<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 September 30, 1995
---------------------------------------------------
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
------------------------ ---------------------
Commission file number: 1-7945
--------------------------------------------------------
DELUXE CORPORATION
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
MINNESOTA 41-0216800
- -------------------------------------------------------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1080 West County Road "F", Shoreview, Minnesota 55126-8201
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
(612) 483-7111
- -------------------------------------------------------------------------------
(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 the registrant's common stock, par value
$1.00 per share, at November 1, 1995 was 82,625,936.
<PAGE>
<TABLE>
<CAPTION>
ITEM 1. FINANCIAL STATEMENTS PART I.
FINANCIAL INFORMATION
DELUXE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Dollars in Thousands)
September 30, 1995 December 31,
(Unaudited) 1994
------------------ ------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 21,611 $ 29,139
Marketable securities 30,308 49,109
Trade accounts receivable 161,841 142,087
Inventories:
Raw material 24,003 25,198
Semi-finished goods 27,859 26,046
Finished goods 49,345 36,976
Deferred advertising 31,327 27,770
Deferred income taxes 24,946 25,647
Prepaid expenses and other current assets 59,001 58,894
---------- ----------
Total current assets 430,241 420,866
---------- ----------
LONG-TERM INVESTMENTS 46,265 45,091
PROPERTY, PLANT AND EQUIPMENT
Land 42,803 38,286
Buildings and improvements 292,402 284,131
Machinery and equipment 581,918 544,092
Construction in progress 15,987 3,225
---------- ----------
Total 933,110 869,734
Less accumulated depreciation 436,032 407,916
---------- ----------
Property, plant, and equipment - net 497,078 461,818
INTANGIBLES
Cost in excess of net assets acquired - net 308,906 284,420
Other intangible assets - net 61,900 44,077
---------- ----------
Total intangibles 370,806 328,497
---------- ----------
TOTAL ASSETS $1,344,390 $1,256,272
---------- ----------
---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 66,371 $ 65,033
Accrued liabilities:
Wages, including vacation pay 58,750 50,366
Employee profit sharing and pension 42,823 57,915
Accrued rebates 31,580 28,741
Income taxes 7,181 5,394
Other 72,107 67,313
Short-term debt 86,754 11,219
Long-term debt due within one year 4,916 4,479
---------- ----------
Total current liabilities 370,482 290,460
---------- ----------
LONG-TERM DEBT 114,438 110,867
---------- ----------
DEFERRED INCOME TAXES 37,908 40,552
SHAREHOLDERS' EQUITY
Common shares - $1 par value (authorized 500,000,000 82,512 82,375
shares; issued: 82,511,562)
Additional paid-in capital 5,891 1,694
Retained earnings 733,449 732,158
Cumulative translation adjustment 1,243 369
Unearned compensation (765) (149)
Net unrealized change - marketable securities (768) (2,054)
---------- ----------
Total shareholders' equity 821,562 814,393
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,344,390 $1,256,272
---------- ----------
---------- ----------
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
<TABLE>
<CAPTION>
DELUXE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands Except per Share Amounts)
(Unaudited)
QUARTER ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
--------------------------- -------------------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET SALES $449,526 $426,654 $1,357,633 $1,268,986
OPERATING EXPENSES
Cost of sales 203,322 195,914 616,079 581,813
Selling, general, and administrative 171,463 160,601 515,511 457,935
Employee profit sharing and pension 14,972 15,383 44,934 45,826
Employee bonus and stock purchase discount 5,240 4,946 17,936 17,615
Restructuring credit (10,000) (10,000)
---------- ---------- ----------- ----------
Total 394,997 366,844 1,194,460 1,093,189
---------- ---------- ----------- ----------
INCOME FROM OPERATIONS 54,529 59,810 163,173 175,797
OTHER INCOME (EXPENSE)
Investment and other income 1,369 1,535 9,359 7,065
Interest expense (3,589) (2,534) (10,042) (8,695)
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES 52,309 58,811 162,490 174,167
PROVISION FOR INCOME TAXES 22,933 25,536 69,542 73,294
---------- ---------- ---------- ----------
NET INCOME $ 29,376 $ 33,275 $ 92,948 $ 100,873
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
AVERAGE COMMON SHARES OUTSTANDING 82,486,220 82,332,373 82,435,645 82,396,913
NET INCOME PER COMMON SHARE $0.36 $0.40 $1.13 $1.22
CASH DIVIDENDS PER COMMON SHARE $0.37 $0.37 $1.11 $1.09
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
<TABLE>
<CAPTION>
DELUXE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 1995 and 1994
(Dollars in Thousands)
(Unaudited)
1995 1994
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 92,948 $100,873
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 50,027 43,717
Amortization of intangibles 25,252 19,551
Stock purchase discount 6,134 6,274
Deferred income taxes (754) (1,036)
Changes in assets and liabilities, net of effects from
acquisitions:
Trade accounts receivable (16,403) (10,337)
Inventories (12,445) (21,139)
Accounts payable (2,757) 8,531
Other assets and liabilities (11,185) (33,552)
--------- ---------
Net cash provided by operating activities 130,817 112,882
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of marketable securities with maturities of more
than 3 months (13,115)
Proceeds from sales of marketable securities with maturities
of more than 3 months 20,317 43,500
Net change in marketable securities with maturities of
3 months or less 20,000
Purchases of property, plant, and equipment (91,904) (74,203)
Payments for acquisitions, net of cash acquired (37,313) (52,196)
Other (2,190) (21,816)
-------- ---------
Net cash used in investing activities (111,090) (97,830)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on long-term debt (7,094) (2,632)
Payments to retire common stock (21,979) (33,135)
Proceeds from issuing stock under employee plans 18,917 18,900
Proceeds from short-term debt 74,558 18,000
Cash dividends paid to shareholders (91,657) (89,951)
-------- ---------
Net cash used in financing activities (27,255) (88,818)
-------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS (7,528) (73,766)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 29,139 114,103
-------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $21,611 $40,337
-------- ---------
-------- ---------
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The consolidated balance sheet as of September 30, 1995, the related
consolidated statements of income for the three-month and nine-month
periods ended September 30, 1995 and 1994 and the consolidated statements
of cash flows for the nine-month periods ended September 30, 1995 and
1994 are unaudited; in the opinion of management, all adjustments
necessary for a fair presentation of such financial statements are
included. Such adjustments consist 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. The Company has uncommitted bank lines of credit of $189.5 million
available at variable interest rates. As of September 30, 1995, $7.5
million was drawn on those lines at a weighted average interest rate of
6.8%. Also, the company has in place a $150 million committed line of
credit as support for commercial paper. As of September 30, 1995, $79.3
million of commercial paper was issued and outstanding at a weighted
average interest rate of 5.9%. During the third quarter of 1995, the
Company filed a shelf registration for a $300 million medium term note
program. As of September 30, 1995, no such notes were issued or
outstanding.
3. In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Standards No. 121 "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of". The
Company believes that this statement, when adopted in 1996, will not have
a material effect on its financial position or results of operations.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 1995 COMPARED TO NINE
MONTHS ENDED SEPTEMBER 30, 1994
Net sales were $1,357.6 million for the first nine months of 1995, up 7.0%
(2.9% excluding the impact of the acquisitions of NRC Holding Corporation,
which the Company acquired in the second quarter of 1994, The Software
Partnership Ltd. and T/Maker Company, which were acquired in the third
quarter of 1994, and Financial Alliance Processing Services, Inc., which the
Company acquired in the first quarter of 1995) over the first nine months of
1994, when sales were $1,269.0 million.
The Payment Systems segment revenue for the first nine months of 1995
increased 7.1% from the first nine months of 1994. Flat sales in the Check
Printing Division due to slow growth in unit sales and continued price
competition in the financial institution market was offset by a 46.3%
increase in revenue from the Company's Electronic Payment Systems division,
which was due in part to the acquisitions of NRC Holding Corporation, The
Software Partnership Ltd., and Financial Alliance Processing Services, Inc.
The Business Systems segment posted a 12.8% increase in revenue for the first
nine months of 1995 over the first nine months of 1994, due to the growth in
domestic and international business forms units and the acquisition of
T/Maker Company. Revenue for the Consumer Specialty Products segment
decreased 1.3% due to decreased advertising and lower product demand.
Selling, general, and administrative expenses increased $57.6 million or
12.6% for the first nine months of 1995 over the first nine months of 1994.
The Business Systems segment's expenses increased approximately $23.0
million, due to the acquisition of T/Maker Company, increased selling
expenses in the international operations, and product development costs. The
Electronic Payments Systems division's expenses increased approximately $28.1
million, due primarily to the acquisitions of NRC Holding Corporation,
Financial Alliance Processing Services, Inc., and The Software Partnership
Ltd. and increased product development costs. Net income was $92.9 million
for the first nine months of 1995, or 6.8% of sales, compared to $100.9
million for the first nine months of 1994, or 8.0% of sales. Included in the
1995 net income is approximately $5 million of pretax gain resulting from
insurance payments for the 1994 earthquake damage to the Company's
facilities. 1994 net income included a $10 million pretax credit to reduce
the Company's 1993 restructuring charge.
RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 1995 COMPARED TO THREE
MONTHS ENDED SEPTEMBER 30, 1994
Net sales were $449.5 million for the third quarter of 1995, up 5.4% (3.5%
excluding the acquisition Financial Alliance Processing Services Inc.) over
the third quarter of 1994, when sales were $426.7 million. The Payment
Systems segment's revenue increased 6.0% over the third quarter of 1994.
This included a 33.5% increase in revenue from the Company's Electronic
Payment Systems division. A significant portion of the Electronic Payment
Systems division increase was due to the acquisition of Financial Alliance
Processing Services, Inc. The Company's Business Systems segment posted an
11.0% increase in revenue, primarily due to increased revenue in domestic and
United Kingdom business forms units. Revenue for the Consumer Specialty
Products segment decreased 5.5% due to decreased advertising and lower
product demand.
Selling, general and administrative expenses increased $10.9 million or 6.8%
in second quarter 1995 over second quarter 1994. The Electronic Payments
Systems division expenses increased approximately $9.2 million, primarily due
to the acquisition of Financial Alliance Processing Services, Inc. and
increased product development costs. The Business Systems segment's expenses
increased approximately $6.4 million, primarily due to product development
and process improvement costs. Net income was $29.4 million in the third
quarter of 1995, or 6.5% of sales, compared to $33.3 million in 1994 or 7.8%
of sales. 1994 net income included a $10 million pretax credit to reduce the
Company's 1993 restructuring charge.
FINANCIAL CONDITION - LIQUIDITY
Cash provided by operations was $130.8 million for the first nine months of
1995, compared with $112.9 million for the first nine months of 1994. This
represents the Company's primary source of working capital for financing
capital expenditures and paying cash dividends. The Company's working
capital on September 30, 1995 was $59.8 million, compared to $130.4 million
on December 31, 1994. The decrease in 1995 is primarily the result of the
acquisition of Financial Alliance Processing Services, Inc. The current
ratio was 1.2 to 1 on September 30, 1995 and 1.4 to 1 on December 31, 1994.
FINANCIAL CONDITION - CAPITAL RESOURCES
Purchases of property, plant, and equipment totaled $91.9 million for the
first nine months of 1995, compared to $74.2 million for the comparable prior
year period.
<PAGE>
In February 1991, the Company issued $100 million of notes, payable in 2001
under its 1989 shelf registration of debt securities. The Company has
uncommitted bank lines of credit of $189.5 million. As of September 30, 1995,
$7.5 million was drawn on those lines. In addition, the Company has in place
a $150 million committed line of credit as support for commercial paper. As
of September 30, 1995, $79.3 million of commercial paper was issued and
outstanding. During the third quarter of 1995 the company filed a shelf
registration for a $300 million medium term note program to be used for
general corporate purposes, including working capital, repayment or
repurchase of outstanding indebtedness and other securities of the Company,
capital expenditures and possible acquisitions. As of September 30, 1995 no
such notes were issued or outstanding. Cash dividends totaled $91.7 million
for the first nine months of 1995 compared to $90.0 million for the first
nine months of 1994.
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed as part of this report:
(12) Computation of Ratios
(27) Financial Data Schedule
(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.
<PAGE>
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 November 14, 1995 /s/ J.A. Blanchard III
------------------------------ --------------------------------------
J.A. Blanchard III, President
and Chief Executive Officer
(Principal Executive Officer)
Date November 14, 1995 /s/ C.M. Osborne
------------------------------ --------------------------------------
C. M. Osborne, Senior Vice President
and Chief Financial Officer
(Principal Financial Officer)
<PAGE>
<TABLE>
<CAPTION>
Exhibit 12.1
Deluxe Corporation
Computation of Ratio of Earnings to Fixed Charges
Nine Months
Ended Years Ended December 31,
-------------- --------------------------------------------------------
Sept 30, 1995 1994 1993 1992 1991 1990
------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
EARNINGS
Income before income taxes $162,490 $240,886 $235,913 $324,783 $295,493 $282,506
Interest expense
(excluding capitalized interest) 10,042 9,740 10,070 15,371 8,220 1,427
Portion of rent expense under
long-term operating leases
representative of an interest factor $9,964 13,554 13,259 12,923 11,807 10,849
Amortization of debt expense 63 84 84 84 71 0
TOTAL EARNINGS $182,559 $264,264 $259,326 $353,161 $315,591 $294,782
FIXED CHARGES
Interest Expense
(including capitalized interest) 11,047 10,499 10,555 15,824 8,990 1,860
Portion of rent expense under
long-term operating leases
representative of an interest factor 9,964 13,554 13,259 12,923 11,807 10,849
Amortization of debt expense 63 84 84 84 71 0
TOTAL FIXED CHARGES $21,074 $24,137 $23,898 $28,831 $20,868 $12,709
RATIO OF EARNINGS
TO FIXED CHARGES: 8.7 10.9 10.9 12.2 15.1 23.2
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 21,611
<SECURITIES> 30,308
<RECEIVABLES> 161,841
<ALLOWANCES> 0
<INVENTORY> 101,207
<CURRENT-ASSETS> 430,241
<PP&E> 933,110
<DEPRECIATION> 436,032
<TOTAL-ASSETS> 1,344,390
<CURRENT-LIABILITIES> 370,482
<BONDS> 114,438
<COMMON> 82,512
0
0
<OTHER-SE> 739,050
<TOTAL-LIABILITY-AND-EQUITY> 1,344,390
<SALES> 1,357,633
<TOTAL-REVENUES> 1,357,633
<CGS> 616,079
<TOTAL-COSTS> 1,194,460
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,042
<INCOME-PRETAX> 162,490
<INCOME-TAX> 69,542
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 92,948
<EPS-PRIMARY> 1.13
<EPS-DILUTED> 1.13
</TABLE>
