<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, 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
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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", Shoreview, Minnesota 55126-8201
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(Address of principal executive offices) (Zip code)
(612) 483-7111
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
The number of shares outstanding of the registrant's common stock, par value
$1.00 per share, at August 1, 1995 was 82,647,806.
1
<PAGE>
ITEM I. FINANCIAL STATEMENTS
PART I. FINANCIAL INFORMATION
DELUXE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Dollars in Thousands)
<TABLE>
<CAPTION>
June 30, 1995 December 31,
(Unaudited) 1994
------------- ------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $22,421 $29,139
Marketable securities 37,129 49,109
Trade accounts receivable 150,928 142,087
Inventories:
Raw material 27,922 25,198
Semi-finished goods 25,301 26,046
Finished goods 43,707 36,976
Deferred advertising 22,355 27,770
Deferred income taxes 25,023 25,647
Prepaid expenses and other current assets 63,972 58,894
------------- ------------
Total current assets 418,758 420,866
------------- ------------
LONG-TERM INVESTMENTS 47,538 45,091
PROPERTY, PLANT AND EQUIPMENT
Land 37,594 38,286
Buildings and improvements 286,694 284,131
Machinery and equipment 570,810 544,092
Construction in progress 11,579 3,225
------------- ------------
Total 906,677 869,734
Less accumulated depreciation 423,352 407,916
------------- ------------
Property, plant, and equipment - net 483,325 461,818
INTANGIBLES
Cost in excess of net assets acquired - net 314,394 284,420
Other intangible assets - net 53,934 44,077
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Total intangibles 368,328 328,497
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TOTAL ASSETS $1,317,949 $1,256,272
------------- ------------
------------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $59,317 $65,033
Accrued liabilities:
Wages, including vacation pay 60,373 50,366
Employee profit sharing and pension 31,560 57,915
Accrued rebates 33,137 28,741
Income taxes 2,051 5,394
Other 68,288 67,313
Short-term debt 84,833 11,219
Long-term debt due within one year 4,546 4,479
------------- ------------
Total current liabilities 344,105 290,460
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LONG-TERM DEBT 113,897 110,867
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DEFERRED INCOME TAXES 39,646 40,552
SHAREHOLDERS' EQUITY
Common shares - $1 par value (authorized
500,000,000 shares; issued: 82,431,556) 82,432 82,375
Additional paid-in capital 3,457 1,694
Retained earnings 734,637 732,158
Cumulative translation adjustment 1,502 369
Unearned compensation (814) (149)
Net unrealized change - marketable securities (913) (2,054)
------------- ------------
Total shareholders' equity 820,301 814,393
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,317,949 $1,256,272
------------- ------------
------------- ------------
</TABLE>
See Notes to Consolidated Financial Statements
2
<PAGE>
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,
--------------------- -------------------------
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET SALES $442,479 $412,344 $908,107 $842,332
OPERATING EXPENSES
Cost of sales 202,087 189,225 412,757 385,899
Selling, general, and administrative 164,237 148,867 344,048 297,333
Employee profit sharing and pension 15,244 15,597 29,962 30,443
Employee bonus and stock purchase discount 7,181 6,506 12,696 12,670
-------- -------- -------- --------
Total 388,749 360,195 799,463 726,345
-------- -------- -------- --------
INCOME FROM OPERATIONS 53,730 52,149 108,644 115,987
OTHER INCOME (EXPENSE)
Investment and other income 1,483 879 7,990 5,530
Interest expense (3,375) (2,458) (6,453) (6,161)
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES 51,838 50,570 110,181 115,356
PROVISION FOR INCOME TAXES 22,106 21,014 46,610 47,759
-------- -------- -------- --------
NET INCOME $29,732 $29,556 $63,571 $67,597
-------- -------- -------- --------
-------- -------- -------- --------
AVERAGE COMMON SHARES OUTSTANDING 82,370,935 82,324,840 82,406,161 82,428,636
NET INCOME PER COMMON SHARE $0.36 $0.36 $0.77 $0.82
CASH DIVIDENDS PER COMMON SHARE $0.37 $0.36 $0.74 $0.72
</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, 1995 and 1994
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $63,571 $67,597
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 32,692 28,603
Amortization of intangibles 16,668 12,350
Stock purchase discount 4,095 4,175
Deferred income taxes (725) (167)
Changes in assets and liabilities, net of effects from acquisitions:
Trade accounts receivable (5,490) (6,155)
Inventories (8,167) (12,336)
Accounts payable (9,811) 1,578
Other assets and liabilities (17,029) (34,762)
------- -------
Net cash provided by operating activities 75,804 60,883
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 13,409 32,501
Net change in marketable securities with maturities of 3 months or less 20,000
Purchases of property, plant, and equipment (62,495) (47,646)
Payments for acquisitions, net of cash acquired (37,282) (36,993)
Other 364 (18,411)
------- -------
Net cash used in investing activities (86,004) (63,664)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on long-term debt (5,591) (1,691)
Payments to retire common stock (15,768) (23,047)
Proceeds from issuing stock under employee plans 12,320 12,646
Proceeds from short-term debt 73,614
Cash dividends paid to shareholders (61,093) (59,451)
------- -------
Net cash provided by (used in) financing activities 3,482 (71,543)
------- -------
NET DECREASE IN CASH AND CASH EQUIVALENTS (6,718) (74,324)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 29,139 114,103
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $22,421 $39,779
------- -------
------- -------
</TABLE>
See Notes to Consolidated Financial Statements
4
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The consolidated balance sheet as of June 30, 1995, the related
consolidated statements of income for the three-month and
six-month periods ended June 30, 1995 and 1994 and the
consolidated statements of cash flows for the six-month periods
ended June 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 $180 million
available at variable interest rates. As of June 30, 1995,
$6.0 million was drawn on those lines at a weighted average
interest rate of 6.4%. Also, the company has in place a $150
million committed line of credit as support for commercial
paper. As of June 30, 1995, $78.8 million of commercial paper
was issued and outstanding at a weighted average interest rate
of 6.1%.
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.
5
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 1995 COMPARED
TO SIX MONTHS ENDED JUNE 30, 1994
Net sales were $908.1 million for the first six months of 1995,
up 7.8% (3.5% excluding the impact of the acquisitions of
National Revenue 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 six months of 1994, when sales were $842.3. The Payment
Systems segment revenue for the first six months of 1995
increased 7.6% from the first six 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 54.3% increase in revenue from the
Company's Electronic Payment Systems division, which was due in
part to the acquisitions of National Revenue Corporation, The
Software Partnership Ltd., and Financial Alliance Processing
Services, Inc.
Deluxe's Business Systems segment posted a 13.6% increase in
revenue for the first six months of 1995 over the first six
months of 1994, due to the growth in domestic and international
units and the acquisition of T/Maker Company. Revenue for the
Consumer Specialty Products segment increased 0.8%.
Selling, general, and administrative expenses increased $46.7
million or 15.7% for the first six months of 1995 over the first
six months of 1994. The Business Systems segment's expenses
increased approximately $16.6 million, due primarily to the
acquisition of T/Maker Company, as well as increased selling
expenses in the international operations. The Electronic
Payments Systems division's expenses increased approximately
$19.0 million, due primarily to the acquisitions of National
Revenue Corporation, Financial Alliance Processing Services,
Inc., and The Software Partnership Ltd. and product development
costs. Net income was $63.6 million for the first six months of
1995, or 7.0% of sales, compared to $67.6 million for the first
six 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.
RESULTS OF OPERATIONS - THREE MONTHS ENDED JUNE 30, 1995
COMPARED TO THREE MONTHS ENDED JUNE 30, 1994
Net sales were $442.5 million for the second quarter of 1995, up
7.3% (3.9% excluding the acquisitions of National Revenue
Corporation, The Software Partnership Ltd., T/Maker Company, and
Financial Alliance Processing Services Inc.) over the second
quarter of 1994, when sales were $412.3 million. The Payment
Systems segment's revenue increased 6.9% over the second quarter
of 1994. This included a 47.0% increase in revenue from the
Company's Electronic Payment Systems division, where all
business units reported double digit growth. A significant
portion of the Electronic Payment Systems division increase was
due to the acquisitions of The Software Partnership Ltd., and
Financial Alliance Processing Services, Inc. The Company's
Business Systems segment posted an 11.0% increase in revenue in
the second quarter of 1995 over second quarter 1994 primarily
due to increased revenue in domestic and United Kingdom business
forms units, and the acquisition of T/Maker Company.
Selling, general and administrative expenses increased $15.4
million or 10.3% in second quarter 1995 over second quarter
1994. The Electronic Payments Systems division expenses
increased approximately $8.7 million, primarily due to the
acquisitions noted above (except National Revenue Corporation,
which was acquired on April 15, 1994). The Business Systems
segment's expenses increased approximately $4.5 million,
primarily due to the acquisition of T/Maker Company, as well as
increased selling expenses in the international operations.
Net income was $29.7 million in the second quarter of 1995, or
6.7% of sales, compared to $29.6 million in 1994 or 7.2% of
sales.
FINANCIAL CONDITION - LIQUIDITY
Cash provided by operations was $75.8 million for the first six
months of 1995, compared with $60.9 million for the first six
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 June 30,
1995 was $74.6 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 June 30, 1995 and 1.4 to 1 on
December 31, 1994.
FINANCIAL CONDITION - CAPITAL RESOURCES
Purchases of property, plant, and equipment totaled $62.5
million for the six months of 1995, compared to $47.6 million
for the comparable prior year period.
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
$180 million. As of June 30, 1995, $6.0 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 June 30, 1995, $78.8 million of commercial paper
was issued and outstanding. The company intends to pursue
additional
6
<PAGE>
medium or long-term debt financing 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.
Cash dividends totaled $61.1 million for the first six months of
1995 compared to $59.5 million for the first six months of 1994.
OUTLOOK
On May 1, 1995, J.A. (Gus) Blanchard III succeeded Harold V.
Haverty as President and Chief Executive Officer of the Company.
In addition, Mr. Blanchard was elected to the Company's Board
of Directors following its annual meeting held on May 8, 1995.
In connection with the recent management change, the Company is
undertaking a comprehensive evaluation of its businesses and
strategy and may, in the future, determine to adjust its
business strategy and to pursue acquisitions of complimentary
businesses or products or dispositions of certain businesses or
products of the Company and its subsidiaries. The Company
currently has no commitments to make any such acquisitions or
dispositions.
7
<PAGE>
PART II. OTHER INFORMATION
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its annual shareholders' meeting on May 8, 1995:
70,991,076 shares were represented (85.98% of the 82,568,415
shares outstanding).
1. Election of Directors:
The nominees listed in the proxy statement were: Haverty,
Olson, Twogood, MacMillan, Renier, Grogan and Jacobson.
The results were as follows:
for all nominees: 70,061,959
Withheld as to all
nominees: 675,954
Withheld as to fewer
than all nominees: 253,163
Broker Non-Vote: 0
2. Ratification of appointment of Deloitte & Touche LLP
as independent auditors:
For: 70,530,670
Against: 154,626
Abstain: 305,780
Broker Non-Vote: 0
8
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibit is filed as part of this report:
(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.
9
<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 August 14, 1995 /s/ J.A. Blanchard III
---------------------------- -----------------------------------
J.A. Blanchard III, President
and Chief Executive Officer
(Principal Executive Officer)
Date August 14, 1995 /s/ C.M. Osborne
---------------------------- -----------------------------------
C.M. Osborne, Senior Vice President
and Chief Financial Officer
(Principal Financial Officer)
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 22,421
<SECURITIES> 37,129
<RECEIVABLES> 150,928
<ALLOWANCES> 0
<INVENTORY> 96,930
<CURRENT-ASSETS> 418,758
<PP&E> 906,677
<DEPRECIATION> 423,352
<TOTAL-ASSETS> 1,317,949
<CURRENT-LIABILITIES> 344,105
<BONDS> 113,897
<COMMON> 82,432
0
0
<OTHER-SE> 737,869
<TOTAL-LIABILITY-AND-EQUITY> 1,317,949
<SALES> 908,107
<TOTAL-REVENUES> 908,107
<CGS> 412,757
<TOTAL-COSTS> 799,463
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,453
<INCOME-PRETAX> 110,181
<INCOME-TAX> 46,610
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 63,571
<EPS-PRIMARY> .77
<EPS-DILUTED> .77
</TABLE>
