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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For quarterly period ended March 31, 1994
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or
() TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
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Commission file number: 1-7945
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DELUXE CORPORATION
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(Exact name of registrant as specified in its charter)
MINNESOTA 41-0216800
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1080 West County Road "F", St. Paul, Minnesota 55126-8201
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(Address of principal executive offices) (Zip code)
(612)483-7111
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(Registrant's telephone number, including area code)
Indicate by check mark 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 the past 90 days.
Yes X No
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The number of shares outstanding of registrant's common stock, par value $1.00
per share, at May 2, 1994 was 82,389,388.
1
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DELUXE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
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(Dollars in Thousands)
(Unaudited) December 31,
March 31, 1994 1993
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<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $114,298 $114,103
Marketable securities 72,679 107,705
Trade accounts receivable 118,236 123,119
Inventories:
Raw material 21,450 18,260
Semi-finished goods 23,310 21,155
Finished goods 28,630 29,989
Supplies 16,350 15,915
Deferred advertising 28,569 26,080
Deferred income taxes 28,279 28,914
Prepaid expenses and other current assets 37,133 37,123
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Total current assets 488,934 522,363
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LONG-TERM INVESTMENTS 38,010 34,815
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PROPERTY, PLANT AND EQUIPMENT
Land 31,807 32,706
Buildings and improvements 259,279 261,974
Machinery and equipment 495,767 483,853
Construction in progress 2,652 1,360
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Total 789,505 779,893
Less accumulated depreciation 386,024 378,252
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Property, plant and equipment - net 403,481 401,641
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INTANGIBLES
Cost in excess of net assets acquired - net 243,768 246,104
Other intangible assets - net 45,889 47,071
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Total intangibles 289,657 293,175
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TOTAL ASSETS $1,220,082 $1,251,994
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $51,134 $50,424
Accrued liabilities:
Wages, including vacation pay 53,175 45,584
Employee profit sharing and pension 19,855 59,560
Restructuring costs 22,972 35,489
Accrued rebates 28,440 26,473
Income taxes 25,235 3,847
Other 55,212 69,527
Long-term debt due within one year 6,905 6,967
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Total current liabilities 262,928 297,871
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LONG-TERM DEBT 110,093 110,755
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DEFERRED INVESTMENT CREDIT 1,091 1,224
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DEFERRED INCOME TAXES 40,320 40,895
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SHAREHOLDERS' EQUITY
Common shares - $1 par value (authorized 500,000,000 shares; 82,466 82,549
issued: 82,466,167)
Additional paid in capital 341
Retained earnings 725,149 719,046
Cumulative translation adjustment (631) (687)
Net unrealized change - marketable securities (1,334)
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Total shareholders' equity 805,650 801,249
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,220,082 $1,251,994
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See Notes to Consolidated Financial Statements 2
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CONSOLIDATED STATEMENTS OF INCOME
For the Three Months Ended March 31, 1994 and 1993
(Dollars in Thousands Except per Share Amounts)
(Unaudited)
1994 1993
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NET SALES $429,988 $405,747
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OPERATING EXPENSES
Cost of sales 196,674 185,876
Selling, general, and administrative 148,466 117,678
Employee profit sharing and pension 14,846 15,569
Employee bonus and stock purchase discount 6,164 6,705
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Total 366,150 325,828
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INCOME FROM OPERATIONS 63,838 79,919
OTHER INCOME (EXPENSE)
Investment and other income 4,726 4,250
Interest expense (3,778) (2,449)
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INCOME BEFORE INCOME TAXES 64,786 81,720
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PROVISION FOR INCOME TAXES
Federal income tax 22,503 24,633
State income taxes 4,242 5,296
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Total 26,745 29,929
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NET INCOME $38,041 $51,791
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AVERAGE COMMON SHARES OUTSTANDING 82,541,814 83,520,388
NET INCOME PER COMMON SHARE (Note 2) $.46 $.62
CASH DIVIDENDS PER COMMON SHARE $.36 $.35
</TABLE>
See Notes to Consolidated Financial Statements
3
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<CAPTION>
DELUXE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 1994 and 1993
(Dollars in Thousands)
(Unaudited)
1994 1993
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CASH FLOWS FROM OPERATING ACTIVITIES
Net income $38,041 $51,791
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 14,133 13,488
Amortization of intangibles 5,778 3,626
Stock purchase discount 2,084 2,103
Deferred income taxes and investment credit (74) (227)
Changes in assets and liabilities:
Trade accounts receivable 4,883 3,945
Inventories (3,986) 1,828
Accounts payable 710 (5,613)
Restructuring costs (12,517)
Other assets and liabilities (10,080) (3,349)
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Net cash provided by operating activities 38,972 67,592
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CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of marketable securities with maturities
of more than 3 months (9,867) (50,818)
Proceeds from sales of marketable securities with
maturities of more than 3 months 23,501 44,157
Net change in marketable securities with maturities
of 3 months or less 20,000 (8,200)
Purchases of property, plant, and equipment (20,104) (20,513)
Other (17,102) (2,648)
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Net cash used in investing activities (3,572) (38,022)
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CASH FLOWS FROM FINANCING ACTIVITIES
Payments on long-term debt (756) (1,949)
Payments to retire common stock (11,017) (41,148)
Proceeds from issuing stock under employee plans 6,358 8,038
Cash dividends paid to shareholders (29,790) (29,322)
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Net cash used in financing activities (35,205) (64,381)
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 195 (34,811)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 114,103 275,172
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $114,298 $240,361
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</TABLE>
See Notes to Consolidated Financial Statements
4
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The consolidated balance sheet as of March 31, 1994, and the related
consolidated statements of income and cash flows for the three-month
periods ended March 31, 1994 and 1993 are unaudited; in the opinion of
management, all adjustments necessary for a fair presentation of such
financial statements have been included. Such adjustments consisted only
of normal recurring items. Interim results are not necessarily indicative
of results for a full year.
The financial statements and notes are presented in accordance with
instructions for Form 10-Q, and do not contain certain information included
in the Company's annual financial statements and notes.
2. Net income per common share is based on the average number of common shares
outstanding during each period. The Company purchases outstanding shares
for reissuance under its employees' stock purchase and stock option plans
and for other corporate purposes. It has authorization to continue such
purchases, provided the number of outstanding shares is not reduced below
75,000,000 shares.
3. Effective January 1, 1994 the Company adopted Statement of Financial
Accounting Standards No. 115 "Accounting for Certain Investments in Debt
and Equity Securities." As a result, the carrying value of the Company's
marketable securities was reduced to reflect market value. The Company
classifies all marketable securities as available for sale. Accordingly,
the reduction of $1,334,000 as of March 31, 1994 is recorded as a component
of shareholders' equity.
4. Effective January 1, 1994 the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 112 "Employers' Accounting for
Postemployment Benefits." SFAS 112 requires the Company to accrue the
estimated cost of post employment benefit payments during the years in
which employees provide services. The adoption of SFAS 112 did not have a
material effect on the Company's financial position or results of
operations.
5
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 1994 COMPARED TO THREE
MONTHS ENDED MARCH 31, 1993
Net sales were $430.0 million for the first quarter of 1994, up 6.0% over the
first quarter of 1993, when sales were $405.7 million. The first quarter
Payments Systems segment's revenue decreased 5.4% from first quarter 1993
reflecting a 4% decline in check-orders from financial institutions (FIs) and
continued price competition in the FI market. The decline in revenue from
financial institution check printing was partially offset by an 18.0% increase
in revenue from the Company's electronic payment systems subsidiaries.
Deluxe's Business Systems segment posted a 40.3% increase in revenue in the
first quarter of 1994 over first quarter 1993 primarily due to the contribution
of PaperDirect, Inc., which the Company acquired in the third quarter of 1993.
Revenue for the Consumer Specialty Products segment increased 21.8% as a result
of Current's strong sales in its social expressions and direct mail check
printing product lines.
Selling, general and administrative expenses increased $30.8 million or 26.2% in
first quarter 1994 over first quarter 1993. The Business Systems segment's
expenses increased approximately $14.5 million primarily due to the acquisition
of Paper Direct, Inc. Also, the Consumer Specialty Products segment increased
spending on advertising by approximately $8.5 million. Net income was $38.0
million in the first quarter of 1994, or 8.9% of sales, compared to $51.8
million in 1993 or 12.8% of sales.
The Company's effective tax rate for first quarter 1994 increased to 41.3%
compared to 36.6% in first quarter 1993. The increase was the result of changes
in the federal tax laws (including an increase in the statutory tax rate to 35%
in August 1993), an increase in the Company's non deductible amortization of
intangibles related to acquisitions and the adoption of SFAS 109 during the
first quarter of 1993, which reduced the provision for income taxes for that
quarter.
FINANCIAL CONDITION - LIQUIDITY
Cash provided by operations was $39.0 million for the first quarter of 1994,
compared with $67.6 million one year ago. This represents the Company's primary
source of working capital for financing capital expenditures, acquisitions, and
paying cash dividends. The decline in 1994 is primarily the result of lower net
income and cash payments related to the 1993 restructuring of the Company's
financial institution check printing operations. The Company's working capital
on March 31, 1994 was $226.0 million, compared to $224.5 million, on
December 31, 1993. The current ratio was 1.9 to 1 on March 31, 1994 and 1.8
to 1 on December 31, 1993.
FINANCIAL CONDITION - CAPITAL RESOURCES
Purchases of property, plant, and equipment totaled $20.1 million for the first
quarter of 1994, compared to $20.5 million one year ago. The Company
anticipates total capital expenditures of approximately $75 million in 1994 for
new electronic payment system investments and further enhancements to printing
capabilities.
In February 1991, the Company issued $100 million in notes payable under its
1989 registration of $150 million in debt securities. In addition, the Company
has unsecured bank lines of credit of $35 million should current cash resources
and cash provided by operations prove to be inadequate.
Cash dividends totaled $29.8 million in the first quarter of 1994 compared to
$29.3 million in the first quarter of 1993.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) None
(b) The Company did not, and was not required to, file any reports on
Form 8-K during the quarter for which this report is filed.
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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 thereunto duly authorized.
DELUXE CORPORATION
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(Registrant)
Date May 15, 1994 /s/ H. V. Haverty
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H. V. Haverty, Chairman, President
and Chief Executive Officer
(Principal Executive Officer)
Date May 15, 1994 /s/ C. M. Osborne
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C.M. Osborne, Senior Vice President
and Chief Financial Officer
(Principal Financial Officer)
(8)
