<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 March 31, 1996
------------------------------------------------
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)
3680 Victoria St. N., St. Paul, Minnesota 55126-2966
- ---------------------------------------------------------------------------
(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 registrant's common stock, par value
$1.00 per share, at May 1, 1996 was 82,537,467.
1
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ITEM I. FINANCIAL STATEMENTS
PART I. FINANCIAL INFORMATION
DELUXE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Dollars in Thousands)
<TABLE>
<CAPTION>
March 31, 1996 December 31,
(Unaudited) 1995
----------------- ----------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $22,857 $13,668
Trade accounts receivable 175,519 169,310
Inventories:
Raw material 18,639 22,475
Semi-finished goods 22,117 24,861
Finished goods 24,963 28,566
Supplies 11,038 11,139
Deferred advertising 13,463 20,017
Deferred income taxes 36,751 35,926
Prepaid expenses and other current assets 47,469 55,136
---------- -----------
Total current assets 372,816 381,098
---------- -----------
LONG-TERM INVESTMENTS 52,444 48,147
PROPERTY, PLANT AND EQUIPMENT
Land 43,562 43,632
Buildings and improvements 314,975 299,954
Machinery and equipment 574,376 578,922
Construction in progress 889 18,315
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Total 933,802 940,823
Less accumulated depreciation 457,692 446,665
---------- -----------
Property, plant, and equipment - net 476,110 494,158
INTANGIBLES
Cost in excess of net assets acquired - net 302,557 301,289
Other intangible assets - net 76,016 70,403
---------- -----------
Total intangibles 378,573 371,692
---------- -----------
TOTAL ASSETS $1,279,943 $1,295,095
---------- -----------
---------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $59,765 $75,644
Accrued liabilities:
Wages, including vacation pay 54,345 51,549
Employee profit sharing and pension 17,176 56,906
Accrued rebates 34,491 31,373
Restructuring costs 35,831 6,283
Other 94,414 89,392
Short-term debt 60,016 48,962
Long-term debt due within one year 9,126 8,699
---------- -----------
Total current liabilities 365,164 368,808
---------- -----------
LONG-TERM DEBT 110,514 110,997
---------- -----------
DEFERRED INCOME TAXES 36,426 34,916
SHAREHOLDERS' EQUITY
Common shares - $1 par value (authorized 500,000,000 shares; issued: 82,362,582) 82,363 82,364
Additional paid-in capital 908 1,455
Retained earnings 685,412 697,036
Cumulative translation adjustment 67 500
Unearned compensation (685) (739)
Net unrealized change - marketable securities (226) (242)
---------- -----------
Total shareholders' equity 767,839 780,374
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,279,943 $1,295,095
---------- -----------
---------- -----------
</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 MARCH 31,
-----------------------
1996 1995
---- ----
<S> <C> <C>
NET SALES $488,088 $465,388
OPERATING EXPENSES
Cost of sales 250,662 209,782
Selling, general, and administrative 185,170 179,011
Employee profit sharing and pension 14,409 14,621
Employee bonus and stock purchase discount 3,901 5,483
-------- --------
Total 454,142 408,897
-------- --------
INCOME FROM OPERATIONS 33,946 56,491
OTHER INCOME (EXPENSE)
Other Income 1,113 6,063
Interest Expense (2,788) (3,004)
-------- --------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 32,271 59,550
PROVISION FOR INCOME TAXES 13,350 24,998
-------- --------
INCOME FROM CONTINUING OPERATIONS 18,921 34,552
DISCONTINUED OPERATIONS
Loss from operations (net of income tax benefit of $494 in 1995) (713)
NET INCOME $18,921 $33,839
-------- --------
-------- --------
AVERAGE COMMON SHARES OUTSTANDING 82,407,794 82,419,035
NET INCOME PER COMMON SHARE FROM CONTINUING OPERATIONS $0.23 $0.42
NET INCOME PER COMMON SHARE FROM DISCONTINUED OPERATIONS $(0.01)
-------- --------
NET INCOME PER SHARE $0.23 $0.41
CASH DIVIDENDS PER COMMON SHARE $0.37 $0.37
</TABLE>
See Notes to Consolidated Financial Statements
3
<PAGE>
DELUXE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 1996 and 1995
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $18,921 $33,839
Discontinued operations 713
------- -------
Income from continuing operations 18,921 34,552
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 17,018 15,889
Amortization of intangibles 9,386 8,167
Stock purchase discount 1,997 2,067
Changes in assets and liabilities, net of effects from acquisitions and discontinued operations:
Trade accounts receivable (3,738) (4,534)
Inventories 9,615 (1,283)
Accounts payable (16,764) (4,984)
Restructuring costs 29,548
Other assets and liabilities (16,793) (11,796)
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Net cash provided by continuing operations 49,190 38,078
Net cash (used) provided by discontinued operations (1,036) 1,676
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Net cash provided by operating activities 48,154 39,754
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of marketable securities with maturities of more than 3 months 6,250 3,010
Purchases of property, plant, and equipment (14,273) (33,411)
Payments for acquisitions, net of cash acquired (4,323) (37,290)
Other (1,481) 2,836
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Net cash used in investing activities (13,827) (64,855)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on long-term debt (2,288) (3,799)
Payments to retire common stock (9,277) (10,352)
Proceeds from issuing stock under employee plans 6,284 6,188
Net proceeds from short-term debt 10,688 61,781
Cash dividends paid to shareholders (30,545) (30,577)
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Net cash (used in) provided by financing activities (25,138) 23,241
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 9,189 (1,860)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 13,668 29,139
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $22,857 $27,279
------- -------
------- -------
</TABLE>
See Notes to Consolidated Financial Statements
4
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The consolidated balance sheet as of March 31, 1996, and the related
consolidated statements of income and consolidated statements of cash flows
for the three-month periods ended March 31, 1996 and 1995 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 $189.2 million available
at variable interest rates. As of March 31, 1996, $10.1 million was drawn
on those lines at a weighted average interest rate of 6.7%. Also, the
company has in place a $150 million committed line of credit which is
available for borrowing and as support for commercial paper. As of
March 31, 1996, $49.9 million of commercial paper was issued and
outstanding at a weighted average interest rate of 5.4%. The Company also
has in place a medium-term note program for the issuance of up to
$300 million of medium-term notes 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 March 31, 1996, no such notes were issued or
outstanding.
3. During the fourth quarter of 1995, the Company adopted a plan to discontinue
its Printwise ink business. The Company recorded charges in the fourth
quarter of 1995 for the disposal of the business, and anticipated operating
losses until disposal. Accordingly, Printwise is reported as a discontinued
operation for the 1996 and 1995 periods presented.
4. During the first quarter of 1996, the Company recorded charges of
$34.8 million related to the closing of 21 of its check printing plants, and
to move PaperDirect's operations from New Jersey to existing company
facilities in Colorado and Minnesota. The $34.8 million of charges include
employee severance costs and expected losses on the disposition of plant and
equipment. Expenses of $32 million are included in cost of goods sold and
$2.8 million in selling, general, and administrative expense.
5
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
COMPANY PROFILE
Effective January 1, 1996, the Company reorganized its many independent
business units into two market-serving segments, Financial Services and
Deluxe Direct. Through Deluxe Financial Services, the Company provides check
printing, electronic funds transfer, and related services to financial
institutions in the United States, Canada, and the United Kingdom; payment
systems protection services including check authorization, account
verification, and collection services to financial institutions and
retailers; and electronic benefit transfer services to state governments.
Through Deluxe Direct, the Company provides direct mail checks and specialty
papers to households and small businesses; tax forms and electronic tax
filing services to tax preparers; and direct mail greeting cards, gift wrap,
and related products to households.
RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE
MONTHS ENDED MARCH 31, 1995
Net sales were $488.1 million for the first quarter of 1996, up 4.9% over the
first quarter of 1995, when sales were $465.4 million. The Deluxe Financial
Services segment's revenue increased 8.9% over the first quarter of 1995, due
to revenue growth in all units. Financial institution check printing
revenues were up 2.8% over 1995, despite a 2% decline in order counts. The
improved results are due to an improved product mix, a first quarter 1996
price increase, and benefits from the integration of the businesses that
serve financial institutions. The Deluxe Direct segment's revenue decreased
2.4% from 1995, due primarily to lower social expressions sales.
Selling, general and administrative expenses increased $6.2 million or 3.4%
in first quarter 1996 over first quarter 1995. The Deluxe Financial
Services segment's first quarter 1996 expenses increased 7.6% over
first quarter 1995, due primarily to costs related to the closing of 21 check
printing plants and increased selling expenses for financial institution
check printing. The Deluxe Direct segment's expenses decreased 4.3% from
first quarter 1995, due primarily to lower advertising expense and reductions
in general and administrative expense throughout the segment.
Net income from continuing operations was $18.9 million in the first quarter
of 1996, or 3.9% of sales, compared to $34.6 million in 1995, or 7.4% of
sales. The decrease in first quarter 1996 is due to $34.8 million of pretax
charges taken in the first quarter of 1996 for the closing of 21 check
printing plants and to move PaperDirect's operations from New Jersey to
existing company facilities in Colorado and Minnesota. Included in
first quarter 1995 income is approximately $5 million of pretax gain resulting
from insurance payments for 1994 earthquake damages to Company facilities.
FINANCIAL CONDITION - LIQUIDITY
Cash provided by continuing operations was $49.2 million for the first
three months of 1996, compared with $38.1 million for the first three months of
1995. This represents the Company's primary source of working capital for
financing capital expenditures and paying cash dividends. The Company's
working capital on March 31, 1996 was $7.7 million compared to $12.3 million
on December 31, 1995. The current ratio was 1 to 1 on March 31, 1996 and
1 to 1 on December 31, 1995.
FINANCIAL CONDITION - CAPITAL RESOURCES
Purchases of property, plant, and equipment totaled $14.3 million for the
first three months of 1996 compared to $33.4 million one year ago.
The Company has uncommitted bank lines of credit of $189.2 million. As of
March 31, 1996, $10.1 million was drawn on those lines. In addition, the
Company has in place a $150 million committed line of credit which is
available for borrowing and as support for commercial paper. As of
March 31, 1996, $49.9 million of commercial paper was issued and outstanding.
The company also has in place a medium-term note program for the issuance of
up to $300 million of medium-term notes. As of March 31, 1996, no such notes
were issued or outstanding.
Cash dividends totaled $30.5 million for the first three months of 1996
compared to $30.6 million for the first three months of 1995.
6
<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 registrant did not, and was not required to, file any reports
on Form 8-K during the quarter for which this report is filed.
7
<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 May 15, 1996 /s/ J.A. Blanchard III
----------------------- --------------------------------------
J.A. Blanchard III, President
and Chief Executive Officer
(Principal Executive Officer)
Date May 15, 1996 /s/ C.M. Osborne
----------------------- --------------------------------------
C. M. Osborne, Senior Vice President
and Chief Financial Officer
(Principal Financial Officer)
8
<PAGE>
Exhibit 12
DELUXE CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Three-Months
Ended Years Ended December 31,
------------- ---------------------------------------------------------------
Mar 31, 1996 1995 1994 1993 1992 1991 1990
------------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings
- --------
Income from Continuing Operations
before Income Taxes $32,271 $169,319 $246,706 $235,913 $324,783 $295,493 $282,506
Interest expense
(excluding capitalized interest) 2,788 13,099 9,733 10,070 15,371 8,220 1,427
Portion of rent expense under
long-term operating leases
representative of an interest factor 3,879 14,761 13,554 13,259 12,923 11,807 10,849
Amortization of debt expense 30 84 84 84 84 71 0
------- -------- -------- -------- -------- -------- --------
TOTAL EARNINGS $38,968 $197,262 $270,077 $259,326 $353,161 $315,591 $294,782
Fixed charges
- -------------
Interest Expense
(including capitalized interest) $3,236 $14,714 $10,492 $10,555 $15,824 $8,990 $1,860
Portion of rent expense under
long-term operating leases
representative of an interest factor 3,879 14,761 13,554 13,259 12,923 11,807 10,849
Amortization of debt expense 30 84 84 84 84 71 0
------- -------- -------- -------- -------- -------- --------
TOTAL FIXED CHARGES $7,145 $29,559 $24,130 $23,898 $28,831 $20,868 $12,709
RATIO OF EARNINGS
TO FIXED CHARGES: 5.5 6.7 11.2 10.9 12.2 15.1 23.2
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 22,857
<SECURITIES> 0
<RECEIVABLES> 175,519
<ALLOWANCES> 0
<INVENTORY> 65,719
<CURRENT-ASSETS> 372,816
<PP&E> 933,802
<DEPRECIATION> 457,692
<TOTAL-ASSETS> 1,279,943
<CURRENT-LIABILITIES> 365,164
<BONDS> 110,514
0
0
<COMMON> 82,363
<OTHER-SE> 685,476
<TOTAL-LIABILITY-AND-EQUITY> 1,279,943
<SALES> 488,088
<TOTAL-REVENUES> 488,088
<CGS> 250,662
<TOTAL-COSTS> 454,142
<OTHER-EXPENSES> (1,113)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,788
<INCOME-PRETAX> 32,271
<INCOME-TAX> 13,350
<INCOME-CONTINUING> 18,921
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,921
<EPS-PRIMARY> 0.23
<EPS-DILUTED> 0.23
</TABLE>
