<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
[ x ] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934.
For the fiscal year ended DECEMBER 31, 1993.
-----------------
Commission file number 1-7945.
------
DELUXE CORPORATION
------------------
(Exact name of registrant as specified in its charter)
MINNESOTA 41-0216800
- --------------------------------------- ------------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1080 WEST COUNTY ROAD F, SAINT PAUL, MINNESOTA 55126-8201
- ------------------------------------------------ ------------------------------
(Address of principal executive offices) (ZIP Code)
Registrant's telephone number: (612) 483-7111.
Securities registered pursuant to Section 12(b) of the Act:
COMMON STOCK, PAR VALUE $1.00 PER SHARE NEW YORK STOCK EXCHANGE
- --------------------------------------- -----------------------
(Title of Class) (Name of each exchange
on which registered)
Securities registered pursuant to Section 12(g) of the act: None.
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. x Yes No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ x ]
Aggregate market value of the voting stock held by non-affiliates of the
registrant: $2,728,026,633 based on the closing price of the stock on
the New York Stock Exchange on March 14, 1994. The number of outstanding
shares of the registrant's common stock as of March 14, 1994: 82,518,073.
<PAGE>
Documents Incorporated by Reference:
1. Portions of the registrant's 1993 Annual Report to Shareholders (Annual
Report) are incorporated in Parts II and IV.
2. Portions of the registrant's proxy statement dated March 28, 1994 (Proxy
Statement) are incorporated in Part III.
DELUXE CORPORATION
PART I
Item 1. Description of Business
Deluxe Corporation was incorporated under the laws of Minnesota in 1920 as
the successor to a business founded in 1915. Unless the context otherwise
requires, the term "Company," as used herein, refers to Deluxe Corporation and
its seven wholly owned subsidiaries.
The seven wholly owned subsidiaries are: Deluxe Data Systems, Inc., a
supplier of software and processing services for automated teller machines,
point-of-sale systems, automated clearing houses and government benefit
transfers; Chex Systems, Inc., a new-account verification business providing
services to financial institutions; Electronic Transaction Corporation, a data
base business providing check authorization information to retailers; Deluxe
U.K. Limited, a manufacturer of short-run computer and business forms in the
United Kingdom; PaperDirect, Inc., a direct mail marketer of specialty paper;
Nelco, Inc., a supplier of tax forms, tax forms software, and electronic tax
filing services ; and Current, Inc., a direct mail marketer of greeting cards,
stationery, bank checks and related consumer specialty products.
The Company has three basic business units: (1) Payment Systems, in which
the Company provides check printing, electronic funds transfer, automated
terminal machine (ATM) card services and credit reporting services; (2) Business
Systems, in which the Company manufactures and supplies computer and business
forms, record-keeping systems, and a variety of related office products and
services; and (3) Consumer Specialty Products, in which the Company manufactures
and distributes, primarily through direct mail, greeting cards, gift wrap,
stationery, bank checks, and other products for household use. With the
exception of a relatively small volume of business forms and paper sales in the
United Kingdom, practically all of the Company's products and services are sold
in the United States.
Reference is made to the information contained in Note 9, Business Segment
Information, in the Notes to Consolidated Financial Statements on page 37 in the
Company's Annual Report.
PAYMENT SYSTEMS
The Company's Payment Systems Division prints and sells to banks and other
financial institutions and depositors a variety of checks and related banking
forms. It directs its efforts to the production and marketing of checks and
deposit tickets for personal and business
- 2 -
<PAGE>
accounts. Several check styles are offered; some are designed for desk or office
use; others are designed to be carried in a pocket or purse.
Substantially all of the Company's checks and related banking forms are
imprinted with magnetic ink and are designed to conform with the specifications
of the magnetic ink character recognition (MICR) program currently utilized by
the U.S. banking system.
For several years the banking industry and others have been seeking ways to
improve the payment system and a variety of alternatives to the bank check as a
medium for settling financial transactions have been introduced, including, for
example, charge cards, credit cards, debit cards, telephone bill payment, etc.
Although such alternative means of settling financial transactions may reduce
the demand for checks, the Company is unable to predict the precise extent of
application of such alternatives or their effect on its future operations.
In the case of checks, depositors commonly submit initial orders and
reorders to their financial institutions which forward them to one of the
Company's printing plants. Completed orders are sent directly by the Company to
the depositors, typically on the business day after receipt of the order. The
Company's charges are paid by the financial institutions, which in turn usually
deduct the amounts from the depositors' accounts.
Skeleton check forms are lithographed in three of the Company's regional
warehouse and distribution centers, principally on high-speed roll-fed presses.
From these centers, the forms are distributed to the Company's 48 check
production plants, where names, addresses, financial institution name and other
information are printed on the documents. The Company's facilities are located
in major metropolitan areas throughout the United States.
The Company has no material backlog of orders. Approximately 96 percent of
all check orders received by the Company in 1993 were completed and shipped no
later than the first working day after receipt of the order. The approximate
number of financial institutions (not including branches as separate entities)
to which the Company made gross sales of checks and related banking forms in
excess of $100,000 during the year was 1,926. No single institution, including
its branches, accounted for more than approximately 2 percent of the Company's
1993 check sales.
The Company's principal raw materials are safety paper and special MICR
bond papers. The Company purchases substantially all of its safety paper from
Simpson Paper Company, which finishes and warehouses the paper in its plants in
Warwick, New York, and Burlington, Iowa. Most of the Company's special MICR bond
papers are obtained from Georgia Pacific Corporation, primarily from its
facility in Port Edwards, Wisconsin. The Company has no long-term contract with
any of its suppliers and has never experienced a shortage of either safety paper
or MICR bond papers. In order to assure adequate sources of supply, the Company
is continually experimenting with the use of special MICR bond papers from other
suppliers. Other raw materials used by the Company are of a standard composition
and are purchased from a number of sources at competitive prices.
The Company's primary competitors in the sale of bank checks and related
banking forms are two other large national printers who specialize in check
printing. However, any printer which complies with the American Bankers
Association's specifications for MICR
- 3 -
<PAGE>
printing is a potential competitor. The Company is the largest firm engaged
principally in check printing.
The Company is also a major supplier of electronic funds transfer software
and processing services, particularly software and services for automated teller
machines, processing of ATM interchange transactions within and between regional
shared networks, and electronic benefit transactions. Deluxe provides ATM
transaction processing technology and services to six of the 10 largest ATM
networks. The Company provides electronic benefit transactions services for the
automated payment of aid to dependent children and food stamp benefits in
Maryland and New Jersey.
Competition for the Company's electronic funds transfer software and
processing services comes from several large financial institutions and
communications companies.
BUSINESS SYSTEMS
This division directs its primary efforts to the production and marketing
of short-run printed computer and business forms and record-keeping systems for
small businesses and professional practices. In addition, it is a direct mail
marketer of decorated and other specialty papers to users of laser printers and
office copiers. Other products and services marketed by the division include tax
forms, tax forms software, one-write accounting systems, and electronic tax
filing services.
The division has no material backlog of orders and does not carry
significant inventory. Approximately 94 percent of all personalized standard
forms orders were completed and shipped no later than the third working day
after receipt, and all custom forms were completed and shipped no later than the
fifth day after receipt. Orders for specialty papers were typically filled no
later than the first day after receipt.
Business Systems' products are sold primarily through direct mail and check
package advertisements. Business Systems' products are produced or inventoried
in nine of the Company's plants. Its competition consists of a large number of
national and local business forms and office products suppliers and tax filing
service providers.
CONSUMER SPECIALTY PRODUCTS
This division produces and markets greeting cards, gift wrap, miscellaneous
stationery and bank checks. In addition, it markets a variety of novelty items
for household use, many of which have been created by the division and are sold
under its proprietary trademarks. All such products are sold to consumers by
means of catalogs and other direct mail advertisements. Many of the division's
promotions are based on holidays, and due to the relative size of the year-end
holiday season, approximately 40 percent of the division's sales occur in the
fourth quarter.
Consumer Specialty Products are produced in two of the Company's plants.
The division's competitors are primarily the national greeting card and
stationery printers that market their products through owned and franchised card
and gift shops, and a large number of check printers that solicit orders by
direct mail.
- 4 -
<PAGE>
EMPLOYEES
Including its subsidiaries, the Company has approximately 17,748 full and
part-time employees. It has a number of employee benefit plans, including
medical, hospitalization and retirement plans. The Company has never experienced
a work stoppage or strike and considers its employee relations to be good.
EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company are elected by the board of directors
each year. The term of office of each executive officer will expire at the
annual meeting of the board after the annual shareholders' meeting on May 9,
1994. The principal occupation of each of the executive officers listed below is
with the Company.
OFFICER
NAME POSITION AGE SINCE
- ---- -------- --- -------
Harold V. Haverty Chairman, President and Chief 63 1969
Executive Officer
Jerry K. Twogood Executive Vice President 53 1974
Charles M. Osborne Senior Vice President and
Chief Financial Officer 40 1981
Arnold A. Angeloni Senior Vice President 53 1985
Kenneth J. Chupita Senior Vice President 52 1981
Each of the executive officers has held his current position during the
past five years.
Item 2. Properties
The Company conducts production operations in 73 facilities located in 30
states, Puerto Rico, and the United Kingdom aggregating approximately 4,623,000
square feet; in addition, the Payment Systems Division occupies three facilities
in Shoreview, Minnesota, aggregating approximately 433,000 square feet, which
are devoted to administration, information systems, research and development,
the Business Systems Division occupies a 156,000 square foot administration
building in Shoreview, Minnesota, and the Consumer Specialty Products Division
occupies a 148,000 square foot administration and product design building in
Colorado Springs, Colorado. All but four of the production facilities are of
one story construction and most were constructed and equipped in accordance with
the Company's plans and specifications.
Over one-half of the Company's total production area has been constructed
during the past 20 years. The Company owns 58 of its facilities and leases the
remainder for terms expiring from 1994 to 2001. Depending upon the
circumstances, when a lease expires, the Company either renews the lease or
constructs a new facility to replace the leased facility. All facilities are
adequately equipped for the Company's operations.
- 5 -
<PAGE>
Item 3. Legal Proceedings
There are no material pending legal proceedings, other than ordinary
routine litigation incidental to the business, to which the Company or any of
its subsidiaries is a party or of which any of such company's property is the
subject.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Reference is made to the information contained under the caption "Financial
Highlights" on page 1, and "Shareholder Information" on page 40 of the Company's
Annual Report.
Item 6. Selected Financial Data
Reference is made to the information contained under the caption
"Eleven-Year Summary" on pages 22 and 23 in the Company's Annual Report.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Reference is made to the information contained under the caption
"Management's Discussion and Analysis" on pages 24 through 26 in the Company's
Annual Report.
Item 8. Financial Statements and Supplementary Data
Reference is made to the financial statements , notes and independent
auditors' report on pages 21 through 39 of the Company's Annual Report and the
information contained under the caption "Summarize Quarterly Financial Data" on
page 39 in the Company's Annual Report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
PART III
ITEMS 10, 11, 12 AND 13.
Directors and Executive Officers of the Registrant, Compliance with Section
16(a) of the Exchange Act, Executive Compensation, Security Ownership of Certain
Beneficial Owners and Management, and Certain Relationships and Related
Transactions.
- 6 -
<PAGE>
Reference is made to the Company's Proxy Statement.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) The following financial statements, schedules and independent auditors'
report and consent are filed as part of this report:
Page in
Annual Report
(1) Financial Statements:
Consolidated Balance Sheets at December 31, 1993 and 1992 . . . 28 - 29
Consolidated Statements of Income for the three years in the
period ended December 31, 1993 . . . . . . . . . . . . . . 30
Consolidated Statements of Cash Flows for the three years
in the period ended December 31, 1993. . . . . . . . . . . 31
Notes to Consolidated Financial Statements. . . . . . . . . . . 32 - 38
Independent Auditors' Report. . . . . . . . . . . . . . . . . . 39
(2) Supplemental Financial Information (Unaudited):
Summarized Quarterly Financial Data . . . . . . . . . . . . . . 39
Page in this
Form 10-K
(3) Financial Statement Schedules:
Independent Auditors' Report on the Financial Statement
Schedules. . . . . . . . . . . . . . . . . . . . . . . . . F-1
V - Property, Plant and Equipment. . . . . . . . . . . . . . . S-1
VI - Accumulated Depreciation of Property, Plant and Equipment. S-2
IX - Short-Term Borrowings. . . . . . . . . . . . . . . . . . . S-3
X - Supplementary Income Statement Information . . . . . . . . S-4
(4) Independent Auditors' Consent to the incorporation by reference
of its reports in the Company's Registration Statements Nos.
2-94462, 2-96963, 33-32279 and 33-58510 . . . . . . . . . . . . F-2
Schedules other than those listed above are not required or are not
applicable, or the required information is shown in the financial statements or
notes.
(b) The Company did not file a report on Form 8-K during the fourth quarter of
1993.
(c) The following exhibits are filed as part of or are incorporated in this
report by reference:
- 7 -
<PAGE>
(3) A - Articles of Incorporation, incorporated by reference to the
Company's Form 10-K for the year ended December 31, 1990.
B - Bylaws, incorporated by reference to the Company's Form 10-K for
the year ended December 31, 1990.
(4) A - Rights Agreement, incorporated by reference to the Company's Form
8-K dated February 17, 1988.
B - Indenture, incorporated by reference to the Company's Form S-3
dated November 24, 1989.
(10) A - Deferred Compensation Plan, incorporated by reference to the
Company's Form 10-K for the year ended December 31, 1985.
B - Supplemental Benefits Plan, incorporated by reference to the
Company's Form 10-K for the year ended December 31, 1985.
C - Stock Option Plan, incorporated by reference to the Company's
Form 10-K for the year ended December 31, 1989.
(13) 1993 Annual Report to Shareholders
(24) Independent Auditors' Consent, incorporated by reference to page
F-2 of the Company's Form 10-K for the year ended December 31,
1993.
(25) Powers of Attorney of officers and directors signing by an
attorney-in-fact.
(28) Proxy Statement, incorporated by reference to the Company's
definitive proxy statement dated March 28, 1994.
[Note to recipients of Form 10-K: Copies of exhibits will be furnished upon
written request and payment of the Company's reasonable expenses ($.25 per page)
in furnishing such copies.]
- 8 -
<PAGE>
Pursuant to the requirements of Section 13 or 15(d) 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
Date: March 28, 1994
By /s/ Harold V. Haverty
--------------------------
Harold V. Haverty
Chairman, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: March 28, 1994 By /s/ Harold V. Haverty
---------------------------------
Harold V. Haverty for Himself and
Harold V. Haverty, Director and as Attorney-In-Fact for the Named
Principal Executive Officer Directors and Officers
Eugene R. Olson, Director
Edward W. Asplin, Director
John Schreiner, Director
H. William Lurton, Director
Whitney MacMillan, Director
James J. Renier, Director
Jerry K. Twogood, Director
Barbara B. Grogan, Director
Allen F. Jacobson, Director
Charles M. Osborne, Principal
Financial Officer and
Principal Accounting Officer
- 9 -
<PAGE>
INDEPENDENT AUDITORS' REPORT
Deluxe Corporation:
We have audited the consolidated financial statements of Deluxe Corporation and
subsidiaries as of December 31, 1993 and 1992, and for each of the three years
in the period ended December 31, 1993, and have issued our report thereon dated
February 10, 1994; such consolidated financial statements and report are
included in your 1993 Annual Report to Shareholders and are incorporated herein
by reference. Our audits also included the financial statement schedules of
Deluxe Corporation and subsidiaries, listed in Item 14. These financial
statement schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits. In our opinion,
such financial statement schedules, when considered in relation to the basic
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.
/s/ Deloitte & Touche
Deloitte & Touche
Saint Paul, Minnesota
February 10, 1994
F-1
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement
Nos. 2-94462 and 2-96963 on Forms S-8 and Nos. 33-32279 and 33-58510 on
Forms S-3 of our reports dated February 10, 1994 appearing in or incorporated by
reference in this Annual Report on Form 10-K of Deluxe Corporation for the year
ended December 31, 1993.
/s/ Deloitte & Touche
Deloitte & Touche
Saint Paul, Minnesota
March 28, 1994
F-2
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE V
DELUXE CORPORATION
PROPERTY, PLANT, AND EQUIPMENT
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992, and 1991
(DOLLARS IN THOUSANDS)
- -----------------------------------------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
- -----------------------------------------------------------------------------------------------------------------------------
BALANCE OTHER CHANGES BALANCE
AT BEGINNING ADDITIONS ADD AT END
CLASSIFICATION OF YEAR AT COST RETIREMENTS (DEDUCT) OF YEAR
- -----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1993:
<S> <C> <C> <C> <C> <C>
Land. . . . . . . . . . . . . . . . . . . . $ 25,812 $ 4,622 $ (68) $ 2,340 $ 32,706
Buildings . . . . . . . . . . . . . . . . . 165,465 18,977 (447) 5,408 189,403
Machinery and Equipment . . . . . . . . . . 455,315 45,675 (19,004) 1,867 483,853
Building and Leasehold Improvements . . . . 69,191 5,565 (2,432) 247 72,571
Construction in Progress. . . . . . . . . . 14,075 (12,729) (A) 14 1,360
--------------------------------------------------------------------------------
TOTAL . . . . . . . . . . . . . . . . . . . $ 729,858 $ 62,110 (B) $ (21,951) $ 9,876 (C) $ 779,893
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1992:
Land. . . . . . . . . . . . . . . . . . . . $ 25,746 $ $ $ 66 $ 25,812
Buildings . . . . . . . . . . . . . . . . . 164,836 629 165,465
Machinery and Equipment . . . . . . . . . . 435,935 52,598 (30,360) (2,858) 455,315
Building and Leasehold Improvements . . . . 60,313 5,547 (907) 4,238 69,191
Construction in Progress. . . . . . . . . . 609 13,466 (A) 14,075
--------------------------------------------------------------------------------
TOTAL . . . . . . . . . . . . . . . . . . . $ 687,439 $ 71,611 (B) $ (31,267) $ 2,075 (D) $ 729,858
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1991:
Land. . . . . . . . . . . . . . . . . . . . $ 20,691 $ 5,141 $ (87) $ 25,746
Buildings . . . . . . . . . . . . . . . . . 148,470 16,366 164,836
Machinery and Equipment . . . . . . . . . . 412,180 48,605 (24,849) 435,935
Building and Leasehold Improvements . . . . 52,340 8,055 (82) 60,313
Construction in Progress. . . . . . . . . . 6,275 (5,666) (A) 609
--------------------------------------------------------------------------------
TOTAL . . . . . . . . . . . . . . . . . . . $ 639,956 $ 72,501 (B) $ (25,018) $ 687,439
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<FN>
NOTE: (A) Represents net change in construction in progress.
(B) Difference from cash flow statement represents immaterial non-cash additions to property, plant and equipment
(C) Tangible property was added during 1993 as a result of two acquisitions. Additionally, a $7.2 million addition was
recorded to reflect the impact of adoption of SFAS No. 109 on assets acquired in 1987 through a purchase business
combination.
(D) Tangible property was added during 1992 as a result of a small acquisition.
</TABLE>
S-1
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE VI
DELUXE CORPORATION
ACCUMULATED DEPRECIATION
OF PROPERTY, PLANT, AND EQUIPMENT
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992, and 1991
(DOLLARS IN THOUSANDS)
- -----------------------------------------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- -----------------------------------------------------------------------------------------------------------------------------
BALANCE ADDITIONS RETIREMENTS BALANCE
AT BEGINNING CHARGED TO AND OTHER AT END
DESCRIPTION OF YEAR COST AND EXPENSES(A) CHARGES OF YEAR
- -----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1993:
<S> <C> <C> <C> <C>
Buildings . . . . . . . . . . . . . . . . . $ 53,497 $ 5,857 $ 563 $ 59,917
Machinery and Equipment . . . . . . . . . . 258,776 45,502 (16,291) 287,987
Building and Leasehold Improvements . . . . 28,568 3,786 (2,006) 30,348
--------------------------------------------------------------------------------
TOTAL $ 340,841 $ 55,145 $ (17,734) $ 378,252
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1992:
Buildings . . . . . . . . . . . . . . . . . $ 47,840 $ 5,657 $ 53,497
Machinery and Equipment . . . . . . . . . . 244,259 45,132 $ (30,615) 258,776
Building and Leasehold Improvements . . . . 22,136 3,211 3,221 28,568
--------------------------------------------------------------------------------
TOTAL $ 314,235 $ 54,000 $ (27,394) $ 340,841
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1991:
Buildings . . . . . . . . . . . . . . . . . $ 42,498 $ 5,342 $ 47,840
Machinery and Equipment . . . . . . . . . . 222,103 44,996 $ (22,840) 244,259
Building and Leasehold Improvements . . . . 19,264 2,890 (18) 22,136
--------------------------------------------------------------------------------
TOTAL $ 283,865 $ 53,228 $ (22,858) $ 314,235
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<FN>
(A) Buildings with 40-year lives and machinery and equipment with lives of five to 11 years are generally depreciated using
accelerated methods. Buildings and leasehold improvements are depreciated on a straight line basis over the estimated
useful life of the property or the life of the lease, whichever is shorter.
</TABLE>
S-2
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE IX
DELUXE CORPORATION
SHORT-TERM BORROWINGS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992, and 1991
(DOLLARS IN THOUSANDS)
- -----------------------------------------------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE MAXIMUM AMOUNT WEIGHTED AVERAGE WEIGHTED AVERAGE
AT END WEIGHTED AVERAGE OUTSTANDING AMOUNT OUTSTANDING INTEREST RATE
DESCRIPTION(A) OF PERIOD INTEREST RATE DURING THE PERIOD DURING THE PERIOD DURING THE PERIOD(B)
- -----------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1992:
<S> <C> <C> <C> <C> <C>
AMOUNT PAYABLE TO $ -0- N/A $ 184,000 $ 64,044 8.66%
FINANCIAL INSTITUTIONS
FOR BORROWINGS
<FN>
NOTE: (A) Short-term borrowings consisted of margin financing for short-term investments during the third and fourth quarters
of 1992. There were no short-term borrowings during 1993 or 1991.
(B) The weighted average interest rate during the period represents the average of interest rates for each borrowing
weighted for the amounts of the respective borrowings.
</TABLE>
S-3
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE X
DELUXE CORPORATION
SUPPLEMENTARY INCOME STATEMENT INFORMATION
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992, AND 1991
(DOLLARS IN THOUSANDS)
- -----------------------------------------------------------------------------------------------------------------------------------
COLUMN A COLUMN B
- -----------------------------------------------------------------------------------------------------------------------------------
CHARGED TO COSTS AND EXPENSES
1993 1992 1991
-----------------------------------------
<S> <C> <C> <C>
Maintenance and Repairs $ 26,942 $ 27,339 $ 27,984
Amortization of Intangible Assets $ 17,175 $ 12,615 $ 22,748
All items of supplementary income statement information other than those shown above are less than one percent of net sales as shown
in the consolidated statements of income.
Certain prior year amounts have been restated to conform to the 1993 presentation.
</TABLE>
S-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 13
DOCUMENTS INCORPORATED BY REFERENCE
1993 DELUXE CORPORATION
ANNUAL REPORT TO SHAREHOLDERS
FINANCIAL HIGHLIGHTS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS) 1993 1992 CHANGE
- ---------------------------------------------------------------------- ---------- -------
<S> <C> <C> <C>
Net sales $1,581,767 $1,534,351 3.1%
- ---------------------------------------------------------------------- ---------- -------
Net income 141,861 202,784 (30.0)%
- ---------------------------------------------------------------------- ---------- -------
Return on sales 9.0% 13.2%
- ---------------------------------------------------------------------- ---------- -------
Per share 1.71 2.42 (29.3)%
- ---------------------------------------------------------------------- ---------- -------
Return on average shareholders' equity 17.4% 25.7%
- ---------------------------------------------------------------------- ---------- -------
Cash dividends paid 117,945 112,483 4.9%
- ---------------------------------------------------------------------- ---------- -------
Per share 1.42 1.34 6.0%
- ---------------------------------------------------------------------- ---------- -------
Shareholders' equity 801,249 829,808 (3.4)%
- ---------------------------------------------------------------------- ---------- -------
Book value per share 9.66 9.90 (2.4)%
- ---------------------------------------------------------------------- ---------- -------
Average common shares outstanding (thousands) 82,936 83,861
- ---------------------------------------------------------------------- ---------- -------
Number of shareholders 23,084 23,949
- ---------------------------------------------------------------------- ---------- -------
Number of employees 17,748 17,400 2.0%
- ---------------------------------------------------------------------- ---------- -------
</TABLE>
<TABLE>
<CAPTION>
NET SALES NET INCOME PER SHARE CASH DIVIDENDS PER SHARE
- ------------------------- ------------------------ --------------------------
DOLLARS IN MILLIONS DOLLARS DOLLARS
<S> <C> <C> <C> <C> <C>
1993 . . . . . . . $1,582 1993 . . . . . . . $1.71 1993 . . . . . . . . $1.42
1992 . . . . . . . $1,534 1992 . . . . . . . $2.42 1992 . . . . . . . . $1.34
1991 . . . . . . . $1,474 1991 . . . . . . . $2.18 1991 . . . . . . . . $1.22
1990 . . . . . . . $1,414 1990 . . . . . . . $2.03 1990 . . . . . . . . $1.10
1989 . . . . . . . $1,316 1989 . . . . . . . $1.79 1989 . . . . . . . . $0.98
</TABLE>
1
<PAGE>
FINANCIAL REVIEW
This section reports on Deluxe's financial condition for the past two fiscal
years and its operating results for the past three fiscal years. During the
past decade, the Company has had a compound annual growth rate of 9.8% in
sales, 8.2% in cash flow, 6.4% in net income, 7.4% in net income per share,
10.9% in book value, and 16.4% in cash dividends per share.
In 1993, sales increased 3.1%, while net income decreased 30.0%, primarily
due to the $49 million restructuring charge recorded during the year. The
return on sales was 9.0%, down from last year's 13.2%, and the return on
average assets was 11.6%, compared to last year's 17.6%. Return on average
shareholders' equity was 17.4%, compared to last year's 25.7%. Deluxe's
financial condition continues to be strong. The current ratio on December 31,
1993, was decreased to 1.8 to 1, from 2.7 to 1 on December 31, 1992, due to
acquisitions and the 1993 restructuring liability. The percentage of long-term
debt to shareholders' equity at year end was 13.8%, compared to 13.9% on
December 31, 1992, with shareholders' equity decreasing to $801.2 million from
$829.8 million.
CONTENTS
--------------------------------------------------------
ELEVEN-YEAR SUMMARY, 22
MANAGEMENT'S DISCUSSION AND ANALYSIS, 24
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING, 27
CONSOLIDATED BALANCE SHEETS, 28
CONSOLIDATED STATEMENTS OF INCOME, 30
CONSOLIDATED STATEMENTS OF CASH FLOWS, 31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, 32
INDEPENDENT AUDITORS' REPORT, 39
SUMMARIZED QUARTERLY FINANCIAL DATA, 39
21
<PAGE>
<TABLE>
<CAPTION>
ELEVEN-YEAR SUMMARY
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS) 1993 1992 1991 1990
- ---------------------------------------------------------------------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales $1,581,767 $1,534,351 $1,474,482 $1,413,553
- ---------------------------------------------------------------------- ---------- ---------- ----------
Salaries and wages 491,868 456,893 444,987 417,193
- ---------------------------------------------------------------------- ---------- ---------- ----------
Employee profit sharing and pension plan expense 61,162 60,307 55,410 52,314
- ---------------------------------------------------------------------- ---------- ---------- ----------
Employee bonus and stock purchase discount expense 20,215 25,494 22,417 20,598
- ---------------------------------------------------------------------- ---------- ---------- ----------
Provision for income taxes 94,052 121,999 112,591 110,345
- ---------------------------------------------------------------------- ---------- ---------- ----------
Net income 141,861 202,784 182,902 172,161
- ---------------------------------------------------------------------- ---------- ---------- ----------
Return on sales 8.97% 13.22% 12.40% 12.18%
- ---------------------------------------------------------------------- ---------- ---------- ----------
Per share 1.71 2.42 2.18 2.03
- ---------------------------------------------------------------------- ---------- ---------- ----------
Return on average shareholders' equity 17.40% 25.70% 25.69% 26.36%
- ---------------------------------------------------------------------- ---------- ---------- ----------
Cash dividends paid 117,945 112,483 102,512 93,109
- ---------------------------------------------------------------------- ---------- ---------- ----------
Per share 1.42 1.34 1.22 1.10
- ---------------------------------------------------------------------- ---------- ---------- ----------
Shareholders' equity 801,249 829,808 747,976 675,792
- ---------------------------------------------------------------------- ---------- ---------- ----------
Book value per share 9.66 9.90 8.91 8.04
- ---------------------------------------------------------------------- ---------- ---------- ----------
Additions to machinery and equipment 45,675 52,598 48,605 49,233
- ---------------------------------------------------------------------- ---------- ---------- ----------
Additions to realty and leaseholds 16,435 19,013 23,896 14,722
- ---------------------------------------------------------------------- ---------- ---------- ----------
Depreciation and amortization expense 72,320 66,615 75,976 74,050
- ---------------------------------------------------------------------- ---------- ---------- ----------
Working capital increase (decrease) (162,387) 55,975 185,879 50,176
- ---------------------------------------------------------------------- ---------- ---------- ----------
Total assets 1,251,994 1,199,556 1,099,059 923,902
- ---------------------------------------------------------------------- ---------- ---------- ----------
Return on average assets 11.57% 17.64% 18.08% 19.44%
- ---------------------------------------------------------------------- ---------- ---------- ----------
Long-term debt 110,755 115,522 110,575 11,911
- ---------------------------------------------------------------------- ---------- ---------- ----------
Average common shares outstanding (thousands) 82,936 83,861 84,005 84,638
- ---------------------------------------------------------------------- ---------- ---------- ----------
Number of employees 17,748 17,400 17,563 17,174
- ---------------------------------------------------------------------- ---------- ---------- ----------
Number of production and service facilities 73 85 82 81
- ---------------------------------------------------------------------- ---------- ---------- ----------
Facility area - square feet (thousands) 4,623 5,454 5,238 5,060
- ---------------------------------------------------------------------- ---------- ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
RETURN ON AVERAGE
NET INCOME RETURN ON AVERAGE ASSETS SHAREHOLDERS' EQUITY
- ------------------------- ----------------------------- -----------------------------
DOLLARS IN MILLIONS PERCENT PERCENT
<S> <C> <C> <C> <C> <C>
1993 . . . . . . . $141.9 1993 . . . . . . . . . 11.57% 1993 . . . . . . . . . 17.40%
1992 . . . . . . . $202.8 1992 . . . . . . . . . 17.64% 1992 . . . . . . . . . 25.70%
1991 . . . . . . . $182.9 1991 . . . . . . . . . 18.08% 1991 . . . . . . . . . 25.69%
1990 . . . . . . . $172.2 1990 . . . . . . . . . 19.44% 1990 . . . . . . . . . 26.36%
1989 . . . . . . . $152.6 1989 . . . . . . . . . 18.69% 1989 . . . . . . . . . 25.47%
1988 . . . . . . . $143.4 1988 . . . . . . . . . 17.35% 1988 . . . . . . . . . 27.08%
1987 . . . . . . . $148.5 1987 . . . . . . . . . 19.45% 1987 . . . . . . . . . 32.86%
1986 . . . . . . . $121.1 1986 . . . . . . . . . 20.50% 1986 . . . . . . . . . 31.57%
1985 . . . . . . . $104.2 1985 . . . . . . . . . 21.73% 1985 . . . . . . . . . 31.91%
1984 . . . . . . . $ 87.8 1984 . . . . . . . . . 20.87% 1984 . . . . . . . . . 30.07%
1983 . . . . . . . $ 76.6 1983 . . . . . . . . . 20.35% 1983 . . . . . . . . . 28.24%
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
1989 1988 1987 1986 1985 1984 1983
---------- ---------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
$1,315,828 $1,195,971 $948,010 $866,829 $764,421 $682,823 $619,695
---------- ---------- -------- -------- -------- -------- --------
393,339 367,302 300,225 272,526 246,735 222,586 210,767
---------- ---------- -------- -------- -------- -------- --------
48,423 44,398 39,567 36,630 33,369 31,086 29,747
---------- ---------- -------- -------- -------- -------- --------
17,876 13,698 13,686 12,702 10,802 9,304 8,168
---------- ---------- -------- -------- -------- -------- --------
93,691 83,288 88,137 101,891 87,692 75,219 67,109
---------- ---------- -------- -------- -------- -------- --------
152,631 143,354 148,512 121,109 104,215 87,816 76,605
---------- ---------- -------- -------- -------- -------- --------
11.60% 11.99% 15.67% 13.97% 13.63% 12.86% 12.36%
---------- ---------- -------- -------- -------- -------- --------
1.79 1.68 1.74 1.42 1.22 1.00 .84
---------- ---------- -------- -------- -------- -------- --------
25.47% 27.08% 32.86% 31.57% 31.91% 30.07% 28.24%
---------- ---------- -------- -------- -------- -------- --------
83,679 73,392 64,849 49,630 42,055 34,130 28,233
---------- ---------- -------- -------- -------- -------- --------
.98 .86 .76 .58 .49 .39 .31
---------- ---------- -------- -------- -------- -------- --------
630,643 567,731 490,820 413,132 354,083 299,106 284,908
---------- ---------- -------- -------- -------- -------- --------
7.40 6.65 5.77 4.85 4.14 3.48 3.18
---------- ---------- -------- -------- -------- -------- --------
55,658 59,252 45,868 27,733 34,285 23,262 25,719
---------- ---------- -------- -------- -------- -------- --------
32,764 19,634 15,841 9,529 3,759 7,279 5,188
---------- ---------- -------- -------- -------- -------- --------
67,340 59,846 45,462 32,079 25,953 23,479 20,868
---------- ---------- -------- -------- -------- -------- --------
42,063 30,601 (121,582) (23,066) 25,556 8,793 25,616
---------- ---------- -------- -------- -------- -------- --------
847,002 786,110 866,270 660,969 520,740 438,430 402,947
---------- ---------- -------- -------- -------- -------- --------
18.69% 17.35% 19.45% 20.50% 21.73% 20.87% 20.35%
---------- ---------- -------- -------- -------- -------- --------
10,169 10,933 12,886 14,152 13,036 8,634 7,594
---------- ---------- -------- -------- -------- -------- --------
85,346 85,255 85,242 85,487 85,769 87,565 90,956
---------- ---------- -------- -------- -------- -------- --------
16,948 16,628 15,346 13,502 12,669 10,945 10,237
---------- ---------- -------- -------- -------- -------- --------
79 77 74 70 68 65 63
---------- ---------- -------- -------- -------- -------- --------
4,980 4,650 4,180 3,450 3,216 3,050 2,996
---------- ---------- -------- -------- -------- -------- --------
</TABLE>
<TABLE>
<CAPTION>
SHAREHOLDERS' EQUITY WORKING CAPITAL FACILITY AREA
- ------------------------- ----------------------------- -----------------------------
DOLLARS IN MILLIONS DOLLARS IN MILLIONS MILLIONS OF SQUARE FEET
<S> <C> <C>
1993 . . . . . . . . $801 1993 . . . . . . . . . $224.5 1993 . . . . . . . . . . 4.62
1992 . . . . . . . . $830 1992 . . . . . . . . . $386.9 1992 . . . . . . . . . . 5.45
1991 . . . . . . . . $748 1991 . . . . . . . . . $330.9 1991 . . . . . . . . . . 5.24
1990 . . . . . . . . $676 1990 . . . . . . . . . $145.0 1990 . . . . . . . . . . 5.06
1989 . . . . . . . . $631 1989 . . . . . . . . . $ 94.8 1989 . . . . . . . . . . 4.98
1988 . . . . . . . . $568 1988 . . . . . . . . . $ 52.8 1988 . . . . . . . . . . 4.65
1987 . . . . . . . . $491 1987 . . . . . . . . . $ 22.2 1987 . . . . . . . . . . 4.18
1986 . . . . . . . . $413 1986 . . . . . . . . . $143.8 1986 . . . . . . . . . . 3.45
1985 . . . . . . . . $354 1985 . . . . . . . . . $166.8 1985 . . . . . . . . . . 3.22
1984 . . . . . . . . $299 1984 . . . . . . . . . $141.3 1984 . . . . . . . . . . 3.05
1983 . . . . . . . . $285 1983 . . . . . . . . . $132.5 1983 . . . . . . . . . . 3.00
</TABLE>
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OVERALL SUMMARY
1993 was the 55th consecutive year of increased sales for Deluxe. The sales
growth of 3.1% was primarily the result of growth in the Company's newer
businesses, offset partially by a decline in traditional financial
institution check printing revenue. 1993 net income of $141.9 million was
down from 1992's net income of $202.8 million, due, in part, to a 1993
restructuring charge of $49 million. Earnings per share were $1.71 in 1993,
compared to $2.42 in 1992. Return on average assets for 1993 was 11.6%,
compared to 17.6% for 1992. Return on average shareholders' equity
was 17.4%, compared to 25.7% for 1992.
RESULTS OF OPERATIONS
The following table sets forth, for the years indicated, the percentage
relationship to revenue of certain items in the Company's consolidated
statements of operations and the percentage changes of such items
in comparison to the prior year.
<TABLE>
<CAPTION>
PERCENTAGE OF REVENUE PERCENTAGE OF DOLLAR
INCREASE/(DECREASE)
1993 1992 1991 1993 VS 1992 1992 VS 1991
---- ---- ---- ----------------------------------------------------------- ------------
<C> <C> <C> <S> <C> <C>
100% 100% 100% Net sales 3.1% 4.1%
---- ---- ---- ----------------------------------------------------------- ------------
53.8 54.2 52.4 Gross margins 2.4 7.6
---- ---- ---- ----------------------------------------------------------- ------------
30.9 27.6 27.6 Selling, general, and administrative 15.5 4.1
---- ---- ---- ----------------------------------------------------------- ------------
5.1 5.6 5.3 Employee sharing (5.2) 10.2
---- ---- ---- ----------------------------------------------------------- ------------
0.3 0.2 0.5 Other income (net) 59.4 (65.7)
---- ---- ---- ----------------------------------------------------------- ------------
6.0 8.0 7.6 Provision for income taxes (22.9) 8.4
---- ---- ---- ----------------------------------------------------------- ------------
9.0 13.2 12.4 Net income (30.0) 10.9
---- ---- ---- ----------------------------------------------------------- ------------
</TABLE>
NET SALES - Net sales for the Payment Systems segment decreased from $1,096.6
million in 1992 to $1,068.9 million in 1993, or (2.5%), primarily due to the
general maturity of the check market, rapid growth of the direct marketing
channel for checks (the Company's traditional financial institution check
orders declined by 2.7% in 1993), and industrywide price discounting.
Partially offsetting the decline in traditional check printing sales was a
combined increase of 14.7% in revenues from the Company's three electronic
payment systems subsidiaries: Deluxe Data Systems, Inc., ChexSystems, Inc.,
and Electronic Transaction Corporation. The Business Systems segment
experienced a growth in sales from $196.0 million in 1992 to $237.9 million
in 1993, or 21.3%. A portion of the growth was attributable to the
acquisitions of Nelco, Inc. (December 1992), PaperDirect, Inc. (September
1993), and the assets of Stockforms, Ltd. (September 1993). Sales increased
from $241.7 million in 1992 to $275.0 million in 1993, or 13.8%, in the
Consumer Specialty Products segment, due to the growth in the direct market
for checks combined with increased sales in the social expression market.
Sales growth for 1992 in comparison to 1991 included an increase of
$26.3 million, or 2.5%, in Payment Systems, which consisted of an increase
from check printing of 1.4%, due mostly to price increases and product mix
improvements, combined with an 11.9% increase in electronic payment systems
sales. Business Systems sales increased $17.3 million, or 9.7%, from 1991,
due to increased market share and price increases. Consumer Specialty
Products sales increased $16.3 million, or 7.2%, in 1992, largely due to unit
volume growth.
GROSS MARGINS - Gross margins for Payment Systems were lower as a result of
industrywide price discounting in the financial institution check printing
market. Partially offsetting this trend were production efficiencies,
including those that resulted from the Company's restructuring efforts
announced during the second quarter of 1993. The Company has yet to realize
the full cost savings of restructuring, because the largest number of plants
24
<PAGE>
did not close until the fourth quarter of 1993. Gross margins for Business
Systems and Consumer Specialty Products increased modestly from 1992, due
primarily to decreases in paper prices.
Total gross margins as a percentage of sales increased in 1992 over
1991, due primarily to improved control of plant labor cost and productivity
enhancements from new printing technologies in the Payment Systems segment.
SELLING, GENERAL, AND ADMINISTRATIVE - Selling, general, and administrative
expenses increased $65.8 million or 15.5% from 1992. A large portion of the
increase in these expenses was due to an increase in marketing and advertising
costs of approximately $24.5 million. Such amounts were expended to increase
sales volume in each of the three business segments. In addition, research and
development costs increased $10.2 million over the prior year as the Company
made investments to develop printing efficiencies, including its new water-
washable lithographic ink. The remaining increase in selling, general, and
administrative expenses was primarily due to increased employee-related costs
resulting from additional employees in 1993 and normal wage increases.
The majority of the increase in selling, general, and administrative
expenses in 1992 in comparison to 1991 was due to an increase in wages
resulting from normal wage increases. As a percentage of sales, these
expenses were consistent at 27.6% in 1992 and 1991.
EMPLOYEE SHARING - A portion of employee sharing includes benefits paid to
employees that are based on the Company's profitability. As a result of the
decrease in earnings from 1992 to 1993, employee sharing also decreased.
Conversely, the rise in earnings from 1991 to 1992 resulted in increased
employee sharing expense in 1992.
OTHER INCOME (NET) - The Company's other income for 1993 increased to $4.1
million from $2.6 million in 1992, primarily due to insurance gains on flood
damaged property. Such income was offset partially by a decrease in
investment income due to the decrease in marketable securities and lower
interest rates in 1993.
Other income totaled $2.6 million in 1992 compared to $7.5 million in
1991. Contributing to the decrease were a market decline in interest rates
and a full year of interest expense in 1992 on the Company's 8.55% notes
compared to a partial year in 1991.
PROVISION FOR INCOME TAXES - The Company experienced lower income tax expense
in 1993, due to lower taxable income. However, the effective tax rate
increased from 37.6% in 1992 to 39.9% in 1993. In August 1993, the u.s.
government passed legislation that increased the corporate income tax rate to
35%, retroactive to January 1, 1993. The change in the Federal statutory tax
rate and an increase in non-deductible amortization of intangibles related to
acquisitions were the principal causes for the higher effective tax rate.
The decrease in the effective tax rate from 38.1% in 1991 to 37.6% in
1992 was the result of changes in state tax rates and a reduction of
amortization expense related to certain non-deductible intangibles from prior
year acquisitions. Such intangibles were fully amortized in 1991.
NET INCOME - The principal reason for the amount of the reduction in earnings
in 1993 is the $49 million restructuring charge that the Company recorded
during the year. This charge includes costs associated with the closing of 16
of the Company's more than 60 check printing facilities. The largest
components of the restructuring cost are estimated cash payments for employee
severance, relocation, and related expenses of $36.3 million and real estate
dispositions and equipment write-downs of $9.1 million. These closings and
the reduced earnings in 1993 were due to the decline of orders in the
financial institution check market, and were made possible by the production
efficiencies gained from the Company's improved check printing technology. As
of December 31, 1993, 14 of the planned 16 plants were closed. The majority
of cash payments related to restructuring will be made during 1994.
Net income in 1992 was affected by factors discussed above, along with a
decrease in amortization of intangibles from 1991 of $10.1 million. This was
the result of certain intangibles from prior year acquisitions becoming fully
amortized as of December 31, 1991.
FINANCIAL CONDITION
LIQUIDITY - Cash provided by operations was $223.7 million in 1993, compared
with $281.0 million in 1992 and $268.7 million in 1991. This represents the
Company's primary source of working capital for
25
<PAGE>
financing capital expenditures and acquisitions and for paying cash
dividends. The decline in 1993 is primarily the result of lower net income in
1993 than in the preceding two years. Working capital was $224.5 million as
of December 31, 1993, compared to $386.9 million and $330.9 million on that
date in 1992 and 1991, respectively. The year-end current ratio for 1993 was
1.8 to 1, compared to 2.7 to 1 and 2.6 to 1 for 1992 and 1991, respectively.
The declines in working capital and current ratio resulted primarily from the
Company's 1993 acquisitions, a higher dividend payout, and the restructuring
accrual.
CAPITAL RESOURCES - On September 24, 1993, the Company acquired all of the
capital stock of PaperDirect, Inc., a direct mail marketer of specialty
papers and related products to the desktop publishing industry, for $90
million in cash. In addition, the Company agreed to pay $9 million over three
years for a covenant not to compete. The Company also agreed to make payments
of up to $16 million per year over the four-year period ending December 31,
1996, contingent upon the results of PaperDirect's operations over the course
of that period. On September 30, 1993, the Company completed its acquisition
of the assets of Stockforms, Ltd., a supplier of accounting software forms
based in the United Kingdom, by purchasing the remaining 75% interest of the
company for approximately $11.7 million. (The Company had purchased the
initial 25% during the third quarter of 1992 for approximately $3 million.)
Purchases of property, plant, and equipment required cash outlays of
$61.0 million in 1993, compared to $64.1 million in 1992 and $71.5 million in
1991. The Company anticipates capital expenditures of $70.0 million in 1994
for new electronic payment systems opportunities and further enhancements to
printing capabilities.
The Company has unsecured bank lines of credit for $35 million should
current cash resources and cash provided by operations prove to be
inadequate.
Cash dividends totaled $117.9 million in 1993, compared to $112.5
million in 1992 and $102.5 million in 1991. The payout of earnings was 83.1%
in 1993, 55.5% in 1992, and 56.0% in 1991.
OUTLOOK
This year we expect financial institution check printing revenues to decline
moderately. However, the outlook for profitability will be positive, affected
by the impact of cost savings from our plant restructuring and other efforts
designed to increase productivity. Also during the past several years, the
Company has made several strategic acquisitions outside the financial
institution check printing market. As a result, the Company's sales from
sources other than its traditional financial institution check printing rose
to 43.6% of 1993 consolidated sales, up from 38.5% in 1992 and 36.9% in 1991.
This trend is expected to continue in 1994, as a result of additional
acquisitions, internal business start-ups, and the marketing of the Company's
recently developed water-washable lithographic ink.
In November 1992, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 112, "Employers' Accounting
for Postemployment Benefits." The Company believes that this statement, when
adopted in 1994, will not have a material effect on its financial position or
results of operations.
In May 1993, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." The Company believes that this
statement, when adopted in 1994, will not have a material effect on its
financial position or results of operations.
26
<PAGE>
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
The accompanying consolidated financial statements and related information
are the responsibility of management. They have been prepared in conformity
with generally accepted accounting principles and include amounts that are
based on our best estimates and judgments under the existing circumstances.
The financial information contained elsewhere in this Annual Report is
consistent with that in the consolidated financial statements.
The Company maintains internal accounting control systems that it
believes are adequate to provide reasonable assurance that the assets are
safeguarded from loss or unauthorized use. These systems produce records
adequate for preparation of financial information. We believe the Company's
systems are effective, and the cost of the systems does not exceed the
benefits obtained.
The Audit Committee has reviewed all financial data included in this
report. The Audit Committee is composed entirely of outside directors and
meets periodically with the internal auditors, management, and the
independent public accountants on financial reporting matters. The
independent public accountants have free access to meet with the Audit
Committee, without the presence of management, to discuss their audit results
and opinions on the quality of financial reporting.
The role of independent public accountants is to render an independent,
professional opinion on management's consolidated financial statements to the
extent required by generally accepted auditing standards. Deluxe recognizes
its responsibility for conducting its affairs according to the highest
standards of personal and corporate conduct. It has distributed to all
employees a statement of its commitment to conducting all Company business in
accordance with the highest ethical standards.
/s/ Harold V. Haverty
Harold V. Haverty
Chairman, President, and
Chief Executive Officer
/s/ Charles M. Osborne
Charles M. Osborne
Senior Vice President and
Chief Financial Officer
February 10, 1994
27
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
ASSETS
DECEMBER 31 (DOLLARS IN THOUSANDS) 1993 1992
- ------------------------------------------------------------------------------------------ ----------
CURRENT ASSETS
- ------------------------------------------------------------------------------------------ ----------
<S> <C> <C>
Cash and cash equivalents $ 114,103 $ 275,172
- ------------------------------------------------------------------------------------------ ----------
Marketable securities 107,705 105,747
- ------------------------------------------------------------------------------------------ ----------
Trade accounts receivable 123,119 118,666
- ------------------------------------------------------------------------------------------ ----------
Inventories:
- ------------------------------------------------------------------------------------------ ----------
Raw material 18,260 14,809
- ------------------------------------------------------------------------------------------ ----------
Semi-finished goods 21,155 17,854
- ------------------------------------------------------------------------------------------ ----------
Finished goods 29,989 18,283
- ------------------------------------------------------------------------------------------ ----------
Supplies 15,915 14,193
- ------------------------------------------------------------------------------------------ ----------
Deferred advertising 26,080 14,634
- ------------------------------------------------------------------------------------------ ----------
Deferred income taxes 28,914 7,974
- ------------------------------------------------------------------------------------------ ----------
Prepaid expenses and other current assets 37,123 23,917
- ------------------------------------------------------------------------------------------ ----------
Total current assets 522,363 611,249
- ------------------------------------------------------------------------------------------ ----------
LONG-TERM INVESTMENTS 34,815 20,886
- ------------------------------------------------------------------------------------------ ----------
PROPERTY, PLANT, AND EQUIPMENT
- ------------------------------------------------------------------------------------------ ----------
Land 32,706 25,812
- ------------------------------------------------------------------------------------------ ----------
Buildings and improvements 261,974 234,656
- ------------------------------------------------------------------------------------------ ----------
Machinery and equipment 483,853 455,315
- ------------------------------------------------------------------------------------------ ----------
Construction in progress 1,360 14,075
- ------------------------------------------------------------------------------------------ ----------
Total 779,893 729,858
- ------------------------------------------------------------------------------------------ ----------
Less accumulated depreciation 378,252 340,841
- ------------------------------------------------------------------------------------------ ----------
Property, plant, and equipment-net 401,641 389,017
- ------------------------------------------------------------------------------------------ ----------
INTANGIBLES
- ------------------------------------------------------------------------------------------ ----------
Cost in excess of net assets acquired-net 246,104 139,895
- ------------------------------------------------------------------------------------------ ----------
Other intangible assets-net 47,071 38,509
- ------------------------------------------------------------------------------------------ ----------
Total intangibles 293,175 178,404
- ------------------------------------------------------------------------------------------ ----------
Total assets $1,251,994 $1,199,556
- ------------------------------------------------------------------------------------------ ----------
- ------------------------------------------------------------------------------------------ ----------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
28
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
DECEMBER 31 (DOLLARS IN THOUSANDS) 1993 1992
- ------------------------------------------------------------------------------------------ ----------
<S> <C> <C>
CURRENT LIABILITIES
- ------------------------------------------------------------------------------------------ ----------
Accounts payable $ 50,424 $ 42,712
- ------------------------------------------------------------------------------------------ ----------
Accrued liabilities:
- ------------------------------------------------------------------------------------------ ----------
Wages, including vacation pay 45,584 41,268
- ------------------------------------------------------------------------------------------ ----------
Employee profit sharing and pension 59,560 58,309
- ------------------------------------------------------------------------------------------ ----------
Restructuring costs 35,489
- ------------------------------------------------------------------------------------------ ----------
Accrued rebates 26,473 9,363
- ------------------------------------------------------------------------------------------ ----------
Income taxes 3,847 11,584
- ------------------------------------------------------------------------------------------ ----------
Other 69,527 55,626
- ------------------------------------------------------------------------------------------ ----------
Long-term debt due within one year 6,967 5,508
- ------------------------------------------------------------------------------------------ ----------
Total current liabilities 297,871 224,370
- ------------------------------------------------------------------------------------------ ----------
LONG-TERM DEBT 110,755 115,522
- ------------------------------------------------------------------------------------------ ----------
DEFERRED INVESTMENT CREDIT 1,224 1,928
- ------------------------------------------------------------------------------------------ ----------
DEFERRED INCOME TAXES 40,895 27,928
- ------------------------------------------------------------------------------------------ ----------
SHAREHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------ ----------
Common shares $1 par value (authorized: 500,000,000 shares;
issued: 1993 - 82,548,627 shares 1992 - 83,797,015 shares) 82,549 83,797
- ------------------------------------------------------------------------------------------ ----------
Additional paid-in capital 341 1,208
- ------------------------------------------------------------------------------------------ ----------
Retained earnings 719,046 744,803
- ------------------------------------------------------------------------------------------ ----------
Cumulative translation adjustment (687)
- ------------------------------------------------------------------------------------------ ----------
Shareholders' equity 801,249 829,808
- ------------------------------------------------------------------------------------------ ----------
Total liabilities and shareholders' equity $1,251,994 $1,199,556
- ------------------------------------------------------------------------------------------ ----------
- ------------------------------------------------------------------------------------------ ----------
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31 (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS) 1993 1992 1991
- ------------------------------------------------------------------------------------------ ---------- ----------
<S> <C> <C> <C>
NET SALES $1,581,767 $1,534,351 $1,474,482
- ------------------------------------------------------------------------------------------ ---------- ----------
OPERATING EXPENSES
- ------------------------------------------------------------------------------------------ ---------- ----------
Cost of sales 730,436 702,969 702,088
- ------------------------------------------------------------------------------------------ ---------- ----------
Selling, general, and administrative 489,127 423,362 406,541
- ------------------------------------------------------------------------------------------ ---------- ----------
Employee profit sharing and pension 61,162 60,307 55,410
- ------------------------------------------------------------------------------------------ ---------- ----------
Employee bonus and stock purchase discount 20,215 25,494 22,417
- ------------------------------------------------------------------------------------------ ---------- ----------
Restructuring charge 49,000
- ------------------------------------------------------------------------------------------ ---------- ----------
Total 1,349,940 1,212,132 1,186,456
- ------------------------------------------------------------------------------------------ ---------- ----------
Income from operations 231,827 322,219 288,026
- ------------------------------------------------------------------------------------------ ---------- ----------
OTHER INCOME (EXPENSE)
- ------------------------------------------------------------------------------------------ ---------- ----------
Investment and other income 14,362 17,935 15,688
- ------------------------------------------------------------------------------------------ ---------- ----------
Interest expense (10,276) (15,371) (8,221)
- ------------------------------------------------------------------------------------------ ---------- ----------
Income before income taxes 235,913 324,783 295,493
- ------------------------------------------------------------------------------------------ ---------- ----------
PROVISION FOR INCOME TAXES 94,052 121,999 112,591
- ------------------------------------------------------------------------------------------ ---------- ----------
NET INCOME $ 141,861 $ 202,784 $ 182,902
- ------------------------------------------------------------------------------------------ ---------- ----------
- ------------------------------------------------------------------------------------------ ---------- ----------
NET INCOME PER COMMON SHARE-Based on average
number of shares outstanding $ 1.71 $ 2.42 $ 2.18
- ------------------------------------------------------------------------------------------ ---------- ----------
- ------------------------------------------------------------------------------------------ ---------- ----------
CASH DIVIDENDS PER COMMON SHARE $ 1.42 $ 1.34 $ 1.22
- ------------------------------------------------------------------------------------------ ---------- ----------
- ------------------------------------------------------------------------------------------ ---------- ----------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
30
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31 (DOLLARS IN THOUSANDS) 1993 1992 1991
- ------------------------------------------------------------------------------------------ ---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
- ------------------------------------------------------------------------------------------ ---------- ----------
<S> <C> <C> <C>
Net income $ 141,861 $ 202,784 $ 182,902
- ------------------------------------------------------------------------------------------ ---------- ----------
Adjustments to reconcile net income to net cash
provided by operating activities:
- ------------------------------------------------------------------------------------------ ---------- ----------
Depreciation 55,145 54,000 53,228
- ------------------------------------------------------------------------------------------ ---------- ----------
Amortization of intangibles 17,175 12,615 22,748
- ------------------------------------------------------------------------------------------ ---------- ----------
Stock purchase discount 8,537 7,975 7,071
- ------------------------------------------------------------------------------------------ ---------- ----------
Deferred income taxes and investment credit (16,111) (2,677) (4,951)
- ------------------------------------------------------------------------------------------ ---------- ----------
Changes in assets and liabilities, net of effects from acquisitions:
- ------------------------------------------------------------------------------------------ ---------- ----------
Restructuring costs 35,489
- ------------------------------------------------------------------------------------------ ---------- ----------
Trade accounts receivable (160) (6,816) 2,191
- ------------------------------------------------------------------------------------------ ---------- ----------
Inventories (11,696) 1,990 3,678
- ------------------------------------------------------------------------------------------ ---------- ----------
Accounts payable (6,885) 5,633 (1,611)
- ------------------------------------------------------------------------------------------ ---------- ----------
Other assets and liabilities 327 5,499 3,458
- ------------------------------------------------------------------------------------------ ---------- ----------
Net cash provided by operating activities 223,682 $ 281,003 268,714
- ------------------------------------------------------------------------------------------ ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
- ------------------------------------------------------------------------------------------ ---------- ----------
Purchases of marketable securities with maturities of
more than 3 months (119,339) (114,619) (95,079)
- ------------------------------------------------------------------------------------------ ---------- ----------
Proceeds from sales of marketable securities with maturities
of more than 3 months 149,805 99,454 26,075
- ------------------------------------------------------------------------------------------ ---------- ----------
Net (additions to) reductions of marketable securities
with maturities of 3 months or less (32,100) 3,000 86,205
- ------------------------------------------------------------------------------------------ ---------- ----------
Purchases of long-term investments (14,060) (5,809)
- ------------------------------------------------------------------------------------------ ---------- ----------
Collection on National Computer Systems, Inc. debenture 33,745
- ------------------------------------------------------------------------------------------ ---------- ----------
Purchases of property, plant, and equipment (60,990) (64,114) (71,537)
- ------------------------------------------------------------------------------------------ ---------- ----------
Payments for acquisitions, net of cash acquired (110,136)
- ------------------------------------------------------------------------------------------ ---------- ----------
Other (9,044) (9,254) (6,730)
- ------------------------------------------------------------------------------------------ ---------- ----------
Net cash used in investing activities (195,864) (91,342) (27,321)
- ------------------------------------------------------------------------------------------ ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
- ------------------------------------------------------------------------------------------ ---------- ----------
Proceeds from issuance of long-term debt 99,215
- ------------------------------------------------------------------------------------------ ---------- ----------
Payments on long-term debt (10,260) (1,586) (1,379)
- ------------------------------------------------------------------------------------------ ---------- ----------
Payments to retire common stock (89,172) (57,025) (46,170)
- ------------------------------------------------------------------------------------------ ---------- ----------
Proceeds from issuing stock under employee plans 28,490 32,208 29,392
- ------------------------------------------------------------------------------------------ ---------- ----------
Cash dividends paid to shareholders (117,945) (112,483) (102,512)
- ------------------------------------------------------------------------------------------ ---------- ----------
Net cash used in financing activities (188,887) (138,886) (21,454)
- ------------------------------------------------------------------------------------------ ---------- ----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (161,069) 50,775 219,939
- ------------------------------------------------------------------------------------------ ---------- ----------
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 275,172 224,397 4,458
- ------------------------------------------------------------------------------------------ ---------- ----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 114,103 $ 275,172 $ 224,397
- ------------------------------------------------------------------------------------------ ---------- ----------
- ------------------------------------------------------------------------------------------ ---------- ----------
Supplementary cash flow disclosure:
- ------------------------------------------------------------------------------------------ ---------- ----------
Interest paid $ 11,772 $ 15,682 $ 5,129
- ------------------------------------------------------------------------------------------ ---------- ----------
Income taxes paid 119,859 130,041 121,358
- ------------------------------------------------------------------------------------------ ---------- ----------
- ------------------------------------------------------------------------------------------ ---------- ----------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
31
<PAGE>
1. SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts of the Company and
all wholly owned subsidiaries.
MARKETABLE SECURITIES - Marketable securities consist of debt securities carried
at cost. The fair values of such securities, based on quoted market prices at
December 31, 1993 and 1992, were $107,705,000 and $105,832,000, respectively.
INVENTORY - Substantially all inventory is included at the lower of cost, on the
last-in, first-out (LIFO) method, or market. LIFO inventories at December 31,
1993 and 1992, were approximately $9,380,000 and $12,310,000, respectively, less
than replacement cost.
PROPERTY, PLANT, AND EQUIPMENT - Property, plant, and equipment are stated at
cost. Buildings with 40-year lives and machinery and equipment with lives of
five to 11 years are generally depreciated using accelerated methods. Leasehold
and building improvements are depreciated on a straight-line basis over the
estimated useful life of the property or the life of the lease, whichever is
shorter.
INTANGIBLES - Intangibles are shown in the balance sheet net of amortization
determined on the straight-line basis. Amortization periods range from five to
30 years for cost in excess of net assets acquired, and three to 16 years for
other intangibles. Total intangibles are as follows at December 31 (dollars in
thousands):
<TABLE>
<CAPTION>
1993 1992
- ---------------------------------------------------------- --------
<S> <C> <C>
Cost in excess of net assets acquired $279,467 $166,382
- ---------------------------------------------------------- --------
Other intangible assets 76,924 60,428
- ---------------------------------------------------------- --------
Total $356,391 $226,810
- ---------------------------------------------------------- --------
Less accumulated amortization (63,216) (48,406)
- ---------------------------------------------------------- --------
Intangibles - net $293,175 $178,404
- ---------------------------------------------------------- --------
- ---------------------------------------------------------- --------
</TABLE>
LONG-TERM INVESTMENTS - long-term investments consist principally of cash
surrender values of insurance contracts, investments with maturities in excess
of one year, and notes receivable. Such investments are carried at cost or
amortized cost which approximate their fair value. Fair values are estimated
using discounted cash flow analyses based on current market interest rates for
similar types of investments.
In May 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." The Company believes that this statement, when
adopted in 1994, will not have a material effect on its financial position or
results of operations.
INCOME TAXES AND INVESTMENT CREDIT - Deferred income taxes result from temporary
differences between the bases of assets and liabilities recognized for financial
reporting purposes and such bases recognized for tax purposes.
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." This
statement supersedes SFAS No. 96, which the Company adopted in 1988. The effect
of adopting SFAS No. 109 was immaterial to the financial statements.
The Company amortizes investment tax credits related to purchases of
property ratably over the estimated composite life of the property to which the
investment tax credit relates.
ACCRUED REBATES - The Company enters into contractual agreements for rebates on
certain products with its customers. Such amounts are recorded as a reduction to
arrive at net sales, and accrued on the balance sheet as incurred.
DEFERRED ADVERTISING - The Company defers certain costs related to
direct-response advertising of its products. Such costs are amortized over
periods that correspond to the estimated revenue stream of the individual
advertising activity. The total amount charged to expense for 1993, 1992, and
1991 was $74,882,000, $51,037,000, and $36,211,000, respectively.
TRANSLATION ADJUSTMENT - Financial position and results of operations of the
Company's international subsidiaries are measured using local currencies as the
functional currency. Assets and liabilities of these operations were translated
at the exchange rate in effect at the balance sheet date. Income statement
accounts were translated at the average exchange rate during the year.
Translation adjustments arising from the use of differing exchange rates from
period to period are included in the cumulative translation adjustment line
32
<PAGE>
in the shareholders' equity section of the balance sheet. Gains and losses that
result from foreign currency transactions are included in earnings.
CONSOLIDATED STATEMENTS OF CASH FLOWS - The Company considers all highly liquid
investments purchased with an original maturity of three months or less to be
cash equivalents. The carrying amount reported in the balance sheet for cash and
cash equivalents approximates fair value.
RECLASSIFICATIONS - Certain prior years' amounts have been reclassified to
conform to the 1993 presentation.
2. RESTRUCTURING CHARGE
In June 1993, the Company announced plans to consolidate its financial
institution check printing operations by closing 16 underutilized check printing
plants. These closings were necessitated by the absence of growth in the
financial institution check market and the production efficiencies gained from
the Company's improved check printing technology. In conjunction with the
consolidation, the Company recorded a one-time pretax restructuring charge of
$60 million.
As of December 31, 1993, the Company had closed 14 of the 16 check printing
plants at a cost less than originally estimated. The savings resulted from lower
than anticipated relocation and severance costs. In addition, because most of
the equipment from the closed plants was redeployed in other parts of the
Company, a large portion of the cost estimated for disposition of assets was
never incurred. As a result of these savings, the Company reduced its estimate
of the total restructuring cost to $49 million, and recorded a fourth quarter
credit of $11 million. The largest components of the restructuring cost are
estimated cash payments for employee severance, relocation, and related expenses
of $36.3 million and real estate dispositions and equipment write-downs of $9.1
million. The majority of cash payments related to restructuring will be made
during 1994.
3. ACQUISITIONS
On September 24, 1993, the Company acquired all of the outstanding capital stock
of PaperDirect, Inc., a direct mail marketer of specialty papers and related
products to the desktop publishing industry, for $90 million in cash. In
addition, the Company agreed to pay $9 million over three years for a covenant
not to compete. The Company may be required to make additional payments of up to
$16 million per year over a period ending December 31, 1996, contingent upon the
results of PaperDirect's operations over the course of that period. Based on
PaperDirect's 1993 operating results, a payable to PaperDirect's former
shareholders of $16 million was accrued at December 31, 1993. The acquisition
was accounted for using the purchase method. Accordingly, the purchase price was
allocated to assets acquired based on their estimated fair values. This
treatment resulted in approximately $100 million of cost in excess of net assets
acquired as of December 31, 1993. Such excess (which will increase for any
future contingent cash payment) is being amortized on a straight-line basis over
30 years. PaperDirect's results of operations have been included in the
consolidated results of operations since the date of acquisition.
The following summarized, unaudited pro forma results of operations for the
years ended December 31, 1993 and 1992, assume the acquisition occurred as of
the beginning of the respective periods (dollars in thousands except per share
amounts):
<TABLE>
<CAPTION>
1993 1992
- ------------------------------------------------------------ ----------
<S> <C> <C>
Net sales $1,624,868 $1,561,192
- ------------------------------------------------------------ ----------
Net income 141,193 196,112
- ------------------------------------------------------------ ----------
Net income per common share $1.70 $2.34
- ------------------------------------------------------------ ----------
</TABLE>
On September 30, 1993, the Company completed its acquisition of the assets
of Stockforms, Ltd., a supplier of accounting software forms based in the United
Kingdom, by purchasing the remaining 75% interest of the company for
approximately $11.7 million. (The Company had purchased the initial 25% during
1992 for approximately $3 million.) The acquisition was accounted for using the
purchase method. Accordingly, the purchase price was allocated to assets
acquired based on their fair values. The total cost in excess of net assets
acquired of $13.9 million is being amortized on a straight-line basis over 20
years. The acquisition did not have a material pro forma impact on operations.
33
<PAGE>
4. PROVISION FOR INCOME TAXES
The components of the provision for income taxes are as follows (dollars in
thousands):
<TABLE>
<CAPTION>
1993 1992 1991
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Current tax provision:
- -----------------------------------------------------------------------------
Federal $ 89,650 $106,818 $ 99,016
- -----------------------------------------------------------------------------
State 17,477 20,377 18,526
- -----------------------------------------------------------------------------
Total 107,127 127,195 117,542
- -----------------------------------------------------------------------------
Deferred tax benefit:
- -----------------------------------------------------------------------------
Federal (10,631) (3,391) (3,621)
- -----------------------------------------------------------------------------
State (1,983) (1,209) (586)
- -----------------------------------------------------------------------------
Total (12,614) (4,600) (4,207)
- -----------------------------------------------------------------------------
Deferred investment credit (461) (596) (744)
- -----------------------------------------------------------------------------
Total $ 94,052 $121,999 $112,591
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
</TABLE>
In August 1993, the u.s. government passed legislation that increased the
corporate income tax rate to 35%, retroactive to January 1, 1993. The effect of
the new tax law on the Company increased the provision for income taxes by $2.9
million or $.03 per share for the year ended December 31, 1993.
The Company's effective tax rate on pretax income differs from the u.s.
Federal statutory regular tax rates of 35% in 1993 and 34% in 1992 and 1991 as
follows (dollars in thousands):
<TABLE>
<CAPTION>
1993 1992 1991
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Income tax at Federal
statutory rate $82,570 $110,426 $100,468
- -----------------------------------------------------------------------------
State income taxes net of
Federal income tax benefit 10,207 12,689 11,880
- -----------------------------------------------------------------------------
Amortization of non-
deductible intangibles 2,379 1,896 1,960
- -----------------------------------------------------------------------------
Other (1,104) (3,012) (1,717)
- -----------------------------------------------------------------------------
Provision for
income taxes $94,052 $121,999 $112,591
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
</TABLE>
Tax effected temporary differences which give rise to a significant portion of
deferred tax assets and liabilities at December 31, 1993, are as follows
(dollars in thousands):
<TABLE>
<CAPTION>
DEFERRED TAX DEFERRED TAX
ASSETS LIABILITIES
- -----------------------------------------------------------------------------
<S> <C> <C>
Property, plant, and equipment $ $33,155
- -----------------------------------------------------------------------------
Deferred advertising 6,895
- -----------------------------------------------------------------------------
Employee benefit plans 13,656
- -----------------------------------------------------------------------------
Inventory 3,218
- -----------------------------------------------------------------------------
Lease transactions 2,157
- -----------------------------------------------------------------------------
Insurance reserves 3,405
- -----------------------------------------------------------------------------
Intangibles 6,138
- -----------------------------------------------------------------------------
Restructuring accrual 12,744
- -----------------------------------------------------------------------------
All other 6,431 3,090
- -----------------------------------------------------------------------------
Total deferred taxes $39,454 $51,435
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
</TABLE>
5. EMPLOYEE BENEFIT PLANS
PROFIT SHARING AND PENSION PLANS - The Company has profit sharing plans and a
defined contribution pension plan to provide retirement income to its employees.
The plans cover all full-time employees with at least 15 months of service.
Contributions are made solely by the Company to trusts, and benefits provided by
the plans are paid from accumulated funds by the trusts. Contributions to the
pension plan equal 6% of eligible compensation. Contributions to the profit
sharing plans are discretionary, but generally are based on a formula limiting
the contribution to 15% of eligible compensation less the amount contributed to
the pension plan. Pension plan expense for 1993, 1992, and 1991 was $21,802,000,
$21,652,000, and $19,767,000, respectively.
STOCK PURCHASE PLAN - The Company has an employee stock purchase plan that
enables eligible employees to purchase the Company's common stock at 75% of its
fair market value on the first business day following each three-month purchase
period. Under the plan, 855,242, 755,840, and 702,402 shares were issued at
prices ranging from $26.92-$33.67, $28.60-$33.38, and $27.10-$34.22 in 1993,
1992, and 1991, respectively.
STOCK OPTION PLAN - Under a stock option plan for key employees adopted by
shareholders of the Company in
34
<PAGE>
1984, the Company may grant either non-qualified or incentive stock options to
purchase up to 3,600,000 shares of common stock. All options allow for the
purchase of common stock at prices equal to market value at the date of grant.
Options become exercisable in varying amounts beginning generally one year after
grant. Information regarding this option plan is as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES
1993 1992 1991
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding, January 1 1,285,328 1,231,038 1,260,711
- -----------------------------------------------------------------------------
Granted 396,900 325,056 282,085
- -----------------------------------------------------------------------------
Exercised (93,661) (266,491) (292,034)
- -----------------------------------------------------------------------------
Canceled (21,427) (4,275) (19,724)
- -----------------------------------------------------------------------------
Outstanding, December 31 1,567,140 1,285,328 1,231,038
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Exercisable, December 31 969,690 748,374 724,747
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
</TABLE>
Options were granted at prices ranging from $34.625 to $44.75 per share in
1993, $43.375 per share in 1992, and $45.875 per share in 1991. Options were
exercised in 1993, 1992, and 1991 at average prices per share of $30.07, $31.07,
and $27.99, respectively. Options were outstanding at December 31, 1993, 1992,
1991, at average prices per share of $37.34, $37.11, and $34.16, respectively.
At December 31, 1993, options for 980,084 shares remain available for issuance
under the plan.
6. POSTEMPLOYMENT BENEFITS
In addition to providing retirement income benefits, the Company provides
certain health care benefits for a large number of its retired employees.
Employees included in the plan may become eligible for such benefits if they
reach normal retirement age while in the employment of the Company. Effective
January 1, 1994, cost sharing provisions of the plan were amended to require
retirees to pay a larger portion of their medical insurance premiums.
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions." SFAS No. 106 requires the Company to accrue the
estimated cost of retiree benefit payments during the years in which employees
provide services. Prior to adoption, the Company had expensed the cost of these
benefits as they were incurred. In addition, during the late 1980s, the Company
began funding its postretirement health care plan. The result of this funding
was to reduce the transition obligation for SFAS No. 106 to a level
significantly below the January 1, 1993, accumulated postretirement benefit
obligation. The effect of adopting SFAS No. 106 was immaterial to the financial
statements.
SFAS No. 106 allows the recognition of the transition obligation in the
year of adoption over a period of up to 20 years. The Company has elected to
amortize its transition obligation of $22,885,000 over 20 years. The following
table summarizes the funded status of the plan (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1993
- -----------------------------------------------------------------------------
<S> <C>
Accumulated postretirement benefit obligation:
- -----------------------------------------------------------------------------
Retirees $52,150
- -----------------------------------------------------------------------------
Fully eligible plan participants 1,672
- -----------------------------------------------------------------------------
Other active participants 6,146
- -----------------------------------------------------------------------------
Total 59,968
- -----------------------------------------------------------------------------
Less:
Fair value of plan assets (debt and equity securities) 32,443
- -----------------------------------------------------------------------------
Unrecognized net loss 5,425
- -----------------------------------------------------------------------------
Unrecognized transition obligation 21,667
- -----------------------------------------------------------------------------
Portion of transition obligation accrued in the
balance sheet as of December 31, 1993 $ 433
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
</TABLE>
Net postretirement benefit cost for the year ended December 31, 1993,
consisted of the following components (dollars in thousands):
<TABLE>
<S> <C>
Service cost - benefits earned during the year $ 978
- -----------------------------------------------------------------------------
Interest cost on the accumulated
postretirement benefit obligation 4,525
- -----------------------------------------------------------------------------
Actual return on plan assets (2,568)
- -----------------------------------------------------------------------------
Amortization of transition obligation 1,218
- -----------------------------------------------------------------------------
Total $4,153
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
</TABLE>
Postretirement health care benefit expense under the former method of accounting
was $7,085,000 and $6,895,000 for 1992 and 1991, respectively. These expenses
included the cost of retiree medical coverage for the respective year as well as
funding for future obligations.
In measuring the accumulated postretirement benefit obligation as of
December 31, 1993, the Company's
35
<PAGE>
health care inflation rate for 1994 was assumed to be 11.5% for employees
enrolled in an indemnity plan and 8.5% for employees enrolled in health
maintenance organizations. Inflation rates for both plans are assumed to trend
downward gradually over a 10-year period to 5.0% for the years 2004 and beyond.
A 1 percentage point increase in the health care inflation rate for each year
would increase the accumulated postretirement benefit obligation by
approximately $8,398,000, and the service and interest cost components of the
net postretirement benefit cost by approximately $1,015,000. The discount rate
used in determining the accumulated postretirement benefit obligation as of
December 31, 1993, was 7.25%. The expected long-term rate of return on plan
assets used to determine the 1993 net periodic postretirement benefit costs was
8.6%.
In November 1992, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits." The Company believes that this statement, when adopted
in 1994, will not have a material effect on its financial position or results of
operations.
7. LEASE AND DEBT COMMITMENTS
Long-term debt was as follows at December 31 (dollars in thousands):
<TABLE>
<CAPTION>
1993 1992
- -----------------------------------------------------------------------------
<S> <C> <C>
8.55% unsecured and unsubordinated
notes due February 15, 2001 $100,000 $100,000
- -----------------------------------------------------------------------------
Other 17,722 21,030
- -----------------------------------------------------------------------------
Total long-term debt 117,722 121,030
- -----------------------------------------------------------------------------
Less amount due within one year 6,967 5,508
- -----------------------------------------------------------------------------
Total $110,755 $115,522
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
</TABLE>
In February 1991, the Company issued $100 million of 8.55% unsecured and
unsubordinated notes due February 15, 2001. The notes are not redeemable prior
to maturity. The fair values of these notes were estimated to be $115 million
and $109 million at December 31, 1993 and 1992, respectively, based on quoted
market prices for similar issuances.
Other long-term debt consists principally of equipment notes and payments
due under non-compete agreements. The obligations bear interest rates of 8.1% to
13.0% and are due through 1998. Carrying value approximates fair value for these
obligations based on estimates using current market interest rates and
discounted cash flow analyses.
Maturities of long-term debt for the five years ending December 31, 1998,
are $6,967,000, $3,276,000, $5,721,000, $1,422,000, and $315,000. Land and
buildings with a cost of $26,800,000 at December 31, 1993, are pledged as
collateral.
The Company has unsecured bank lines of credit for $35,000,000. At December
31, 1993, there were no borrowings outstanding under these agreements.
Minimum future rental payments for leased facilities and equipment for the
five years ending December 31, 1998, are $23,509,000, $13,286,000, $7,813,000,
$5,510,000, and $4,515,000, respectively. Rental expense was $39,778,000,
$38,768,000, and $35,420,000 for 1993, 1992, and 1991, respectively.
8. COMMON STOCK PURCHASE RIGHTS
On February 5, 1988, the Company declared a distribution to shareholders of
record on February 22, 1988, of one common stock purchase right for each
outstanding share of common stock. Upon the occurrence of certain events, each
right will entitle the holder to purchase one share of common stock at an
exercise price of $100. The rights become exercisable if a person acquires 20%
or more of the Company's common stock or announces a tender offer for 30% or
more of the Company's common stock. The rights may be redeemed by the Company at
a price of $.01 per right at any time prior to the 30th day after a 20% position
has been acquired.
If the Company is acquired in a merger or other business combination, each
right will entitle its holder to purchase common shares of the acquiring company
having a market value of twice the exercise price of each right (i.e., at a 50%
discount). If an acquirer purchases 35% of the Company's common stock or obtains
working control of the Company and engages in certain self-dealing transactions,
each right will entitle its holder to purchase a number of the Company's common
shares having a market value of twice the right's exercise price. Each right
will also entitle its holder to purchase the Company's common stock at a similar
50% discount in the event an acquirer merges into the Company and leaves the
Company's stock unchanged.
36
<PAGE>
9. BUSINESS SEGMENT INFORMATION
The Company has classified its operations into three business segments. Payment
Systems manufactures and supplies checks, through financial institutions, and
provides electronic funds transfer, account verification, and check
authorization services. Business Systems manufactures forms, record-keeping
systems, desktop publishing supplies, and related products to small businesses.
Consumer Specialty Products manufactures and distributes greeting cards,
stationery, direct mail checks, and other products for households.
Segment information for 1992 and 1991 has been restated to segregate the
former Payment Systems/Business Systems segment. The reclassification is
necessary due to recent acquisitions of PaperDirect, Inc., and the assets of
Stockforms, Ltd., by the Business Systems segment. Capital expenditures are
reported net of those acquisitions.
For the three years ended December 31, 1993, the Company's segment
information is as follows (dollars in thousands):
<TABLE>
<CAPTION>
CONSUMER
PAYMENT BUSINESS SPECIALTY
1993 SYSTEMS SYSTEMS PRODUCTS TOTAL
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $1,068,932 $237,883 $274,952 $1,581,767
- -----------------------------------------------------------------------------
Income from operations 181,802 25,196 24,829 231,827
- -----------------------------------------------------------------------------
Identifiable assets 725,968 232,389 293,637 1,251,994
- -----------------------------------------------------------------------------
Depreciation and amortization 53,203 7,351 11,766 72,320
- -----------------------------------------------------------------------------
Capital expenditures 46,313 7,261 8,536 62,110
- -------------------------------------------------------------------------------
1992
- -------------------------------------------------------------------------------
Net sales $1,096,638 $196,034 $241,679 $1,534,351
- -------------------------------------------------------------------------------
Income from operations 271,828 24,757 25,634 322,219
- -------------------------------------------------------------------------------
Identifiable assets 841,822 85,306 272,428 1,199,556
- -------------------------------------------------------------------------------
Depreciation and amortization 50,779 5,123 10,713 66,615
- -------------------------------------------------------------------------------
Capital expenditures 60,312 3,061 8,238 71,611
- -------------------------------------------------------------------------------
1991
- -------------------------------------------------------------------------------
Net sales $1,070,362 $178,751 $225,369 $1,474,482
- -------------------------------------------------------------------------------
Income from operations 239,383 26,015 22,628 288,026
- -------------------------------------------------------------------------------
Identifiable assets 782,388 63,984 252,687 1,099,059
- -------------------------------------------------------------------------------
Depreciation and amortization 60,995 4,370 10,611 75,976
- -------------------------------------------------------------------------------
Capital expenditures 62,542 4,057 5,902 72,501
- -------------------------------------------------------------------------------
</TABLE>
Certain corporate related assets (principally cash, cash equivalents, and
marketable securities) are reported in the Payment Systems identifiable assets.
Payment Systems income from operations for 1993 includes the impact of the $49
million restructuring charge recorded during the year. Beginning in 1992, the
Company began allocating certain costs related to information services to the
Business Systems segment. In 1991 such costs were reflected in the Payment
Systems segment's income from operations.
37
<PAGE>
10. SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED CUMULATIVE
(DOLLARS IN THOUSANDS) SHARES CAPITAL EARNINGS TRANSLATION
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, January 1, 1991 $84,075 $ $591,717 $
- -------------------------------------------------------------------------------
Net income 182,902
- -------------------------------------------------------------------------------
Cash dividends (102,512)
- -------------------------------------------------------------------------------
Common stock issued 994 36,970
- -------------------------------------------------------------------------------
Common stock retired (1,131) (36,970) (8,069)
- -------------------------------------------------------------------------------
Balance, December 31, 1991 83,938 664,038
- -------------------------------------------------------------------------------
Net income 202,784
- -------------------------------------------------------------------------------
Cash dividends (112,483)
- -------------------------------------------------------------------------------
Common stock issued 1,187 47,369
- -------------------------------------------------------------------------------
Common stock retired (1,328) (46,161) (9,536)
- -------------------------------------------------------------------------------
Balance, December 31, 1992 83,797 1,208 744,803
- -------------------------------------------------------------------------------
Net income 141,861
- -------------------------------------------------------------------------------
Cash dividends (117,945)
- -------------------------------------------------------------------------------
Common stock issued 949 36,435
- -------------------------------------------------------------------------------
Common stock retired (2,197) (37,302) (49,673)
- -------------------------------------------------------------------------------
Translation adjustment (687)
- -------------------------------------------------------------------------------
Balance, December 31, 1993 $82,549 $ 341 $719,046 $(687)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
38
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE SHAREHOLDERS OF DELUXE CORPORATION:
We have audited the accompanying consolidated balance sheets of Deluxe
Corporation and its subsidiaries as of December 31, 1993 and 1992, and the
related consolidated statements of income and cash flows for each of the three
years in the period ended December 31, 1993. These financial statements are the
responsibility of the Corporation's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Deluxe Corporation and its subsidiaries at
December 31, 1993 and 1992, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1993, in
conformity with generally accepted accounting principles.
Deloitte & Touche
Saint Paul, Minnesota
February 10, 1994
SUMMARIZED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
1993 QUARTER ENDED MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $405,747 $362,868 $371,974 $441,178
- -------------------------------------------------------------------------------
Cost of sales 185,876 168,908 173,376 202,276
- -------------------------------------------------------------------------------
Net income 51,791 2,246(1) 36,996 50,828(1)
- -------------------------------------------------------------------------------
Per share of common stock
- -------------------------------------------------------------------------------
Net income 0.62 0.03 0.45 0.61
- -------------------------------------------------------------------------------
Cash dividends 0.35 0.35 0.36 0.36
- -------------------------------------------------------------------------------
1992 QUARTER ENDED MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
- -------------------------------------------------------------------------------
Net sales 385,294 363,916 372,593 412,548
- -------------------------------------------------------------------------------
Cost of sales 178,631 166,017 168,161 190,160
- -------------------------------------------------------------------------------
Net income 48,881 47,643 50,533 55,727
- -------------------------------------------------------------------------------
Per share of common stock
- -------------------------------------------------------------------------------
Net income 0.58 0.57 0.60 0.67
- -------------------------------------------------------------------------------
Cash dividends 0.32 0.32 0.35 0.35
- -------------------------------------------------------------------------------
<FN>
(1) IN JUNE 1993 THE COMPANY RECORDED A PRETAX CHARGE OF $60 MILLION TO
CONSOLIDATE ITS FINANCIAL INSTITUTION CHECK PRINTING OPERATIONS. IN DECEMBER
1993, AN $11 MILLION CREDIT WAS RECORDED TO REDUCE THE TOTAL CHARGE TO $49
MILLION. SEE NOTE 2 TO CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
39
<PAGE>
SHAREHOLDER INFORMATION
QUARTERLY STOCK DATA
The chart below shows the per-share price range of the Company's common stock
for the past two fiscal years as quoted on the New York Stock Exchange.
<TABLE>
<CAPTION>
1993 QUARTER HIGH LOW CLOSE
- -------------------------------------------------------------
<S> <C> <C> <C>
1st 47 1/2 40 1/2 43 1/8
- ------------ ------ ------ -------
2nd 47 3/4 37 1/4 38 1/4
- ------------ ------ ------ -------
3rd 38 5/8 35 1/8 35 1/2
- ------------ ------ ------ -------
4th 36 1/2 31 7/8 36 1/4
- ------------ ------ ------ -------
1992 QUARTER HIGH LOW CLOSE
- -------------------------------------------------------------
1st 42 38 1/8 40 7/8
- ------------ ------ ------ -------
2nd 45 5/8 39 1/8 42 1/2
- ------------ ------ ------ -------
3rd 44 3/4 41 3/4 41 3/4
- ------------ ------ ------ -------
4th 49 40 46 5/8
- ------------ ------ ------ -------
</TABLE>
STOCK EXCHANGE
Deluxe Corporation common stock is traded on the New York Stock Exchange under
the symbol DLX.
ANNUAL MEETING
The annual meeting of the shareholders of Deluxe Corporation will be held
Monday, May 9, 1994, at the Omni Houston Hotel, Houston, Texas, at 6:30 p.m.
FORM 10-K AVAILABLE
A copy of the Form 10-K (Annual Report) filed with the Securities and Exchange
Commission by the Company may be obtained without charge by written request to
Stuart Alexander, Deluxe Corporation, P.O. Box 64399, St. Paul, Minnesota
55164-0399.
SHAREHOLDER INQUIRIES
Requests for additional information should be sent to corporate headquarters to
the attention of the following:
GENERAL INFORMATION:
Stuart Alexander (612) 483-7358
Vice President, Corporate Public Relations
FINANCIAL INFORMATION:
Charles M. Osborne (612) 483-7355
Senior Vice President and Chief Financial Officer
STOCK OWNERSHIP AND RECORD KEEPING
Norwest Bank Minnesota, N.A.
Stock Transfer Department
161 N. Concord Exchange
P.O. Box 738
South St. Paul, MN 55075
(800) 468-9716
(612) 450-4064
EXECUTIVE OFFICES
STREET ADDRESS:
1080 W. County Rd. F,
Shoreview, Minnesota 55126-8201
MAILING ADDRESS:
P.O. Box 64399,
St. Paul, Minnesota 55164-0399
(612) 483-7111
40
