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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, 1995.
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.)
3680 Victoria St. N., Shoreview, Minnesota 55126-2966
(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
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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 ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant is $2,674,816,268 based on the average bid and asked prices of the
stock on the New York Stock Exchange on March 11, 1996. The number of
outstanding shares of the registrant's common stock as of March 11, 1996, is
82,454,607.
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Documents Incorporated by Reference:
1. Portions of the registrant's annual report to shareholders for the
fiscal year ended December 31, 1995, are incorporated by reference in
Parts I, II and IV.
2. Portions of the registrant's proxy statement dated March 27, 1996, are
incorporated by reference in Part III.
DELUXE CORPORATION
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Deluxe Corporation provides products and services primarily to the financial
payment systems industry and also markets specialty products to small businesses
and consumers. The Company began business in 1915 in St. Paul, Minnesota,
printing checks for banks and their customers. The Company today is
headquartered in Shoreview, Minnesota, and has facilities in the United States,
Puerto Rico, Canada and the United Kingdom. The Company's products and services
are sold primarily in the United States. Unless the context otherwise requires,
the term the "Company" refers to Deluxe Corporation and its subsidiaries.
The Company's operations are conducted by Deluxe Corporation and 14 wholly
owned subsidiaries. The marketing operations of the Company are divided between
two market-serving units: Deluxe Financial Services and Deluxe Direct.
DELUXE FINANCIAL SERVICES
Deluxe Financial Services provides check printing, electronic funds transfer,
software and related services to the financial industry; payment systems
protection services, including check authorization, account verification, and
collection services, to financial institutions and retailers; credit card
processing services to retailers; and electronic benefit transfer services to
state governments. Deluxe Financial Services had net sales of approximately $1.2
billion in 1995, accounting for approximately 63 percent of the Company's total
sales.
CHECK PRINTING
Deluxe prints and sells to financial institutions and depositors checks and
related banking forms. The Company is the nation's leading printer of checks for
financial institutions, having an approximately 50 percent share of the
estimated $1.6 billion U.S. financial institution check market. During 1995, the
Company made gross sales of checks and related banking forms in excess of
$100,000 to approximately 1,907 financial institutions (not including branches
as separate entities).
Depositors commonly submit initial check orders and reorders to their
financial institutions, which forward them to one of the Company's printing
plants. Printed checks are shipped 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 charges
from the depositors' accounts. The Company endeavors to produce and ship all
financial institution check orders within two days after receipt of order. In
1995, the Company delivered 99.81 percent of such check orders error-free.
Payment systems and methods have been changing in the United States in recent
years as banking and other industries have introduced alternatives to the
traditional check, including charge cards, credit cards, debit cards and
electronic payments, among others. Sales of checks to
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financial institutions have been subject to increased competition and consequent
pressure on prices. In addition, the direct mail segment of the check market is
growing rapidly as a lower-priced alternative to financial institution checks
and in 1995 represented an estimated 17 percent of the personal check market.
These developments have produced a mature market for checks and have accelerated
pricing pressure on the Company's check sales. As a result, financial
institution check printing revenues have declined in recent years.
The Company believes that revenues from traditional pocket and deskbook size
check sales to financial institutions will likely continue to decline in the
future. To stabilize check printing operations and improve profitability, the
Company has focused on controlling expenses and increasing efficiency (see
"Recent Developments"), and on higher margin products and services, such as
specially designed checks and licensed check designs. At the same time, the
growing direct mail check segment has been an opportunity for the Company's
Current, Inc., subsidiary, the nation's largest supplier of direct mail personal
checks. See "Deluxe Direct."
The Company also sells personalized plastic automated teller machine (ATM)
cards and credit and debit cards to financial institutions and retailers, and
driver's licenses and other identification cards to government agencies. In
addition, the Company prints direct communications products, such as letter
checks and other personalized marketing products used by financial institutions.
ELECTRONIC FUNDS TRANSFER
Deluxe Data Systems, Inc., provides electronic funds transfer processing and
software and is the nation's largest third-party transaction processor for
regional ATM networks. Deluxe Data processed approximately 1.7 billion
transactions in 1995. Deluxe Data also provides services in emerging debit
markets, including electronic benefit transfer (EBT) and retail point-of-sale
(POS) transaction processing. EBT programs use ATM and POS terminals to deliver
food stamps and welfare assistance. Deluxe Data currently supports EBT programs
for the state governments of Maryland, New Jersey, Utah and Kansas and has
recently been awarded contracts to serve the Southern Alliance of States and the
Northeast Coalition of States.
PAYMENT SYSTEMS PROTECTION SERVICES
CHECK AUTHORIZATION
Electronic Transaction Corporation (ETC) is the nation's largest check
authorization service for retailers. Through its Shared Check Authorization
Network (SCAN), ETC maintains a database of individuals who have outstanding
dishonored checks. In addition, it provides closed account data supplied by
ChexSystems, Inc., a Deluxe subsidiary, and other parties. Using SCAN,
participating retailers authorized more than 2.1 billion checks in 1995.
ACCOUNT VERIFICATION
ChexSystems, Inc., provides account verification services for financial
institutions and served more than 64,000 financial institution office locations
in 1995. ChexSystems maintains a database of individuals who previously have had
checking accounts closed for cause. It also provides SCAN data relating to
dishonored checks to financial institutions. Financial institutions access this
data in considering whether to open checking accounts for individual applicants.
ChexSystems also performs collection services for financial institutions.
COLLECTION SERVICES
National Revenue Corporation (NRC) and its affiliates provide collection and
accounts receivable management services to retail, financial, medical and
commercial credit grantors. NRC has 32 sales offices nationwide and conducts
collection activity for approximately 25,000 business, government and
professional clients.
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CREDIT CARD PROCESSING
Financial Alliance Processing Services, Inc., which was acquired during
January, 1995, is a full-service credit card processor enabling retailers to
accept payment by credit card. In 1995, Financial Alliance processed
approximately 27 million credit card transactions and provided services to more
than 270 financial institutions and 60,000 retailers.
DELUXE DIRECT
Deluxe Direct provides direct mail checks to households and small businesses.
It also markets forms, record-keeping systems, specialty papers, and other
products to small businesses; provides tax forms and electronic tax filing
services to tax preparers; and sells direct mail greeting cards, gift wrap, and
related products to households. Deluxe Direct had net sales of approximately
$678.5 million in 1995, accounting for approximately 37 percent of the Company's
total sales.
Deluxe Direct markets its products primarily through Current, Inc.,
PaperDirect, Inc., and the General Business Forms and Health Care Forms
divisions of Deluxe Corporation.
Current is the nation's leading direct mail supplier of checks and social
expression products, including greeting cards, gift wrap, small gifts and
related products. Current is the largest supplier among the approximately 30
companies engaged in selling checks by direct mail. Current's social expression
business is seasonal and based on holidays. Historically, more than one-third of
Current's annual sales have been made in the fourth quarter.
General Business Forms produces and markets short-run computer and business
forms and record-keeping systems for small businesses and professional
practices. Health Care Forms produces and markets forms to medical and dental
offices. Both product lines are sold primarily through direct mail and telephone
marketing.
PaperDirect, Inc., is a direct mail marketer of specialty papers, presentation
products and pre-designed forms for laser printing and desktop publishing.
Deluxe Direct also includes Nelco, Inc., a supplier of tax forms, tax forms
software, and electronic tax filing services; and T/Maker Company, a publisher
of image content software, including clip art (see "Recent Developments").
Many of Deluxe Direct's products are sold internationally by Deluxe United
Kingdom Limited and Deluxe Canada Inc.
RECENT DEVELOPMENTS
In early 1996, the Company announced that it had initiated a major
consolidation program, which includes closing 26 of the Company's 41 printing
and warehousing facilities over the 1996-1997 period and significantly reducing
the number of its staff and production employees. In addition, the Company
announced that it is re-evaluating its plans for various businesses and that it
will discontinue or dispose of certain business units and products that are not
closely related to the market focus of Deluxe Financial Services and Deluxe
Direct.
The units to be discontinued or sold include the Company's ink manufacturing
division, its financial institution forms production unit, and T/Maker's
ClickArt and Vroombooks product groups. Additional dispositions are being
considered, but the Company currently has no binding commitments to make any
acquisitions or other dispositions.
The Company was incorporated under the laws of the State of Minnesota in 1920.
From 1920 until 1988, the Company was named Deluxe Check Printers, Incorporated.
The Company's principal executive offices are located at 3680 Victoria St. N.,
Shoreview, Minnesota 55126-2966, telephone (612) 483-7111.
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EMPLOYEES
Including its subsidiaries, the Company has approximately 19,300 full- and
part-time employees. It has a number of employee benefit plans, including
retirement, medical and hospitalization 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 6,
1996. The principal occupation of each executive officer is with the Company,
and their positions are as follows:
<TABLE>
<CAPTION>
Officer
Name Position Age Since
- ---- -------- --- -------
<S> <C> <C> <C>
John A. Blanchard III President and chief 53 1995
executive officer
Jerry K. Twogood Executive vice president 55 1974
Mark T. Gritton Senior vice president 47 1988
John H. LeFevre Senior vice president, secretary 52 1994
and general counsel
Lawrence J. Mosner Senior vice president 53 1995
Charles M. Osborne Senior vice president and 42 1981
chief financial officer
Michael F. Reeves Vice president, human resources 46 1987
Michael R. Schwab Senior vice president and 50 1994
chief information officer
</TABLE>
MR. BLANCHARD has served as president and chief executive officer of the
Company since May 1, 1995. From January 1994 to April 1995, Mr. Blanchard was
executive vice president of General Instrument Corporation, a supplier of
systems and equipment to the cable and satellite television industry. From 1991
to 1993, Mr. Blanchard was chairman and chief executive officer of Harbridge
Merchant Services, a national credit card processing company. Previously, Mr.
Blanchard was employed by American Telephone & Telegraph Company for 25 years,
most recently as senior vice president responsible for national business sales.
MR. TWOGOOD has been employed by the Company since 1959. Since 1987, Mr.
Twogood has been executive vice president. From 1988 to February 1996, he served
as chief operating officer and since November 1995 has served principal
executive officer for the Company's manufacturing operations.
MR. GRITTON has been employed by the Company since 1972. From 1990 to 1993,
Mr. Gritton was vice president with principal responsibility for regional
operations of the Payment Systems Division. From 1993 to 1995, he served as
president of the Company's paper payments unit and, since November 1995, as
principal executive officer of Deluxe Financial Services.
MR. LEFEVRE has been responsible for the law department of the Company since
February 1994 and has served as senior vice president, general counsel and
secretary. From 1978 to February 1994, Mr. LeFevre was employed by Wang
Laboratories, Inc. From 1988 until February 1994, he held various positions in
Wang Laboratories' law department, including corporate counsel, vice president,
general counsel and secretary. Wang Laboratories manufactures and sells computer
hardware and software and related services.
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MR. MOSNER has served as senior vice president and principal executive officer
of Deluxe Direct since November 1995. From 1993 to 1995, Mr. Mosner was
executive vice president and chief operating officer of Hanover Direct, a direct
marketing company, with responsibility for non-apparel products. Previously, he
was employed for 28 years by Sears, Roebuck and Company, where he was vice
president of merchandising from 1991 to 1993.
MR. OSBORNE has been employed by the Company since 1981 and has served as
chief financial officer since 1984 and senior vice president since 1989.
MR. REEVES has been employed by the Company since 1970 and has been a vice
president since 1987. From 1987 to 1992, Mr. Reeves was regional manager of the
Company's Northeastern printing operations. From 1992 to 1994, Mr. Reeves was
the manager of the Company's financial institution forms production unit, and
since July 1994, Mr. Reeves has had principal responsibility for the Company's
human resources department.
MR. SCHWAB has been responsible for the information systems of the Company and
has served as senior vice president and chief information officer since November
1994. Previously, Mr. Schwab was employed by USAir, a commercial air carrier,
from 1989 to 1991 as senior vice president and chief information officer, and
from 1991 to April 1994 as executive vice president of operations.
ITEM 2. PROPERTIES
The Company conducts production and service operations in 81 facilities
located in 29 states, Puerto Rico, Canada and the United Kingdom. These
buildings total 5,084,000 square feet. The Company's headquarters occupies a
160,000-square-foot building in Shoreview, Minnesota. Deluxe Financial Services
has two principal facilities in Shoreview, Minnesota, totaling approximately
251,700 square feet. These sites are devoted to sales, administration, and
marketing. Deluxe Direct's principal facilities are a 156,000-square-foot
marketing building in Shoreview, Minnesota, and a 148,000-square-foot sales and
product design building in Colorado Springs, Colorado. All but four of the
Company's production facilities are one story high and most were constructed and
equipped in accordance with the Company's plans and specifications.
More than half of the Company's total production area has been constructed
during the past 20 years. The Company owns 59 of its facilities and leases the
remainder for terms expiring from 1996 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.
ITEM 3. LEGAL PROCEEDINGS
Other than ordinary routine litigation incidental to its business, there are
no material pending legal proceedings to which the Company or any of its
subsidiaries is a party or to which any of the Company's property is subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Reference is made to the information under the caption "Financial Highlights"
on page 1, and "Shareholder Information" on page 33 of the Company's annual
report.
ITEM 6. SELECTED FINANCIAL DATA
Reference is made to the information under the caption "Eleven-year Summary"
on pages 18 and 19 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 under the caption "Management's
Discussion and Analysis" on pages 14 through 16 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 20 through 31 of the Company's annual report and the information
under the caption "Summarized Quarterly Financial Data" (unaudited) on page 31
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,
EXECUTIVE COMPENSATION, SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT, AND CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS
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, 1995
and 1994 . . . . . . . . . . . . . . . . . . . . . . 20 - 21
Consolidated Statements of Income for the three
years in the period ended December 31, 1995. . . . . 22
Consolidated Statements of Cash Flows for the three
years in the period ended December 31, 1995. . . . . 23
Notes to Consolidated Financial Statements . . . . . . 24 - 30
Independent Auditors' Report . . . . . . . . . . . . . 31
(2) Supplemental Financial Information (Unaudited):
Summarized Quarterly Financial Data. . . . . . . . . . 31
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(3) Independent Auditors' Consent to the incorporation
by reference of its reports in the Company's
registration statements 2-96963, 33-53585, 33-57261,
33-32279, 33-58510 and 33-62041. . . . . . . . . . . . F-1
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 filed a report on Form 8-K on October 27, 1995,
relating to a Distribution Agreement entered into for a public
offering of medium-term notes.
(c) The following exhibits are filed as part of or are incorporated
in this report by reference:
(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, 1994.
(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.
C - (i) Indenture, incorporated by reference to the
Company's Form S-3 filed on August 23, 1995.
(ii) Amendment to Indenture, incorporated by reference
to the Company's Amendment No. 1 to Form S-3 filed
on September 21, 1995.
(10) A - Deferred Compensation Plan
B - Supplemental Benefits Plan
C - Stock Option Plan, incorporated by reference to the
Company's Form 10-K for the year ended December 31,
1989.
D - Stock Incentive Plan, incorporated by reference to the
Company's Form S-8 filed on May 11, 1994.
E - Performance Share Plan, incorporated by reference to
the Company's Form 10-K for the year ended December 31,
1994.
F - Annual Incentive Plan, incorporated by reference to the
Company's Form 10-K for the year ended December 31,
1994.
G - Description of Initial Compensation and Employment
Arrangement with John A. Blanchard III
H - Description of Supplemental Pension Plan
I - Deferred Compensation Agreement
J - Description of Compensation Arrangement with Harold V.
Haverty
(12) Ratio of Earnings to Fixed Charges
(13) 1995 Annual Report to Shareholders
(21) Subsidiaries of the Registrant
(23) Independent Auditors' Consent, incorporated by
reference to page F-1 of the Company's Form 10-K for
the year ended December 31, 1995.
(24) Powers of Attorney of officers and directors signing by
an attorney-in-fact.
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(27) Financial Data Schedule
(29) Proxy Statement, incorporated by reference to the
Company's definitive proxy statement filed on March 27,
1996.
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.
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, in the City of St. Paul,
State of Minnesota on March 27, 1996.
DELUXE CORPORATION
By /s/ John A. Blanchard III
----------------------------
John A. Blanchard III
President and Chief Executive Officer
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Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons in the capacities
indicated on March 27, 1996.
By /s/ John A. Blanchard III
----------------------------
John A. Blanchard III for Himself and
as Attorney-In-Fact*
John A. Blanchard III, Director and
Principal Executive Officer
Harold V. Haverty, Director
Jerry K. Twogood, Director
Eugene R. Olson, Director
Whitney MacMillan, Director
James J. Renier, Director
Barbara B. Grogan, Director
Allen F. Jacobson, Director
Stephen P. Nachtsheim, Director
Charles M. Osborne, Principal
Financial Officer and Principal Accounting Officer
*By Power of Attorney set forth in Exhibit 24 to this report.
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INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in registration statements 2-96963,
33-53585 and 33-57261 on Form S-8 and 33-32279, 33-58510 and 33-62041 on Form
S-3 of our report dated February 9, 1996, appearing in or incorporated by
reference in this Annual Report on Form 10-K of Deluxe Corporation for the year
ended December 31, 1995.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Minneapolis, Minnesota
March 27, 1996
F-1
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EXHIBIT INDEX
The following exhibits are filed as part of this report:
10 A Deferred Compensation Plan
10 B Supplemental Benefit Plan
10 G Description of Initial Compensation and Employment Arrangement with
John A. Blanchard III
10 H Description of Supplemental Pension Plan
10 I Deferred Compensation Agreement
10 J Description of Compensation Arrangement with Harold V. Haverty
12 Ratio of Earnings to Fixed Charges
13 Documents Incorporated by Reference 1995 Annual Report to Shareholders
21 Subsidiaries
24 Power of Attorney
27 Financial Data Schedule
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Exhibit 10 A
DELUXE CORPORATION
DEFERRED COMPENSATION PLAN
SECTION 1. RESTATEMENT AND PURPOSE
1.1. RESTATEMENT. Deluxe Corporation, a Minnesota corporation (hereinafter
called the "Company"), established, effective as of November 15, 1983, a
deferred compensation plan known as the "DELUXE CORPORATION DEFERRED
COMPENSATION PLAN" (hereinafter called the "Plan"). It is hereby desired to
amend and restate the Plan in a single document in the manner hereinafter set
forth effective as of January 1, 1996.
1.2. PURPOSE. The purpose of the Plan is to provide a means whereby amounts
payable by the Company to Participants (as hereinafter defined) may be deferred
to some future period. It is also the purpose of the Plan to attract and retain
as employees persons whose abilities, experience and judgment will contribute to
the growth and profitability of the Company.
SECTION 2. DEFINITIONS
2.1. DEFINITIONS. Whenever used in this Plan, the following terms shall have
the meanings set forth below:
(a) "Affiliate" means a business entity which is affiliated in
ownership with the Company and is recognized as an Affiliate by
the Management Committee for the purposes of this Plan.
(b) "Base Salary" means the base salary scheduled to be paid to a
Participant during a Plan Year without regard to any Incentive
Compensation, or any portion deferred under this Plan.
(c) "Committee" means the Compensation Committee of the Board of
Directors of the Company.
(d) "Deferral Account" means the separate bookkeeping account
representing the unfunded and unsecured general obligation of
Company established with respect to each Participant to which is
credited the dollar amounts specified in Section 5 and from
which are subtracted payments made pursuant to Sections 6 and 7.
To the extent necessary to accommodate and effect the
distribution elections made by Participants pursuant to Section
4, separate bookkeeping sub-accounts may be established with
respect to each of the several deferral elections made by
Participants.
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(e) "Disability" means, as to a Participant who is an employee of the
Company, a determination of disability under Company's Long Term
Disability Plan. If the Participant is an employee of an
Affiliate, "Disability" means, as to such Participant, a
determination of disability under the Long Term Disability Plan
of such Affiliate, or, if no such Plan exists, then under the
Long Term Disability Plan of the Company as if such Participant
were a participant in such plan. If the Company discontinues
its Long Term Disability Plan, then "Disability" shall mean long
term disability as defined in any other Plan of the Company
which generally defines long term disability for purposes of
such other plan. In no event, however, shall a Participant be
considered to have a Disability for purposes of this Plan until
such time as such Participant is entitled to begin (or would be
entitled to begin, if such Participant were a participant in the
relevant plan) receipt of benefits under such long term
disability or other relevant plan.
(f) "Eligible Employee" means an employee of the Company or its
Affiliates who (i) is an officer or assistant officer, or (ii)
has significant management or professional responsibilities, and
(iii) who is highly compensated. Subject to the limitations
contained in Section 3, the Management Committee from time to
time may (i) establish rules governing the eligibility of
employees of the Company and its Affiliates to participate in
the Plan and, such rules, if adopted, shall be deemed to further
define or amend, as the case may be, the definition of "Eligible
Employee" herein, and (ii) permit certain employees of the
Company and its Affiliates, who would not otherwise be eligible
to participate in the Plan, to participate in the Plan.
(g) "Event of Maturity" means any of the occurrences described in
Section 6 by reason of which a Participant or Beneficiary may
become entitled to a distribution from the Plan.
(h) "Incentive Compensation" means the incentive, bonus, and similar
compensation which is paid to a Participant based on performance
or other factors during a Plan Year without regard to any
portion deferred under this Plan.
(i) "Installment Amount" means that portion or all of a Deferral
Account (expressed in dollars) that is to be paid during a
single one hundred twenty (120) month period (having common
initial and final installment dates) designated by the
Participant in writing at the time of his or her enrollments
made in accordance with this Plan.
(j) "Management Committee" means the Management Committee formed by
the Chief Executive Officer pursuant to Section 11 of the Plan.
(k) "Participant" means any Eligible Employee who is affirmatively
selected by the Management Committee and who elects to
participate in the Plan.
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(l) "Plan Year" means the twelve-month period coinciding with the
Company's fiscal year and ending on each December 31.
(m) "Selected Distribution Date" shall mean the date that is
designated in accordance with this Plan by the Participant in
writing at the time of his or her enrollments as the date (or
dates) for the payment or commencement of payments of his or her
Deferral Account or any portion thereof. In the absence of an
effective election of any other date(s), a Participant's
Selected Distribution Date shall be the date of his or her
Termination of Employment.
(n) "Termination of Employment" means a complete severance of a
Participant's employment relationship with the Company and all
Affiliates. A transfer from employment with the Company to
employment with an Affiliate of the Company or other transfer
between Affiliates or from an Affiliate to the Company shall not
constitute a Termination of Employment. If an Affiliate ceases
to be an Affiliate because of a sale or other disposition of
substantially all its stock or assets, then Participants who are
employed by that Affiliate shall be deemed to have had a
Termination of Employment for the purposes of this Plan as of
the effective date of such sale.
SECTION 3. ELIGIBILITY FOR PARTICIPATION
Each Eligible Employee of the Company and its Affiliates shall be eligible to
participate in the Plan and shall become a Participant upon selection by the
Management Committee. In the event a Participant ceases to be an Eligible
Employee, he or she shall become an inactive Participant, retaining all the
rights described under the Plan, except the right to elect any further
deferrals. Notwithstanding anything apparently to the contrary in this Plan or
in any written communication, summary, resolution or document or oral
communication, no individual shall be a Participant in this Plan, develop
benefits under this Plan or be entitled to receive benefits under this Plan
(either for himself or herself or his or her survivors) unless such individual
is a member of a select group of management or highly compensated employees (as
that expression is used in ERISA). If a court of competent jurisdiction, any
representative of the U.S. Department of Labor or any other governmental,
regulatory or similar body makes any direct or indirect, formal or informal,
determination that an individual is not a member of a select group of management
or highly compensated employees (as that expression is used in ERISA), such
individual shall not be (and shall not have ever been) a Participant in this
Plan at any time. If any person not so defined has been erroneously treated as a
Participant in this Plan, upon discovery of such error such person's erroneous
participation shall immediately terminate ab initio and the Company shall
distribute the individual's Deferral Account immediately.
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SECTION 4. ELECTION TO DEFER
4.1. GENERAL RULE. Prior to the first day of any Plan Year, a Participant
may make a deferral election for that Plan Year. A separate enrollment shall be
made for each Plan Year. Each such deferral election:
(a) Shall be irrevocable for the Plan Year with respect to which it
is made once it has been accepted by the Chief Executive Officer
of the Company.
(b) Shall designate the amount or portion of the Participant's
Incentive Compensation which is earned during that Plan Year
(without regard to whether it would be paid during that or a
subsequent Plan Year) which shall not be paid to the Participant
but instead shall be accumulated in this Plan under Section 5
and distributed from this Plan under Section 6. Such
designation shall be in a minimum amount of $1,000. If
expressed as a percentage, such percentage shall not exceed
fifty percent (50%) of such Participant's targeted Incentive
Compensation. If expressed as a dollar amount, such dollar
amount shall not exceed the dollar amount equivalent of fifty
percent (50%) of such Participant's targeted Incentive
Compensation. If a dollar amount is elected, such election
shall be reduced dollar for dollar if the Incentive Compensation
declared is less than the election.
(c) Shall designate the amount or portion of the Participant's Base
Salary which is earned during that Plan Year (without regard to
whether it would be paid during that or a subsequent Plan Year)
which shall not be paid to the Participant but instead shall be
accumulated in this Plan under Section 5 and distributed from
this Plan under Section 6. Such designation shall be in a
minimum amount of $1,000, shall not exceed 10 percent (10%) of
such Participant's Base Salary and shall be automatically
revoked if the Base Salary of the Participant is reduced during
the Plan Year for which such election is made.
(d) Shall specify the form in which distribution of the portion of
the Deferral Account attributable to that enrollment shall be
made under Section 6 (and if such designation is not clearly
made to the contrary, shall be deemed to have been an election
of a single lump sum distribution).
(e) Shall specify the time at which distribution shall be made which
shall, subject to Section 6 hereof, be the later of such
Participant's Selected Distribution Date or such Participant's
Termination of Employment.
(f) Shall be made upon forms furnished by the Company, shall be made
at such time as the Company shall determine, shall be made
before the beginning of the Plan Year with respect to which it
is made and shall conform to such other procedural and
substantive rules as the Company shall prescribe from time to
time.
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4.2. SPECIAL RULE FOR 1996 SHORT PLAN YEAR. Solely in order to permit
Participants to make an enrollment for the 1996 Plan Year, Participants may,
prior to April 1, 1996, make an election to defer a portion of their Base Salary
and any bonus earned on or after April 1, 1996, and to elect to defer a portion
of any Incentive Compensation (exclusive of any part of any bonus earned prior
to April 1, 1996) paid on or after April 1, 1996. The Management Committee
shall have the authority to adopt rules that modify and waive the enrollment
procedures set forth in Section 4.1, above, to ensure that an orderly first
enrollment may be completed.
SECTION 5. DEFERRAL ACCOUNTS
5.1. PARTICIPANT DEFERRAL ACCOUNTS. The Company shall establish and maintain
a bookkeeping Deferral Account for each Participant. The Company shall, from
time to time, provide each Participant with a statement indicating the balance
of such Participant's Deferral Account. At its discretion, the Company may
obtain life insurance on the life of any or all Participants to provide all or a
substantial portion of the money needed to pay the amounts deferred under the
Plan. Each Participant's Deferral Account shall be credited, as appropriate,
with one or more of the following:
(a) Base Salary deferrals and Incentive Compensation deferrals made
pursuant to Section 4, above;
(b) Employee Benefit Plan Equivalents as provided by Section 5.2
below; and
(c) Growth Additions as provided by Section 5.3 below.
5.2. EMPLOYEE BENEFIT PLAN EQUIVALENT. To the extent the Company's
contributions under its compensation-based benefit plans are reduced as a result
of the Participant's deferral of compensation under the Plan, the amount of such
reduction shall be credited to the Participant's Deferral Account. Any amount
credited under this procedure shall be credited as of the last day of the Plan
Year during which such compensation was earned without regard to whether it is
paid in a subsequent year. Any amount credited to a Deferral Account of a
Participant under this Plan shall not be duplicated, directly or indirectly,
under any other plan of the Company.
5.3. GROWTH ADDITIONS. Each Participant's Deferral Account shall be credited
as of the last day of each Plan Year (before crediting any Benefit Plan
Equivalent) with a growth addition computed on the beginning balance of such
Participant's Deferral Account, the average Base Salary deferred during the Plan
Year, and the Incentive Compensation deferred that is payable during the Plan
Year. The growth addition shall be computed by multiplying such amounts by the
Plan Interest Rate for such Plan Year. The Plan Interest Rate for each Plan
Year shall be determined by the Committee, provided that the Plan Interest Rate
shall in no event be lower than the lesser of: (a) ninety percent (90%) of the
Company's average return on short term invested bank funds during its preceding
fiscal year, or (b) eight percent (8%). In the absence of a timely
determination by the Committee with respect to a particular Plan Year, the Plan
Interest Rate for such Plan Year shall be equal to the Plan Interest Rate for
the Previous Plan Year.
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5.4. CHARGES AGAINST DEFERRAL ACCOUNTS. There shall be charged against each
Participant's account any payments made to the Participant or his or her
Beneficiary in accordance with Sections 6 or 7 of the Plan.
5.5. CONTRACTUAL OBLIGATION. It is intended that the Company is under a
contractual obligation to make payments to a Participant when due. Such
payments shall be made out of the general funds of the Company.
5.6. UNSECURED INTEREST. No Participant or Beneficiary shall have any
interest whatsoever in any specific asset of the Company. To the extent any
person acquires a right to receive payments under the Plan, such right shall be
no greater than the right of any unsecured general creditor of the Company.
SECTION 6. PAYMENT OF DEFERRED AMOUNTS
6.1. FORM OF DISTRIBUTION. Upon the occurrence of an Event of Maturity
effective as to a Participant, the Company shall commence payment of such
Participant's Deferral Account (reduced by the amount of any applicable payroll,
withholding and other taxes) in the form(s) designated by the Participant in his
or her enrollments. A Participant shall not be required to make application to
receive payment. Distribution shall not be made to any Beneficiary, however,
until such Beneficiary shall have filed a written application for benefits and
such other information as may be requested by the Company and such application
shall have been approved by the Company.
6.1.1. FORM OF PAYMENT. Payment shall be made in whichever of the
following forms as the Participant shall have designated in writing at the time
of his or her enrollments (to the extent that such election is consistent with
the rules of this Plan):
(a) TERM CERTAIN INSTALLMENTS TO PARTICIPANT. Subject to Section
6.1.1(d), below, if the distributee is a Participant and the Installment
Amount on the applicable Selected Distribution Date (without giving
effect to any growth additions after such date) is at least Fifty
Thousand Dollars ($50,000), in a series of monthly installments payable
over one hundred twenty (120) months. The amount of the monthly
installments shall be approximately equal and shall include a reasonable
interest assumption as determined by the Company from time to time.
(b) CONTINUED TERM CERTAIN INSTALLMENTS TO BENEFICIARY. If the
distributee is a Beneficiary of a deceased Participant and payment had
commenced to the deceased Participant before his or her death over a one
hundred twenty (120) month period as specified in paragraph (a) above,
in a series of annual installments payable over the remainder of such
period.
(c) LUMP SUM. If the distributee is either a Participant,
Beneficiary (except as provided in Section 6.1.1(b)), or representative
of the estate of a deceased Participant, in a single lump sum payment
pursuant to Section 6.1.2(c), below.
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(d) LUMP SUM DISTRIBUTION NOTWITHSTANDING DESIGNATION.
Notwithstanding a Participant's election to have all or a
portion of his or her Deferral Account paid in installments
pursuant to the provisions of Section 6.1.1(a) or the
designation by the Participant of a Selected Distribution Date
that will occur after the date of the Participant's Termination
of Employment, such Participant's Deferral Account (or relevant
portion thereof, as the case may be) shall be paid in a single
lump sum pursuant to the provisions of Section 6.1.2(a), below,
unless the Installment Amount, as of the applicable distribution
date (without giving effect to any growth additions after such
date), is at least Fifty Thousand Dollars ($50,000). If a
Selected Distribution Date will occur after the Participant's
Termination of Employment, the Company will make an estimate of
the amount of the distribution that will be made in a lump sum
or the Installment Amount that will be available for
installments, as the case may be, on or commencing on such
Selected Distribution Date. Such estimate (i) shall include a
reasonable interest assumption as determined by the Company for
the period between the Participant's Termination of Employment
and such Selected Distribution Date, (ii) shall not include any
growth additions after the Selected Distribution Date and, (iii)
shall include all portions of the Deferral Account distributable
in a lump sum or in one hundred twenty (120) monthly
installments beginning on such Selected Distribution Date
notwithstanding that such amounts may have been attributable to
enrollments relating to more than one Plan Year. Separate
estimates shall be made for lump sum and installment payments
that are to made and commence on the same Selected Distribution
Date. If any such estimate is less than Fifty Thousand Dollars
($50,000), the portion of the Deferral Account that would
otherwise be distributed on or commencing with such Selected
Distribution Date shall instead be distributed as if the
Participant had elected a lump sum distribution payable upon
such Participant's Termination of Employment as provided by
Section 6.1.2(a), below.
(e) LUMP SUM DISTRIBUTION UPON DISPOSITION OF AFFILIATE.
Notwithstanding the foregoing provisions of this Section 6.1.1
or any enrollment of a Participant to the contrary, if a
Termination of Employment is deemed to occur on account of a
sale or other disposition of stock or assets of an Affiliate,
the Deferral Accounts of Participants employed by such Affiliate
who are deemed to have had such a Termination of Employment
shall be distributed in a single lump sum.
6.1.2. TIME OF PAYMENT. Payment shall be made or commenced to a
Participant in accordance with the following rules:
(a) TERMINATION OF EMPLOYMENT. If the payment is to be made or
commenced on account of the Participant's Termination of
Employment, payment shall be made within sixty (60) days of such
Termination of Employment.
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(b) DEATH - INSTALLMENTS TO BENEFICIARY. If installments are
recommenced pursuant to Section 6.1.1(b) on account of the
Participant's death, the recommencement of such installment
payments shall begin within sixty (60) days after the later date
of such Participant's death or approval by the Management
Committee of such Beneficiary's application for recommencement
of installments.
(c) DEATH - LUMP SUM TO BENEFICIARY OR REPRESENTATIVE. If a single
lump sum payment is to be made pursuant Section 6.1.1(c) to the
Participants's Beneficiary or to the representative or
representatives of such Participant's estate, payment shall be
made within the later of sixty (60) days after the Participant's
death or the approval by the Management Committee of such
Beneficiary's application for payment or documentation
evidencing the appointment of such representative or
representatives.
(d) DISABILITY. If the payment is made on account of the
Participant's Disability, payment shall be made in a single lump
sum as if the Participant had a Termination of Employment as
provided in paragraph (a) above, within sixty (60) days of the
determination of the existence of such Disability.
(e) SELECTED DISTRIBUTION DATE. Subject to the provisions of
Section 6.1.1(d), if payment is to be made or commenced on a
Selected Distribution Date, payment will be made or
commenced within sixty (60) days of such Selected
Distribution Date.
(f) DISPOSITION OF AFFILIATE. If the payment is to be made on
account of the Participant's Termination of Employment on
account of a disposition of an Affiliate, payment shall be made
within sixty (60) days of such disposition.
6.1.3. DEFAULT. If for any reason a Participant shall have failed to
make a timely written designation of the form of distribution or of a Selected
Distribution Date for payment (including reasons entirely beyond the control of
the Participant), the payment shall be made in a single lump sum in accordance
with the provisions of Section 6.1.2(a). No spouse, former spouse, Beneficiary
or other person shall have any right to participate in the Participant's
selection of a form of benefit.
6.1.4. CODE SECTION 162(M) DELAY. If the Company determines that
delaying the time when the initial payments are made or commenced would increase
the probability that such payments would be fully deductible by the Company for
federal or state income tax purposes, the Company may unilaterally delay the
time of the making or commencement of such payments for up to twelve (12) months
after the date such payments would otherwise be made.
6.2. ELECTION TO CHANGE PRIOR ENROLLMENTS. For the limited purposes of
changing the time and method of payment of his or her existing Deferral Account,
a Participant whose Deferral Account is not and is not expected to be in pay
status during the Plan Year beginning January 1, 1996 and who is not intending
to retire or terminate employment during such Plan Year, may
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elect, subject to the provisions of Section 6.1 above, to receive his or her
Deferral Account in either a lump sum or in term certain installments or in a
combination of either forms of payment. Subject to Section 6.1 above, if a
Participant elects to receive the Deferral Account in installments, the
Participant shall elect a single period of one hundred twenty (120) months in
which to receive such installments. Such election shall be in writing and shall
be delivered to the Management Committee before June 30, 1996, at the time and
in the manner as the Management Committee shall prescribe. Once made, such
election may not be revoked by the Participant. Such election shall be
effective for Events of Maturity occurring on or after January 1, 1997. Any
Participant who cannot, due to the application of the foregoing limitations,
elect to change his or her prior enrollments, or who has a Termination of
Employment occur during 1996, shall have his or her Deferral Account distributed
in the form provided by this Plan prior to its restatement.
SECTION 7. FINANCIAL EMERGENCY
The Management Committee may alter the manner or timing of payment of Deferral
Accounts under Sections 6.1 or 6.2 in the event that the Participant
establishes, to the satisfaction of the Management Committee, severe financial
hardship. In such event, the Management Committee may:
(a) Provide that all or a portion of the Deferral Account shall be
paid immediately in a lump sum payment,
(b) Provide that all or a portion of the installments payable over a
period of time shall be paid immediately in a lump sum, or
(c) Provide for such other installment payment schedules as it deems
appropriate under the circumstances,
as long as the accelerated distribution shall not be in excess of that amount
which is necessary for the Participant to meet the financial hardship.
Severe financial hardship shall be deemed to have occurred in the event of the
Participant's impending bankruptcy, a Participant's or dependent's long and
serious illness, or other events of similar magnitude. The Management
Committee's determination as to the occurrence of a severe financial hardship of
the Participant and the manner in which, if at all, the payment of deferred
amounts shall be altered or modified, shall be final.
SECTION 8. BENEFICIARY
A Participant may designate a Beneficiary or Beneficiaries who, upon his or her
death, shall receive the distributions that otherwise would have been paid to
the Participant. All designations
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shall be in writing and shall be effective only if and when delivered to the
Chief Executive Officer of the Company during the lifetime of the Participant.
If a Participant designates a Beneficiary without providing in the designation
that the Beneficiary must be living at the time of such distribution, the
designation shall vest in the Beneficiary all of the distributions, whether
payable before or after the Beneficiary's death, and any distributions remaining
upon the Beneficiary's death shall be paid to the Beneficiary's estate.
A Participant may, from time to time, change the Beneficiary or Beneficiaries by
a written instrument delivered to the Chief Executive Officer of the Company.
In the event a Participant shall not designate a Beneficiary or Beneficiaries
pursuant to this Section, or if for any reason such designation shall be
ineffective, in whole or in part, the distributions that otherwise would have
been paid to such Participant shall be paid to the estate of such Participant
and in such event, the term "Beneficiary" shall include the estate.
SECTION 9. NONTRANSFERABILITY
In no event shall the Company make any payment under the Plan to any assignee or
creditor of a Participant or a Beneficiary. Prior to the time of payment
hereunder, a Participant or Beneficiary shall have no rights by way of
anticipation or otherwise to assign or otherwise dispose of any interest under
the Plan nor shall such rights be assigned or transferred by operation of law.
SECTION 10. DETERMINATIONS - RULES AND REGULATIONS
10.1. DETERMINATIONS. The Management Committee shall make such determinations
as may be required from time to time in the administration of the Plan. The
Management Committee shall have the discretionary authority and responsibility
to interpret and construe the Plan and to determine all factual and legal
questions under the Plan, including but not limited to the entitlement of
Participants and Beneficiaries, and the amounts of their respective interests.
Each interested party may act and rely upon all information reported to them
hereunder and need not inquire into the accuracy thereof, nor be charged with
any notice to the contrary.
10.2. RULES AND REGULATIONS. Any rule not in conflict or at variance with the
provisions hereof may be adopted by the Management Committee.
10.3. METHOD OF EXECUTING INSTRUMENTS. Information to be supplied or written
notices to be made or consents to be given by the Management Committee pursuant
to any provision of this Plan may be signed in the name of the Management
Committee by any person who has been authorized to make such certification or to
give such notices or consents.
10.4. CLAIMS PROCEDURE. The claims procedure set forth in this Section 10.4
shall be the exclusive procedure for the disposition of claims for benefits
arising under the Plan.
10.4.1. ORIGINAL CLAIM. Any Participant, former Participant or
Beneficiary of such Participant or former Participant may, if he or she so
desires, file with the Management Committee a written claim for benefits under
the Plan. Within ninety (90) days after the filing of such a claim, the
Management Committee shall notify the claimant in writing whether the claim is
upheld or denied in whole or in part or shall furnish the claimant a written
notice describing
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specific special circumstances requiring a specified amount of additional time
(but not more than one hundred eighty (180) days from the date the claim was
filed) to reach a decision on the claim. If the claim is denied in whole or in
part, the Company shall state in writing:
(a) The specific reasons for the denial;
(b) The specific references to the pertinent provisions of this Plan
on which the denial is based;
(c) A description of any additional material or information necessary
for the claimant to perfect the claim and an explanation
of why such material or information is necessary; and
(d) An explanation of the claims review procedure set forth in this
section.
10.4.2. CLAIMS REVIEW PROCEDURE. Within sixty (60) days after receipt
of notice that the claim has been denied in whole or in part, the claimant may
file with the Management Committee a written request for a review and may, in
conjunction therewith, submit written issues and comments. Within sixty (60)
days after the filing of such a request for review, the Management Committee
shall notify the claimant in writing whether, upon review, the claim was upheld
or denied in whole or in part or shall furnish the claimant a written notice
describing specific special circumstances requiring a specified amount of
additional time (but not more than one hundred twenty (120) days from the date
the request for review was filed) to reach a decision on the request for review.
10.4.3. GENERAL RULES.
(a) No inquiry or question shall be deemed to be a claim or a
request for a review of a denied claim unless made in accordance
with the claims procedure. The Management Committee may require
that any claim for benefits and any request for a review of a
denied claim be filed on forms to be furnished by the Management
Committee upon request.
(b) All decisions on claims and on requests for a review of denied
claims shall be made by the Management Committee.
(c) The Management Committee may, in its discretion, hold one or
more hearings on a claim or a request for a review of a denied
claim.
(d) A claimant may be represented by a lawyer or other
representative (at the claimant's own expense), but the
Management Committee reserves the right to require the claimant
to furnish written authorization. A claimant's representative
shall be entitled to copies of all notices given to the
claimant.
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(e) The decision of the Management Committee on a claim and on a
request for a review of a denied claim shall be served on the
claimant in writing. If a decision or notice is not received by
a claimant within the time specified, the claim or request for a
review of a denied claim shall be deemed to have been denied.
(f) Prior to filing a claim or a request for a review of a denied
claim, the claimant or his or her representative shall have a
reasonable opportunity to review a copy of this Plan and all
other pertinent documents in the possession of the Management
Committee.
10.5. INFORMATION FURNISHED BY PARTICIPANTS. The Company and its Affiliates
shall not be liable or responsible for any error in the computation of the
Deferral Account of a Participant resulting from any misstatement of fact made
by the Participant, directly or indirectly, to the Company, and used by it in
determining the Participant's Deferral Account. The Company shall not be
obligated or required to increase the Deferral Account of such Participant
which, on discovery of the misstatement, is found to be understated as a result
of such misstatement of the Participant. However, the Deferral Account of any
Participant which are overstated by reason of any such misstatement shall be
reduced to the amount appropriate in view of the truth.
SECTION 11. ADMINISTRATION
11.1. COMPANY. Functions generally assigned in this Plan to the Company are
delegated to the Committee, Chief Executive Officer and the Management Committee
as follows:
11.1.1. CHIEF EXECUTIVE OFFICER. Except as otherwise provided by the
Plan and as set forth in Section 11.1.2, below, the Chief Executive Officer of
the Company shall delegate to a Management Committee all matters regarding the
administration of the Plan.
11.1.2. COMMITTEE. Notwithstanding the foregoing general delegations
to the Chief Executive Officer and the Management Committee, the Committee shall
have the exclusive authority, which may not be delegated, to act for the
Company:
(a) to amend or to terminate this Plan;
(b) to consent to the adoption of the Plan by other business
entities; to establish conditions and limitations upon such
adoption of the Plan by other business entities; and
(c) to establish the Plan Interest Rate pursuant to Section 5.3.
11.1.3. MANAGEMENT COMMITTEE.
(a) APPOINTMENT AND REMOVAL. The Management Committee, subject to
the direction of the Committee and the Chief Executive Officer,
shall have all of the functions and authorities generally
assigned in this Plan to the Company. The Management Committee
shall consist of one or members as may be determined
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and appointed from time to time by the Chief Executive Officer of
the Company and they shall serve at the pleasure of such Chief
Executive Officer and the Committee.
(b) AUTOMATIC REMOVAL. If any individual who is a member of the
Management Committee is a director, officer or employee when
appointed as a member of the Management Committee, then such
individual shall be automatically removed as a member of the
Management Committee at the earliest time such individual ceases
to be a director, officer or employee. This removal shall occur
automatically and without any requirement for action by the
Chief Executive Officer of the Company or any notice to the
individual so removed.
(c) AUTHORITY. The Management Committee may elect such officers as
the Management Committee may decide upon. In addition to the
other authorities delegated elsewhere in this Plan to the
Management Committee, the Management Committee shall:
(i) establish rules for the functioning of the Management
Committee, including the times and places for holding
meetings, the notices to be given in respect of such
meetings and the number of members who shall constitute
a quorum for the transaction of business,
(ii) organize and delegate to such of its members as it shall
select authority to execute or authenticate rules,
advisory opinions or instructions, and other instruments
adopted or authorized by the Management Committee; adopt
such bylaws or regulations as it deems desirable for the
conduct of its affairs; appoint a secretary, who need
not be a member of the Management Committee, to keep its
records and otherwise assist the Management Committee in
the performance of its duties; keep a record of all its
proceedings and acts and keep all books of account,
records and other data as may be necessary for the
proper administration of the Plan,
(iii) determine from the records of the Company and its
Affiliates the compensation, service records, status and
other facts regarding Participants and other employees,
(iv) cause to be compiled at least annually, from the records
of the Management Committee and the reports and
accountings of the Company and its Affiliates, a report
or accounting of the status of the Plan and the Deferral
Accounts of the Participants, and make it available to
each Participant who shall have the right to examine
that part of such report or accounting (or a true and
correct copy of such part) which sets forth the
Participant's benefits,
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(v) prescribe forms to be used for applications for
participation, benefits, notifications, etc., as may be
required in the administration of the Plan,
(vi) set up such rules as are deemed necessary to carry out
the terms of this Plan,
(vii) resolve all questions of administration of the Plan not
specifically referred to in this Section,
(viii) delegate or redelegate to one or more persons, jointly
or severally, and whether or not such persons are
members of the Management Committee or employees of the
Company, such functions assigned to the Management
Committee hereunder as it may from time to time deem
advisable, and
(ix) perform all other acts reasonably necessary for
administering the Plan and carrying out the provisions
of this Plan and performing the duties imposed by the
Plan on it.
(d) MAJORITY DECISIONS. If there shall at any time be three
(3) or more members of the Management Committee serving
hereunder who are qualified to perform a particular act, the
same may be performed, on behalf of all, by a majority of those
qualified, with or without the concurrence of the minority. No
person who failed to join or concur in such act shall be held
liable for the consequences thereof, except to the extent that
liability is imposed under ERISA.
11.2. CONFLICT OF INTEREST. If any officer or employee of the Company or an
Affiliate, any member of the Committee, or any member of the Management
Committee to whom authority has been delegated or redelegated hereunder shall
also be a Participant or Beneficiary in the Plan, the individual shall have no
authority as such officer, employee, Committee or Management Committee member
with respect to any matter specially affecting his or her individual interest
hereunder (as distinguished from the interests of all Participants and
Beneficiaries or a broad class of Participants and Beneficiaries), all such
authority being reserved exclusively to the other officers, employees, Committee
or Management Committee members as the case may be, to the exclusion of such
Participant or Beneficiary, and such Participant or Beneficiary shall act only
in his or her individual capacity in connection with any such matter.
11.3. DUAL CAPACITY. Individuals, firms, corporations or partnerships
identified herein or delegated or allocated authority or responsibility
hereunder may serve in more than one fiduciary capacity.
11.4. ADMINISTRATOR. The Company shall be the administrator for purposes of
section 3(16)(A) of ERISA.
11.5. NAMED FIDUCIARIES. The Chief Executive Officer, the Committee and the
Management Committee shall be named fiduciaries for the purpose of
section 402(a) of ERISA.
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11.6. SERVICE OF PROCESS. In the absence of any designation to the contrary
by the Company, the Secretary of the Company is designated as the appropriate
and exclusive agent for the receipt of service of process directed to the Plan
in any legal proceeding, including arbitration, involving the Plan.
11.7. ADMINISTRATIVE EXPENSES. The reasonable expenses of administering the
Plan shall be payable by the Company.
SECTION 12. AMENDMENT AND TERMINATION
The Company expects the Plan to be permanent but since future conditions
affecting the Company cannot be anticipated or foreseen, the Company reserves
the right to amend, modify or terminate the Plan at any time by action of the
Committee.
SECTION 13. LIFE INSURANCE CONTRACT
If the Company elects to purchase one or more life insurance contracts to
provide it with funds to make payments under the Plan, the Company shall at all
times be the sole and complete owner and Beneficiary of such contract(s), and
shall have the unrestricted right to use all amounts and exercise all options
and privileges under such contract(s) without the knowledge or consent of any
Participant or Beneficiary or any other person; neither Participant, Beneficiary
nor any other person shall have any right, title or interest whatsoever in or to
any such contract(s).
SECTION 14. MERGER, CONSOLIDATION OR ACQUISITION
In the event of a merger, consolidation or acquisition in which the Company is
not the surviving corporation, unless the successor or acquiring corporation
shall elect to continue and carry on this Plan, all Deferral Accounts shall
become immediately payable in full, notwithstanding any other provision of this
Plan to the contrary.
SECTION 15. NO VESTED RIGHTS
The Plan and the elections exercisable hereunder shall not be deemed or
construed to be a written contract of employment between any Participant and the
Company or any of its Affiliates, nor shall any provision of the Plan restrict
the right of the Company or any of its Affiliates to discharge any Participant,
nor shall any provision of the Plan in any way whatsoever grant to any
Participant the right to receive any scheduled compensation, bonus, or other
payment of any nature whatsoever.
SECTION 16. APPLICABLE LAW
This Plan shall be construed and this Plan shall be administered to create an
unfunded plan providing deferred compensation to a select group of management or
highly compensated employees so that it is exempt from the requirements of Parts
2, 3 and 4 of Title I of ERISA and qualifies for a form of simplified,
alternative compliance with the reporting and disclosure
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requirements of Part 1 of Title I of ERISA. Any reference in this Plan to a
statute or regulation shall be considered also to mean and refer to any
subsequent amendment or replacement of that statute or regulation. This Plan
has been executed and delivered in the State of Minnesota and has been drawn
in conformity to the laws of that State and shall be construed and enforced
in accordance with the laws of the State of Minnesota.
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Exhibit 10 B
DELUXE CORPORATION
SUPPLEMENTAL BENEFIT PLAN
SECTION 1. RESTATEMENT AND PURPOSE
1.1. RESTATEMENT. DELUXE CORPORATION, A MINNESOTA CORPORATION (hereinafter
called the "Company") established, effective as of November 8, 1984, a
supplemental benefit plan known as the "Deluxe Check Printers, Incorporated
Supplemental Benefit Plan" (hereinafter called the "Plan"). It is hereby
desired to amend and restate the Plan in a single document in the manner
hereinafter set forth effective as of January 1, 1996.
1.2. PURPOSE. The Company and its Affiliates each maintain for the benefit of
their eligible employees, a tax-qualified profit sharing and/or a money purchase
pension plan (collectively herein referred to as the "Qualified Plans"). The
Qualified Plans are subject to the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), and are intended to qualify as tax-deferred
retirement plans under section 401(a) of the Internal Revenue Code of 1986, as
amended (the "Code"). With respect to benefits accruing under the Qualified
Plans during plan years beginning after December 31, 1988, section 401(a)(17) of
the Code provides the maximum amount of annual compensation which may be taken
into account in determining the benefits for any employee may not exceed Two
Hundred Thousand Dollars ($200,000) as adjusted from time to time for changes in
cost of living. With respect to benefits accruing under the Qualified Plans
during plan years beginning after December 31, 1993, section 401(a)(17) of the
Code provides the maximum amount of annual compensation which may be taken into
account in determining the benefits for any employee may not exceed One Hundred
Fifty Thousand Dollars ($150,000) as adjusted from time to time for changes in
cost of living. Restrictions also apply to the types or classes of compensation
which may be taken into account under the Plans by virtue of section 401(a)(4)
of the Code. The purpose of the Supplemental Benefit Plan is to provide
eligible employees of the Company and certain of its Affiliates the opportunity
to accrue benefits under the Supplemental Benefit Plan in addition to the
amounts that such employees accrue under the Qualified Plans.
1.3. PLAN NAME. This benefit plan shall be referred to as the Deluxe
Corporation Supplemental Benefit Plan (hereinafter the "Plan").
SECTION 2. DEFINITIONS
2.1. DEFINITIONS. Whenever used in this Plan, the following terms shall have
the meanings set forth below:
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(a) "Affiliate" means a business entity which is affiliated in
ownership with the Company and is recognized as an Affiliate by
the Management Committee for the purposes of this Plan.
(b) "Committee" means the Compensation Committee of the Board of
Directors of the Company.
(c) "Disability" means, as to a Participant who is an employee of the
Company, a determination of disability under Company's Long Term
Disability Plan. If the Participant is an employee of an
Affiliate, "Disability" means, as to such Participant, a
determination of disability under the Long Term Disability Plan of
such Affiliate, or, if no such Plan exists, then under the Long
Term Disability Plan of the Company as if such Participant were a
participant in such plan. If the Company discontinues its Long
Term Disability Plan, then "Disability" shall mean long term
disability as defined in any other Plan of the Company which
generally defines long term disability for purposes of such other
plan. In no event, however, shall a Participant be considered to
have a Disability for purposes of this Plan until such time as
such Participant is entitled to begin (or would be entitled to
begin, if such Participant were a participant in the relevant
plan) receipt of benefits under such long term disability or other
relevant plan.
(d) "Eligible Employee" means an employee of the Company or its
Affiliates who (i) is an officer or assistant officer, or (ii) has
significant management or professional responsibilities, and (iii)
who is highly compensated. Subject to the limitations contained
in Section 3, the Management Committee from time to time may (i)
establish rules governing the eligibility of employees of the
Company and its Affiliates to participate in the Plan and, such
rules, if adopted, shall be deemed to further define or amend, as
the case may be, the definition of "Eligible Employee" herein, and
(ii) permit certain employees of the Company and its Affiliates,
who would not otherwise be eligible to participate in the Plan, to
participate in the Plan.
(e) "Event of Maturity" means any of the occurrences described in
Section 6 by reason of which a Participant or Beneficiary may
become entitled to a distribution from the Plan.
(f) "Installment Amount" means that portion or all of a Supplemental
Account (expressed in dollars) that is to be paid during a single
one hundred twenty (120) month period (having common initial and
final installment dates) designated by the Participant in writing
at the time of his or her elections made in accordance with this
Plan.
(g) "Management Committee" means the Management Committee formed by
the Chief Executive Officer pursuant to Section 11 of the Plan.
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(h) "Participant" means any Eligible Employee who is affirmatively
selected by Management Committee to participate in the Plan.
(i) "Plan Year" means the twelve-month period coinciding with the
Company's fiscal year and ending on each December 31.
(j) "Selected Distribution Date" shall mean a date that is designated
in accordance with this Plan by the Participant in writing at the
time of his or her elections as the date (or dates) for the
commencement of payments of his or her Supplemental Account or any
portion thereof. In the absence of an effective election of any
other date(s), a Participant's Selected Distribution Date shall be
the date of his or her Termination of Employment.
(k) "Supplemental Account" means the separate bookkeeping account
representing the unfunded and unsecured general obligation of
Company established with respect to each Participant to which is
credited the dollar amounts specified in Section 5 and from which
are subtracted payments made pursuant to Sections 6 and 7. To the
extent necessary to accommodate and effect the distribution
elections made by Participants pursuant to Section 4, separate
bookkeeping sub-accounts may be established with respect to each
of the several elections made by Participants.
(l) "Termination of Employment" means a complete severance of a
Participant's employment relationship with the Company and all
Affiliates. A transfer from employment with the Company to
employment with an Affiliate of the Company or other transfer
between Affiliates or from an Affiliate to the Company shall not
constitute a Termination of Employment. If an Affiliate ceases to
be an Affiliate because of a sale or other disposition of
substantially all its stock or assets, then Participants who are
employed by that Affiliate shall be deemed to have had a
Termination of Employment for the purposes of this Plan as of the
effective date of such sale.
SECTION 3. ELIGIBILITY FOR PARTICIPATION
Each Eligible Employee of the Company and its Affiliates shall be eligible to
participate in the Plan and shall become a Participant upon selection by the
Management Committee. In the event a Participant ceases to be an Eligible
Employee, he or she shall become an inactive Participant, retaining all the
rights described under the Plan, except the right to accruals (other than growth
additions as described in Section 5.2, below). Notwithstanding anything
apparently to the contrary in this Plan or in any written communication,
summary, resolution or document or oral communication, no individual shall be a
Participant in this Plan, develop benefits under this Plan or be entitled to
receive benefits under this Plan (either for himself or herself or his or her
survivors) unless such individual is a member of a select group of management or
highly compensated employees (as that expression is used in ERISA). If a court
of competent jurisdiction, any representative of the U.S. Department of Labor or
any other governmental,
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regulatory or similar body makes any direct or indirect, formal or informal,
determination that an individual is not a member of a select group of management
or highly compensated employees (as that expression is used in ERISA), such
individual shall not be (and shall not have ever been) a Participant in this
Plan at any time. If any person not so defined has been erroneously treated as a
Participant in this Plan, upon discovery of such error such person's erroneous
participation shall immediately terminate ab initio and the Company shall
distribute the individual's Supplemental Benefit Account immediately.
SECTION 4. TIME AND FORM OF DISTRIBUTION
4.1. GENERAL RULE. Prior to the first day of any Plan Year, a
Participant may make a separate election regarding the Selected Distribution
Date and form of payment of accruals of his or her Supplemental Account for that
Plan Year. Each such election:
(a) Shall be irrevocable for the Plan Year with respect to which it is
made once it has been accepted by the Chief Executive Officer of
the Company.
(b) Shall specify the time at which distribution shall be made which
shall, subject to Section 6 hereof, be the later of such
Participant's Selected Distribution Date or such Participant's
Termination of Employment.
(c) Shall specify the form in which distribution of the portion of the
Supplemental Account attributable to that election shall be made
under Section 6 (and if such designation is not clearly made to
the contrary, shall be deemed to have been an election of a single
lump sum distribution).
(d) Shall be made upon forms furnished by the Company, shall be made
at such time as the Company shall determine, shall be made before
the beginning of the Plan Year with respect to which it is made
and shall conform to such other procedural and substantive rules
as the Company shall prescribe from time to time.
4.2. ELECTION TO CHANGE TIME AND FORM OF DISTRIBUTION OF EXISTING
SUPPLEMENTAL ACCOUNT BALANCES. For the limited purposes of changing the time
and form of payment of his or her existing Supplemental Account, a Participant
whose Supplemental Account is not and is not expected to be in pay status during
the calendar year beginning January 1, 1996 and who is not intending to retire
or terminate employment during such Plan Year, may elect to receive his or her
Supplemental Account in either a lump sum or in term certain installments or in
a combination of either forms of payment. Subject to Section 6.1 below, if a
Participant elects to receive the Supplemental Account in installments, the
Participant shall elect a single period of one hundred twenty (120) months in
which to receive such installments. Such election shall be in writing and shall
be delivered to the Management Committee before June 30, 1996, at the time and
in the manner as the Management Committee shall prescribe. Once made, such
election may not be revoked by the Participant. Such election shall be
effective for Events of Maturity occurring on or after January 1, 1997. Any
Participant who cannot, due to the application of the foregoing limitations,
elect to change the time or form of distribution of his or her Supplemental
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Account, or who has a Termination of Employment occur during 1996, shall have
his or her Supplemental Account distributed in the form provided by this Plan
prior to its restatement.
4.3. SPECIAL RULE FOR 1996 SHORT PLAN YEAR. In order to permit
Participants to make an election under Section 4.1 for the 1996 Plan Year,
Participants may, prior to April 1, 1996, make the election therein provided
with respect to the form of payment of contributions under Section 5.1 to their
Supplemental Accounts for that Plan Year. The Management Committee shall have
the authority to adopt rules that modify and waive the election procedures set
forth in Section 4.1, above, to ensure that orderly first elections may be
completed.
SECTION 5. BENEFIT FOR PARTICIPANTS
5.1 SUPPLEMENTAL BENEFIT AMOUNT. The Company and its Affiliates, as the case
may be, shall pay to the Supplemental Benefit Account of each Participant each
year an amount equal to (a) - (b) + (c), as follows:
(a) the amount that would have been contributed on behalf of such
Participant to the Qualified Plans if such benefits had been
determined without regard to the compensation limitation of
section 401(a)(17) of the Code,
MINUS
(b) the amount actually contributed on behalf of such Participant to
the Qualified Plans taking into account the compensation
limitation of section 401(a)(17) of the Code,
PLUS
(c) a growth addition calculated as provided in Section 5.2, below.
5.2. GROWTH ADDITIONS. Each Participant's Supplemental Account shall be
credited as of the last day of each Plan Year with a growth addition computed on
the beginning balance of such Supplemental Account. The growth addition shall
be computed by multiplying such amount by the Plan Interest Rate for such Plan
Year. The Plan Interest Rate for each Plan Year shall be determined by the
Committee, provided that the Plan Interest Rate shall in no event be lower than
the lesser of: (a) ninety percent (90%) of the Company's average return on
short term invested bank funds during its preceding fiscal year, or (b) eight
percent (8%). In the absence of a timely determination by the Committee with
respect to a particular Plan Year, the Plan Interest Rate for such Plan Year
shall be equal to the Plan Interest Rate for the Previous Plan Year.
5.3. CHARGES AGAINST SUPPLEMENTAL ACCOUNTS. There shall be charged against
each Participant's Supplemental Benefit Account any payments made to the
Participant or his or her Beneficiary in accordance with Sections 6 or 7 of the
Plan.
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5.4. CONTRACTUAL OBLIGATION. It is intended that the Company is under a
contractual obligation to make payments to a Participant when due. Such
payments shall be made out of the general funds of the Company.
5.5. UNSECURED INTEREST. No Participant or Beneficiary shall have any
interest whatsoever in any specific asset of the Company. To the extent any
person acquires a right to receive payments under the Plan, such right shall be
no greater than the right of any unsecured general creditor of the Company.
SECTION 6. PAYMENT OF SUPPLEMENTAL ACCOUNT
6.1. FORM OF DISTRIBUTION. Upon the occurrence of an Event of Maturity
effective as to a Participant, the Company shall commence payment of such
Participant's Supplemental Account (reduced by the amount of any applicable
payroll, withholding and other taxes) in the form(s) designated by the
Participant in his or her elections. A Participant shall not be required to
make application to receive payment. Distribution shall not be made to any
Beneficiary, however, until such Beneficiary shall have filed a written
application for benefits and such other information as may be requested by the
Company and such application shall have been approved by the Company.
6.1.1. FORM OF PAYMENT. Payment shall be made as follows:
(a) TERM CERTAIN INSTALLMENTS TO PARTICIPANT. Subject to Section
6.1.1(d), below, if the distributee is a Participant and the
Installment Amount on the applicable Selected Distribution Date
(without giving effect to any growth additions after such date) is
at least Fifty Thousand Dollars ($50,000), in a series of monthly
installments payable over one hundred twenty (120) months. The
amount of the monthly installments shall be approximately equal
and shall include a reasonable interest assumption as determined
by the Company from time to time.
(b) CONTINUED TERM CERTAIN INSTALLMENTS TO BENEFICIARY. If the
distributee is a Beneficiary of a deceased Participant and payment
had commenced to the deceased Participant before his or her death
over a one hundred twenty (120) month period as specified in
paragraph (a) above, in a series of annual installments payable
over the remainder of such period.
(c) LUMP SUM. Except as provided in Section 6.1.1(b), if the
distributee is either Beneficiary or a representative of the
estate of a deceased Participant, in a single lump sum payment
pursuant to Section 6.1.2(c), below.
(d) LUMP SUM DISTRIBUTION NOTWITHSTANDING DESIGNATION.
Notwithstanding the Participant's election to have all or a
portion of his or her Supplemental Account paid in installments
pursuant to Section 6.1.1(a) or the designation by the Participant
of a Selected Distribution Date that will occur after the date of
the Participant's Termination of Employment, such Participant's
Supplemental Account (or relevant portion thereof, as the case may
be) shall be paid in a single
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lump sum pursuant to the provisions of Section 6.1.2(a), below,
unless such Installment Amount, as of the applicable distribution
date (without giving effect to any growth additions after such
date), is at least Fifty Thousand Dollars ($50,000). If a
Selected Distribution Date will occur after the Participant's
Termination of Employment, the Company will make an estimate of
the amount of the distribution that will be made in a lump sum or
the Installment Amount that will be available for installments, as
the case may be, on or commencing on such Selected Distribution
Date. Such estimate (i) shall include a reasonable interest
assumption as determined by the Company for the period between the
Participant's Termination of Employment and such Selected
Distribution Date, (ii) shall not include any growth additions
after the Selected Distribution Date, and (iii) shall include all
portions of the Supplemental Account distributable in a lump sum
or in one hundred twenty (120) monthly installments beginning on
such Selected Distribution Date notwithstanding that such amounts
may have been attributable to elections relating to more than one
Plan Year. Separate estimates shall be made for lump sum and
installment payments that are to be made and commence on the same
Selected Distribution Date. If any such estimate is less than
Fifty Thousand Dollars ($50,000), the portion of the Supplemental
Account that would otherwise be distributed on or commencing with
such Selected Distribution Date shall instead be distributed as if
the Participant had elected a lump sum distribution payable upon
such Participant's Termination of Employment as provided by
Section 6.1.2(a), below.
(e) LUMP SUM DISTRIBUTION UPON DISPOSITION OF AFFILIATE.
Notwithstanding the foregoing provisions of this Section 6.1.1 or
any enrollment of a Participant to the contrary, if a Termination
of Employment is deemed to occur on account of a sale or other
disposition of stock or assets of an Affiliate, the Supplemental
Benefit Account of Participants employed by such Affiliate who are
deemed to have had such a Termination of Employment shall be
distributed in a single lump sum.
6.1.2. TIME OF PAYMENT. Payment shall be made or commenced to a
Participant in accordance with the following rules:
(a) TERMINATION OF EMPLOYMENT. If the payment is to be made or
commenced on account of the Participant's Termination of
Employment, payment shall be made or commenced within sixty (60)
days of such Termination of Employment.
(b) DEATH - INSTALLMENTS TO BENEFICIARY. If installments are
recommenced pursuant to Section 6.1.1(b) on account of the
Participant's death, the recommencement of such installment
payments shall begin within sixty (60) days after the later date
of such Participant's death or approval by the Management
Committee of such Beneficiary's application for recommencement of
installments.
(c) DEATH - LUMP SUM TO BENEFICIARY OR REPRESENTATIVE. If a single
lump sum payment is to be made pursuant Section 6.1.1(c) to the
Participant's Beneficiary
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or to the representative or representatives of such Participant's
estate, payment shall be made within the later of sixty (60) days
after the Participant's death or the approval by the Management
Committee of such Beneficiary's application for payment or
documentation evidencing the appointment of such representative or
representatives.
(d) DISABILITY. If the payment is made on account of the
Participant's Disability, payment shall be made in a single lump
sum as if the Participant had a Termination of Employment as
provided in paragraph (a) above, within sixty (60) days of the
determination of the existence of such Disability.
(e) SELECTED DISTRIBUTION DATE. Subject to the provisions of Section
6.1.1(d), if payment is to be made or commenced on a Selected
Distribution Date, payment will be made or commenced within sixty
(60) days of such Selected Distribution Date.
(f) DISPOSITION OF AFFILIATE. If the payment is to be made on account
of the Participant's Termination of Employment on account of a
disposition of an Affiliate, payment shall be made within sixty
(60) days of such disposition.
6.1.3. DEFAULT. If for any reason a Participant shall have failed to
make a timely written designation of the form of distribution or of a Selected
Distribution Date for payment (including reasons entirely beyond the control of
the Participant), the payment shall be made in a single lump sum in accordance
with the provisions of Section 6.1.2(a). No spouse, former spouse, Beneficiary
or other person shall have any right to participate in the Participant's
selection of a form of benefit.
6.2. CODE SECTION 162(M) DELAY. If the Company determines that delaying the
time when the initial payments are made or commenced would increase the
probability that such payments would be fully deductible by the Company for
federal or state income tax purposes, the Company may unilaterally delay the
time of the making or commencement of such payments for up to twelve (12) months
after the date such payments would otherwise be made.
SECTION 7. FINANCIAL EMERGENCY
The Management Committee may alter the manner or timing of payment of
Supplemental Account under Section 6 in the event that the Participant
establishes, to the satisfaction of the Management Committee, severe financial
hardship. In such event, the Committee may:
(a) Provide that all or a portion of the Supplemental Account shall be
paid immediately in a lump sum payment,
(b) Provide that all or a portion of the installments payable over a
period of time shall be paid immediately in a lump sum, or
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(c) Provide for such other installment payment schedules as it deems
appropriate under the circumstances,
as long as the accelerated distribution shall not be in excess of that amount
which is necessary for the Participant to meet the financial hardship.
Severe financial hardship shall be deemed to have occurred in the event of the
Participant's impending bankruptcy, a Participant's or dependent's long and
serious illness, or other events of similar magnitude. The Management
Committee's determination as to the occurrence of a severe financial hardship of
the Participant and the manner in which, if at all, the payment of Supplemental
Account benefits shall be altered or modified, shall be final.
SECTION 8. BENEFICIARY
A Participant may designate a Beneficiary or Beneficiaries who, upon his or her
death, shall receive the distributions that otherwise would have been paid to
the Participant. All designations shall be in writing and shall be effective
only if and when delivered to the Chief Executive Officer of the Company during
the lifetime of the Participant. If a Participant designates a Beneficiary
without providing in the designation that the Beneficiary must be living at the
time of such distribution, the designation shall vest in the Beneficiary all of
the distributions, whether payable before or after the Beneficiary's death, and
any distributions remaining upon the Beneficiary's death shall be paid to the
Beneficiary's estate.
A Participant may, from time to time, change the Beneficiary or Beneficiaries by
a written instrument delivered to the Chief Executive Officer of the Company.
In the event a Participant shall not designate a Beneficiary or Beneficiaries
pursuant to this Section, or if for any reason such designation shall be
ineffective, in whole or in part, the distributions that otherwise would have
been paid to such Participant shall be paid to the estate of such Participant
and in such event, the term "Beneficiary" shall include the estate.
SECTION 9. NONTRANSFERABILITY
In no event shall the Company make any payment under the Plan to any assignee or
creditor of a Participant or a Beneficiary. Prior to the time of payment
hereunder, a Participant or Beneficiary shall have no rights by way of
anticipation or otherwise to assign or otherwise dispose of any interest under
the Plan nor shall such rights be assigned or transferred by operation of law.
SECTION 10. DETERMINATIONS - RULES AND REGULATIONS
10.1. DETERMINATIONS. The Management Committee shall make such determinations
as may be required from time to time in the administration of the Plan. The
Management Committee shall have the discretionary authority and responsibility
to interpret and construe the Plan and to determine all factual and legal
questions under the Plan, including but not limited to the
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entitlement of Participants and Beneficiaries, and the amounts of their
respective interests. Each interested party may act and rely upon all
information reported to them hereunder and need not inquire into the accuracy
thereof, nor be charged with any notice to the contrary.
10.2. RULES AND REGULATIONS. Any rule not in conflict or at variance with the
provisions hereof may be adopted by the Management Committee.
10.3. METHOD OF EXECUTING INSTRUMENTS. Information to be supplied or written
notices to be made or consents to be given by the Management Committee pursuant
to any provision of this Plan may be signed in the name of the Management
Committee by any person who has been authorized to make such certification or to
give such notices or consents.
10.4. CLAIMS PROCEDURE. The claims procedure set forth in this Section 10.4
shall be the exclusive procedure for the disposition of claims for benefits
arising under the Plan.
10.4.1. ORIGINAL CLAIM. Any Participant, former Participant or
Beneficiary of such Participant or former Participant may, if he or she so
desires, file with the Management Committee a written claim for benefits under
the Plan. Within ninety (90) days after the filing of such a claim, the
Management Committee shall notify the claimant in writing whether the claim is
upheld or denied in whole or in part or shall furnish the claimant a written
notice describing specific special circumstances requiring a specified amount of
additional time (but not more than one hundred eighty (180) days from the date
the claim was filed) to reach a decision on the claim. If the claim is denied
in whole or in part, the Company shall state in writing:
(a) The specific reasons for the denial;
(b) The specific references to the pertinent provisions of this Plan
on which the denial is based;
(c) A description of any additional material or information necessary
for the claimant to perfect the claim and an explanation of why
such material or information is necessary; and
(d) An explanation of the claims review procedure set forth in this
section.
10.4.2. CLAIMS REVIEW PROCEDURE. Within sixty (60) days after receipt
of notice that the claim has been denied in whole or in part, the claimant may
file with the Management Committee a written request for a review and may, in
conjunction therewith, submit written issues and comments. Within sixty (60)
days after the filing of such a request for review, the Management Committee
shall notify the claimant in writing whether, upon review, the claim was upheld
or denied in whole or in part or shall furnish the claimant a written notice
describing specific special circumstances requiring a specified amount of
additional time (but not more than one hundred twenty (120) days from the date
the request for review was filed) to reach a decision on the request for review.
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10.4.3. GENERAL RULES.
(a) No inquiry or question shall be deemed to be a claim or a request
for a review of a denied claim unless made in accordance with the
claims procedure. The Committee may require that any claim for
benefits and any request for a review of a denied claim be filed
on forms to be furnished by the Management Committee upon request.
(b) All decisions on claims and on requests for a review of denied
claims shall be made by the Management Committee.
(c) The Management Committee may, in its discretion, hold one or more
hearings on a claim or a request for a review of a denied claim.
(d) A claimant may be represented by a lawyer or other representative
(at the claimant's own expense), but the Management Committee
reserves the right to require the claimant to furnish written
authorization. A claimant's representative shall be entitled to
copies of all notices given to the claimant.
(e) The decision of the Management Committee on a claim and on a
request for a review of a denied claim shall be served on the
claimant in writing. If a decision or notice is not received by a
claimant within the time specified, the claim or request for a
review of a denied claim shall be deemed to have been denied.
(f) Prior to filing a claim or a request for a review of a denied
claim, the claimant or his or her representative shall have a
reasonable opportunity to review a copy of this Plan and all other
pertinent documents in the possession of the Management Committee.
10.5. INFORMATION FURNISHED BY PARTICIPANTS. The Company and its Affiliates
shall not be liable or responsible for any error in the computation of the
Supplemental Account of a Participant resulting from any misstatement of fact
made by the Participant, directly or indirectly, to the Company, and used by it
in determining the Participant's Supplemental Account. The Company shall not be
obligated or required to increase the Supplemental Account of such Participant
which, on discovery of the misstatement, is found to be understated as a result
of such misstatement of the Participant. However, the Supplemental Account of
any Participant which are overstated by reason of any such misstatement shall be
reduced to the amount appropriate in view of the truth.
SECTION 11. ADMINISTRATION
11.1. COMPANY. Functions generally assigned in this Plan to the Company are
delegated to the Committee, Chief Executive Officer and the Management Committee
as follows:
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11.1.1. CHIEF EXECUTIVE OFFICER. Except as otherwise provided by the
Plan and as set forth in Section 11.1.2, below, the Chief Executive Officer of
the Company shall delegate to a Management Committee all matters regarding the
administration of the Plan.
11.1.2. COMMITTEE. Notwithstanding the foregoing general delegations to
the Chief Executive Officer and the Management Committee, the Committee shall
have the exclusive authority, which may not be delegated, to act for the
Company:
(a) to amend or to terminate this Plan;
(b) to consent to the adoption of the Plan by other business entities;
to establish conditions and limitations upon such adoption of the
Plan by other business entities; and
(c) to establish the Plan Interest Rate pursuant to Section 5.2.
11.1.3. MANAGEMENT COMMITTEE.
(a) APPOINTMENT AND REMOVAL. The Management Committee, subject to the
direction of the Committee and the Chief Executive Officer, shall
have all of the functions and authorities generally assigned in
this Plan to the Company. The Management Committee shall consist
of one or more members as may be determined and appointed from
time to time by the Chief Executive Officer of the Company and
they shall serve at the pleasure of such Chief Executive Officer
and the Committee.
(b) AUTOMATIC REMOVAL. If any individual who is a member of the
Management Committee is a director, officer or employee when
appointed as a member of the Management Committee, then such
individual shall be automatically removed as a member of the
Management Committee at the earliest time such individual ceases
to be a director, officer or employee. This removal shall occur
automatically and without any requirement for action by the Chief
Executive Officer of the Company or any notice to the individual
so removed.
(c) AUTHORITY. The Management Committee may elect such officers as
the Management Committee may decide upon. In addition to the
other authorities delegated elsewhere in this Plan to the
Management Committee, the Management Committee shall:
(i) establish rules for the functioning of the Management
Committee, including the times and places for holding
meetings, the notices to be given in respect of such
meetings and the number of members who shall constitute a
quorum for the transaction of business,
-12-
<PAGE>
(ii) organize and delegate to such of its members as it shall
select authority to execute or authenticate rules, advisory
opinions or instructions, and other instruments adopted or
authorized by the Management Committee; adopt such bylaws
or regulations as it deems desirable for the conduct of its
affairs; appoint a secretary, who need not be a member of
the Management Committee, to keep its records and otherwise
assist the Management Committee in the performance of its
duties; keep a record of all its proceedings and acts and
keep all books of account, records and other data as may be
necessary for the proper administration of the Plan,
(iii) determine from the records of the Company and its
Affiliates the compensation, service records, status and
other facts regarding Participants and other employees,
(iv) cause to be compiled at least annually, from the records of
the Management Committee and the reports and accountings of
the Company and its Affiliates, a report or accounting of
the status of the Plan and the Supplemental Accounts of the
Participants, and make it available to each Participant who
shall have the right to examine that part of such report or
accounting (or a true and correct copy of such part) which
sets forth the Participant's benefits,
(v) prescribe forms to be used for applications for
participation, benefits, notifications, etc., as may be
required in the administration of the Plan,
(vi) set up such rules as are deemed necessary to carry out the
terms of this Plan,
(vii) resolve all questions of administration of the Plan not
specifically referred to in this Section,
(viii) delegate or redelegate to one or more persons, jointly or
severally, and whether or not such persons are members of
the Management Committee or employees of the Company, such
functions assigned to the Management Committee hereunder as
it may from time to time deem advisable, and
(ix) perform all other acts reasonably necessary for
administering the Plan and carrying out the provisions of
this Plan and performing the duties imposed by the Plan on
it.
(d) MAJORITY DECISIONS. If there shall at any time be three (3) or
more members of the Management Committee serving hereunder who are
qualified to perform a particular act, the same may be performed,
on behalf of all, by a majority of those qualified, with or
without the concurrence of the minority. No person who failed to
join or concur in such act shall be held liable for the
consequences thereof, except to the extent that liability is
imposed under ERISA.
-13-
<PAGE>
11.2. CONFLICT OF INTEREST. If any officer or employee of the Company or an
Affiliate, any member of the Committee, or any member of the Management
Committee to whom authority has been delegated or redelegated hereunder shall
also be a Participant or Beneficiary in the Plan, the individual shall have no
authority as such officer, employee, Committee or Management Committee member
with respect to any matter specially affecting his or her individual interest
hereunder (as distinguished from the interests of all Participants and
Beneficiaries or a broad class of Participants and Beneficiaries), all such
authority being reserved exclusively to the other officers, employees, Committee
or Management Committee members as the case may be, to the exclusion of such
Participant or Beneficiary, and such Participant or Beneficiary shall act only
in his or her individual capacity in connection with any such matter.
11.3. DUAL CAPACITY. Individuals, firms, corporations or partnerships
identified herein or delegated or allocated authority or responsibility
hereunder may serve in more than one fiduciary capacity.
11.4. ADMINISTRATOR. The Company shall be the administrator for purposes of
section 3(16)(A) of ERISA.
11.5. NAMED FIDUCIARIES. The Chief Executive Officer, the Committee and the
Management Committee shall be named fiduciaries for the purpose of
section 402(a) of ERISA.
10.6. SERVICE OF PROCESS. In the absence of any designation to the contrary by
the Company, the Secretary of the Company is designated as the appropriate and
exclusive agent for the receipt of service of process directed to the Plan in
any legal proceeding, including arbitration, involving the Plan.
10.7. ADMINISTRATIVE EXPENSES. The reasonable expenses of administering the
Plan shall be payable by the Company.
SECTION 12. AMENDMENT AND TERMINATION
The Company expects the Plan to be permanent but since future conditions
affecting the Company cannot be anticipated or foreseen, the Company reserves
the right to amend, modify or terminate the Plan at any time by action of the
Committee.
SECTION 13. LIFE INSURANCE CONTRACT
If the Company elects to purchase one or more life insurance contracts to
provide it with funds to make payments under the Plan, the Company shall at all
times be the sole and complete owner and Beneficiary of such contract(s), and
shall have the unrestricted right to use all amounts and exercise all options
and privileges under such contract(s) without the knowledge or consent of
-14-
<PAGE>
any Participant or Beneficiary or any other person; neither Participant,
Beneficiary nor any other person shall have any right, title or interest
whatsoever in or to any such contract(s).
SECTION 14. MERGER, CONSOLIDATION OR ACQUISITION
In the event of a merger, consolidation or acquisition, in which the Company is
not the surviving corporation, unless the successor or acquiring corporation
shall elect to continue and carry on this Plan, all Supplemental Accounts shall
become immediately payable in full, notwithstanding any other provision of this
Plan to the contrary.
SECTION 15. NO VESTED RIGHTS
The Plan and the elections exercisable hereunder shall not be deemed or
construed to be a written contract of employment between any Participant and the
Company or any of its Affiliates, nor shall any provision of the Plan restrict
the right of the Company or any of its Affiliates to discharge any Participant,
nor shall any provision of the Plan in any way whatsoever grant to any
Participant the right to receive any scheduled compensation, bonus, or other
payment of any nature whatsoever.
SECTION 16. APPLICABLE LAW
This Plan shall be construed and this Plan shall be administered to create an
unfunded plan providing deferred compensation to a select group of management or
highly compensated employees so that it is exempt from the requirements of Parts
2, 3 and 4 of Title I of ERISA and qualifies for a form of simplified,
alternative compliance with the reporting and disclosure requirements of Part 1
of Title I of ERISA. Any reference in this Plan to a statute or regulation
shall be considered also to mean and refer to any subsequent amendment or
replacement of that statute or regulation. This Plan has been executed and
delivered in the State of Minnesota and has been drawn in conformity to the laws
of that State and shall be construed and enforced in accordance with the laws of
the State of Minnesota.
-15-
<PAGE>
Exhibit 10 G
DELUXE CORPORATION
DESCRIPTION OF INITIAL COMPENSATION AND EMPLOYMENT
ARRANGEMENT WITH JOHN A. BLANCHARD III
Title: President and CEO
Board Membership: Recommend election to board
Base Salary: $500,000 per year; next review November 1996
Annual Bonus: Target award equal to 60% base salary; prorata portion guaranteed
for 1995 Bonus payout range from 0% to 200% of target.
Long-Term Compensation: Full participation in ongoing long-term program 40,000
share stock option grant for 1995.
Replacement for Forfeited Awards: Inducement to Join: 125,000 share stock
option grants (25,000 1995, 50,000 1996, 50,000 1997) and 25,000 share
restricted stock award with minimum five-year vesting $250,000 cash sign-on
bonus; suggest that after-tax proceeds be used to buy Deluxe stock on open
market upon joining.
Retirement Benefits: Credit 15 years of additional service for purposes of
computing benefits under the Company's two defined-contribution retirement
plans.
Perquisites: Extend participation in the Company's automobile, tax preparation
and other executive perquisite programs.
Severance: 24-month continuation of base salary and welfare and retirement
benefits following actual or constructive termination without cause.
Change of Control: Options vest immediately, restricted stock and performance
shares remain in place.
May 1, 1995
<PAGE>
Exhibit 10 H
DELUXE CORPORATION
DESCRIPTION OF SUPPLEMENTAL PENSION PLAN
[To: JOHN A. "GUS" BLANCHARD III]
The May 1, 1995 memorandum concerning your compensation by the Company
("Compensation Memorandum"), provided that you would receive "credit [for]
fifteen years of additional service for purpose of computing benefits under the
Company's two defined contribution plans." At its October 11, 1995 meeting, the
Compensation Committee of the Board of Directors, having considered the
Compensation Memorandum and management's recommendations, with your consent,
adopted the approach set out below to measure and define the additional
retirement benefits associated with such additional fifteen years of service.
Your total annual retirement benefits, referred to as "Target Annual Retirement
Benefits," will consist of two parts. The first part will be comprised of
benefits under all Deluxe-paid retirement plans (including, without limitation,
the Company's profit sharing, pension and supplemental (ERISA excess) plans) and
any Company-paid portion of contributory retirement plans. Your participation
in and the benefits you receive under those plans will be governed by the terms
of those plans as the same may be amended from time to time. For the purposes
of this letter, those plans are referred to together as the "Base Plans" and the
estimated annual benefits to be paid out under those plans (as further explained
below) will be referred to as the "Estimated Annual Base Plan Benefits."
The second part of your retirement benefits will consist of the supplemental
retirement benefits necessary to achieve your Target Annual Retirement Benefits.
Such supplemental retirement benefits are intended to provide you with
incremental retirement benefits (the annual amount of such incremental benefits
being referred to as the "Incremental Annual Retirement Benefits") so that your
total benefits would be the amount you would have received had you worked for
the Company for an additional fifteen years as contemplated by the Compensation
Memorandum.
The sum of Estimated Annual Base Plan Benefits and Incremental Annual Retirement
Benefits will equal Target Annual Retirement Benefits.
APPROACH:
The steps in calculating Incremental Annual Retirement Benefits are as follows:
<PAGE>
Page 2
1. To calculate Target Annual Retirement Benefits, you will be credited
with fifteen (15) years of service which will be added to your actual years of
service at retirement. Target Annual Retirement Benefits equals the product of
(a) one and one-half percent (1.5%) (b) your actual number of years of service
at retirement (or at the time your employment by the Company is terminated due
to death or disability) plus fifteen (15) and, (c) the average of your highest
five years cash compensation with the Company (base plus annual cash incentive).
If you are employed less than five years by the Company, your average
compensation will be computed on the basis of your fully completed years of
employment by the Company.
EXAMPLE: ASSUMING RETIREMENT WITH 12 YEARS OF SERVICE: 1.5% X 27 YOS
(15+12) = 40.5% X HI-5 AVERAGE CASH COMPENSATION.
2. Estimated Annual Base Plan Benefits equals the annual amount of a
fifteen (15) year level payment option (i.e. annuity) with respect to the
principal accumulated for you in the Base Plans at the time of your retirement
assuming an annual rate of interest of eight percent (8%) rate during the
fifteen (15) year distribution period.
3. Incremental Annual Retirement Benefits equals the amount computed by
subtracting the amount determined under paragraph 2 from the amount determined
under paragraph 1. The amount of the Incremental Annual Retirement Benefits
will be paid to you annually for fifteen (15) years following your retirement,
subject to the limitations set out below.
Incremental Annual Retirement Benefits will not be paid unless you have
completed five years of continuous service with the Company, except that:
- If your employment with the Company is terminated due to your
disability, Incremental Annual Retirement Benefits will be paid to you without
regard to the five year minimum service requirement. For the purposes hereof,
disability will mean any accident or illness that prevents you from performing
the duties of your position as the Company's Chief Executive Officer for three
months in any six month period.
- If your employment by the Company is terminated due to death,
Incremental Annual Retirement Benefits will be paid to your named beneficiaries,
if any, or to your estate, personal representatives or heirs, as appropriate,
without regard to the five year minimum service requirement.
- If you die after you become eligible to receive Incremental
Retirement Benefits but before you have been paid the full fifteen (15) years of
such benefits, the balance remaining at the time of your death will be paid to
your named beneficiaries, if any, or to your estate, personal representatives or
heirs, as appropriate for the balance of such fifteen (15) year period at the
time such benefits would have been paid had you lived for the full fifteen (15)
year period.
<PAGE>
Page 3
The schedule below illustrates how the 15 years of credited service will be
combined with actual service in step #1 above. The numbers shown will be
adjusted for a portion of actual service.
<TABLE>
<CAPTION>
YEARS YEARS BENEFITS AS A % OF
WORKED CREDITED HI-5 AVG. COMP. (1)
---------- ------------ -----------------------
<C> <C> <C> <S>
1 16 24%
2 17 25.5% Death
3 18 27% &
4 19 28.5% Disability
5 20 30% Benefits
6 21 31.5%
7 22 33% Death,
8 23 34.5% Disability
9 24 36% &
10 25 37.5% Retirement
11 26 39% Benefits
12 27 40.5%
</TABLE>
(1) If the employment period is less than five years (due to death or
disability), average compensation will equal the average of compensation
during the fully completed years of employment with the Company.
October 11, 1995
<PAGE>
Exhibit 10 I
DELUXE CORPORATION
DEFERRED COMPENSATION AGREEMENT
This Agreement is made as of March 15, 1993, between DELUXE CORPORATION (Deluxe)
and Vernon W. Yates (Employee):
WITNESSETH:
WHEREAS an employment relationship has been established between Deluxe
(Employer) and Employee to the mutual benefit and profit of both parties, and
WHEREAS the parties wish to continue this relationship and to provide for
certain contingencies,
NOW, THEREFORE, in consideration of the mutual promises of the parties and the
benefits intended to be secured by the performance of such promises, the parties
agree as follows:
1. Employer agrees to continue in the full-time employment of Employer
or any company under common ownership with Deluxe under such terms and
conditions of employment as may be determined by Deluxe Corporation from
time to time.
2. Deluxe agrees that if Employee continues in the full-time employment
of Employer or other company under common ownership with Deluxe
continuously until March 15, 1998, Deluxe will, commencing within thirty
(30) days after Employee's termination of employment on such date or
subsequently, pay to Employee, as additional compensation, monthly
payments for a ten (10) year period of time, with the amount of each
such payment to be equal to the amount that would be payable on such
dates under a conventional single premium retirement annuity policy
(10-year payout option) issued by a reputable insurance company, if such
policy were purchased on March 15, 1993, with premium in the amount of
$45,000.00. If Employee dies after completion of the period of
employment provided in the preceding sentence, but before all monthly
payments have been paid to him, such payments, or the balance of any
such payments, shall be paid to any beneficiary[ies] designated by
Employee in connection with this Agreement.
3. If Employee dies or retires from the full-time employment of
Employer or other company under common ownership with Deluxe on account
of total or permanent disability before March 15, 1998, Deluxe agrees
that it will, commencing within thirty (30) days after such death or
retirement, pay to
<PAGE>
Employee (or, in the case of death, to any beneficiary[ies] designated
by Employee), as additional compensation, monthly payments for a ten
(10) year period of time, with the amount of such payment to be equal to
the amount that would be payable on such dates under an annuity policy
as described in paragraph 2.
4. This Agreement shall be binding upon the parties, their heirs,
executors, administrators, successors, and assigns. In the event of a
merger, consolidation, or reorganization involving Deluxe, this
Agreement shall continue in force and become an obligation of Deluxe's
successor or successors.
5. If Deluxe elects to purchase an annuity contract to provide it with
funds to make payments under this Agreement, Deluxe Corporation shall at
all times be the sole owner and beneficiary of such contract, and
neither employee nor any beneficiary shall have any right, title or
interest in any such contract.
6. This Agreement shall not restrict the right of Employer to discharge
Employee at any time, provided such discharge is deemed to be in the
best interest of Employer.
7. This Agreement shall be governed by the laws of the State of
Minnesota.
IN WITNESS WHEREOF, the parties have entered into this Agreement as of this
15th day of March, 1993.
DELUXE CORPORATION
/s/ J. K. Twogood /s/ Vernon W. Yates
- ---------------------------------------- ---------------------------------
J. K. Twogood Vernon W. Yates
Executive Vice President
and Chief Operating Officer
March 15, 1993
<PAGE>
Exhibit 10 J
DELUXE CORPORATION
DESCRIPTION OF COMPENSATION ARRANGEMENT WITH
HAROLD V. HAVERTY
Continue Mr. Haverty's base compensation at its current rate through December
31, 1995; thereafter base compensation will be set at the annual rate of
$300,000.00 payable monthly until Mr. Haverty's expected retirement on the date
of 1997 annual meeting.
Continue Mr. Haverty's eligibility for 1995 incentive compensation under the
Annual Incentive Plan ("AIP"), provided that payment is not guaranteed and that
eligibility for future participation under the AIP ceases thereafter.
No modification or any further action at this time with respect to any of his
outstanding stock options or awards of performance shares, restricted stock or
stock units, which will vest and/or be earned/paid/exercised in accordance with
the terms thereof, assuming retirement at 1997 annual meeting.
No modification or any further action at this time with respect to any
retirement benefits or deferral balances which will be paid according to plan
terms, assuming retirement at 1997 annual meeting.
Grant Mr. Haverty on May 1, 1995, a non-qualified stock option under the Stock
Incentive Plan to purchase 35,000 shares of the Corporation's common stock at a
per share option exercise price equal to the closing price of a share of the
Corporation's common stock on the New York Stock Exchange (composite tape) on
May 1, 1995, as reported by THE WALL STREET JOURNAL, Midwest Edition, such
option to vest at the rate of one-third annually on the first, second and third
anniversary dates of the grant, to have a ten year term, to be exercisable to a
period of five years following death, disability and retirement, and to be
subject to such other terms and conditions as are customarily included in the
Corporation's non-qualified stock options granted its officers.
No award or grant of any additional stock options or performance shares after
May 1, 1995.
Mr. Haverty's duties and responsibilities will be coordinated with the Chief
Executive Officer of the Corporation.
Any termination of Mr. Haverty's employment prior to the 1997 annual meeting
will be treated as follows:
a: Death: Estate or representatives will be paid a lump sum equal to the
present value of any remaining base compensation payments.
<PAGE>
b: Disability: Continued payment of base compensation.
c: "No Fault Termination": (i.e. involuntary termination through no fault
of Mr. Haverty) will result in continued payment of base compensation.
d: Any other termination (other than retirement) (e.g. refusal to serve,
failure to perform or cooperate etc.), will result in termination of base
compensation.
April 28, 1995
<PAGE>
Exhibit 12
Deluxe Corporation
Computation of Ratio of Earnings to Fixed Charges
<TABLE>
<CAPTION>
Twelve Months
Ended Years Ended December 31,
----- ---------------------------------------------------------------------
Dec 31 1995 1994 1993 1992 1991 1990
----------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
EARNINGS
Income from Continuing Operations
before Income Taxes $169,319 $246,706 $235,913 $324,783 $295,493 $282,506
Interest expense
(excluding capitalized interest) 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 14,761 13,554 13,259 12,923 11,807 10,849
Amortization of debt expense 84 84 84 84 71 0
-- -- -- -- -- -
Total earnings $197,263 $270,077 $259,326 $353,161 $315,591 $294,782
FIXED CHARGES
Interest Expense
(including capitalized interest) $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 14,761 13,554 13,259 12,923 11,807 10,849
Amortization of debt expense 84 84 84 84 71 0
-- -- -- -- -- -
Total fixed charges $29,559 $24,130 $23,898 $28,831 $20,868 $12,709
Ratio of earnings
to fixed charges: 6.7 11.2 10.9 12.2 15.1 23.2
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
(Dollars in Thousands Except per Share Amounts) 1995 1994 Change
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $1,857,981 $1,747,644 6.3%
Income from continuing operations 94,434 144,253 (34.5%)
Return on sales 5.1% 8.3%
Per share 1.15 1.75 (34.3%)
Return on average shareholders equity 11.8% 17.9%
Net income 87,021 140,866 (38.2%)
Per share 1.06 1.71 (38.0%)
Cash dividends paid 122,143 120,503 1.4%
Per share 1.48 1.46 1.4%
Shareholders' equity 780,374 814,393 (4.2%)
Book value per share 9.47 9.89 (4.2%)
Average common shares outstanding (thousands) 82,420 82,400
Number of shareholders 20,843 22,436
Number of employees 19,286 18,839 2.4%
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
INTRODUCTION
This discussion summarizes significant factors that affected the consolidated
operating results and financial condition of Deluxe Corporation for the three
years ended December 31, 1995. The discussion in this section is based on
segmentation of the business as described in Note 11 to Consolidated
Financial Statements. During the fourth quarter of 1995, the Company
announced that it is terminating its Printwise ink business, which is treated
as discontinued operations in the financial statements presented in this
report. Also during 1995, the Company recorded non-recurring pretax charges
of $62.5 million for production consolidation and process improvements,
exiting unprofitable businesses and products, and write-offs of
non-performing assets. These costs are spread throughout the consolidated
statements of income according to the nature of the charge. Of the $62.5
million in charges, $16.6 million is included in cost of sales, $35.9 million
in selling, general, and administrative expense, and $10 million in other
non-operating expense. Except for the paragraph entitled "Net income",
material in this section reflects results from continuing operations,
including the above mentioned charges.
OVERALL SUMMARY
1995 was the 57th consecutive year of increased sales for Deluxe. The sales
increase of 6.3% was attributable to the Company's Electronic Payments and
Business Systems divisions, offset partially by a slight decline in financial
institution check printing and social expression revenue. 1995 income from
continuing operations was $94.4 million, compared to $144.3 million in 1994.
1995 results include non-recurring pretax charges of $62.5 million. The results
for 1994 included a $10 million credit to a 1993 restructuring charge. Earnings
per share from continuing operations were $1.15 in 1995 and $1.75 in 1994.
Return on average assets for 1995 was 7.4%, compared to 11.5% for 1994. Return
on average shareholders equity was 11.8% in 1995 versus 17.9% in 1994.
<TABLE>
<CAPTION>
PERCENTAGE OF REVENUE PERCENTAGE OF DOLLAR INCREASE/(DECREASE)
- ----------------------------------------------------------------------------------------------
1995 1994 1993 1995 VS 1994 1994 vs 1993
<C> <C> <C> <S> <C> <C>
100% 100% 100% Net sales 6.3% 10.5%
53.7 55.1 53.8 Gross margin 3.6 13.1
39.6 36.7 30.9 Selling, general, and administrative 14.5 31.2
4.3 4.7 5.1 Employee sharing (3.3) 0.4
(0.8) (0.2) 0.3 Other expense/income (net) (362.8) (176.5)
4.0 5.9 6.0 Provision for income taxes (26.9) 8.9
5.1 8.3 9.0 Income from continuing operations (34.5) 1.7
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
</TABLE>
RESULTS OF OPERATIONS
The table below 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.
NET SALES - Net sales for the Payment Systems segment increased 7.6% to $1,179.4
million in 1995 from $1,096.3 million in 1994. Order counts for financial
institution check printing remained flat; however, continued competitive
discounting resulted in a reduction in revenues of 1.5%. The decline was more
than offset by a 45.5% increase in the Electronic Payments division, where all
units posted double-digit growth, due primarily to volume growth in sales of
previously existing products and services. Included in the growth of the
Electronic Payments division was $39.7 million due to acquisitions. The Business
Systems segment recorded revenue of $361.5 million, an increase of 12.4% over
1994 revenue of $321.6 million. The revenue growth was generated primarily by
increased volume in the forms businesses and new products and increased volume
in international operations. The Consumer Specialty segment experienced a
revenue decrease of 3.9% to $317 million in 1995. The decrease is attributable
to lower catalog response rates for the segment's social expression products,
offset partially by 2.5% revenue growth in direct mail checks.
In 1994, net sales for the Payment Systems segment increased 0.9% to
$1,096.3 million from $1,087 million in 1993. Order counts for financial
institution check printing increased slightly over 1993; however, continued
competitive discounting resulted in a reduction in revenues of 5.8%.
The decline was more than offset by the 35% growth of the Electronic Payments
division. A portion of the growth was attributable to the acquisitions of
National Revenue Corporation (April 1994) and The Software Partnership Ltd.
(August 1994). The Business Systems segment recorded revenue of $321.6 million,
an increase of 46.3% in 1994. The majority of this growth was the result of
PaperDirect, Inc., which the Company acquired late in the third quarter of 1993,
and the growth of the United Kingdom and Canadian operations. The Consumer
Specialty segment's revenue increased 20% to $329.8 million in 1994. A large
portion of this increase was due to the continued growth in the direct mail
check printing business.
GROSS MARGIN - Consolidated gross margins decreased to 53.7% in 1995 from
55.1% in 1994. Without the 1995 non-recurring charges, gross margins would
have been 54.6%. Payment Systems gross margins decreased to 55.6% in 1995
from 56.2% in 1994. Margin improvement from financial institution check
printing was offset by declines in the Electronic Payments division, due
primarily to lower margins from Financial Alliance Processing Services, Inc.,
which the Company acquired in January 1995. Margins for the Business Systems
segment
<PAGE>
decreased to 49.7% in 1995 from 53.3% in 1994, due primarily to 1995
non-recurring adjustments and to higher postage and paper costs. Margins for
the Consumer Specialty segment declined to 51.3% from 53.4%, due primarily to
a non-recurring inventory write-off of $12 million, offset partially by
pricing improvements in social expression products and manufacturing
efficiencies in check production.
In 1994, Payment Systems gross margins increased to 56.2%, compared to
54.8% in 1993. This improvement was the result of the Company's 1993 plant
closings, and occurred despite continued competitive discounting in the
financial institution check printing business. Margin percentages for the
Business Systems division decreased slightly in 1994, due primarily to the
lower economies of scale for the start-up businesses in the United Kingdom
and Canada. Margins for the Consumer Specialty segment improved to 53.4% in
1994 from 51.5% in 1993, due to increased sales of higher margin products.
SELLING, GENERAL, AND ADMINISTRATIVE (SG&A) - Selling, general, and
administrative expenses increased $93.2 million, or 14.5%, in 1995. SG&A
expenses in the Payment Systems segment increased $59.8 million, due primarily
to the acquisitions of The Software Partnership Ltd. (August 1994) and Financial
Alliance Processing Services, Inc. (January 1995), and 1995 non-recurring
charges of $15.9 million. The Business Systems segment's SG&A expenses increased
approximately $36.6 million, due to an increase in catalog costs attributable
primarily to rising paper and postage prices, costs associated with new product
introduction, and 1995 non-recurring charges of $17.3 million.
In 1994, SG&A expenses increased $152.5 million, or 31.2% over 1993. The
Business Systems segment's SG&A expenses increased approximately $76.5 million
in 1994, primarily due to the acquisition of PaperDirect, Inc. The Consumer
Specialty segment increased its selling expense by approximately $32.2 million,
primarily due to increased advertising. The remaining increase is primarily
related to increased costs associated with acquisitions, international
operations, and re-engineering projects.
EMPLOYEE SHARING - A portion of employee sharing includes benefits paid to
employees that are based on the Company's profitability. Other components
fluctuate with the number of Company employees. The decrease to $79 million in
1995 from $81.7 million in 1994 resulted from a decrease in Company profit.
OTHER EXPENSE/INCOME (NET) - Other expense was $14.5 million in 1995, compared
to $3.1 million in 1994. The increase is due primarily to 1995 non-recurring
charges of $10 million, decreases in interest income and higher interest expense
from increased borrowings occurring in 1995. Partially offsetting these items
was a $5 million gain recorded in 1995 for insurance payments relating to 1994
earthquake damages.
In 1994, other expense was $3.1 million, compared to other income of $4.1
million in 1993. The decline is due primarily to an increase in interest expense
and a decrease in investment and other income. Interest expense increased as the
Company incurred short-term borrowing during the second half of 1994. Investment
and other income decreased due to the liquidation of many of the Company's
short-term investments and the absence of insurance gains that were realized in
1993. The short-term borrowing and the marketable security liquidation financed
the Company's 1994 acquisitions.
PROVISION FOR INCOME TAXES - The Company's effective tax rate increased to 44.2%
in 1995, due primarily to lower pretax income combined with an increasing base
of non-deductible expenses consisting primarily of intangible amortization.
In 1994, the Company's effective tax rate increased to 41.5%, due primarily
to an increase in non-deductible amortization of intangibles resulting from
acquisitions and foreign losses for which no tax benefit was available.
RESTRUCTURING - During the second quarter of 1993, the Company announced a
formal restructuring plan to close 16 of its check printing plants. The closings
resulted from the absence of growth in the financial institution check business
and production efficiencies gained from the Company's improved check printing
technology. As part of the restructuring, the Company recorded a one-time charge
of $49 million. By the end of 1994, the Company had substantially completed the
plant closings. During the third quarter of 1994, the Company reduced the
restructuring accrual by $10 million, as several costs included in the 1993
charge were not incurred. The production efficiencies gained by the
restructuring have positively affected the gross margins of the Company's Paper
Payments division. During the first quarter of 1996, the Company announced a
restructuring plan to close 21 of its check printing plants, which was made
possible by further advancements in telecommunications, order processing, and
printing technology. The Company will record a $30 to $35 million charge for
these plant closings and other consolidations.
NET INCOME - 1995 net income decreased to $87 million from $140.9 million in
1994, resulting primarily from the non-recurring pretax charges of $62.5
million. In addition, selling, general, and administrative expenses increased
disproportionally to sales as a result of expenses related to acquisitions,
recent start-up businesses, and re-engineering project costs. During 1995, the
Company discontinued its Printwise ink business. Losses from discontinued
operations in 1995 net of taxes were $7.4 million, compared to losses of $3.4
million in 1994. Discontinued operations in 1995 include a $7.3 million pretax
charge for employee severance, asset disposition, and estimated losses during
the phase-out period.
FINANCIAL CONDITION
LIQUIDITY - Cash provided by continuing operations was $214.6 million in 1995,
compared to $199 million in 1994 and $223.7 million in 1993. This represents the
Company's primary source of working capital for financing capital expenditures
and paying cash dividends. 1994 cash provided by operations was lower than 1995
and 1993, due primarily to cash expenditures related to the check printing
restructuring. Working capital was $12.3 million as of December 31, 1995,
compared to $130.4 million and $224.5 million on that date in 1994 and 1993,
respectively. The year-end current ratio for 1995 was 1 to 1, compared to 1.4 to
1 and 1.8 to 1 for 1994 and 1993, respectively. The declines in working capital
and current ratio resulted primarily from acquisitions, increased capital
expenditures, and lower profits.
<PAGE>
CAPITAL RESOURCES - In 1995, the Company acquired Financial Alliance Processing
Services, Inc., a merchant processing company included in the Electronic
Payments division, at a cost of $38.8 million.
In 1994, the Company made several acquisitions at an aggregate cost of
$53.8 million. The companies acquired were small- and medium-sized companies in
the Business Systems and Electronic Payments divisions.
Purchases of property, plant, and equipment required cash outlays of $125.1
million in 1995, compared to $126.2 million in 1994 and $61 million in 1993. The
Company anticipates capital expenditures of $80 to $90 million in 1996 for
technologies to streamline production and customer fulfillment
functions in the printing businesses and further investment in its electronic
payment technologies.
The Company has uncommitted bank lines of credit for $189.3 million. At
December 31, 1995, $14.2 million was outstanding at an interest rate of 6.6%.
The maximum daily short-term borrowing was $102 million in 1995, compared to $35
million in 1994. 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 December 31, 1995, $34.7 million of commercial paper was issued and
outstanding at a weighted average interest rate of 6.09%. The maximum daily
borrowing was $115 million. No such commercial paper was issued or outstanding
in 1994. 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 December 31, 1995, no such notes
were issued or outstanding.
Cash dividends totaled $122.1 million in 1995, compared to $120.5 million
in 1994 and $117.9 million in 1993. The payout of earnings was 140.4% in 1995,
85.5% in 1994, and 83.1% in 1993. In December 1995, the Company's board of
directors amended a 1989 stock repurchase program, permitting the repurchase of
up to 10 million shares of Deluxe common stock. The board authorized the
repurchase of up to 3 million shares under that plan.
OUTLOOK - The Company's declining profits over the past three years require that
management re-evaluate all aspects of the
Company's business. Significant actions are in process that are intended to
position the Company for profitable growth. These actions include: realigning
the many independent business units and divisions into two market-serving units
to focus resources more effectively on the Company's greatest growth and profit
opportunities; discontinuing or disposing of certain ventures, projects,
products, and business units that do not fit with the strategic plans of the
Company; and restructuring other businesses to reduce costs and improve
profitability. These changes have and will require charges to earnings as
evidenced by the 1995 $62.5 million pretax charge to continuing operations, the
discontinuation of the Printwise ink segment, and the $30 to $35 million pretax
restructuring charge to be taken in the first quarter of 1996 to close 21 check
printing plants over a two-year period.
<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 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.
J.A. Blanchard III
President and
Chief Executive Officer
Charles M. Osborne
Senior Vice President and
Chief Financial Officer
February 9, 1996
<PAGE>
<TABLE>
<CAPTION>
ELEVEN-YEAR SUMMARY
(Dollars in Thousands Except per Share Amounts) 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $1,857,981 $1,747,644 $1,581,767 $1,534,351
Salaries and wages 551,788 519,901 491,868 456,893
Employee profit sharing and pension plan expense 57,958 59,370 61,162 60,307
Employee bonus and stock purchase discount expense 21,087 22,331 20,215 25,494
Provision for income taxes 74,885 102,453 94,052 121,999
Income from continuing operations 94,434 144,253 141,861 202,784
Return on sales 5.08% 8.25% 8.97% 13.22%
Per share 1.15 1.75 1.71 2.42
Return on average shareholders' equity 11.84% 17.86% 17.40% 25.70%
Return on average assets 7.40% 11.50% 11.57% 17.64%
Net income 87,021 140,866 141,861 202,784
Per share 1.06 1.71 1.71 2.42
Cash dividends paid 122,143 120,503 117,945 112,483
Per share 1.48 1.46 1.42 1.34
Shareholders' equity 780,374 814,393 801,249 829,808
Book value per share 9.47 9.89 9.66 9.90
Additions to machinery and equipment 86,366 86,411 45,675 52,598
Additions to realty and leaseholds 38,702 39,815 16,435 19,013
Depreciation and amortization expense 103,303 85,906 72,320 66,615
Working capital (decrease) increase (118,116) (94,086) (162,387) 55,975
Total assets 1,295,095 1,256,272 1,251,994 1,199,556
Long-term debt 110,997 110,867 110,755 115,522
Average common shares outstanding (thousands) 82,420 82,400 82,936 83,861
Number of employees 19,286 18,839 17,748 17,400
Number of production and service facilities 81 78 73 85
Facility area - square feet (thousands) 5,084 4,830 4,623 5,454
<CAPTION>
1991 1990 1989 1988
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $1,474,482 $1,413,553 $1,315,828 $1,195,971
Salaries and wages 444,987 417,193 393,339 367,302
Employee profit sharing and pension plan expense 55,410 52,314 48,423 44,398
Employee bonus and stock purchase discount expense 22,417 20,598 17,876 13,698
Provision for income taxes 112,591 110,345 93,691 83,288
Income from continuing operations 182,902 172,161 152,631 143,354
Return on sales 12.40% 12.18% 11.60% 11.99%
Per share 2.18 2.03 1.79 1.68
Return on average shareholders' equity 25.69% 26.36% 25.47% 27.08%
Return on average assets 18.08% 19.44% 18.69% 17.35%
Net income 182,902 172,161 152,631 143,354
Per share 2.18 2.03 1.79 1.68
Cash dividends paid 102,512 93,109 83,679 73,392
Per share 1.22 1.10 .98 .86
Shareholders' equity 747,976 675,792 630,643 567,731
Book value per share 8.91 8.04 7.40 6.65
Additions to machinery and equipment 48,605 49,233 55,658 59,252
Additions to realty and leaseholds 23,896 14,722 32,764 19,634
Depreciation and amortization expense 75,976 74,050 67,340 59,846
Working capital (decrease) increase 185,879 50,176 42,063 30,601
Total assets 1,099,059 923,902 847,002 786,110
Long-term debt 110,575 11,911 10,169 10,933
Average common shares outstanding (thousands) 84,005 84,638 85,346 85,255
Number of employees 17,563 17,174 16,948 16,628
Number of production and service facilities 82 81 79 77
Facility area - square feet (thousands) 5,238 5,060 4,980 4,650
<CAPTION>
1987 1986 1985
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $948,010 $866,829 $764,421
Salaries and wages 300,225 272,526 246,735
Employee profit sharing and pension plan expense 39,567 36,630 33,369
Employee bonus and stock purchase discount expense 13,686 12,702 10,802
Provision for income taxes 88,137 101,891 87,692
Income from continuing operations 148,512 121,109 104,215
Return on sales 15.67% 13.97% 13.63%
Per share 1.74 1.42 1.22
Return on average shareholders' equity 32.86% 31.57% 31.91%
Return on average assets 19.45% 20.50% 21.73%
Net income 148,512 121,109 104,215
Per share 1.74 1.42 1.22
Cash dividends paid 64,849 49,630 42,055
Per share .76 .58 .49
Shareholders' equity 490,820 413,132 354,083
Book value per share 5.77 4.85 4.14
Additions to machinery and equipment 45,868 27,733 34,285
Additions to realty and leaseholds 15,841 9,529 3,759
Depreciation and amortization expense 45,462 32,079 25,953
Working capital (decrease) increase (121,582) (23,066) 25,556
Total assets 866,270 660,969 520,740
Long-term debt 12,886 14,152 13,036
Average common shares outstanding (thousands) 85,242 85,487 85,769
Number of employees 15,346 13,502 12,669
Number of production and service facilities 74 70 68
Facility area - square feet (thousands) 4,180 3,450 3,216
</TABLE>
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
December 31 (Dollars in Thousands) 1995 1994
- ---------------------------------------------------------------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $13,668 $29,139
Marketable securities 6,270 49,109
Trade accounts receivable 169,310 142,087
Inventories:
Raw material 22,475 25,198
Semi-finished goods 24,861 26,046
Finished goods 28,566 36,976
Supplies 11,139 15,749
Deferred advertising 20,017 27,770
Deferred income taxes 35,926 25,647
Prepaid expenses and other current assets 48,866 43,145
- ---------------------------------------------------------------------
Total current assets 381,098 420,866
LONG-TERM INVESTMENTS 48,147 45,091
PROPERTY, PLANT, AND EQUIPMENT
Land 43,632 38,286
Buildings and improvements 299,954 284,131
Machinery and equipment 578,922 544,092
Construction in progress 18,315 3,225
- ---------------------------------------------------------------------
Total 940,823 869,734
Less accumulated depreciation 446,665 407,916
- ---------------------------------------------------------------------
Property, plant, and equipment - net 494,158 461,818
INTANGIBLES
Cost in excess of net assets acquired - net 301,289 284,420
Other intangible assets - net 70,403 44,077
- ---------------------------------------------------------------------
Total intangibles 371,692 328,497
- ---------------------------------------------------------------------
Total assets $1,295,095 $1,256,272
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
December 31 (Dollars in Thousands) 1995 1994
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 75,644 $ 65,033
Accrued liabilities:
Wages, including vacation pay 51,549 50,366
Employee profit sharing and pension 56,906 57,915
Accrued rebates 31,373 28,741
Other 95,675 72,707
Short-term debt 48,962 11,219
Long-term debt due within one year 8,699 4,479
- ----------------------------------------------------------------------------------------------------
Total current liabilities 368,808 290,460
LONG-TERM DEBT 110,997 110,867
DEFERRED INCOME TAXES 34,916 40,552
SHAREHOLDERS' EQUITY
Common shares $1 par value (authorized: 500,000,000 shares;
issued: 1995 - 82,364,378 shares 1994 - 82,374,771 shares) 82,364 82,375
Additional paid-in capital 1,455 1,694
Retained earnings 697,036 732,158
Unearned compensation (739) (149)
Net unrealized loss - marketable securities (242) (2,054)
Cumulative translation adjustment 500 369
- ----------------------------------------------------------------------------------------------------
Shareholders' equity 780,374 814,393
- ----------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $1,295,095 $1,256,272
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31 (Dollars in Thousands Except per Share Amounts) 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES $1,857,981 $1,747,644 $1,581,767
- --------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Cost of sales 860,266 784,452 730,436
Selling, general, and administrative 734,886 641,660 489,127
Employee profit sharing and pension 57,958 59,370 61,162
Employee bonus and stock purchase discount 21,087 22,331 20,215
Restructuring (credit) charge (10,000) 49,000
- -------------------------------------------------------------------------------------------------------------------
Total 1,674,197 1,497,813 1,349,940
- -------------------------------------------------------------------------------------------------------------------
Income from operations 183,784 249,831 231,827
OTHER INCOME (EXPENSE)
Other (expense) income (1,366) 6,608 14,362
Interest expense (13,099) (9,733) (10,276)
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 169,319 246,706 235,913
- --------------------------------------------------------------------------------------------------------------------
PROVISION FOR INCOME TAXES 74,885 102,453 94,052
- --------------------------------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS 94,434 144,253 141,861
- --------------------------------------------------------------------------------------------------------------------
DISCONTINUED OPERATIONS
Loss from operations (net of income tax benefit of $2,146 in
1995 and $2,432 in 1994) (3,098) (3,387)
Loss on disposal (net of income tax benefit of $2,985) (4,315)
- --------------------------------------------------------------------------------------------------------------------
LOSS FROM DISCONTINUED OPERATIONS (7,413) (3,387)
- --------------------------------------------------------------------------------------------------------------------
NET INCOME $ 87,021 $ 140,866 $ 141,861
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE - Based on average shares outstanding
Income from continuing operation $ 1.15 $ 1.75 $ 1.71
Loss from discontinued operations $ (.09) $ (.04)
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
NET INCOME PER SHARE $ 1.06 $ 1.71 $ 1.71
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
CASH DIVIDENDS PER COMMON SHARE $ 1.48 $ 1.46 $ 1.42
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31 (Dollars in Thousands) 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
NET INCOME $ 87,021 $ 140,866 $ 141,861
Discontinued operations 7,413 3,387
- --------------------------------------------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS 94,434 144,253 141,861
Adjustments to reconcile income from continuing operations to net cash
provided by operating activities:
Depreciation 69,027 59,367 55,145
Amortization of intangibles 34,276 26,539 17,175
Stock purchase discount 8,185 8,369 8,537
Deferred income taxes (9,201) 4,645 (16,111)
Changes in assets and liabilities, net of effects from acquisitions
and discontinued operations:
Trade accounts receivable (24,949) (13,430) (160)
Inventories 12,893 (17,226) (11,696)
Accounts payable 6,631 12,096 (6,885)
Other assets and liabilities 23,346 (25,589) 35,816
- --------------------------------------------------------------------------------------------------------------------------------
Net cash provided by continuing operations 214,642 199,024 223,682
Net cash used by discontinued operations (5,315) (5,206)
- --------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 209,327 193,818 223,682
- --------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of marketable securities with maturities of more than 3 months (13,115) (119,339)
Proceeds from sales of marketable securities with maturities of more than 3 months 28,878 49,326 149,805
Net reductions of (additions to) marketable securities with maturities of 3 months
or less 16,000 20,000 (32,100)
Purchases of long-term investments (5,000) (14,060)
Purchases of property, plant, and equipment (125,068) (126,226) (60,990)
Payments for acquisitions, net of cash acquired (37,313) (53,796) (110,136)
Other (2,858) (17,933) (9,044)
- --------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (120,361) (146,744) (195,864)
- --------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from short-term debt 36,312 11,219
Payments on long-term debt (8,918) (8,230) (10,260)
Payments to retire common stock (34,715) (39,638) (89,172)
Proceeds from issuing stock under employee plans 25,027 25,114 28,490
Cash dividends paid to shareholders (122,143) (120,503) (117,945)
- --------------------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (104,437) (132,038) (188,887)
- --------------------------------------------------------------------------------------------------------------------------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (15,471) (84,964) (161,069)
- --------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR $29,139 $114,103 $275,172
- --------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $13,668 $29,139 $114,103
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Supplementary cash flow disclosure:
Interest paid $12,519 $10,446 $11,772
Income taxes paid 93,023 94,395 119,859
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
See notes to Consolidated Financial Statements
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 and equity
securities. All securities are classified as available for sale and are carried
at fair value, with the unrealized gains and losses, net of tax, reported as a
separate component of shareholders' equity. Realized gains and losses and
permanent declines in value are included in investment income. The cost of
securities sold is determined using the specific identification method.
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,
1995 and 1994, were approximately $18,411,000 and $8,923,000, 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. Other intangibles consist primarily of purchased software,
internally developed software, and professional name files. Total
intangibles are as follows at December 31 (dollars in thousands):
<TABLE>
<CAPTION>
1995 1994
- ---------------------------------------------------------------------
<S> <C> <C>
Cost in excess of net assets acquired $363,756 $329,512
Other intangible assets 126,636 86,821
- ---------------------------------------------------------------------
Total $490,392 $416,333
Less accumulated amortization (118,700) (87,836)
- ---------------------------------------------------------------------
Intangibles - net $371,692 $328,497
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
</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.
IMPAIRMENT OF LONG-LIVED ASSETS - Effective December 31, 1995, the Company
adopted the Statement of Financial Standards (SFAS) No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
Under the provisions of this statement, the Company has evaluated its long-lived
assets (including certain property, plant and equipment, intangibles and other
long-term investments) for impairment and will continue to evaluate its
long-lived assets if events or changes in circumstances indicate that the
carrying amount of such assets may not be recoverable. The Company evaluates the
recoverability of long-lived assets by measuring the unamortized balance of the
long-lived assets against estimated future cash flows. If such evaluations
indicate that undiscounted estimated future cash flows of certain long-lived
assets are not sufficient to recover the carrying value of such assets, the
assets are adjusted to their fair value. Based on current evaluations, there
were no adjustments to the carrying value of long-lived assets in 1995.
INCOME TAXES - 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.
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 estimates and defers certain costs related to
direct-response advertising of its products. These costs consist of materials,
production, postage and design costs required to produce catalogs for the
Company's direct mail businesses. Such costs are amortized over periods
(generally less than 12 months) that correspond to the estimated revenue stream
of the individual catalogs. Actual results could differ from the estimates noted
above. The total amount of deferred advertising costs charged to expense for
1995, 1994, and 1993 was $126,257,000, $130,512,000, and $74,882,000,
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 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
<PAGE>
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 1995 presentation.
STOCK-BASED COMPENSATION - In October 1995, the Financial Accounting Standards
board issued Statement of Financial Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation" effective for the Company beginning January 1, 1996.
SFAS No. 123 requires expanded disclosure of stock-based compensation
arrangements with employees and encourages (but does not require) compensation
cost to be measured based on the fair value of the equity instruments awarded.
The Company has not yet determined if it will elect to change to the fair
value method, nor has it determined the effect the new standard will have on net
income and earnings per share should it elect to make such a change. Adoption of
the new standard will have no effect on the Company's cash flows.
ESTIMATES - The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. RESTRUCTURING CHARGE
In June 1993, the Company announced its plans to consolidate its financial
institution check printing operations by closing 16 underutilized check printing
plants. These closings resulted from the absence of growth in the financial
institution check market and 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 $49 million in 1993.
The majority of the charge consisted of estimated costs for employee severance
and relocation ($36.3 million), and the disposition of assets affected by the
consolidation ($9.1 million).
During 1994, the Company substantially completed its restructuring plan
without incurring certain costs that were included in the 1993 charge. As a
result, the Company recorded a $10 million credit in 1994 to reduce its
restructuring accrual.
SUBSEQUENT EVENT - On January 31, 1996, the Company announced a plan to close 21
of its financial institution check printing plants over a two-year period. The
Company will record a $30 to $35 million restructuring charge for estimated
employee severance costs and asset dispositions for these plant closings and
other consolidations.
The plant closings were made possible by advancements in
telecommunications, order processing, and printing technology. The Company's 15
remaining plants will be equipped with capacity to produce at or above current
order quantities.
3. ACQUISITIONS
On January 10, 1995, the Company acquired all of the outstanding stock of
Financial Alliance Processing Services, Inc., a merchant credit card processing
service. The total paid for the acquisition was $38.8 million and 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 $36.6 million is being amortized over a 10-year period. The
effect of this acquisition did not have a material pro forma impact on
operations.
During 1994, the Company acquired all of the outstanding stock of National
Revenue Corporation, a collection services company; T/Maker Company, a
developer and publisher of image content software; The Software Partnership
Ltd., a United Kingdom-based developer of open systems architecture for large
financial institutions; and the assets of Pacific Medsoft, a developer of
software for medical professionals. The total paid for all of these
acquisitions was $53.8 million. Each 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 for all of these acquisitions of $48.6 million is being amortized
over periods ranging from 10 to 25 years. The combined effect of these
acquisitions did not have a material pro forma impact on operations.
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, the Company paid $16 million to
PaperDirect's former shareholders in 1994. No additional payments were made or
accrued based on PaperDirect's 1994 and 1995 operating results. 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. Such excess (which will increase for any future contingent cash
payment) is being amortized on a straight-line
<PAGE>
basis over 30 years. 1993 consolidated results include PaperDirect's results of
operations from the date of acquisition through the end of the year.
The following summarized, unaudited pro forma results of operations for the
year ended December 31, 1993, assumes the acquisition occurred as of the
beginning of the year (dollars in thousands except per share amounts):
<TABLE>
<CAPTION>
1993
- -----------------------------------------
<S> <C>
Net sales $1,624,868
Net income 141,193
Net income per common share $1.70
- -----------------------------------------
</TABLE>
On September 30, 1993, the Company completed its acquisition of Stockforms
Ltd., a supplier of accounting software forms based in the United Kingdom, by
purchasing the remaining 75% of its assets 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 effect of this acquisition did not
have a material pro forma impact on operations.
4. MARKETABLE SECURITIES
On December 31, 1995 and 1994, marketable securities available for sale consist
of the following (dollars in thousands):
<TABLE>
<CAPTION>
1995 1994
- -----------------------------------------------------------------------------------------------------------------------------------
UNREALIZED Unrealized
COST HOLDING LOSS FAIR VALUE Cost Holding Loss Fair Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Debt securities issued by the U.S. Treasury and other
government agencies $ 5,059 $ 39 $ 5,020 $30,560 $1,859 $28,701
Debt securities issued by states of the U.S. and
political subdivisions of the states 1,250 0 1,250 20,638 230 20,408
- -----------------------------------------------------------------------------------------------------------------------------------
Total marketable securities 6,309 39 6,270 51,198 2,089 49,109
Other debt securities (included in cash equivalents) 15,000 333 14,667 25,795 1,072 24,723
- -----------------------------------------------------------------------------------------------------------------------------------
Total $ 21,309 $372 $20,937 $76,993 $3,161 $73,832
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
As of December 31, 1995, debt securities with a cost of $6,286,000 and a
December 31, 1995, market value of $6,247,000 mature in 1996. All other
securities with a total cost of $15,023,000 and a December 31, 1995, market
value of $14,690,000 mature by 2000.
Proceeds from sales of securities available for sale were $54,565,000 and
$73,326,000 during 1995 and 1994, respectively. The Company realized losses of
$1,119,000 and $502,000 on these sales in 1995 and 1994, respectively.
5. PROVISION FOR INCOME TAXES
The components of the provision for income taxes from continuing operations are
as follows (dollars in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Current tax provision:
Federal $71,884 $82,295 $89,650
State 17,845 13,842 17,477
- ----------------------------------------------------------------------------
Total 89,729 96,137 107,127
Deferred tax (benefit) provision:
Federal (10,587) 5,428 (11,092)
State (4,257) 888 (1,983)
- ----------------------------------------------------------------------------
Total $74,885 $102,453 $94,052
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
</TABLE>
The Company's effective tax rate on pretax income from continuing
operations differs from the U.S. Federal statutory regular tax rate of 35% as
follows (dollars in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Income tax at Federal statutory
rate $59,262 $86,346 $82,570
State income taxes net of
Federal income tax benefit 8,832 9,574 10,207
Amortization of non-deductible
intangibles 5,260 3,666 2,379
Foreign losses for which no
current tax benefit is available 2,406 4,346 1,115
<PAGE>
Other (875) (1,479) (2,219)
- ----------------------------------------------------------------------------
Provision for income taxes $74,885 $102,453 $94,052
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
</TABLE>
Tax effected temporary differences which give rise to a significant
portion of deferred tax assets and liabilities at December 31, 1995 and 1994,
are as follows (dollars in thousands):
<TABLE>
<CAPTION>
1995 1994
- -----------------------------------------------------------------------------------------
DEFERRED DEFERRED Deferred Deferred
TAX TAX Tax Tax
ASSETS LIABILITIES Assets Liabilities
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Property, plant, and equipment $33,889 $32,889
Deferred advertising 6,188 7,932
Employee benefit plans $14,154 $16,097
Inventory 9,278 5,414
Intangibles 3,758 5,845
Foreign net operating loss
carry forwards 6,033 4,605
Miscellaneous reserves and
accruals 17,064 10,017
All other 12,003 4,420 7,818 7,275
- -----------------------------------------------------------------------------------------
Subtotal 58,532 48,255 43,951 53,941
- -----------------------------------------------------------------------------------------
Valuation allowance (9,267) (4,915)
- -----------------------------------------------------------------------------------------
Total deferred taxes $49,265 $48,255 $39,036 $53,941
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
</TABLE>
The major component of the valuation allowance relates to the uncertainty
of realizing foreign deferred tax assets that existed at December 31, 1995 and
1994.
6. 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 certain of its
employees. The plans cover substantially all full-time employees with at least
15 months of service. Contributions are made solely by the Company to trustees,
and benefits provided by the plans are paid from accumulated funds by the
trustees. Contributions to the pension plan equal 6% of eligible compensation.
Contributions to the profit sharing plans vary but are generally limited to 15%
of eligible compensation less the amount contributed to the pension plan.
Pension expense for 1995, 1994, and 1993 was $20,798,000, $21,126,000, and
$21,802,000, 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. Compensation expense recognized for the difference between employees'
purchase price and fair value was $8,185,000, $8,369,000, and $8,537,000 in
1995, 1994, and 1993, respectively. Under the plan, 1,121,153, 1,152,687, and
855,242 shares were issued at prices ranging from $20.07 to $24.00, $19.60 to
$26.35, and $26.92 to $33.67 in 1995, 1994, and 1993, respectively.
STOCK OPTION PLAN - In 1994, the shareholders adopted a stock option plan to
replace the plan adopted by the shareholders in 1984. Under the 1994 plan, the
Company may grant either non-qualified or incentive stock options to purchase up
to 3,000,000 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 and the remaining options outstanding
under the former plan adopted in 1984 is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding, January 1 2,212,149 1,567,140 1,285,328
Granted 204,899 716,369 396,900
Exercised (44,566) (7,865) (93,661)
Canceled (224,909) (63,495) (21,427)
- ----------------------------------------------------------------------------
Outstanding, December 31 2,147,573 2,212,149 1,567,140
- ----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Exercisable, December 31 1,521,524 1,256,885 969,690
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
</TABLE>
Options were granted at prices ranging from $27.375 to $30.750 per share in
1995, $27.125 to $37.25 per share in 1994, and $34.625 to $44.75 per share in
1993. Options were exercised in 1995, 1994, and 1993 at average prices per share
of $28.43, $21.39, and $30.07, respectively. Options
<PAGE>
were outstanding at December 31, 1995, 1994, 1993, at average prices per share
of $34.81, $35.04, and $37.34, respectively. At December 31, 1995, options for
2,187,800 shares remain available for issuance under the 1994 plan.
7. 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 working for 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.
The following table summarizes the funded status of the plan at December 31
(dollars in thousands):
<TABLE>
<CAPTION>
1995 1994
- --------------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $49,084 $50,784
Fully eligible plan participants 88 2,373
Other active participants 14,720 3,470
- --------------------------------------------------------------------------
Total 63,892 56,627
Less:
Fair value of plan assets (debt and
equity securities) 44,702 33,092
Unrecognized prior service cost 3,718
Unrecognized net loss 3 4,034
Unrecognized transition obligation 19,386 20,526
- --------------------------------------------------------------------------
Portion of transition obligation accrued in
the balance sheet $(3,917) $(1,025)
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
</TABLE>
Net postretirement benefit cost for the year ended December 31 consisted
of the following components (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost--benefits earned
during the year $ 474 $ 785 $ 978
Interest cost on the accumulated
postretirement benefit obligation 4,392 4,219 4,525
Actual loss (return) on plan assets (9,897) 402 (2,568)
Amortization of transition obligation 1,140 1,140 1,218
Net amortization and deferral of
gains and losses 6,604 (3,559)
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
Total $2,713 $2,987 $4,153
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
</TABLE>
In measuring the accumulated postretirement benefit obligation as of
December 31, 1995, the Company's health care inflation rate for 1996 was assumed
to be 10.5% 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 nine-year period to 5% for the
years 2004 and beyond. A one percentage point increase in the health care
inflation rate for each year would increase the accumulated postretirement
benefit obligation by approximately $9,200,000, and the service and interest
cost components of the net postretirement benefit cost by approximately
$970,000. The discount rates used in determining the accumulated
postretirement benefit obligation as of December 31, 1995 and 1994, were
7.25% and 8%, respectively. The expected long-term rate of return on plan
assets used to determine the net periodic postretirement benefit costs was
9.5% in 1995 and 1994, and 8.6% in 1993.
8. LEASE AND DEBT COMMITMENTS
Long-term debt was as follows at December 31 (dollars in thousands):
<TABLE>
<CAPTION>
1995 1994
- ---------------------------------------------------------------------------
<S> <C> <C>
8.55% unsecured and unsubordinated notes
due February 15, 2001 $100,000 $100,000
Other 19,696 15,346
- ---------------------------------------------------------------------------
Total long-term debt 119,696 115,346
Less amount due within one year 8,699 4,479
- ---------------------------------------------------------------------------
Total $110,997 $110,867
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
</TABLE>
<PAGE>
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 $112 million
and $101 million at December 31, 1995 and 1994, 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 5% to
13% and are due through the year 2011. 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, 2000,
are $8,699,000, $7,747,000, $2,112,000, $360,000, and $96,000 and $100,682,000
thereafter.
The Company has uncommitted lines of credit for $189,300,000. At December
31, 1995 and 1994, $14,219,000 and $11,219,000 was outstanding, respectively, at
interest rates of 6.6% and 6.2%, respectively. The Company also has in place
a $150 million committed line of credit, which is available for borrowing and as
support for commercial paper. As of December 31, 1995, $34,743,000 of commercial
paper was issued and outstanding at a weighted average interest rate of 6.09%.
No commercial paper was outstanding at December 31, 1994. 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. As of
December 31, 1995, no such notes were issued or outstanding.
Minimum future rental payments for leased facilities and equipment for the
five years ending December 31, 2000, are $28,215,000, $21,018,000, $14,385,000,
$6,735,000, and $3,320,000, and $3,757,000 thereafter. Rental expense was
$44,283,259, $40,662,523, and $39,778,000 for 1995, 1994, and 1993,
respectively.
9. 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, which expire in February 1998,
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.
10. SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Unrealized
Additional Loss Cumulative
Common Paid-in Retained Marketable Unearned Translation
(Dollars in Thousands) Shares Capital Earnings Securities Compensation Adjustment
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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)
Net income 140,866
Cash dividends (120,503)
Common stock issued 1,167 32,399
Common stock retired (1,341) (31,046) (7,251)
Unearned compensation $(149)
Unrealized fair value adjustments,
net of taxes of $1,107 $(2,054)
Translation adjustment 1,056
- ----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 82,375 1,694 732,158 (2,054) (149) 369
Net income 87,021
Cash dividends (122,143)
Common stock issued 1,180 33,285
Common stock retired (1,191) (33,524)
Unearned compensation (590)
Unrealized fair value adjustments,
net of taxes of $977 1,812
Translation adjustment 131
- ----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 $82,364 $ 1,455 $ 697,036 $ (242) $(739) $ 500
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
11. BUSINESS SEGMENT INFORMATION
The Company consists of three business segments: Payment Systems, Business
Systems, and Consumer Specialty. The Payment Systems segment manufactures checks
for financial institutions and provides electronic processing and database
services to financial institutions and retailers located primarily in the United
States. Check printing and other services to financial institutions generate the
majority of the Company's operating income. Business Systems manufactures
business, health care, and tax forms and decorated paper for small businesses.
Consumer Specialty manufactures greeting cards, stationery, checks, and other
products for households. Business Systems and Consumer Specialty products are
distributed through direct mail to customers located primarily in the United
States.
For the three years ended December 31, 1995, the Company's segment
information is as follows (dollars in thousands):
<TABLE>
<CAPTION>
Consumer
Payment Business Specialty
1995 Systems Systems Products Total
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $1,179,438 $361,543 $317,000 $1,857,981
Income from operations 208,498 (39,108) 14,394 183,784
Identifiable assets 669,784 305,811 319,500 1,295,095
Depreciation and amortization 73,830 16,769 12,704 103,303
Capital expenditures 83,525 33,161 8,382 125,068
- ----------------------------------------------------------------------------------------------------------------------------------
1994
- ----------------------------------------------------------------------------------------------------------------------------------
Net sales $1,096,277 $321,561 $329,806 $1,747,644
Income from operations 235,528 (10,182) 24,485 249,831
Identifiable assets 691,097 256,774 308,401 1,256,272
Depreciation and amortization 57,301 16,440 12,165 85,906
Capital expenditures 64,853 29,357 32,016 126,226
- ----------------------------------------------------------------------------------------------------------------------------------
1993
- ----------------------------------------------------------------------------------------------------------------------------------
Net sales $1,087,015 $219,800 $274,952 $1,581,767
Income from operations 194,822 12,176 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
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Certain corporate related assets (principally cash, cash equivalents, and
marketable securities) are reported in the Payment Systems identifiable assets.
Likewise, corporate costs are reflected in Payment Systems income from
operations. Payment Systems income from operations for 1993 includes the impact
of the $49 million restructuring charge and a $10 million 1994 credit related to
the restructuring.
In 1995, the Company acquired Financial Alliance Processing Services, Inc.
This acquisition is included in the Payment Systems segment.
In 1994, the Company acquired National Revenue Corporation and The Software
Partnership Ltd. (Payment Systems),
and T/Maker Company and Pacific Medsoft (Business Systems).
During 1993, the Company acquired PaperDirect, Inc., and Stockforms Ltd.
Both acquisitions were added to the Business Systems segment.
Certain prior year segment amounts have been reclassified to conform with
the 1995 presentation. The reclassification resulted from movement of certain
product lines between the Payment Systems and Business Systems segments.
12. DISCONTINUED OPERATIONS
On November 29, 1995, the Company adopted a plan to discontinue the Printwise
ink business. The Company anticipates that the business will be disposed of by
July 1996. Accordingly, Printwise is reported as a discontinued operation for
the years ended December 31, 1995 and 1994. Net assets of the discontinued
operation at December 31, 1995, consist primarily of property, plant, and
equipment.
The estimated loss on the disposal of Printwise is $4,315,000 (net of taxes
of $2,985,000), consisting of an estimated loss on disposal of the business of
$3,428,000 and a provision of $887,000 for anticipated operating losses until
disposal. Summarized results of Printwise since inception are as follows
(dollars in thousands):
<PAGE>
<TABLE>
<CAPTION>
1995 1994
- ----------------------------------------------------------------------------
<S> <C> <C>
Net sales $ 1,124 $ 276
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
Loss from operations before income tax benefit $(5,244) $(5,819)
Income tax benefit 2,146 2,432
- ----------------------------------------------------------------------------
Loss from operations (3,098) (3,387)
- ----------------------------------------------------------------------------
Loss on disposal before income tax benefit (7,300)
Income tax benefit 2,985
- ----------------------------------------------------------------------------
Loss on disposal (4,315)
- ----------------------------------------------------------------------------
Total loss on discontinued operations $(7,413) $(3,387)
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
</TABLE>
<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, 1995 and 1994, and the
related consolidated statements of income and cash flows for each of the three
years in the period ended December 31, 1995. 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, 1995 and 1994, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Minneapolis, Minnesota
February 9, 1996
SUMMARIZED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
1995 Quarter Ended (Dollars in Thousands Except
per Share Amounts) March 31 June 30 September 30 December 31
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $465,388 $442,266 $449,203 $501,124
Cost of sales 210,234 201,429 202,603 246,000
Income (loss) from continuing operations 34,552 30,742 30,258 (1,118)(2)
Per share of common stock
Continuing operations .42 .37 .37 (.01)
Net income (loss) .41 .36 .36 (.07)
Cash dividends .37 .37 .37 .37
- ----------------------------------------------------------------------------------------------------------------------------------
1994 Quarter Ended March 31 June 30 September 30 December 31
- ----------------------------------------------------------------------------------------------------------------------------------
Net sales $429,958 $412,350 $426,553 $478,783
Cost of sales 192,044 184,811 191,985 215,612
Income from continuing operations 38,647 30,494 34,295(1) 40,817
Per share of common stock
Continuing operations .47 .37 .41 .50
Net income .46 .36 .40 .49
Cash dividends .36 .36 .37 .37
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) In September 1994, a $10 million credit was recorded to reduce a 1993
restructuring charge for check printing plant consolidation. See Note 2 to
consolidated financial statements.
(2) 1995 fourth quarter results include non-recurring pretax charges of $62.5
million, related to costs associated with production consolidation and process
improvements, the elimination of businesses and product lines that were
unprofitable or did not fit with the Company's long-term strategy, and
write-offs of non-performing assets.
<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>
1995 QUARTER HIGH LOW CLOSE
- --------------------------------------------------------
<S> <C> <C> <C>
1ST 29 1/8 26 1/8 28 1/2
2ND 33 5/8 28 7/8 33 1/8
3RD 33 7/8 30 1/4 33 1/8
4TH 33 3/8 26 5/8 29
1994 Quarter High Low Close
- --------------------------------------------------------
1st 38 30 3/8 30 7/8
2nd 31 26 1/8 26 3/8
3rd 31 3/8 25 3/4 29 3/8
4th 30 3/8 26 26 1/2
</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 6, 1996, at The Donald E. Benson Great Hall, Bethel College, 3900
Bethel Drive, St. Paul, Minnesota, at 5 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 calling
1-888-359-6397 (1-888-DLX-NEWS) or by sending a written request to Stuart
Alexander, Deluxe Corporation, P.O. Box 64235, St. Paul, Minnesota 55164-0235.
<PAGE>
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 Communications
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 64854
St. Paul, Minnesota 55164-0854
(800) 468-9716
(612) 450-4064
E-mail: [email protected]
EXECUTIVE OFFICES
Street Address:
3680 Victoria St. N.
Shoreview, Minnesota 55126-2966
Mailing Address:
P.O. Box 64235,
St. Paul, Minnesota 55164-0235
(612) 483-7111
TOLL-FREE SHAREHOLDER INFORMATION LINE
You may dial 1-888-359-6397 (1-888-DLX-NEWS) to listen to the latest financial
results, dividend news, and other information about Deluxe or to request copies
of our annual report, 10-K, 10-Q, proxy statement, news releases, and financial
presentation information.
PLANNED RELEASE DATES
Quarterly results: Monday, April 22, July 22, October 21. Tuesday, January 21,
1997
Dividends: The Deluxe Board of Directors usually meets during the second week in
February, May, August, and November.
<PAGE>
Exhibit 21
SUBSIDIARIES OF THE REGISTRANT
REGISTRANT AND STATE OF INCORPORATION
Deluxe Corporation, Minnesota, which does business under its own name and under
the following tradenames:
Colwell Systems
Deluxe Business Forms and Supplies
Deluxe Card Services
Deluxe Check Printers
Deluxe Digital Impressions
Deluxe Financial Forms
Deluxe-Medsoft
SUBSIDIARIES
Chex Systems, Inc., Minnesota
Connex Europe, S.R.L., Italy
Connex Europe Limited, England
Current, Inc., Delaware
DLX Check Printers, Inc., Minnesota
Deluxe Canada Inc., Ontario, Canada
Deluxe Data Systems, Inc., Delaware
Deluxe Data International Limited, England
Deluxe (UK) Limited, England
Electronic Transaction Corporation, Delaware, which does business
under its own name and under the following tradename: SCAN.
Financial Alliance Processing Services, Inc., Louisiana, which does
business under its own name and under the following tradename:
First Alliance
InPrint Publishing Company, New Jersey
N.R.C. Holding Corporation, Delaware
National Credit Services Corporation, Missouri
National Receivables Corporation, Ohio
National Revenue Corporation, Ohio
Nelco, Inc., Wisconsin
PaperDirect, Inc., New Jersey
T/Maker Company, California
United Creditors Alliance Corporation, Ohio
United Creditors Alliance Limited, England
<PAGE>
Exhibit 24
POWER OF ATTORNEY
Each of the undersigned directors and officers of DELUXE CORPORATION, a
Minnesota corporation, hereby constitutes and appoints John A. Blanchard III and
John H. LeFevre his true and lawful attorneys-in-fact, and each of them, with
full power to act without the other, to sign the Company's annual report on Form
10-K for the year ended December 31, 1995, and any and all amendments to such
report, and to file the same and any such amendment, with any exhibits, and any
other documents in connection with such filing, with the Securities and Exchange
Commission under the provisions of the Securities Exchange Act of 1934.
Date
/S/ JOHN A. BLANCHARD III 2/9/96
- ---------------------------------------------------------------------------
John A. Blanchard III, Director and Principal Executive Officer
/S/ HAROLD V. HAVERTY 2/9/96
- ---------------------------------------------------------------------------
Harold V. Haverty, Director
/S/ EUGENE R. OLSON 2/9/96
- ---------------------------------------------------------------------------
Eugene R. Olson, Director
/S/ JERRY K. TWOGOOD 2/9/96
- ---------------------------------------------------------------------------
Jerry K. Twogood, Director
/S/ WHITNEY MACMILLAN 2/9/96
- ---------------------------------------------------------------------------
Whitney MacMillan, Director
/S/ JAMES J. RENIER 2/9/96
- ---------------------------------------------------------------------------
James J. Renier, Director
/S/ BARBARA B. GROGAN 2/9/96
- ---------------------------------------------------------------------------
Barbara B. Grogan, Director
/S/ ALLEN F. JACOBSON 2/18/96
- ---------------------------------------------------------------------------
Allen F. Jacobson, Director
/S/ STEPHEN P. NACHTSHEIM 2/9/96
- ---------------------------------------------------------------------------
Stephen P. Nachtsheim, Director
/S/ CHARLES M. OSBORNE 2/9/96
- ---------------------------------------------------------------------------
Charles M. Osborne, Principal Financial Officer and
Principal Accounting Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 13,668
<SECURITIES> 6,270
<RECEIVABLES> 169,310
<ALLOWANCES> 0
<INVENTORY> 75,902
<CURRENT-ASSETS> 381,098
<PP&E> 940,823
<DEPRECIATION> 446,665
<TOTAL-ASSETS> 1,295,095
<CURRENT-LIABILITIES> 368,808
<BONDS> 110,997
82,364
0
<COMMON> 0
<OTHER-SE> 698,010
<TOTAL-LIABILITY-AND-EQUITY> 1,295,095
<SALES> 1,857,981
<TOTAL-REVENUES> 1,857,981
<CGS> 860,266
<TOTAL-COSTS> 1,674,197
<OTHER-EXPENSES> 1,366
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,099
<INCOME-PRETAX> 169,319
<INCOME-TAX> 74,885
<INCOME-CONTINUING> 94,434
<DISCONTINUED> (7,413)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 87,021
<EPS-PRIMARY> 1.06
<EPS-DILUTED> 1.06
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