<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For quarterly period ended June 30, 1994
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or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number: 1-7945
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DELUXE CORPORATION
- - ----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
MINNESOTA 41-0216800
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1080 West County Road "F", St. Paul, Minnesota 55126-8201
- - ----------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
(612) 483-7111
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--------- ---------
The number of shares outstanding of registrant's common stock, par value $1.00
per share, at August 1, 1994 was 82,551,699.
1
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
DELUXE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
June 30, 1994 December 31,
(Unaudited) 1993
------------- ------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $39,779 $114,103
Marketable securities 66,421 107,705
Trade accounts receivable 132,223 123,119
Inventories:
Raw material 22,132 18,260
Semi-finished goods 24,157 21,155
Finished goods 36,275 29,989
Supplies 15,614 15,915
Deferred advertising 15,851 26,080
Deferred income taxes 29,633 28,914
Prepaid expenses and other current assets 50,828 37,123
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Total current assets 432,913 522,363
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LONG-TERM INVESTMENTS 40,674 34,815
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PROPERTY, PLANT AND EQUIPMENT
Land 30,706 32,706
Buildings and improvements 259,945 261,974
Machinery and equipment 513,468 483,853
Construction in progress 2,289 1,360
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Total 806,408 779,893
Less accumulated depreciation 393,095 378,252
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Property, plant, and equipment - net 413,313 401,641
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INTANGIBLES
Cost in excess of net assets acquired - net 275,533 246,104
Other intangible assets - net 46,038 47,071
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Total intangibles 321,571 293,175
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TOTAL ASSETS 1,208,471 $1,251,994
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---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $53,330 $50,424
Accrued liabilities:
Wages, including vacation pay 59,314 45,584
Employee profit sharing and pension 32,361 59,560
Restructuring costs 17,871 35,489
Accrued rebates 29,900 26,473
Income taxes 3,847
Other 54,873 69,527
Long-term debt due within one year 7,387 6,967
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Total current liabilities 255,036 297,871
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LONG-TERM DEBT 110,187 110,755
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DEFERRED INVESTMENT CREDIT 958 1,224
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DEFERRED INCOME TAXES 40,209 40,895
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SHAREHOLDERS' EQUITY
Common shares - $1 par value (authorized 500,000,000 shares; issued: 82,360,810) 82,361 82,549
Additional paid in capital 341
Retained earnings 721,690 719,046
Cumulative translation adjustment (213) (687)
Net unrealized change - marketable securities (1,757)
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Total shareholders' equity 802,081 801,249
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 1,208,471 $1,251,994
---------- ----------
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</TABLE>
See Notes to Consolidated Financial Statements
2
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DELUXE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands Except per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
QUARTER ENDED JUNE 30 SIX MONTHS ENDED JUNE 30
-------------------------- ---------------------------
1994 1993 1994 1993
------ ------ ------ ------
<S> <C> <C> <C> <C>
NET SALES $412,344 $362,868 $842,332 $768,616
-------- -------- -------- --------
OPERATING EXPENSES
Cost of sales 189,225 168,908 385,899 354,785
Selling, general, and administrative 148,867 108,810 297,333 226,490
Employee profit sharing and pension 15,597 15,468 30,443 31,037
Employee bonus and stock purchase discount 6,506 5,912 12,670 12,616
Restructuring Charge 60,000 60,000
-------- -------- -------- --------
Total 360,195 359,098 726,345 684,928
-------- -------- -------- --------
INCOME FROM OPERATIONS 52,149 3,770 115,987 83,688
OTHER INCOME (EXPENSE)
Investment and other income 943 3,690 5,669 7,941
Interest expense (2,522) (2,435) (6,300) (4,884)
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES 50,570 5,025 115,356 86,745
-------- -------- -------- --------
PROVISION FOR INCOME TAXES
Federal income tax 17,373 2,472 39,876 27,105
State income taxes 3,641 307 7,883 5,602
-------- -------- -------- --------
Total 21,014 2,779 47,759 32,707
-------- -------- -------- --------
NET INCOME $29,556 $2,246 $67,597 $54,038
-------- -------- -------- --------
-------- -------- -------- --------
AVERAGE COMMON SHARES OUTSTANDING 82,324,840 82,984,424 82,428,636 83,274,796
NET INCOME PER COMMON SHARE $ .36 $ .03 $ .82 $ . 65
CASH DIVIDENDS PER COMMON SHARE $ .36 $ .35 $ .72 $ .70
</TABLE>
See Notes to Consolidated Financial Statements
3
<PAGE>
DELUXE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 1994 and 1993
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
1994 1993
------ ------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $67,597 $54,038
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 28,603 27,174
Amortization of intangibles 12,350 7,478
Stock purchase discount 4,175 4,236
Deferred income taxes and investment credit (167) (22,333)
Changes in assets and liabilities:
Trade accounts receivable (6,155) 19
Inventories (12,336) (3,554)
Accounts payable 1,578 (3,372)
Restructuring costs (17,618) 58,293
Other assets and liabilities (17,144) (21,393)
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Net cash provided by operating activities 60,883 100,586
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CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of marketable securities with maturities of more than 3 months (13,115) (112,810)
Proceeds from sales of marketable securities with maturities of more than 3 months 32,501 88,482
Net change in marketable securities with maturities of 3 months or less 20,000 (16,100)
Purchases of property, plant, and equipment (47,646) (39,043)
Payments for acquistions, net of cash acquired (36,993)
Other (18,411) (4,872)
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Net cash used in investing activities (63,664) (84,343)
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CASH FLOWS FROM FINANCING ACTIVITIES
Payments on long-term debt (1,691) (7,616)
Payments to retire common stock (23,047) (70,985)
Proceeds from issuing stock under employee plans 12,646 15,279
Cash dividends paid to shareholders (59,451) (58,454)
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Net cash used in financing activities (71,543) (121,776)
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NET DECREASE IN CASH AND CASH EQUIVALENTS (74,324) (105,533)
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CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 114,103 275,172
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $39,779 $169,639
------- --------
------- --------
</TABLE>
See Notes to Consolidated Financial Statements
4
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The consolidated balance sheet as of June 30, 1994, the related consolidated
statements of income for the three-month and six-month periods ended June 30,
1994 and 1993 and the consolidated statements of cash flows for the six-month
periods ended June 30, 1994 and 1993 are unaudited; in the opinion of
management, all adjustments necessary for a fair presentation of such financial
statements have been included. Such adjustments consisted only of normal
recurring items. Interim results are not necessarily indicative of results for
a full year.
The financial statements and notes are presented in accordance with
instructions for Form 10-Q, and do not contain certain information included in
the Company's annual financial statements and notes.
2. Effective January 1, 1994 the Company adopted Statement of Financial
Accounting Standards No. 115 "Accounting for Certain Investments in Debt and
Equity Securities." As a result, the carrying value of the Company's marketable
securities was reduced to reflect market value. The Company classifies all
marketable securities as available for sale. Accordingly, the reduction of
$1,757,000 as of June 30, 1994 is recorded as a component of shareholders'
equity.
3. Effective January 1, 1994 the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 112 "Employers' Accounting for Postemployment
Benefits." SFAS 112 requires the Company to accrue the estimated cost of post
employment benefit payments during the years in which employees provide
services. The adoption of SFAS 112 did not have a material effect on the
Company's financial position or results of operations.
4. During the second quarter of 1994, the Company acquired all of the
outstanding stock of National Revenue Corporation, which is included in the
Electronic Payment Systems Division, and T-Maker, Inc., which is included in the
Business Systems Division, for a combined total of $37 million. The Company
recorded these acquisitions under the purchase method of accounting. These
acquisitions did not have a material proforma impact on operations.
5
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 1994 COMPARED TO SIX MONTHS
ENDED JUNE 30, 1993
Net sales were $842.3 million for the first six months of 1994, up 9.6% over the
first six months of 1993, when sales were $768.6 million. The Payment Systems
segment revenue for the first six months of 1994 decreased 2.8% from the first
six months of 1993. A decline in revenue due to a slight decline in check
printing orders from financial institutions (FIs) and continued price
competition in the FI market was offset by a 23.8% increase in revenue from the
Company's electronic payment systems subsidiaries.
Deluxe's Business Systems segment posted a 51.6% increase in revenue for the
first six months of 1994 over the first six months of 1993 primarily due to the
contribution of PaperDirect, Inc., which the Company acquired in the third
quarter of 1993, and the growth of the Company's Canadian and United Kingdom
operations. Revenue for the Consumer Specialty Products segment increased 29.6%
as a result of Current's strong sales in its social expressions and direct mail
check printing product lines.
Selling, general and administrative expenses increased $70.8 million or 31.3%
for the first six months of 1994 over the first six months of 1993. The
Business Systems segment's expenses increased approximately $37.9 million
primarily due to the acquisition of PaperDirect, Inc. Also, the Consumer
Specialty Products segment increased its selling expense by approximately $19.5
million, primarily due to increased advertising. Net income was $67.6 million
for the first six months of 1994, or 8.0% of sales, compared to $54.0 million
for the first six months of 1993 or 7.0% of sales. 1993 net income includes a
one-time, pretax charge of $60 million for costs related to the restructuring of
the Check Printing division taken in the second quarter of 1993.
RESULTS OF OPERATIONS - THREE MONTHS ENDED JUNE 30, 1994 COMPARED TO THREE
MONTHS ENDED JUNE 30, 1993
Net sales were $412.3 million for the second quarter of 1994, up 13.6% over the
second quarter of 1993, when sales were $362.9 million. The second quarter
Payment Systems segment's revenue was approximately the same as the second
quarter of 1993. A decline in revenue from financial institutions (FIs) due to
continued price competition in the FI market was offset by a 29.1% increase in
revenue from the Company's electronic payment systems subsidiaries.
Deluxe's Business Systems segment posted a 65.1% increase in revenue in the
second quarter of 1994 over second quarter 1993 primarily due to the
contribution of PaperDirect, Inc., which the Company acquired in the third
quarter of 1993, and the growth of the Company's Canadian and United Kingdom
operations. Revenue for the Consumer Specialty Products segment increased 42.4%
as a result of Current's strong sales in its social expressions and direct mail
check printing product lines.
Selling, general and administrative expenses increased $40.1 million or 36.8% in
second quarter 1994 over second quarter 1993. The Business Systems segment's
expenses increased approximately $21.8 million primarily due to the acquisition
of PaperDirect, Inc. Also, the Consumer Specialty Products segment increased
its selling expense by approximately $9.5 million, primarily due to increased
advertising. Net income was $29.6 million in the second quarter of 1994, or
7.2% of sales, compared to $2.2 million in 1993 or 0.6% of sales. Second
quarter 1993 net income includes a one-time, pretax charge of $60 million for
costs related to the restructuring of the Check Printing division.
FINANCIAL CONDITION - LIQUIDITY
Cash provided by operations was $60.9 million for the first six months of 1994,
compared with $100.6 million for the first six months of 1993. This represents
the Company's primary source of working capital for financing capital
expenditures, acquisitions, and paying cash dividends. The decline in 1994 is
primarily the result of cash payments related to the 1993 restructuring of the
Company's financial institution check printing operations. The Company's
working capital on June 30, 1994 was $177.9 million, compared to $224.5 million
on December 31, 1993. The decrease in 1994 is primarily the result of the
acquisitions of National Revenue Corporation and T-Maker, Inc.. The current
ratio was 1.7 to 1 on June 30, 1994 and 1.8 to 1 on December 31, 1993.
6
<PAGE>
Financial Condition - Capital Resources
Purchases of property, plant, and equipment totaled $47.6 million for the first
six months of 1994, compared to $39.0 million one year ago. The Company
anticipates total capital expenditures of approximately $85 million in 1994 for
new electronic payment system investments, further enhancements to printing
capabilities, and additional production facilities for the manufacturing of its
new water-washable ink, Printwise.
In February 1991, the Company issued $100 million in notes payable under its
1989 registration of $150 million in debt securities. The Company also has
available unsecured bank lines of credit of $55 million should current cash
resources and cash provided by operations prove to be inadequate. The Company
may incur additional borrowings during the remainder of the year to finance
acquisitions.
Cash dividends totaled $59.5 million for the first six months of 1994 compared
to $58.5 million for the first six months of 1993.
7
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PART II. OTHER INFORMATION
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its annual shareholders' meeting on May 10, 1994:
72,929,858 shares were represented (88.38% of the 82,518,073 shares
outstanding).
1. Election of Directors:
The nominees listed in the proxy statement were: Haverty, Olson,
Asplin, Schreiner, Twogood, MacMillan, Renier, Grogan and Jacobson.
The results were as follows:
For all nominees: 71,776,615
Withheld as to all
nominees: 931,288
Withheld as to fewer
than all nominees: 221,955
2. Approval of employee stock purchase plan:
For: 63,316,099
Against: 4,645,156
Abstain: 526,393
Broker Non-Vote: 4,442,210
3. Approval of stock incentive plan:
For: 58,305,807
Against: 9,227,955
Abstain: 953,886
Broker Non-Vote: 4,442,210
4. Approval of performance share plan:
For: 60,225,750
Against: 7,248,900
Abstain: 1,012,998
Broker Non-Vote: 4,442,210
5. Approval of annual incentive plan:
For: 66,253,089
Against: 5,683,558
Abstain: 993,211
Broker Non-Vote: 0
6. Ratification of appointment of Deloitte & Touche as independent
auditors:
For: 72,264,884
Against: 212,159
Abstain: 452,815
Broker Non-Vote: 0
8
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) None
(b) The Company did not, and was not required to, file any
reports on Form 8-K during the quarter for which this report
is filed.
9
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DELUXE CORPORATION
(Registrant)
Date August 11, 1994 /s/ H. V. Haverty
---------------------- ----------------------------------------
H. V. Haverty, Chairman, President
and Chief Executive Officer
(Principal Executive Officer)
Date August 11, 1994 /s/ C. M. Osborne
---------------------- -----------------------------------------
C. M. Osborne, Senior Vice President
and Chief Financial Officer
(Principal Financial Officer)
10
