROM have become integral parts of the conservative but forward-looking CCH of the 1990s. Publishing, still CCH’s largest segment, posted $411 million in sales for 1992. However, computer processing services, at $151 million in sales, now dwarfs the company’s original business of legal services. For many years, CCH enjoyed a profitable business in mainframe-based service bureau tax return processing. By 1991, however, customers were beginning to use microcomputer tax software. CCH was well positioned for this change; the company had acquired 1040 Solutions in 1985 and PFX in 1989. Notable management announcements in 1992 included a reduction of 150 positions at CCH Computax and the sale of Fiduciary Tax Systems (FTS), a small segment of the computer division, to Computer Language Research Inc.

In February of 1993, CCH announced its agreement to acquire the federal and state tax service of Matthew Bender & Company, Inc. “This important acquisition not only strengthens CCH’s leadership position on tax publishing but also demonstrates CCH’s commitment to be the best in both analytical and topical reporting,” according to CCH president Edward L. Massie.

In 1992 CCH completed the first phase of a planning process begun in 1991 and launched a new corporate mission. That ten-year mission involves becoming the leading global provider of knowledge. CCH plans to renew the core tax and business law product lines to restore earnings growth and then move into new areas to broaden its business base.

The company recorded a loss in the 1992 fiscal years, but expects a turnaround. The company completed a shift from mainframe to microcomputer-based tax return processing and software licensing, incurring a $50 million restructuring charge. The company also changed its methods of accounting for retiree health benefits. Yet, according to company officials, CCH stands in a strong financial position.

Its long-term course still a puzzle, CCH may nonetheless be expected in the next few years to redouble its publishing efforts overseas, a market that constitutes 25 percent of all publication revenue. The acquisition of Bender’s tax service line also signals a new CCH that is committed to developing new products, establishing strategic partnerships, and exploring other market opportunities. Also possible are more joint ventures modeled on CCH’s 1992 agreement with West to furnish its long-standing money-maker, the Standard Federal Tax Reporter, to WEST-LAW database subscribers. A testimonial to CCH’s golden years and the wisdom of the first Thorne manager, the 19-volume Reporter (at an annual cost over $1,000) is also one of the company’s recurrent bright spots. Its renewal rate among subscribers—businesses, libraries, law and accounting firms, and the federal government—is 90 percent. Perhaps this is palliative enough for a company that continues to streamline, retrench, and rethink as it faces the twenty-first century.

Principal Subsidiaries

CCH Asia Limited; CCH Australia Limited; CCH Canadian Limited; CCH Computax, Inc.; CCH Editions Limited; CCH Europe Inc.; CCH Japan Limited; CCH Legal Information Services, Inc.; CCH New Zealand Limited; C T Corporation System; Facts on File, Inc.; Les Publications CCH/FM Ltée; LYF, S.A. de C.V. (49%); McCord Company; National Quotation Bureau, Inc.; State Capital Information Service, Inc.; Trademark Research Corporation; Washington Service Bureau, Inc.