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, 1996.
Commission file number 1-7945.
DELUXE CORPORATION
(Exact name of registrant as specified in its charter)
Minnesota 41-0216800
(State or other jurisdiction of (I.R.S. 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 New York Stock Exchange
$1.00 per share (Name of each exchange on which registered)
(Title of Class)
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
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss.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. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant is $2,680,423,506 based on the average bid and asked prices of the
stock on the New York Stock Exchange on March 10, 1997. The number of
outstanding shares of the registrant's common stock as of March 10, 1997, was
82,224,371.
Documents Incorporated by Reference:
1. Portions of the registrant's annual report to shareholders for
the fiscal year ended December 31, 1996, are incorporated by
reference in Parts I and II.
2. The registrant's proxy statement, dated March 31, 1997, is
incorporated by reference in Part III.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Deluxe Corporation (collectively with its subsidiaries, the "Company") is a
leading supplier of paper-based and electronic payment services to the financial
and retail industries. The Company also provides integrated payment protection
services to the financial and retail markets. The Company 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.
The Company's operations are conducted by Deluxe Corporation and 25
subsidiaries. The marketing operations of the Company are divided between three
market-serving units ("MSUs") or divisions: Deluxe Financial Services, Deluxe
Electronic Payment Systems and Deluxe Direct.
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.
DELUXE FINANCIAL SERVICES
The Company's Deluxe Financial Services MSU provides check printing, direct
marketing, customer database management, and related services to the financial
industry. Deluxe Financial Services also provides payment systems protection
services - including check authorization, account verification, and collection
services - to financial institutions and retailers and short-run computer and
business forms to small businesses. Deluxe Financial Services had net sales of
approximately $1.4 billion in 1996, accounting for approximately 73.3 percent of
the Company's total sales.
Deluxe Paper Payment Systems
Deluxe Paper Payment Systems ("DPPS") prints and sells checks to financial
institutions and depositors. DPPS sold checks to more than 10,000 financial
institutions and fulfilled approximately 110 million check orders in 1996.
Depositors commonly submit initial check orders and reorders to their financial
institutions, which forward them to one of DPPS' printing plants. Printed checks
are shipped directly by DPPS to the depositors, typically on the business day
after receipt of the order. DPPS' charges are paid by the financial
institutions, which in turn usually deduct the charges from the depositors'
accounts. DPPS also provides direct mail checks to households and small
businesses. DPPS endeavors to produce and ship all check orders within two days
after receipt of the order.
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 have also been subject to
increased competition and consequent pressure on prices. In addition, the direct
mail segment of the check market is growing as a lower-priced alternative to
financial institution checks and, in 1996, represented an estimated 20 percent
of the personal check market. These developments have produced a mature market
for checks and have created pricing pressure on DPPS' check sales.
The Company believes that checks will likely remain an important part of
consumers' payment options for many years. To stabilize check printing
operations and improve profitability, the Company has focused in recent years 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 DPPS' direct mail personal check operations.
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, Deluxe Business Forms & Supplies, Inc. produces and markets short-run
computer and business forms. Both product lines are sold primarily through
direct mail and telephone marketing.
Deluxe Payment Protection Systems
The Company offers integrated payment protection services through the
subsidiaries which comprise its Deluxe Payment Protection Systems division: Chex
Systems, Inc. ("ChexSystems"); Deluxe Payment Protection Services, Inc.; and
National Revenue Corporation ("NRC") and its subsidiaries. ChexSystems is the
leader in the account verification market, providing risk management information
to more than 70,000 financial institution offices. Through its Shared Check
Authorization Network ("SCAN"), Deluxe Payment Protection Systems, Inc. operates
the nation's leading check verification service with a network consisting of
thousands of retail locations that share risk-management information. NRC is one
of the five largest U.S. collections agencies, collecting $3 billion in 1996 for
30,000 credit grantors.
Deluxe Direct Response
Deluxe Direct Response develops targeted direct mail marketing campaigns for
financial institutions. It provides database products from the Company's Deluxe
Data Resources and Deluxe MarketWise businesses and fulfillment services that
include printing and mailing direct mail marketing pieces (including letter
checks offered to credit card holders) and tracking customer response rates.
Deluxe Data Resources (purchased in July 1996) provides financial institutions
with a comprehensive database of proprietary homeowner, consumer, and market
research information. Deluxe MarketWise (established June 1996) provides
software that enables financial institutions to develop customer profiles from
their separate databases - including checking, saving, credit card, loans - and
from Deluxe-provided databases.
DELUXE ELECTRONIC PAYMENT SYSTEMS\
The Deluxe Electronic Payment Systems ("DEPS") MSU is comprised of Deluxe
Data Systems, Inc. ("Deluxe Data"), which provides electronic funds transfer
processing and software and is the nation's largest third-party transaction
processor for regional ATM networks. DEPS processed approximately 2.6 billion
transactions in 1996. DEPS 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. DEPS currently supports EBT programs for the
state governments of Maryland, New Jersey, Utah and Kansas and has been awarded
contracts to serve Louisiana, Minnesota, Wisconsin, Oregon and two counties in
California. DEPS also provides Medicaid verification services in New York and is
part of coalitions that are going to support EBT programs in the Northeast
Coalition of States, the Western States EBT Alliance and the Southern Alliance
of States. DEPS had net sales of approximately $130 million in 1996,
representing approximately 6.9% of the Company's total sales.
In November 1996, the Company reached an agreement to form a joint venture
with HCL Corporation ("HCL") of New Delhi, India, to help modernize India's
banking industry. When formed, the joint venture will also make HCL's software
and programming capabilities available to the Company's U.S. financial
institution customers. This unit is expected to generate its first revenues in
1997.
DELUXE DIRECT
The Company also, through its Deluxe Direct MSU, markets 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 $375 million in 1996 (such amount includes revenues attributable
to several businesses that were divested in 1996--see "Recent Developments"),
accounting for approximately 19.8 percent of the Company's total sales. Deluxe
Direct markets its products primarily through the Social Expressions division of
Current, Inc. ("Current"), PaperDirect, Inc. ("PaperDirect"), and Nelco, Inc.
("Nelco").
Current is a direct mail supplier of social expression products, including
greeting cards, gift wrap, small gifts and related products. 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.
Current's direct mail check business is described under "Deluxe Financial
Services -- Deluxe Paper Payment Systems".
PaperDirect 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, a supplier of tax forms, tax forms software,
and electronic tax filing services.
Many of PaperDirect's products are sold internationally by Deluxe (UK)
Limited and Deluxe Canada Inc. The Company has indicated its intent to sell its
Deluxe Direct businesses in 1997, but has not entered into any binding sale
agreements.
RECENT DEVELOPMENTS
In late 1995 and early 1996, the Company announced that it had initiated a
major consolidation program, which includes the closing of 26 of the Company's
41 printing and warehousing facilities over the 1996-1997 period, significantly
reducing the number of its staff and production employees. Twelve plants were
closed in 1996, 13 additional plants are scheduled to close in 1997 and one is
currently scheduled for closing in early 1998.
In 1996, the Company divested T/Maker Company, a publisher of image content
software, its internal bank and health care forms businesses, Financial Alliance
Processing Services, Inc., a credit card processor, and its United Kingdom forms
business. The Company, in addition to its association with HCL, also formed an
alliance with Online Resources & Communications Corporation ("Online") to market
Online's home banking and bill payment software and NRC began a joint venture
with a United Kingdom-based collection company. NRC also acquired two smaller
collections companies in 1996 and the Company purchased the assets of a start-up
employment screening company.
EMPLOYEES
The Company has approximately 19,600 full- and part-time employees. It has a
number of employee benefit plans, including (effective January 1, 1997) a 401(k)
plan, a retirement and profit sharing plan and medical and hospitalization
plans. The Company has never experienced a work stoppage or strike and considers
its employee relations to be good.
FINANCIAL INFORMATION
The information appearing under the caption "Note 12. Business Segment
Information" on pages 29-30 of the Company's Annual Report (the "Annual Report")
for the year ended December 31, 1996 is incorporated by reference.
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,
1997. 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 Chairman of the Board, President 54 1995
and Chief Executive Officer
Gregory J. Bjorndahl Vice President, Sales and Marketing 46 1995
Ronald E. Eilers President, Deluxe Direct, Inc. 49 1996
John H. LeFevre Senior Vice President, Secretary 53 1994
and General Counsel
Lawrence J. Mosner Senior Vice President, President 54 1995
Deluxe Financial Services
Charles M. Osborne Senior Vice President and 43 1981
Chief Financial Officer
Michael F. Reeves Vice President, Human Resources 47 1987
Robert H. Rosseau Senior Vice President, President 49 1996
Deluxe Electronic Payment Systems
Michael R. Schwab Senior Vice President and 51 1994
Chief Information Officer
Jay B. Skutt Senior Vice President, General 53 1988
Manager, Check Printing
</TABLE>
MR. BLANCHARD age 54, has served as President and Chief Executive Officer of
the Company since May 1, 1995 and as Chairman of the Board of Directors since
May 6, 1996. 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. Blanchard also
serves as a director of Norwest Corporation and Saville Systems PLC.
MR. BJORNDAHL joined the Company in 1995 as a Vice President and is
responsible for Sales and Marketing for its Financial Services Group MSU and
Product Management for its DEPS MSU. Mr. Bjorndahl is also responsible for the
Company's Deluxe Direct Response business. Prior to joining the Company, Mr.
Bjorndahl was vice president of marketing for Citicorp Credit Services, Inc.'s
("Citicorp"), Master Card and Visa operations from January 1994 to July 1995.
Citicorp is a credit card issuer. From 1991 until he joined Citicorp, Mr.
Bjorndahl served as senior vice president, product development, for Visa
International, a credit card processing company.
MR. EILERS joined the Company in March 1988 when it purchased Current. From
1990 to 1995, Mr. Eilers served as Vice President and General Manager of
Current's direct mail checks business. In 1995, Mr. Eilers became President of
PaperDirect and the manager of the Company's business forms division. Mr. Eilers
became a Vice President of Deluxe Direct, Inc. ("DDI"), a subsidiary of the
Company that provides management services to its Deluxe Direct MSU, in October
1996 and he succeeded Mr. Mosner as the President of DDI in February 1997.
MR. LEFEVRE has served as Senior Vice President, General Counsel and
Secretary of the Company since February 1994. 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 was in the business of manufacturing and selling computer hardware
and software and related services.
MR. MOSNER served as Senior Vice President of the Company from November 1995
until October 1996, when he became President of DDI. During such time, Mr.
Mosner served as the Principal Executive Officer of the Company's Deluxe Direct
MSU. In February 1997, Mr. Mosner became a Senior Vice President of the Company
and he currently serves as President of its Financial Services Group MSU. 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.
Osborne is expected to leave the employ of the Company in May 1997.
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. ROSSEAU became a Senior Vice President of the Company and President of
its Deluxe Electronic Payment Systems MSU in August 1996. Prior to joining the
Company, Mr. Rosseau served as President of Diners Club U.S. from November 1990
to May 1996 and Chairman of Diners Club International from January 1992 to May
1996. From February 1989 to October 1990, Mr. Rosseau was Managing Director,
Distribution Marketing for Citibank, N.A. ("Citibank"). Diners Club is a charge
card issuer and Citibank is a financial institution.
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.
MR. SKUTT has been employed by the Company since 1965. Since 1988, Mr. Skutt
has been a Vice President with principal responsibility for manufacturing and
national production operations and he has served as Senior Vice President since
1994. Mr. Skutt was the Company's Chief Procurement Officer from December 1995
to December 1996, when he became the General Manager of check printing
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 approximately 4,721,000 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. Deluxe Electronic Payment System's primary administrative facility
occupies a 171,000 square foot building in Milwaukee, Wisconsin and its
principal data processing centers are located in New Berlin, Wisconsin and
Scottsdale, Arizona. 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 48 of its facilities and leases the
remainder for terms expiring from 1997 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.
The Company has announced a plan to close 26 of its financial institution
check printing plants over a two-year period. These plant closings were made
possible by advancements in the Company's telecommunications, order processing
and printing technologies. Upon the completion of this restructuring, the
Company's 15 remaining plants will be equipped with sufficient capacity to
produce at or above current order volumes. As of December 31, 1996, 12 of the 26
plants had been closed. Also, during the first quarter of 1996, the Company
announced a plan to move the operating and administrative facilities of one of
its direct mail businesses from New Jersey to Colorado. This move was completed
in 1997.
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.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information appearing under the caption "Financial Highlights" on page 1,
and "Shareholder Information" on page 33 of the Annual Report is incorporated by
reference.
ITEM 6. SELECTED FINANCIAL DATA
The information appearing under the caption "Eleven-year Summary" on pages 18
and 19 in the Annual Report is incorporated by reference..
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information appearing under the caption "Management's Discussion and
Analysis" on pages 14 through 17 in the Annual Report is incorporated by
reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements, notes and independent auditors' report on pages 20
through 31 of the Annual Report and the information appearing under the caption
"Summarized Quarterly Financial Data" (unaudited) on page 31 in the Annual
Report is incorporated by reference.
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
The Company's proxy statement, filed with the Securities and Exchange
Commission on March 31, 1997, is incorporated by reference.
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:
<TABLE>
<CAPTION>
Page in
Financial Statements annual report
<S> <C>
Consolidated Balance Sheets at December 31, 1996 and 1995........................20
Consolidated Statements of Income for the three years in the
period ended December 31, 1996.................................................21
Consolidated Statements of Cash Flows for the three years in
the period ended December 31, 1996.............................................22
Notes to Consolidated Financial Statements.......................................23 - 30
Independent Auditors' Report ....................................................31
Supplemental Financial Information (Unaudited):
Summarized Quarterly Financial Data .............................................31
Independent Auditors' Consent to the incorporation by reference of its
reports in the Company's registration statements
numbered 2-96963, 33-53585, 33-57261, 33-32279, 33-58510 and 33-62041......F-1
</TABLE>
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) Reports on Form 8-K
None
(c) The following exhibits are filed as part of or are incorporated in this
report by reference:
<TABLE>
<CAPTION>
Exhibit Method Of
Number Description Filing
- ------ ----------- ------
<S> <C> <C>
3.1 Articles of Incorporation ( incorporated by reference to the Company's *
Annual Report on Form 10-K for the year ended December 31, 1990).
3.2 Bylaws (incorporated by reference to the Company's Annual Report on Form *
10-K for the year ended December 21, 1994).
4.1 Amended and Restated Rights Agreement, dated as of January 31, 1997, by and *
between the Company and Norwest Bank Minnesota, National Association, as
Rights Agent, which includes as Exhibit A thereto, the form of Rights
Certificate (incorporated by reference to Exhibit 4.1 to the Company's
Amendment No. 1 on Form 8-A/A-1 (File No. 001-07945) filed with the
Securities and Exchange Commission (the "Commission") on February 7, 1997).
4.2 Indenture, relating to up to $150,000,000 of debt securities (incorporated *
by reference to Exhibit 4.1 to the Company's Registration Statement on Form
S-3 (33-32279) filed with the Commission on November 24, 1989).
10.8 Deluxe Corporation 1996 Annual Incentive Plan (as amended August 9, 1996) *
(incorporated by reference to Exhibit 10.4 to the Company's report on Form
10-Q for the Quarter ended September 30, 1996 (the "September 1996 10-Q),
filed with the Commission on November 14, 1996).
10.9 Deluxe Corporation Stock Incentive Plan (as amended August 9, 1996) *
(incorporated by reference to Exhibit 10.5 to the September 1996 10-Q).
10.10 Deluxe Corporation Performance Share Plan (incorporated by reference to *
Exhibit 10.6 to the September 1996 10-Q).
10.11 Deluxe Corporation Employee Stock Purchase Plan (incorporated by reference *
to Exhibit 10.7 to the September 1996 10-Q).
10.12 Deluxe Corporation Deferred Compensation Plan (incorporated by reference to *
Exhibit (10)(A) to the Company's Annual Report on Form 10-K for the year
ended December 31, 1995 (the "1995 10-K)).
10.13 Deluxe Corporation Supplemental Benefit Plan (incorporated by reference to *
Exhibit (10)(B) to the 1995 10-K).
10.14 Description of Deluxe Corporation Non-employee Director Retirement and Filed herewith
Deferred Compensation Plan.
10.15 Description of Initial Compensation and Employment Arrangement with John A. *
Blanchard III (incorporated by reference to Exhibit 10(G) to the 1995 10-K).
10.16 Description of Supplemental Pension Plan (incorporated by reference to *
Exhibit 10(H) in the 1995 10-K).
10.17 Deferred Compensation Agreement (incorporated by reference to Exhibit 10(I) *
to the 1995 10-K).
10.18 Description of Compensation Agreement with Harold V. Haverty (incorporated *
by reference to Exhibit 10(J) to the 1995 10-K).
10.19 Separation Agreement, made and entered into November 8, 1996, between the Filed herewith
Company and Jerry K. Twogood.
10.20 Separation Agreement, made and entered into February 27, Filed herewith
1997 between the Company and Mark T. Gritton.
10.21 Consulting Agreement, made and entered into as of Filed herewith
November 1, 1996, between the Company and Donald R. Hollis.
10.22 Agreement, dated as of October 24, 1994, between the Filed herewith
Company and Michael R. Schwab.
12.4 Statement re: computation of ratios. Filed herewith
13.1 1996 Annual Report to shareholders. Filed herewith
21.1 Subsidiaries of the Registrant. Filed herewith
23 Consent of Experts and Counsel (incorporated by reference to page F-1 of *
this Annual Report on Form 10-K).
24.1 Power of attorney. Filed herewith
27.1 Financial Data Schedule. Filed herewith
99.1 Risk Factors and Cautionary Statements Filed herewith
- ----------------
* Incorporated by reference
</TABLE>
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 31, 1997.
DELUXE CORPORATION
Date: March 31, 1997 By /s/ John A. Blanchard III
John A. Blanchard III Chairman of the Board of Directors,
President and Chief Executive Officer
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 31, 1997.
SIGNATURE TITLE
- --------- -----
By /s/ John A. Blanchard III Chairman of the Board of Directors,
John A. Blanchard III President and Chief Executive Officer
(Principal Executive Officer)
By /s/ Charles M. Osborne Senior Vice President and Chief Financial Officer
Charles M. Osborne (Principal Financial Officer and Principal
Accounting Officer)
*
Harold V. Haverty Director
*
Whitney MacMillan Director
*
James J. Renier Director
*
Barbara B. Grogan Director
*
Allen F. Jacobson Director
*
Stephen P. Nachtsheim Director
*
Calvin W. Aurand, Jr. Director
*
Donald R. Hollis Director
*
Robert C. Salipante Director
*By: /s/ John A. Blanchard III
John A. Blanchard III
Attorney-in-Fact
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 10, 1997, incorporated by reference in
this Annual Report on Form 10-K of Deluxe Corporation for the year ended
December 31, 1996.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Minneapolis, Minnesota
March 27, 1997
EXHIBIT INDEX
The following exhibits are filed as part of this report:
Exhibit Page
Number Description Number
------ ----------- ------
10.14 Description of Deluxe Corporation Non-employee
Director Retirement and Deferred Compensation Plan.
10.19 Separation Agreement, made and entered into
November 8, 1996, between the Company and Jerry K. Twogood.
10.20 Separation Agreement, made and entered into February 27,
1997 between the Company and Mark T. Gritton.
10.21 Consulting Agreement, made and entered into as of
November 1, 1996, between the Company and Donald R. Hollis.
10.22 Agreement, dated as of October 24, 1994, between the
Company and Michael R. Schwab.
12.4 Statement re: computation of ratios.
13.1 1996 Annual Report to shareholders.
21.1 Subsidiaries of the Registrant.
24.1 Power of attorney.
27.1 Financial Data Schedule.
99.1 Risk Factors and Cautionary Statements.
Exhibit 10.14
DESCRIPTION OF DELUXE CORPORATION
NON-EMPLOYEE DIRECTOR RETIREMENT
AND DEFERRED COMPENSATION PLAN
Directors are not nominated for reelection to the Board of Directors after their
72nd birthday. Non-employee directors with at least five years of service who
resign or are not nominated for reelection are entitled to annual payments equal
to the annual non-employee director retainer in effect on the date of their
retirement for the lesser of ten years or the number of years the retiree served
on the Board. Retirement payments do not extend beyond the lifetime of the
retiree, and are contingent upon the retiree's availability for consultation
with management and refraining from engaging in any activity that is competitive
with the Company.
A non-employee director may elect to defer receipt of his or her compensation
until they cease to serve as a director of the Company. Amounts deferred bear
interest at the prime rate charged by First National Bank of Saint Paul from
time to time. The Company does not set money aside to fund the payment of any
deferred compensation. Deferred amounts, together with the interest credited
thereon, are paid to a former director in either a single payment or in
installments, all as determined by the Board of Directors (with the former
director abstaining). Payments commence 90 days after a director ceases to serve
and, in the absence of a contrary determination by the Board of Directors, are
paid in ten equal annual installments. A director's election to defer his or her
compensation continues from year to year unless revoked, and any such revocation
applies only to compensation earned after the calendar quarters during which
notice of revocation is given. Upon the death of a director whose fees have been
deferred, the amount credited to such director's deferred account is paid to the
legal representative of such director's estate.
Exhibit 10.19
SEPARATION AGREEMENT
This Separation Agreement is made and entered into as of the 8th day of
November, 1996, between Jerry K. Twogood (Employee) and Deluxe Corporation, a
Minnesota corporation having its principal offices at 3680 Victoria Street
North, Shoreview, Minnesota 55126 (Deluxe).
WHEREAS, Employee has been employed by Deluxe from July 20, 1959 through
January 3, 1997; and
WHEREAS, the parties agree to set forth herein the terms and conditions
under which such employment is terminated.
NOW THEREFORE, in consideration of the mutual benefits and promises
contained herein the parties agree as follows:
1. Termination. Employee and Deluxe agree that Employee voluntarily
retires from Deluxe on January 3, 1997 (Termination Date).
2. Payments and Benefits. Deluxe and Employee agree that the following
payments and benefits, less applicable payroll and any supplemental deductions,
shall be provided by Deluxe to Employee:
A. Six Hundred Seventy-Five Thousand and 00/100 Dollars
($675,000.00) payable on Termination Date.
B. Full salary at an annual base rate of $450,000, paid
on regular pay dates, through and including December
31, 1996.
C. All accrued vacation pay as of Termination Date.
D. Executive out-placement services to Employee through
Personnel Decisions, Inc. Career Management Services
(PDI) or its affiliate. Such services shall be paid
for by Deluxe upon receipt of an invoice from the
agency.
E. Accrued amounts in Employee's Stock Purchase Plan
Account as of Termination Date.
F. Forgiveness as of Termination Date of Employee's loan
from Deluxe related to the purchase of Employee's
automobile, the discharge of Employee's obligations
under the loan agreement, as soon thereafter as
practicable, delivery to Employee of documentation
necessary to discharge any security interest of
Deluxe in the automobile and to assign title to
Employee in the phone and extended warranty
associated with his automobile.
G. Payment of premiums at employee rates for and
provision of medical coverage as though Employee were
a qualified retiree at 58 years of age and at maximum
length of service (35 years) until Employee is
eligible for Medicare coverage and if Employee so
chooses, and upon his payment of premiums for
coverage at employee rates, coverage under the terms
of Deluxe's life, vision and dental plans in which
Employee participated on his own and his family's
behalf as any of the foregoing plans referred to in
this subsection may be changed from time to time
through the earlier of June 30, 1998 or, with respect
to the life, dental and vision plans until similar
coverage is provided by another employer at similar
rates for full-time employees.
H. An opportunity to exercise any unexercised options
granted to Employee under the 1984 Deluxe Corporation
Stock Option Plan during the two (2) year period
following Termination Date in accordance with the
terms of the Plan and each grant.
I. With respect to any options referred to in subsection
2H that are unexpired and unexcercized as of the end
of the two (2) year period following the two (2) year
period described in subsection 2H , an opportunity to
enter into a Stock Appreciation Rights Agreement on
January 3, 1999 in the form attached as Exhibit A.
J. Vesting of the unvested non-qualified stock options
granted to Employee (1) on November 11, 1994 to
purchase 25,000 shares thereunder; and (2) on
February 9, 1996 to purchase 18,750 shares thereunder
of Deluxe common stock in accordance with the terms
of the applicable option agreements, as amended.
K. Issuance, without restriction, of the remaining 2,326
shares of Deluxe common stock granted to Employee on
January 3, 1994 under the Stock Incentive Plan
(1994).
L. Continuation of Employee's rights to earn shares of
the Corporation's common stock arising from the award
of 10,000 stock units (up to a maximum of 15,000
shares) granted on May 31, 1994 under the Deluxe
Corporation Performance Share Plan and the award of
7,500 stock units (up to a maximum of 11,250 shares)
granted on February 9, 1996.
M. Employee acknowledges that his rights under the
Deluxe Corporation Annual Incentive Plan terminate on
Termination Date. In lieu of any payment under the
Plan, Deluxe agrees to pay to Employee, at the time
Employee would have received the payment had he
continued as an employee, an amount equivalent to the
amount of incentive compensation Employee would have
received for 1996 had he continued as an
employee,based upon the formula applicable to
Employee under the Deluxe Corporation Annual
Incentive Plan for 1996.
N. Payment to Employee of his accrued balance in the
Deferred Compensation Plan in monthly installments
over a ten (10) year period in accordance with the
terms of the Plan and the payout option selected by
Employee.
O. Payment to Employee of his accrued balance in his
Supplemental Retirement Plan Account over a ten (10)
year period in accordance with the terms of the Plan
and the payout option selected by Employee.
P. Assignment to Employee of Deluxe's equity interest in
a membership at North Oaks Golf Club having a value
of Eight Thousand Five Hundred and 00/100 Dollars
($8,500.00).
Q. Payment of up to Five Thousand and 00/100 Dollars
($5,000.00) in legal expenses for Employee's
attorney's review and negotiation of this transaction
on Employee's behalf upon receipt of an invoice from
such attorney.
R. Payment of up to Two Thousand and 00/100 Dollars
($2,000.00) of Employee's income tax return
preparation expenses for 1996 tax returns upon
receipt of an invoice from the tax return preparer.
Except as otherwise provided, the payments and benefits described in paragraphs
A, D, F, I, L, M,P, Q and R of this Section shall be provided by Deluxe to
Employee upon receipt of the signed Separation Agreement and a Release in the
form attached as Exhibit B, but no earlier than five (5) nor later than seven
(7) days after the expiration of the rescission period referred to in Section 7.
Such payments shall be reduced by any amount Employee owes Deluxe for
outstanding credit card or other charges.
3. Full Compensation. The payments that will be made to Employee or for
his benefit pursuant to this Separation Agreement shall compensate him for and
extinguish any and all claims he may have arising out of his employment with
Deluxe or his employment termination as of the effective date of the Release,
including but not limited to claims for attorneys' fees and costs, and any and
all claims for any type of legal or equitable relief.
4. Insurance. If Employee rescinds this Separation Agreement pursuant
to Section 7 below, Employee will still have the right to continue his health,
dental, vision and life plans as provided by law.
5. Benefits. Employee is a participant in various employee benefit
plans sponsored by Deluxe. Unless otherwise agreed hereunder, the payment or
cancellation of benefits, including the amounts and the timing thereof, will be
governed by the terms of the employee benefit plans. Deluxe will provide
Employee the same assistance given other participants in employee benefit plans
so long as he is entitled to benefits thereunder.
6. Records, Documents and Property. Employee will return to Deluxe all
of its property including, but not limited to its records, correspondence and
documents as well as all computers, keys and corporate charge cards.
7. Rescission. Employee acknowledges that he has had a period of
twenty-one (21) days in which to consider this Separation Agreement and the
Release referred to in Section 8 and deliver signed originals of them to the
officer and at the address set out below in this Section. Once this Separation
Agreement and the Release are executed, Employee may rescind this Separation
Agreement and the Release within seven (7) calendar days to reinstate federal
claims and fifteen (15) days to release Minnesota claims. To be effective, any
rescission within the relevant time periods must be in writing and delivered to
Deluxe Corporation, in care of Michael F. Reeves, Vice President, Deluxe
Corporation, 3680 Victoria Street North, Shoreview, Minnesota 55126, either by
hand or by mail within the respective periods. If sent by mail, the rescission
must be (1) postmarked within the respective periods (2) properly addressed to
Deluxe Corporation; and (3) sent by certified mail, return receipt requested.
8. General Release. In consideration of the payments and other
undertakings stated herein, the parties shall sign a separate Release in the
form attached hereto as Exhibit B at the time each signs this Separation
Agreement.
9. Resignation. The parties agree that Employee remains an employee of
Deluxe through January 3, 1997. Effective November 8, 1996, Employee hereby
resigns as a member of the Board of Directors of Deluxe, and effective December
31, 1996 as the Executive Vice President of Deluxe and President of its
manufacturing division.. Employee agrees and acknowledges that he is no longer a
member of the Board of Directors for any of the subsidiaries of Deluxe on which
Employee was a member of the Board, except that Employee agrees to continue as a
member of the Board of Directors of PaperDirect Holdings, Ltd. and PaperDirect
Pacific Pty Limited, the "PDP Companies", until the earlier of their disposition
by Deluxe or December 31, 1997 and to be reasonably available and provide
reasonable assistance at the expense of Deluxe in any matters related thereto.
Deluxe agrees to indemnify Employee as required or permitted by Minnesota State
law for his acts or omissions in such capacities and as a member of the Board of
Directors of Printware, Inc. for the period prior to Termination Date and with
respect to his acts or omissions as a member of the Board of the PDP Companies,
for the period prior to the earlier of their respective dispositions or December
31, 1997.
10. Confidential Deluxe Information. Employee agrees that for a period
of two (2) years after execution of this Agreement, Employee will not use or
disclose Confidential Information of Deluxe.
"Confidential Information" means all confidential or proprietary
information of Deluxe or any affiliate or subsidiary, including without
limitation, financial data, trade secrets, customer and mailing lists, business
plans, sales and marketing plans, business acquisition or divestiture plans,
data processing systems, books and records, research and development activities
relating to existing commercial activities and new products, services and
offerings under active consideration, which Employee may have acquired or
obtained during the course of Employee's employment with Deluxe. This
confidentiality commitment is not applicable to information intentionally
disclosed to the public by Deluxe or information received by Employee from third
parties not under an obligation of confidentiality to Deluxe or any of its
affiliates or subsidiaries.
11. Nonrecruitment. For the period of two (2) years after Termination
Date, Employee shall not for himself or any other person or entity either
directly or indirectly, recruit for employment or contract for the services of
any person who at anytime during the period January 1, 1996 through Termination
Date is or was an employee of Deluxe or any of its affiliates or subsidiaries.
12. Confidentiality. The terms of this Separation Agreement and the
Release shall be treated as confidential by both Employee and Deluxe and neither
party shall disclose its terms to anyone, except Employee may disclose the terms
of this Separation Agreement and the Release to his immediate family, legal
counsel and accountant. Deluxe may disclose the terms of this Separation
Agreement and the Release to its officers and directors, outside auditors, and
to employees who have a legitimate need to know the terms in the course of
performing their duties and either party may disclose the terms of this
Separation Agreement and the Release if requested or ordered by a governmental
agency or court of competent jurisdiction. Each party recognizes and agrees that
this confidentiality provision was a significant inducement for the other to
enter into this Separation Agreement and Release.
13. Non-Assignment. The parties agree that this Separation Agreement
and the Release will not be assigned by either party unless the other party
agrees to such assignment in writing.
14. Merger. This Separation Agreement and the Release and the employee
benefit plans in which Employee is a participant supersede all prior oral and
written agreements and communications between the parties. Employee and Deluxe
agree that any and all claims which either might have had against the other are
fully released and discharged by this Separation Agreement and the Release, and
that the only claims which either may hereafter assert against the other will be
derived only from an alleged breach of the terms of the Separation Agreement or
the Release or, as against Deluxe, or any employee benefit plan in which
Employee is a participant.
15. Entire Agreement. This Separation Agreement and Release constitute
the entire agreement between the parties with respect to the termination of
Employee's employment relationship with Deluxe, and the parties agree that there
were no inducements or representations leading to the execution of this
Separation Agreement or Release except as herein contained.
16. Voluntary and Knowing Action. Employee acknowledges that he has
been advised of his right to be represented by his own attorney, that he has
read and understands the terms of this Separation Agreement and the Release, and
that he is voluntarily entering into the Separation Agreement and the Release.
17. Governing Law. This Separation Agreement and the Release will be
construed and interpreted in accordance with the laws of the State of Minnesota.
18. Counterparts. This Separation Agreement and the Release may be
executed simultaneously in two or more counterparts, each of which will be
deemed an original, but all of which together will constitute one of the same
instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Separation
Agreement as of the day and year first above written.
DELUXE CORPORATION EMPLOYEE
By: /s/ J. A. Blanchard III By: /s/ Jerry K. Twogood
J. A. Blanchard III Jerry K. Twogood
President
STATE OF MINNESOTA
COUNTY OF RAMSEY
I, Lorraine E. Houle, a Notary Public, do hereby certify that Jerry K.
Twogood personally known to me to be the same person whose name is subscribed to
the foregoing instrument, appeared before me this day in person and acknowledged
that he signed and delivered the said instrument as his free and voluntary act,
for the uses and purposes therein set forth.
Given under my hand and official seal this 8th day of November, 1996.
/s/ Lorraine E. Houle
Notary Public
STATE OF MINNESOTA
COUNTY OF RAMSEY
The foregoing instrument was acknowledged before me this 8th day of November,
1996 by J. A. Blanchard III, the President of Deluxe Corporation, a Minnesota
corporation, on behalf of the Corporation.
/s/ Lorraine E. Houle
Notary Public
EXHIBIT A
STOCK APPRECIATION RIGHTS AGREEMENT
This Stock Appreciation Rights Agreement, made and entered into as of
January 3, 1999, between Deluxe Corporation, a Minnesota Corporation ("Deluxe")
and Jerry K. Twogood, an individual resident of _________________ ("Employee").
WHEREAS, Employee wishes to have the right to extend the pert' Employee
could receive benefits related to certain stock options that will expire; and
WHEREAS Deluxe agrees to provide a qualified means under which E~ could
receive a cash equivalent of the value of certain options after their expiration
date.
NOW, THEREFORE, for good and valuable consideration, the receipt,
adequacy of which are hereby acknowledged, Deluxe and Employee hereby agree as
follows:
1. Certain options granted to Jerry K. Twogood under the 1984 Stock
Option Plan ("Plan") will expire on January 3, 1999.
2. Deluxe hereby grants to Employee stock appreciation rights ("SAR"):
(1) consisting of the number of shares offered by the options as listed on
Exhibit A which remain unexercised as of January 3, 1999; (2) for the-period
January 3, 1999 through the earlier of the date each such option would have
expired under the Plan without regard to Section 8 thereof or January 3, 2001;
(3) at a grant price equal to the corresponding option exercise price; and (4)
permitting Employee to receive a cash payment from Deluxe upon exercise of a SAR
in accordance with this Agreement.
3. The number of shares as to which a SAR is exercised may not exceed
the number of shares that could have been purchased upon exercising the
unexercised portion of the corresponding option.
4. The per share amount payable to Employee in cash upon the exercise of
a SAR shall be the excess, if positive, of the fair market value of one common
share of Deluxe, on the date of exercise over the option price set forth in each
stock option grant. Such fair market value shall be the closing price of Deluxe
common stock on the New York Stock Exchange ("NYSE") on the date the fair market
value is being determined or, if no sale has been made on the NYSE on such date,
on the last preceding day on which a sale was made.
5. A SAR may be exercised by delivery to Deluxe of a written notice
which shall state that Employee elects to exercise the SAR as to the number of
shares specified in the notice. The date of exercise of the SAR shall be the
date Deluxe receives such notice.
6. Deluxe shall pay Employee amounts due upon exercise of a SAR within
ten (10) days after exercise, except that Deluxe shall withhold or collect from
Employee such amounts as are required by any applicable federal or state income
tax laws or regulations for payroll withholding, income or other tax purposes.
7. No SAR shall be transferable other than by will or by the laws of
descent and distribution and any SAR may be exercised, during the lifetime of
Employee, only by Employee. In the event Employee dies prior to the effective
date of this Agreement, Employee's rights hereunder may be exercised by the
person to whom the SARs would have transferred by will or the applicable law of
descent and distribution and such person shall have a right to exercise any SAR
in accordance with the terms of this Agreement that would have remained in
existence at the time of the effective date of this Agreement but for Employee's
death.
8. Employee shall not disclose either the contents or any of the terms
and conditions of this Agreement to any other person except to his immediate
family, legal counsel and tax advisor.
9. If there is any change in Deluxe's common stock through merger,
consolidation, reorganization, recapitalization, stock dividend, stock split or
other change in corporate structure, adjustments will be made in the number of
shares and the price per share subject to the SAR in order to prevent dilution
or enlargement of the SARs granted hereunder.
IN WITNESS WHEREOF, Deluxe and Employee have executed this Agreement
____________________________________________ on the date set forth in the first
paragraph.
Signature: _____________________________
Jerry K. Twogood
Signature: _____________________________
J. A. Blanchard III
President
EXHIBIT B
RELEASE
Definitions. We intend all words used in this Release to have their plain
meaning in ordinary English. Technical legal words are not needed to describe
what we mean. Specific terms we use in this Release have the following meanings:
A. We, as used herein, includes Deluxe Corporation defined at B and
Employee, as defined at C.
B. Deluxe Corporation, as used herein, shall at all times mean Deluxe
Corporation, its subsidiaries, successors and assigns, their affiliated
companies, their successors and assigns, their affiliated and predecessor
companies and the present or former officers, employees and agents of any of
them, whether in their individual or official capacities.
C. Employee, as used herein, means Jerry K. Twogood or anyone who has
or obtains any legal rights or claims through him.
D. Employee's Claims means any rights Employee has now or hereafter to
any relief of any kind from Deluxe Corporation whether or not Employee knows now
about those rights, arising out of his employment with Deluxe Corporation, and
his employment termination, including, but not limited to, claims for breach of
contracts; fraud or misrepresentation; violation of the Minnesota
anti-discrimination laws, the Age Discrimination in Employment Act, the
Americans with Disabilities Act, or other federal, state, or local civil rights
laws based on age, disability or other protected class status; defamation;
intentional or negligent infliction of emotional distress; breach of the
covenant of good faith and fair dealing; promissory estoppel; negligence;
wrongful termination of employment; and any other claims for unlawful employment
practices. However, this Release shall not affect any claims which Employee
could have made under any welfare benefit plan or any profit sharing, pension or
retirement plan through Deluxe Corporation or which may arise under the
Agreement to which this Release is attached.
Agreement to Release Claims. Employee agrees that he is receiving a substantial
amount of money and benefits paid or provided by Deluxe Corporation. Employee
agrees to give up all Employee's Claims against Deluxe Corporation in exchange
for those payments and benefits. Employee will not bring any lawsuits, file any
charges, complaints, or notices, or make any other demands against Deluxe
Corporation based on Employee's Claims. Employee agrees that the money and
benefits Employee is receiving are full and fair compensation for the release of
all Employee's Claims. Employee agrees that Deluxe Corporation does not owe
Employee anything in addition to what Employee will be receiving.
Employee understands that he may rescind (that is, cancel) this Release within
seven (7) calendar days of signing it to reinstate federal claims and within
fifteen (15) days to reinstate state claims. To be effective, Employee's
rescission must be in writing and delivered to Deluxe Corporation in care of
Michael F. Reeves, Vice President, Deluxe Corporation, 3680 Victoria Street
North, Shoreview, Minnesota 55126, either by hand or by mail within the relevant
period. If sent by mail, the rescission must be postmarked within the relevant
period, properly addressed to Deluxe Corporation, and sent by certified mail,
return receipt requested.
Deluxe Corporation agrees to give up any claim against Employee that Deluxe
Corporation may have now or hereafter arising from or in connection with
Employee's employment with Deluxe Corporation, except as may arise under the
Agreement to which this Release is attached.
We acknowledge that we have read this Release carefully and understand all its
terms. In agreeing to sign this Release, we have not relied on any statements or
explanations made by either of us.
We agree that this Release shall be effective as of the last date set out below.
Deluxe Corporation and Employee understand and agree that this Release, the
Agreement, the Stock Appreciation Rights Agreement and the Deluxe Corporation
employee benefit plans in which Employee is a participant, contain all of the
agreements between Deluxe Corporation and Employee. We have no other written or
oral agreements.
Dated: November 8, 1996 /s/ Jerry K. Twogood
Jerry K. Twogood
Witnesses:
/s/ Sharon R. Maylath
/s/ Gloria M. Swanson
DELUXE CORPORATION
Dated: November 8, 1996
By: /s/ J. A. Blanchard III
J. A. Blanchard III
President
Witnesses:
/s/ Sharon R. Maylath
/s/ Gloria M. Swanson
Exhibit 10.20
SEPARATION AGREEMENT
This Separation Agreement is made and entered into as of the 2nd day of
February, 1997, between Mark T. Gritton (Employee) and Deluxe Corporation, a
Minnesota corporation having its principal offices at 3680 Victoria Street
North, Shoreview, Minnesota 55126 (Deluxe).
WHEREAS, Employee has been employed by Deluxe from May 1, 1972 through
February 28, 1997; and
WHEREAS, the parties agree to set forth herein the terms and conditions
under which such employment is terminated.
NOW THEREFORE, in consideration of the mutual benefits and promises
contained herein the parties agree as follows:
1. Termination. Employee and Deluxe agree that Employee voluntarily
terminates his employment with Deluxe on February 28, 1997 (Termination Date).
2. Payments and Benefits. Deluxe and Employee agree that the following
payments and benefits, less applicable payroll and any supplemental deductions,
shall be provided by Deluxe to Employee:
A. Three Hundred Thousand and 00/100 Dollars ($300,000.00).
B. All accrued vacation pay as of Termination Date.
C. Payment of One Thousand One Hundred and 00/100 Dollars
($1,100.00) per month through February 28, 1998 related
to Employee's automobile expenses.
D. Executive out-placement services to Employee through
Personnel Decisions Career Management Services (PDI) or
its affiliate. Such services shall be paid for by Deluxe
upon receipt of an invoice from the agency.
E. Accrued amount in Employee's Stock Purchase Plan Account
as of Termination Date.
F. Beginning at the time described in the last paragraph of
this Section, upon Employee's payment of premiums for
coverage at employee rates, coverage under the terms of
Deluxe's medical, life, vision and dental plans in which
Employee participated on his own and his family's behalf
as such plans may be changed from time to time through
the earlier of February 28, 1998 or until similar
coverage is provided by employer at similar rates for
full time employees. Beginning March 1, 1998, payment of
premiums for and provision of medical coverage until
Employee is eligible for Medicare coverage as though
Employee were a qualified retiree at 58 years of age
having thirty (30) years of service.
G. Payment of up to One Thousand Dollars and 00/100
($1,000.00) for tax return preparation expenses for
Employee's 1996 tax return upon receipt of an invoice
from the return preparer.
H. Payment of up to Two Thousand Dollars and 00/100
($2,000.00) in legal expenses for Employee's attorney's
review and negotiation of this transaction on Employee's
behalf upon receipt of an invoice from such attorney.
I. The (1) issuance, without restriction, of the remaining
815 share units of Deluxe common stock granted to
Employee on February 9, 1996, under the Stock Incentive
Plan (1994); (2) vesting of the unvested non-qualified
stock options granted to Employee (a) on November 11,
1994 to purchase 4,000 remaining shares under that Plan;
and (b) on February 9, 1996 to purchase 20,000 shares of
Deluxe common stock under that Plan in accordance with
the provisions of the applicable option agreements, as
amended, as if Employee had satisfied the Plan's
requirements for approved retirement and the Termination
Date were the date of Employee's retirement.
J. Payment to Employee of his accrued balance in the
Deferred Compensation Plan and his Supplemental
Retirement Plan Account on September 1, 2003 in
accordance with the terms of the Plans and the payout
option selected by Employee.
K. For a one year period beginning one year after
Termination Date, payment to Employee of the difference
between Employee's base monthly salary of Twenty-Five
Thousand and 00/100 Dollars ($25,000.00) from Deluxe and
his monthly compensation during such period if his
monthly compensation, if any, is less than such base
monthly salary. Employee shall provide Deluxe a copy of
documentation of his monthly compensation, such as his
payroll statement, and within thirty (30) days
thereafter, Deluxe shall make such differential payment,
if any, to Employee.
Except as otherwise provided, the payments and benefits described in this
Section shall be provided by Deluxe to Employee upon receipt of the signed
Separation Agreement and a Release in the form attached as Exhibit A, but no
earlier than five (5) nor later than seven (7) days after the expiration of the
rescission period referred to in Section 8. Such payments shall be reduced by
any amount Employee owes Deluxe for outstanding credit card or other charges.
3. Full Compensation. The payments that will be made to Employee or for
his benefit pursuant to this Separation Agreement shall compensate him for and
extinguish any and all claims he may have arising out of his employment with
Deluxe or his employment termination as of the effective date of the Release,
including but not limited to claims for attorneys' fees and costs, and any and
all claims for any type of legal or equitable relief.
4. Insurance. If Employee rescinds this Separation Agreement pursuant to
Section 7 below, Employee will still have the right to continue his health,
dental, vision and life plans as provided by law.
5. Benefits. Employee is a participant in various employee benefit plans
sponsored by Deluxe. Unless otherwise agreed hereunder, the payment or
cancellation of benefits, including the amounts and the timing thereof, will be
governed by the terms of the employee benefit plans. Deluxe will provide
Employee the same assistance given other participants in employee benefit plans
so long as he is entitled to benefits thereunder.
6. Records, Documents and Property. Employee will return to Deluxe all
of its property including, but not limited to its records, correspondence and
documents as well as all keys and corporate charge cards.
7. Rescission. Employee acknowledges that he has had a period of
twenty-one (21) days in which to consider this Separation Agreement and the
Release referred to in Section 8 and deliver signed originals of them to the
officer and at the address set out below in this Section. Once this Separation
Agreement and the Release are executed, Employee may rescind this Separation
Agreement and the Release within seven (7) calendar days to reinstate federal
claims and fifteen (15) days to release Minnesota claims. To be effective, any
rescission within the relevant time periods must be in writing and delivered to
Deluxe Corporation, in care of Michael F. Reeves, Vice President, Deluxe
Corporation, 3680 Victoria Street North, Shoreview, Minnesota 55126, either by
hand or by mail within the respective periods. If sent by mail, the rescission
must be (1) postmarked within the respective periods (2) properly addressed to
Deluxe Corporation; and (3) sent by certified mail, return receipt requested.
8. General Release. In consideration of the payments and other
undertakings stated herein, the parties shall sign a separate Release in the
form attached hereto as Exhibit A at the time each signs this Separation
Agreement.
9. Resignation. Employee agrees that he resigned as an executive officer
of Deluxe and as a member of the board of directors of any affiliate or
subsidiary of Deluxe as of December 31, 1996.
10. Confidential Deluxe Information. Employee agrees that for a period
of two (2) years after execution of this Agreement unless so ordered by a court
or governmental agency, Employee will not use or disclose Confidential
Information of Deluxe.
"Confidential Information" means all confidential or proprietary
information of Deluxe or any affiliate, including without limitation, financial
data, trade secrets, customer and mailing lists, business plans, sales and
marketing plans, business acquisition or divestiture plans, data processing
systems unique to Deluxe, pricing and credit policies and practices unique to
Deluxe, books and records, research and development activities relating to
existing commercial activities and new products, services and offerings under
active consideration, which Employee may have acquired or obtained during the
course of Employee's employment with Deluxe. This confidentiality commitment is
not applicable to information intentionally disclosed to the public by Deluxe or
information received by Employee from third parties not under an obligation of
confidentiality to Deluxe or any of its affiliates or subsidiaries.
11. Nonrecruitment. For a period of two (2) years after Termination
Date, Employee shall not for himself or any other person or entity either,
directly or indirectly, recruit for employment or contract for employment or
contract for the services of any person who at any time during the period March
1, 1996 through Termination Date is or was an employee of Deluxe or any of its
affiliates or subsidiaries.
12. Noncompetition. Employee agrees that for a period of two (2) years
after Termination Date, Employee will not (a) serve as an officer, principal,
advisor, agent, partner, director, stockholder, employee or consultant of any
corporation or other business enterprise that engages in activities, directly or
through an affiliate, that are directly competitive with the commercial
activities of Deluxe from which it derives a significant portion of its revenue
and which were engaged in by Deluxe at the time of the termination of Employee's
employment without the prior written consent of the President and Chief
Executive Officer of Deluxe Corporation; or (b) with respect to such activities
that are directly competitive, cause customers, distributors or suppliers under
contract or doing business with Deluxe at any time within one year prior to and
including the Termination Date to modify their business relationships with
Deluxe in any material respect.
Ownership by Employee of less than one percent (1%) of the outstanding
shares of capital stock of any corporation, for investment purposes, shall not
constitute a breach of this provision.
For commercial activities to be "directly competitive" with those of
Deluxe within the meaning of this Agreement, such activities must consist of
selling or attempting to sell the same types of products or services from which
Deluxe Corporation now derives at least one percent (1%) of its revenue or which
are the subject of business development plans (which the parties agree are the
following general categories: (a) check products used by financial institutions
and their customers; (b) check and check transaction security features; (c)
check related printed forms products; (d) direct marketing services for
financial institutions; (e) market research information services for financial
institutions; (f) electronic funds transfers services of the type provided by
Deluxe or any of its subsidiaries or similar to any payment risk management
services provided by Deluxe or any of its affiliates; and (g) catalog sales of
greeting cards, check products and other paper products by the same methods of
marketing to the same classes of customers).
13. Availability. Employee agrees upon reasonable advance notice to
make himself available to Deluxe as a witness or as otherwise may be reasonably
required by Deluxe in connection with litigation or other third party contested
matters, at its reasonable expense, including any required travel and related
expenses of Employee as substantiated by delivery to Deluxe of bills or other
statements satisfactory to Deluxe.
14. Confidentiality. The terms of this Separation Agreement and the
Release shall be treated as confidential by both Employee and Deluxe and neither
party shall disclose its terms to anyone, except Employee may disclose the terms
of this Separation Agreement and the Release to his immediate family, legal
counsel and accountant and as ordered by a court or governmental agency. Deluxe
may disclose the terms of this Separation Agreement and the Release to its
officers and directors, outside auditors, to employees who have a legitimate
need to know the terms in the course of performing their duties and as required
by law. Each party recognizes and agrees that this confidentiality provision was
a significant inducement for the other to enter into this Separation Agreement
and Release.
15. Reference Letter. In the event the parties agree upon the text of a
reference letter on or before execution of this agreement a copy of it shall be
attached and incorporated by reference as Exhibit B and Employee may provide a
copy of such letter to any prospective employer. Deluxe agrees that any
communication by John A. Blanchard III, or any other representative Deluxe deems
appropriate on behalf of Deluxe, concerning Employee's employment and separation
from Deluxe shall in tone and content not be inconsistent with the statements
contained in any Exhibit B.
16. Nonassignment. The parties agree that this Separation Agreement and
the Release will not be assigned by either party unless the other party agrees
to such assignment in writing.
17. Merger. This Separation Agreement and the Release, and the employee
benefit plans in which Employee is a participant supersede all prior oral and
written agreements and communications between the parties. Employee and Deluxe
agree that any and all claims which either might have had against the other are
fully released and discharged by this Separation Agreement and the Release, and
that the only claims which either may hereafter assert against the other will be
derived only from an alleged breach of the terms of the Separation Agreement,
the Release or, as against Deluxe, or any employee benefit plan in which
Employee is a participant.
18. Entire Agreement. This Separation Agreement and Attachments
constitute the entire agreement between the parties with respect to the
termination of Employee's employment relationship with Deluxe, and the parties
agree that there were no inducements or representations leading to the execution
of this Separation Agreement or any of the Attachments except as herein
contained.
19. Voluntary and Knowing Action. Employee acknowledges that he has been
advised of his right to be represented by his own attorney, that he has read and
understands the terms of this Separation Agreement and the Release, and that he
is voluntarily entering into the Separation Agreement and the Release.
20. Governing Law. This Separation Agreement and the Release will be
construed and interpreted in accordance with the laws of the State of Minnesota.
21. Counterparts. This Separation Agreement and the Release may be
executed simultaneously in two or more counterparts, each of which will be
deemed an original, but all of which together will constitute one of the same
instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Separation
Agreement as of the day and year first above written.
DELUXE CORPORATION EMPLOYEE
By: /s/ Michael F. Reeves By: /s/ Mark T. Gritton
Michael F. Reeves Mark T. Gritton
Title: Vice President
STATE OF MINNESOTA
COUNTY OF RAMSEY
I, Trudy Novak, a Notary Public, do hereby certify that Mark T. Gritton
personally known to me to be the same person whose name is subscribed to the
foregoing instrument, appeared before me this day in person and acknowledged
that he signed and delivered the said instrument as his free and voluntary act,
for the uses and purposes therein set forth.
Given under my hand and official seal this 27th day of February, 1997.
/s/ Trudy Novak
Notary Public
STATE OF MINNESOTA
COUNTY OF RAMSEY
The foregoing instrument was acknowledged before me this 3rd day of March,
1997 by Michael F. Reeves, a Vice President of Deluxe Corporation, a Minnesota
corporation, on behalf of the Corporation.
/s/ P W Foss
Notary Public
EXHIBIT A
RELEASE
Definitions. We intend all words used in this Release to have their plain
meaning in ordinary English. Technical legal words are not needed to describe
what we mean. Specific terms we use in this Release have the following meanings:
A. We, as used herein, includes Deluxe Corporation defined at B and
Employee, as defined at C.
B. Deluxe Corporation or Deluxe, as used herein, shall at all times mean
Deluxe Corporation, its subsidiaries, successors and assigns, their affiliated
companies, their successors and assigns, their affiliated and predecessor
companies and the present or former officers, employees and agents of any of
them, whether in their individual or official capacities, and the current and
former trustees or administrators of any profit sharing, pension or other
benefit plan applicable to the employees or former employees of Deluxe, in their
official and individual capacities.
C. Employee, as used herein, means Mark T. Gritton or anyone who has or
obtains any legal rights or claims through him.
D. Employee's Claims means any rights Employee has now or hereafter to
any relief of any kind from Deluxe whether or not Employee knows now about those
rights, arising out of his employment with Deluxe, and his employment
termination, including, but not limited to, claims for breach of contracts;
fraud or misrepresentation; violation of the Minnesota anti-discrimination laws,
the Americans with Disabilities Act, or other federal, state, or local civil
rights laws based on disability or other protected class status; defamation;
intentional or negligent infliction of emotional distress; breach of the
covenant of good faith and fair dealing; promissory estoppel; negligence;
wrongful termination of employment; and any other claims for unlawful employment
practices. However, this Release shall not affect any claims which Employee
could have made under any welfare benefit plan or any profit sharing, pension or
retirement plan through Deluxe or which may arise under the Agreement to which
this Release is attached.
Agreement to Release Claims. Employee agrees that he is receiving a substantial
amount of money paid by Deluxe. Employee agrees to give up all Employee's Claims
against Deluxe in exchange for those payments. Employee will not bring any
lawsuits, file any charges, complaints, or notices, or make any other demands
against Deluxe based on Employee's Claims. Employee agrees that the money and
benefits Employee is receiving are full and fair compensation for the release of
all Employee's Claims. Employee agrees that Deluxe does not owe Employee
anything in addition to what Employee will be receiving.
Employee understands that he may rescind (that is, cancel) this Release
within seven (7) calendar days of signing it to reinstate federal claims and
within fifteen (15) days to reinstate state claims. To be effective, Employee's
rescission must be in writing and delivered to Deluxe Corporation in care of
Michael F. Reeves, Vice President, Deluxe Corporation, 3680 Victoria Street
North, Shoreview, Minnesota 55126, either by hand or by mail within the relevant
period. If sent by mail, the rescission must be postmarked within the relevant
period, properly addressed to Deluxe Corporation, and sent by certified mail,
return receipt requested.
Deluxe agrees to give up any claim against Employee that Deluxe may have now or
hereafter arising from Employee's employment with Deluxe, except as may arise
under the Agreement to which this Release is attached.
We acknowledge that we have read this Release carefully and understand all its
terms. In agreeing to sign this Release, we have not relied on any statements or
explanations made by either of us.
We agree that this Release shall be effective as of the last date set out below.
Deluxe and Employee understand and agree that this Release, the Agreement and
the Deluxe employee benefit plans in which Employee is a participant, contain
all of the agreements between Deluxe and Employee. We have no other written or
oral agreements.
Dated: February 27, 1997 /s/ Mark T. Gritton
Mark T. Gritton
Witnesses:
/s/ Trudy Novak
DELUXE CORPORATION
Dated: March 3, 1997
By: /s/ Michael F. Reeves
Michael F. Reeves
Vice President
Witnesses:
/s/ Maureen L. Mikel
/s/ Susan Buytowski
EXHIBIT B
Mark Gritton served Deluxe Corporation for 25 years, rising through the ranks to
very senior positions. Most recently, he served as president of the company's
largest operating unit, the Financial Services Group.
In this capacity, he was responsible for a revenue P&L in excess of $1.2 billion
consisting of the individual business units of Deluxe Check Printers, N.R.C.,
E.T.C., Chex Systems, and, for a period of time, Deluxe Data Systems. Deluxe
Data Systems was subsequently placed in a separate market serving unit to
provide focus on the electronic funds transfer market. In addition to meeting or
exceeding revenue and operating profit objectives, Mark also worked to complete
integration of sales and marketing activities across the business units.
Significant positive progress was made with this integration effort during 1996.
Over the years Mark has held significant P&L responsibilities, as well as
substantial operational and human resource responsibilities.
Mark's experiences with Deluxe consisted of sales, plant management of three
separate production facilities, regional management of northeast plant
operations, Vice President of Administration for the Corporation, Vice President
of Regional Production Operations, President of the Check Printing Division, and
finally President of the Financial Services Group. Mark was also a key member of
the senior group that reviewed and recommended strategic direction for the
company during the past year. His contributions to Deluxe have clearly added to
the success of the company over the years.
Mark has contemplated for some time that a change in responsibilities, to
include possible relocation from Minnesota, would be a positive experience
personally and for his family. His last child at home graduates high school in
the spring of 1997, allowing Mark and his wife complete flexibility in pursuing
new interests and possible locations.
Mark's broad range of experience and personal abilities should serve him well in
any new opportunities he chooses to pursue.
Exhibit 10.21
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT (the "Agreement") is made and entered into as
of the 1st day of November, 1996, by and between Deluxe Corporation. ("Client")
and DRH Strategic Consulting Inc. ("Consultant").
WHEREAS, Consultant serves as an advisor on financial services
businesses and employs or engages persons with significant experience and
special abilities relating to Client's business; and
WHEREAS, Client desires to retain the services of Consultant and
Consultant desires to be retained by Client to provide services as an
independent contractor.
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises herein contained, the parties hereby agree as follows:
1. Retention of Consultant and Services to be Performed.
1.1 Client hereby retains Consultant for the Term of this
Agreement (as hereinafter defined), and Consultant hereby accepts such retention
by Client. The services performed by Consultant's duties shall be as set forth
in Schedule A and, subject to any limitations set forth in Schedule A, such
services shall be performed at such reasonable times and places as Consultant
and Client shall mutually agree.
1.2 Consultant shall make available to Client the services of
Donald R Hollis, its President ("Hollis"), for the performance of Consultant's
obligations under this Agreement.
2. Term and Termination.
2.1 Unless earlier terminated as provided in paragraph 2.2,
the term of this Agreement (the "term") shall be as set forth in Schedule A
hereto.
2.2 The Agreement may be terminated prior to expiration of the
Term as follows:
(a) Upon the death of Hollis;
(b) By Client in the event that Hollis is unable, by reason of
physical or mental disability, to perform the services contemplated by this
Agreement for a period of more than 60 days in any 6-month period;
(b) By Client in the event that Consultant fails to perform
its obligations under this Agreement and does not cure such failure within 60
days of receipt of written notice thereof from Client;
(b)By Client in the event that Consultant fails to perform its
obligations under this Agreement and does not cure such failure within 60 days
of receipt of written notice thereof from Client;
(c) By Consultant in the event that Client fails to perform
its obligations under this Agreement and does not cure such failure within 60
days of receipt of written notice therefrom from Consultant;
(d) By Client upon 6 months prior written notice to Consultant
in the event that Client determines to cease engaging in the financial services
business;
(e) By Consultant upon 45 days prior to written notice to
Client in the Consultant determines to cease operating its business, by
Consultant; or
(f) By mutual written agreement of the parties.
Nothing in this paragraph 2.2 shall prevent Consultant from suspending the
performance of its services under this Agreement, without being deemed to be in
breach of its obligations hereunder, the event that Client fails to pay when due
the compensation specified in paragraph 3.
3. Compensation.
3.1 During the term of this Agreement, Consultant shall
receive from Client the compensation payable as set forth on Schedule A hereto.
3.2 Upon termination of this Agreement, Consultant shall be
entitled to any compensation earned by Consultant to the date of termination,
and no portion of the current installment of any retainer payment shall be
refundable.
4. Reimbursement of Expenses. Consultant shall be entitled, upon
submission of detailed invoices, to reimbursement of travel and other expenses
reasonably incurred in connection with Consultant's services. Payment shall be
due within 15 days of invoice submission.
5. Cooperation. Client agrees to cooperate with Consultant to the
extent necessary for Consultant to perform the services hereunder, including
providing Consultant with necessary information, including internal documents
and background reports related to Client's business, plans and strategies.
6. Confidentiality.
6.1 Consultant recognizes and acknowledges that the business
of Client is highly competitive and that, by reason of its engagement,
Consultant may have access to confidential and proprietary information regarding
Client, including information provided pursuant to paragraph 5. Consultant
hereby agrees not to disclose or intentionally use for the benefit of anyone
other than Client any such confidential or proprietary information.
6.2 The provisions of paragraph 6.1 shall survive for a period
of 2 year after the termination of this Agreement.
6.3 The provisions of Section 6.1 shall not apply to any
information which (a) is, at the time of disclosure to Consultant, a part of the
public domain or thereafter becomes a part of the public through no violation of
this Agreement, (b) was available to Consultant on a non-confidential basis
prior to its disclosure to Consultant by Client, (c) becomes available to
Consultant on a non-confidential basis from a source other than Client, provided
that such source is not bound by a confidentiality agreement with Client or an
affiliate of Client, or (d) is required to be disclosed in a filing required by
law or as otherwise contemplated by paragraph 6.4 below.
6.4 If Consultant is required, in any civil or criminal legal
proceeding or any regulatory proceeding or any similar process or pursuant to
any request of a regulatory authority having jurisdiction over Consultant, to
disclose any propriety or confidential information, the Consultant shall give to
Client prompt notice of such request so that Client may seek an appropriate
protective order or waive Consultant's compliance with the provisions of this
Agreement; provided, however, that is in the absence of a protective order or
the receipt of waiver hereunder, Consultant is nonetheless, in the opinion of
its counsel, compelled to disclose such information to any tribunal or else
stand liable for contempt or suffer any other censure or penalty, Consultant may
disclose such information to such tribunal without liability hereunder.
7. Independent Contractor.
7.1 For all purses of this Agreement, Consultant is an
independent contractor and not any employee, agent, partner or joint venturer of
or with the Client. Consultant acknowledges and agrees that, except as otherwise
expressly authorized by Client, it shall have no power to bind Client, or to
assume or to create, any contract or agreement on behalf of Client or in
Client's name.
7.2 Consultant shall be responsible for the payment of all
federal, state and local taxes payable with respect to any compensation paid to
Consultant hereunder.
7.3 Should Consultant engage other persons to assist Hollis in
the performance of Consultant's services hereunder, Consultant shall be solely
responsible for the compensation of such persons and for any tax withholding and
payroll taxes required in connection with such compensation.
7.4 Consultant hereby agrees that any written work product
produced on Client's behalf shall be deemed a "work for hire", which shall
become the property of the Client.
8. Other Activities During the Term of this Agreement.
8.1 This Agreement shall not be deemed or construed to require
Consultant to devote its full time and attention to the performance of services
hereunder nor to constitute an exclusive engagement of Consultant or Hollis.
Subject to the restrictions, if any, contained in Schedule A hereto, Consultant
and Hollis may undertake or engage in other activities during the term of this
Agreement, provided such other activities do not interfere with the performance
of Consultant's duties and obligations hereunder.
8.2 Client shall not be precluded from engaging other
consultants to perform services for Client, which may be similar to services
performed by Consultant hereunder.
9. Additional Terms. The parties may set forth such additional terms
and conditions as they mutually agree upon in Schedule A hereto.
10. Assignment. As a personal services contract, this Agreement is not
assignable by Consultant, but it may be assigned by Client to, and it shall be
binding upon and inure to the benefit of, any personal or entity succeeding to
all or substantially all of the business or assets of the Client.
11. Interpretation. It is the intent of the parties that in case of any
one or more of the provisions contained in this Agreement shall, for any reason,
be held to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect the other provisions of the
Agreement, and this Agreement shall be construed as if such invalid, illegal or
unenforceable provisions has never been contained herein. Moreover, it is the
intent of the parties that in case any of the provisions contained int he
Agreement shall be held to be excessively broad or, for any reason, such
provisions shall be construed by limiting and reducing it as determined by a
court of competent jurisdiction, so as to enforceable to the extent compatible
with applicable law.
12. Notices. All notices required or permitted to be given under this
Agreement shall be sufficient if in writing and delivered in person, by
facsimile, or by registered or certified mail, return receipt requested,
addressed as provided on Schedule A hereto or to such other address as either
party may notify the other in writing.
13. Complete Agreement; Amendments. This Agreement, including Schedule
A hereto, contains the entire agreement and understanding of the parties with
respect to the subject matter of the Agreement, and no representations,
promises, agreements or understanding, written or oral, not contained herein
shall be of any force or effect. No change, modification, or waiver of any
provision of this Agreement shall be valid or binding unless it is writing dated
subsequent to the date hereof, and signed by the party intended to be bound.
14. Headings. The headings of the paragraphs herein are for the
purposes of reference only and in no way shall limit, define or otherwise affect
the provisions hereof.
15. Counterparts. This Agreement may be signed in two counterparts,
each of which shall be deemed an original and both of which shall together
constitute one agreement.
16. Governing Law. This Agreement shall be governed by and construed in
accordance with the internal lows of the State of Illinois, without regard to
the provisions thereof respecting the conflict of laws.
IN WITNESS WHEREOF, the parties hereto have executed this Consulting
Agreement as of the date first written above.
DRH STRATEGIC CONSULTING, INC.
BY: /s/ Donald R. Hollis
PRESIDENT
DELUXE CORPORATION
CLIENT
BY /s/ John A. Blanchard III
ITS: Chairman & CEO
The undersigned, Donald R. Hollis, individually acknowledges and agreed
to provide consulting services to Client under the foregoing Consulting
Agreement and to comply with and be bound by the terms and conditions of the
foregoing Consulting Agreement.
/s/ Donald R. Hollis
Donald R. Hollis
SCHEDULE A
TO
CONSULTING AGREEMENT
1A. Services to be Performed.
(a) Description of Services:
Consultant to provide market insight, reaction to strategy, technology
and product plans, and assistance in conveying to customers/prospects
Client's strengths.
(b) Locations and Amount of Services:
Dedicated Services: At least 20 dedicated days of consulting
services per year at (a) Client's place of business or (b)
other locations (including the places of business of Client's
customers) designated by Client.
Referral Services: Consultant will be available by phone to
provide advice and feedback to Client on a demand basis to
queries. There is no limitation to the number of such calls.
(c) Scheduling:
The scheduling of consulting services shall be subject to Hollis'
availability. Client shall use its best efforts to provide as much
advance notice of its scheduling needs as possible, and Consultant and
Hollis shall do their best efforts to accommodate such needs.
2A. Term of Agreement.
This term of this Agreement shall commence on November 1, 1996 and
continue until October 31, 1997.
3A. Compensation.
(a) Retainer Fees: Client shall pay Consultant a fee at a rate of $3,500
per day of service. However, if during the twelve months less than
twenty days have been utilized, Consultant shall bill for and Client
shall pay for the number of days necessary to reach the 20 day minimum
stipulated in 1A(b)
4A. Restrictions on Consultant's Other Activities.
Consultant hereby agrees that, during the term of this Agreement, it
shall not enter into any agreement to provide consulting services to:
1.) First Data Corp
Hackensack, NJ
2.) EDS
Plano, TX
5A. Address for Notice.
If to Consultant: If to Client:
DRH Strategic Consulting, Inc. Deluxe Corporation
One First National Plaza 3680 Victoria Street North
3184 Shoreview, MN 55126
Chicago, Illinois 60603 Attn: J. A. Blanchard
Facsimile: _______________
ADDENDUM
Addendum to that certain Consulting Agreement, dated as of November 1,
1996 (the "Agreement"), by and between Deluxe Corporation and DRH Strategic
Consulting, Inc. Capitalized terms used herein without definition shall have the
meanings assigned to such terms in the Agreement.
1. At the end of Section 3A(a), add the words: "Fees shall not be payable
hereunder for attendance by Hollis at meetings of the Board of Directors of
Client."
2. The Agreement shall not be finally effective prior to its approval by the
Board of Directors of Client. Prior to such final effectiveness, the Agreement
may be terminated by either party immediately upon written notice to the other.
Accepted and Agreed:
DRH STRATEGIC CONSULTING, INC. DELUXE CORPORATION
By: /s/ Donald R. Hollis By: /s/ John A. Blanchard
Its: President Its: Chairman and CEO
Exhibit 10.22
AGREEMENT
This Agreement is entered into as of the as of the 24th day of October,
1994 by and between Deluxe Corporation ("Deluxe") and Michael R. Schwab
("Executive").
WITNESSETH
WHEREAS, Deluxe desires to employ Executive and Executive desires to
accept employment with Deluxe as Senior Vice President, Chief Information
Officer; and
WHEREAS, Executive and Deluxe wish to agree (i) on certain terms and
conditions of Executive's employment by Deluxe and (ii) in advance of any
separation from employment occurring during the term of this Agreement on the
terms of Executive's severance from employment.
NOW, THEREFORE, in consideration of Executive's acceptance of
employment with Deluxe, and intending to be legally bound, the parties hereto
agree as follows:
1. Term. Unless terminated at an earlier date in accordance with
Section 4, this Agreement shall have a term of three (3) years from the date
hereof ("Term").
2. Service with Deluxe. During the Term, Executive agrees to perform
the employment duties typically assigned to a Corporate Senior Vice President,
Chief Information Officer and such other employment duties as the Board of
Directors, the Chief Executive Officer or the Chief Operating Officer of Deluxe
shall reasonably assign from time to time (the "Employment Duties").
3. Performance of Duties. Executive agrees to serve Deluxe and its
affiliates (together, the "Company") faithfully and to the best of Executive's
ability and to devote full time, attention and efforts to Executive's Employment
Duties during the Term. Executive hereby confirms that Executive is under no
contractual commitment inconsistent with the obligations set forth in this
Agreement, and that during the Term, Executive will not render or perform
services for any other corporation, firm, entity or person which are
inconsistent with the provisions of this Agreement; provided, however, that
nothing in this Agreement shall preclude Executive from engaging in charitable
and community affairs and from managing personal investments, so long as such
activities do not prevent or distract Executive from performing responsibilities
under this Agreement.
4. Termination.
(a) Death or Disability. This Agreement shall terminate upon
Executive's death or disability (as hereinafter defined).
(b) Termination by Deluxe. This Agreement shall terminate on the
date of Executive's termination of employment by Deluxe, if
during the Term:
(i) the Board of Directors, the Chief Executive Officer
or the Chief Operating Officer of Deluxe shall
terminate Executive's employment by Deluxe for
"cause," or
(ii) the Board of Directors, the Chief Executive Officer
or the Chief Operating Officer of Deluxe shall
terminate Executive's employment by Deluxe for any
other reason or no reason.
(c) For purposes of this Agreement, the term "cause" shall mean:
(i) Executive has breached the provisions of Section 6 of
this Agreement, or
(ii) Executive has otherwise failed to perform his
Employment Duties and does not cure such failure
within thirty (30) days after receipt of specific
written notice thereof, or
(iii) Executive commits an act, or omits to take action, in
bad faith which results in material detriment to the
Company, or
(iv) Executive has had excessive absences unrelated to
illness or vacation ("excessive" shall be defined in
accordance with local employment customs), or
(v) Executive has committed fraud, misappropriation,
embezzlement or other act of dishonesty in connection
with the Company or its business, or
(vi) Executive has been convicted or has pleaded guilty or
nolo contendere to criminal misconduct constituting a
gross misdemeanor or a felony, which gross
misdemeanor, or involves a breach of ethics, moral
turpitude, or immoral or other conduct reflecting
adversely upon the reputation or interest of the
Company, or
(vii) Executive's use of narcotics, liquor or illicit drugs
has had a detrimental effect on performance of
employment responsibilities, or
(viii) Executive has breached any other provision of this
Agreement and failed to cure such breach within
thirty (30) days after receipt of specific written
notice thereof.
(d) "Disability" Defined. The Board of Directors, the Chief
Executive Officer or the Chief Operating Officer may determine
that Executive has become disabled, for the purpose of this
Agreement, (i) if Executive shall qualify, because of illness
or incapacity, to begin receiving disability income
continuation payments under Deluxe's current Group Long-Term
Disability Insurance Policy or any long-term disability income
insurance policy or program that Deluxe is then maintaining
for the benefit of its executive-level employees, which
provide for receipt of disability benefits after twenty-six
(26) or more consecutive weeks of total disability of
twenty-six (26) or more cumulative weeks of total disability
due to the same or related causes in any twelve (12)
consecutive months, or (ii) if Deluxe is not then maintaining
such a disability income insurance policy or program for its
executive-level employees, if Executive is unable, because of
illness or incapacity, to render normal employment services
pursuant to this Agreement for a period of twenty-six (26) or
more consecutive weeks of total disability or twenty-six (26)
or more cumulative weeks of total disability due to the same
or related cause in any twelve (12) consecutive months.
(e) Termination by Executive. Executive may terminate his
employment by Deluxe at any time during the Term for "good
reason" or for any other reason, whereupon this Agreement
shall terminate. For purposes of this Agreement, "good reason"
is: (i) a material and long-term change in Executive's office,
title, reporting relationship, authority, or Employment
Duties; or (ii) relocation of Executive to a location other
than the greater Minneapolis, St. Paul area, unless Deluxe's
corporate headquarters is relocated, then in that event if
Executive is relocated to a location other than the area of
Deluxe's headquarters. In order for Executive to terminate his
employment relationship for good reason, Executive shall
provide Deluxe with written notice stating the good reason(s)
for terminating the employment relationship. If Deluxe does
not, within thirty (30) days of having received such written
notice, cure such treatment of Executive, Executive may resign
his position for good reason within the meaning of this
Agreement.
5. If Executive's employment relationship with Deluxe is terminated
during the Term by Executive for good reason or by Deluxe for other than cause,
the agreed severance payments and benefits to Executive, which shall be
Executive's exclusive remedy for such termination, shall be as follows:
(a) Deluxe shall pay to Executive continuation of salary for one
(1) year at Executive's then current salary (which salary
shall not be less than Executive's salary upon acceptance of
employment), to be paid on Executive's regular pay days,
together with payment to Executive of an amount equal to the
target annual incentive bonus for the year in which the
termination occurs. If the target annual incentive bonus for
that year has not been set, the previous year's target annual
incentive bonus shall be used. Payment of the target annual
incentive bonus as set forth herein shall be made at the same
time as Executive's first salary continuation payment is due,
unless Executive shall elect a later payment, without
interest. In the event that Executive obtains other employment
("New Position") during such one year period, Executive will
promptly notify Deluxe of his employment commencement date and
base rate of compensation for the New Position, and Deluxe
shall be entitled to set off against any salary continuation
payments to be made from and after such employment
commencement date, an amount equal to Executive's base rate of
compensation for the New Position for the remainder of such
one year period.
(b) Deluxe shall provide for full (100%) vesting of all of
Executive's pension rights, if any, under Deluxe's Profit
Sharing Trust, Pension and Supplemental Retirement Plans
through the date of his separation from employment pursuant to
this Agreement.
(c) Deluxe shall provide Executive additional retirement income
equivalent to that available from purchasing a single-premium
retirement annuity in the amount of $45,000.00.
(d) Executive shall be provided a period of at least one hundred
eighty (180) days from the date of his separation in which to
exercise any then outstanding, vested non-qualified stock
options.
(e) Executive may request an immediate distribution of any
deferred compensation account maintained for Executive at
Deluxe by submitting such request in writing to Deluxe's Chief
Executive Officer or Chief Operating Officer and such officer
shall present such request together with such officer's
recommendation for approval to Deluxe's Board of Directors or
any committee thereof charged with administering such deferred
compensation program.
(f) Deluxe shall continue to make available to Executive medical,
dental, long-term disability and life insurance benefit plans
on such terms and at such costs as such benefits are from time
to time offered to Deluxe's senior executives and eligible
spouses, if and to the extent that Executive participated in
such plans immediately prior to his separation (i) for a
period of one (1) year from the date of Executive's separation
from employment in the case of dental, long-term disability
and life insurance and (ii) until Executive becomes eligible
for Medicare in the case of medical insurance. Deluxe shall
not be required to continue Executive's eligibility for a
particular employee benefit beyond the date when Executive
obtains comparable employment by or comparable benefits from
another employer.
(g) Executive shall be provided at Deluxe's expense, Senior
Executive outplacement services from a national outplacement
firm of his choosing, provided that the cost of such services
does not exceed $30,000.
6. Confidential Information. Except as permitted or directed by the
Deluxe's Board of Directors, Chief Executive Officer or Chief Operating Officer
in writing or as required by law, during the Term or at any time thereafter,
Executive shall not divulge, furnish or make accessible to anyone or use in any
way (other than in the ordinary course of business of the Company) any
confidential or secret knowledge or information of the Company which Executive
has acquired or become acquainted with or will acquire or become acquainted with
prior to the termination of Executive's employment by the Deluxe, whether
developed by Executive or by others, including, without limitation, any trade
secrets, confidential or secret designs, processes, formulae, plans, devices or
materials (whether or not patented or patentable) directly or indirectly useful
in any aspect of the business of the Company, any customer or supplier lists of
the Company, any confidential or secret development or research work of the
Company, or any other confidential information or secret aspects of the
business, strategy or business methods of the Company. Executive acknowledges
that the above-described knowledge or information constitutes and will
constitute a unique and valuable asset of the Company and represents a
substantial investment of time and expense by the Company, and that any
disclosure or other use of such knowledge or information other than for the sole
benefit of the Company would be wrongful and would cause irreparable harm to the
Company. Both during and after the Term, Executive will refrain from any acts or
omissions that would reduce the value of such knowledge or information to the
Company. The foregoing obligations of confidentiality, however, shall not apply
to any knowledge or information which is or subsequently becomes generally
publicly known in the form in which it was obtained from the Company, other than
as a direct or indirect result of the breach of this Agreement by Executive.
7. Arbitration. Any dispute arising out or relating to the meaning,
interpretation or application of this Agreement, including without limitation
any determination of whether Executive's separation from Deluxe's employment was
"for cause" or "for good reason," shall be submitted to arbitration in
accordance with the commercial rules of the American Arbitration Association.
Unless otherwise mutually agreed, arbitration hearings shall be held in St.
Paul, Minnesota. The burden of proof on a party alleging a breach of this
Agreement shall be on the party alleging the breach.
8. Executive's Estate. If Executive dies during the Term while in the
employment of Deluxe and provided that Deluxe is not entitled to terminate
Executive's employment for cause, Deluxe shall provide to the estate of
Executive (a) death benefits on terms and conditions similar to death benefits,
if any, made available to other Deluxe senior executives, without the
application any waiting period, and (b) the annuity described in Section 5 (c)
of this Agreement and the medical benefits described in Section 5(f) of this
Agreement. The benefits conferred in clause (a) hereof are in addition to any
death benefits made available to Executive as a part of a contributory program
in which Executive may participate.
9. Disability. In the event that Executive becomes permanently disabled
as defined herein during the Term while in the employment of Deluxe and provided
that Deluxe is not entitled to terminate Executive's employment for cause,
Deluxe shall provide Executive (a) disability benefits on terms and conditions
similar to disability benefits, if any, made available to other Deluxe senior
executives, without the application of any waiting period, and (b) the annuity
described in Section 5 (c) of this Agreement and the medical benefits described
in Section 5(f) of this Agreement.
10. Ongoing Covenants. Notwithstanding any termination of this
Agreement, the parties, in consideration of the mutual undertakings set forth
herein, shall remain bound by the provisions of this Agreement which
specifically relate to the periods, activities or obligations upon and
subsequent to the termination of Executive's employment.
11. Surrender of Records and Property. Upon termination of employment
with the Deluxe, Executive shall deliver promptly to Deluxe all property of the
Company, including all property which relate in any way to the business,
products, practices or techniques of the Company, and all documents which in
whole or in part contain any trade secrets or confidential information of the
Company.
12. Discoveries and Inventions.
(a) Executive hereby assigns and agrees to assign to Deluxe all
his right, title and interest in and to any and all
inventions, discoveries, developments, modifications,
improvements, ideas, know-how, techniques, designs, data,
programs, processes, formulae and all other work products
related to the Company's business ("Work Product") whether
tangible or intangible, which Executive conceives, reduces to
practice, reduces to writing or other storage media or
otherwise creates either alone or jointly with others in the
course of his employment.
(b) If any of such Work Product is created wholly or in part by
Executive during his hours of actual work for Deluxe, or with
the aid of the Deluxe's materials, equipment or personnel, or
arises out of or relates to the Company's business, then such
creation shall be deemed conclusively to have occurred in the
course of his employment. It is recognized that Executive will
perform the duties assigned to him at times other than his
actual working hours and the Deluxe's rights hereunder shall
not be diminished because Executive's Work Product was created
at such other times.
(c) Executive agrees to perform all acts necessary to enable
Deluxe to learn of and protect the rights it receives
hereunder, including, but not limited to, making full and
immediate disclosure to Deluxe and assisting in the
preparation and execution of all documents required to acquire
and convey to Deluxe patent and copyright protection in the
United States and elsewhere.
13. This Agreement represents the entire understanding of the parties
hereto with respect to the subject matter hereof, including without limitation,
the terms of Executive's separation from employment and supersedes and cancels
any and all prior agreements relating to the subject matter hereof.
14. This Agreement shall be interpreted, in its validity and effect
determined, in accordance the laws of the State of Minnesota.
15. This Agreement shall be binding on Executive, his heirs,
administrators, representatives, executives, successors and assigns, and on
Deluxe and its successors and the assigns.
16. The amendment, alteration or modification of this Agreement shall
only be valid when executed in writing and signed by the Parties hereto.
IN WITNESS WHEREOF, the Parties hereto have set their hands and seals.
DELUXE CORPORATION
_________________________ By: _________________________
Michael R. Schwab Its:
Exhibit 12.4
DELUXE CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Year
Ended Years Ended December 31,
------------------------------------------------------------------------------------------
December 31, 1996 1995 1994 1993 1992 1991 1990
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings
Income from Continuing Operations
before Income Taxes $118,765 $169,319 $246,706 $235,913 $324,783 $295,493 $282,506
Interest expense
(excluding capitalized interest) 10,649 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 13,467 14,761 13,554 13,259 12,923 11,807 10,849
Amortization of debt expense 121 84 84 84 84 71 0
-------- -------- -------- -------- -------- -------- --------
TOTAL EARNINGS $143,002 $197,262 $270,077 $259,326 $353,161 $315,591 $294,782
Fixed charges
Interest Expense
(including capitalized interest) $ 11,978 $ 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 13,467 14,761 13,554 13,259 12,923 11,807 10,849
Amortization of debt expense 121 84 84 84 84 71 0
-------- -------- -------- -------- -------- -------- --------
TOTAL FIXED CHARGES $ 25,566 $ 29,559 $ 24,130 $ 23,898 $ 28,831 $ 20,868 $ 12,709
RATIO OF EARNINGS
TO FIXED CHARGES: 5.6 6.7 11.2 10.9 12.2 15.1 23.2
</TABLE>
Exhibit 13.1
FINANCIAL HIGHLIGHTS
DELUXE CORPORATION
<TABLE>
<CAPTION>
=====================================================================================
Dollars in thousands except per share amounts 1996 1995 Change
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $1,895,664 $1,857,981 2%
Income from continuing operations 65,463 94,434 (30.7%)
Return on sales 3.5% 5.1%
Per share .80 1.15 (30.4%)
Return on average shareholders' equity 8.8% 11.8%
Net income 65,463 87,021 (24.8%)
Per share .80 1.06 (24.5%)
Cash dividends paid 121,976 122,143 (0.1%)
Per share 1.48 1.48
Shareholders' equity 712,916 780,374 (8.6%)
Book value per share 8.69 9.47 (8.2%)
Average common shares outstanding (thousands) 82,311 82,420
Number of shareholders 19,495 20,843
Number of employees 19,643 19,286 1.9%
- -------------------------------------------------------------------------------------
</TABLE>
NET SALES
(DOLLARS IN BILLIONS)
[BAR CHART OMITTED]
INCOME FROM CONTINUING OPERATIONS PER SHARE
(DOLLARS)
[BAR CHART OMITTED]
CASH DIVIDENDS PER SHARE
(DOLLARS)
[BAR CHART OMITTED]
1
MANAGEMENT'S DISCUSSION AND ANALYSIS
INTRODUCTION - This discussion summarizes the significant factors that affected
the consolidated operating results and financial condition of Deluxe Corporation
during the three years ended December 31, 1996. Over this period, the Company
has engaged in a strategic reorganization process, the goal of which is to
improve profitability and provide the financial institution and retail
communities an even broader range of products and services. During this process,
the Company has recorded significant consolidation, restructuring, and other
reorganization costs, as well as gains and losses on sales of businesses.
Although these charges have had a significant impact on the operating results
and cash position of the Company, the following discussion considers them
separately when analyzing the Company's financial and operational progress. The
following analysis is based on the organization of the Company's businesses into
three operating segments (described in note 12 to the Consolidated Financial
Statements).
OVERALL SUMMARY - In 1996, the Company achieved higher sales for the 58th
consecutive year. The sales increase of 2% was the result of growth in the
Deluxe Financial Services and Deluxe Electronic Payment Systems segments,
partially offset by a planned decline in the Deluxe Direct segment. 1996 income
from continuing operations was $65.5 million, compared to $94.4 million and
$144.3 million in 1995 and 1994, respectively. Earnings per share from
continuing operations were $.80 in 1996, compared to $1.15 in 1995 and $1.75 in
1994. Return on average assets was 5.3% for 1996, compared to 7.4% and 11.5% in
1995 and 1994, respectively. Return on average shareholders' equity was 8.8% in
1996, compared to 11.8% in 1995 and 17.9% in 1994. These results include pretax
strategic reorganization charges of $142.3 million in 1996 and $62.5 million in
1995. The results for 1994 include a $10 million pretax credit to a 1993
restructuring charge.
STRATEGIC REORGANIZATION CHARGES - Over the last few years, the Company has
engaged in a strategic reorganization process. This process involved a thorough
examination of the Com pany's various lines of business, including an
examination of each business' product offerings, short-term and long-term
profitability, and strategic fit within the Company's long-term plans. This
effort has resulted in the consolidation of operating and administrative
facilities, the elimination of products and businesses, and the restructuring of
the Company's management and operating structure. These events have led to
improved operating profitability and should continue to result in cost
reductions, which will be reflected primarily in the form of reduced facility,
materials, and employee expenses in the Company's operating results. It is
expected that competitive pricing measures, increased expenses, and other
factors will offset a portion of the savings expected to be achieved through the
Company's cost reduction efforts.
During 1996, the Company sold a total of six businesses in the Deluxe
Direct segment and announced its plans to divest three others. As a result of
management's decision to hold these three businesses for sale, and in
accordance with generally accepted accounting principles, the Company recorded a
pre tax goodwill impairment charge of $111.9 million to write the businesses
down to their estimated fair values less costs to sell. Additionally, the
Company recorded net pretax charges of $30.4 million during 1996 for
restructuring, gains and losses on sales of businesses, and other reorganization
costs. These charges are reflected through out the consolidated statement of
income according to the nature of the charge, with $39.2 million in cost of
sales expense, $24.6 million in selling, general, and administrative expense and
a $33.4 million gain in other income. The December 31, 1996, balance sheet
reflects a restructuring accrual of $29.1 million for employee severance costs
and $3.8 million for estimated losses on asset dispositions. The majority of
these severance costs are expected to be paid out in 1997 from cash generated
from the Company's operations.
During the fourth quarter of 1995, the Company announced that it was
exiting its Printwise ink business, which is treated as discontinued operations
in the financial statements presented in this report. Also during 1995, the
Company recorded pretax charges of $62.5 million primarily related to exiting
unprofitable businesses, eliminating certain products, and write-offs of
non-performing assets. These costs are spread throughout the 1995 consolidated
statement of income. 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 expense.
In 1994, a $10 million credit to a 1993 restructuring charge was recorded
to selling, general, and administrative expense.
The following table displays the Company's results of operations as
reported, compared to results with the above mentioned charges excluded.
<TABLE>
<CAPTION>
===========================================================================================================================
Results of operations - as reported and as adjusted to exclude strategic reorganization charges
- ---------------------------------------------------------------------------------------------------------------------------
1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
Reported Adjusted Reported Adjusted Reported Adjusted
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net sales $1,895,664 $1,895,664 $1,857,981 $1,857,981 $1,747,644 $1,747,644
Gross margin 999,780 1,038,955 999,879 1,016,495 963,192 963,192
Selling, general, and administrative 728,828 704,223 737,050 701,194 631,660 641,660
Goodwill impairment charge 111,900
Employee sharing 71,943 71,943 79,045 79,045 81,701 81,701
Other net income (expense) 31,656 (1,767) (14,465) (4,459) (3,125) (3,125)
Provision for income taxes 53,302 105,000 74,885 98,600 102,453 98,470
Income from continuing operations $ 65,463 $ 156,022 $ 94,434 $ 133,197 $ 144,253 $ 138,236
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
14
<TABLE>
<CAPTION>
======================================================================================================================
Percentage of revenue (not including strategic reorganization charges) Percentage of dollar increase/(decrease)
- ----------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1996 vs 1995 1995 vs 1994
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
100% 100% 100% Net sales 2% 6.3%
54.8 54.7 55.1 Gross margin 2.2 5.5
37.1 37.7 36.7 Selling, general, and administrative .4 9.3
3.8 4.3 4.7 Employee sharing (9) (3.3)
.1 .2 .2 Other expense (net) (60.4) 42.7
5.5 5.3 5.6 Provision for income taxes 6.5 .1
8.2 7.2 7.9 Income from continuing operations 17.1 (3.6)
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
RESULTS OF OPERATIONS - The table above 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 dollar changes of such
items in comparison to the prior year. This table does not include the strategic
reorganization charges discussed above.
For discussion purposes, segment results discussed below reflect results
from continuing operations, excluding the above mentioned strategic
reorganization charges.
NET SALES - Net sales for the Company increased 2% over 1995. Net sales for the
Deluxe Financial Services segment increased 7.3% to $1,390.3 million in 1996.
The majority of the increase came from increased sales of higher priced
products in the financial institution check printing business and increased
volume from direct mail offerings. Additionally, collection service revenue
continued to increase due to acquisitions and management efforts to increase
sales volume. The Deluxe Electronic Payment Systems segment experienced a sales
increase of 4.3% to $129.9 million in 1996, mostly due to increased volumes in
financial institution ATM processing. These sales increases were partially
offset by a 14.2% decrease to $375.5 million for the Deluxe Direct segment. This
decrease was the result of actions taken to increase the profitability of the
segment, including sales of businesses within the segment, reduced catalog
circulation, and the elimination of unprofitable product lines.
In 1995, net sales for the Company increased 6.3% over 1994. Net sales for
the Deluxe Financial Services segment increased 4% from 1994 to $1,295.7
million. Order counts for the financial institution check printing business
remained flat, but continued competitive discounting resulted in a slight
reduction of revenues. This decline was more than offset by growth in the
segment's collection service business. Additionally, the Deluxe Electronic
Payment Systems segment experienced a revenue increase of 25.8% to $124.5
million. Most of this growth was attributable to an international acquisition in
August 1994. Finally, the Deluxe Direct segment recorded a revenue increase of
8.6% to $437.8 million in 1995. The majority of this growth was also the result
of acquisitions. The growth was partially offset by lower catalog response rates
for products in the segment's social expressions business.
GROSS MARGIN - Consolidated gross margin for the Company was 52.7% in 1996,
compared to 53.8% and 55.1% in 1995 and 1994, respectively. The fluctuation over
the three-year period was primarily due to the strategic reorganization charges
discussed above. With the strategic reorganization charges excluded from the
results, consolidated gross margin for the Company was 54.8% in 1996, compared
to 54.7% and 55.1% in 1995 and 1994, respectively. The Deluxe Financial Services
segment's gross margin increased to 60% in 1996 from 59.5% in 1995. Margin
improvement from the financial institution check printing business was partially
offset by declines in the collections business as a result of growth related
costs. Margins for the Deluxe Electronic Payment Systems segment decreased to
15.9% in 1996 from 36% in 1995, due primarily to higher computer equipment rent
expense, costs of infrastructure upgrades and software re-engineering, and
higher telecommunication expense. Margins for the Deluxe Direct segment
increased to 49% from 45.9% in 1995, due primarily to the sale of businesses
with poorer margins, better cost containment and inventory management, and
consolidation of products within the direct mail businesses.
The Deluxe Financial Services segment's gross margin was 59.5% in 1995 and
1994. Margin improvements from the financial institution check printing business
were offset by a decrease from the payment protection business, due to higher
processing costs and expenditures related to database enhancements. Margin
percentages for the Deluxe Electronic Payment Systems segment increased to 36%
from 32.2%, due primarily to higher sales volume and acquisitions. Margins for
the Deluxe Direct segment decreased to 45.9% from 47.2%, due to higher postage
and paper costs and acquisitions of businesses that experienced lower margins
than average for the segment.
SELLING, GENERAL, AND ADMINISTRATIVE - Selling, general, and administrative
expenses for the Company decreased $8.2 million, or 1.1%, in 1996, primarily as
a result of the 1995 strategic reorganization charges discussed above. With the
strategic reorganization charges excluded, selling, general, and administrative
expenses increased $3 million, or .4%, in 1996. The Deluxe Financial Services
segment's expenses increased 8.6%, primarily in the financial institution check
printing business,
15
due to increased customer service call center volume and higher marketing
expenditures for new products. The Deluxe Electronic Payment Systems segment's
expenses decreased 4.6%, due to lower consulting expenses. The Deluxe Direct
segment's expenses decreased 15%, mainly due to planned catalog circulation
decreases by the segment's direct mail businesses.
In 1995, selling, general, and administrative expenses for the Com pany
increased $105.4 million, or 16.7%, in part as a result of the strategic
reorganization charges discussed above. With these charges excluded, selling,
general, and administrative expenses increased $59.5 million, or 9.3% from 1994.
The Deluxe Financial Services segment's expenses increased 6%, due to growth in
the segment's collection businesses. The Deluxe Electronic Payment Systems
segment's expenses increased by 51.2%, due mainly to an international
acquisition in August 1994 and increased salaries and consultant costs. The
Deluxe Direct segment's expenses increased 10.5%, primarily due to acquisitions
and costs associated with product development.
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 $71.9 million in
1996 from $79 million in 1995 and $81.7 million in 1994 resulted from a decrease
in the Company's net income over this period.
OTHER INCOME (EXPENSE) - Other income for the Company was $31.7 million in 1996,
compared to other expense of $14.5mil lion in 1995 and $3.1 million in 1994.
These changes were primarily due to the strategic reorganization charges
discussed above. With these charges removed, other expense was $1.8 million in
1996, compared to $4.5 million in 1995. The decrease is due primarily to lower
interest expense as a result of decreased borrowings. In 1995, other net expense
was $4.5 million, compared to $3.1 million in 1994. The increase is due
primarily to higher interest expense from increased borrowings and decreases in
interest income.
PROVISION FOR INCOME TAXES - The Company's effective tax rate in creased to
44.9% in 1996 and 44.2% in 1995 from 41.5% in 1994, due primarily to lower
pretax income combined with an increasing base of non-deductible expenses
consisting primarily of intangible amortization. Additionally, the 1996 rate
increased due to the non-deductible goodwill impairment charge recorded by the
Company. This was offset by tax benefits recognized for the sales of businesses
and businesses held for sale.
NET INCOME - 1996 net income decreased to $65.5 million from $87 million in
1995. The primary reason for the decrease was the additional strategic
reorganization charges discussed above. With the charges and their related tax
effects removed, the Company had income from continuing operations of $156
million and $133.2 million in 1996 and 1995, respectively. This increase
resulted from increased sales, lower interest expense, and cost savings gained
from production efficiencies and the elimination of unprofitable product lines.
1995 net income decreased to $87 million from $140.9 million in 1994,
resulting primarily from the strategic reorganization charges of $62.5 million
and increased losses from discontinued operations. With these charges removed
from the results, income from continuing operations in 1995 was $133.2 million,
compared to $138.2 million in 1994.
FINANCIAL CONDITION
LIQUIDITY - Cash provided by continuing operations was $290.6 million, compared
to $214.6 million in 1995 and $199 million in 1994. Funds provided by operations
are the Company's primary source of working capital for financing capital
expenditures and paying dividends. The increase in 1996 over 1995 is due to
better cash management and operating cost reductions. 1994 cash provided by
operations was lower than 1996 and 1995, due primarily to cash expenditures
related to the restructuring of the check printing business. Working capital was
$108.1 million as of December 31, 1996, compared to $12.3 million and $130.4
million on that date in 1995 and 1994, respectively. The year-end current ratio
for 1996 was 1.3 to 1, compared to 1 to 1 and 1.4 to 1 for 1995 and 1994,
respectively. The increase over 1995 is primarily the result of cost savings and
cash proceeds from the Company's strategic reorganization initiatives and from
lower capital expenditures. 1995's working capital and current ratio decline
from 1994 resulted primarily from acquisitions and lower profits. The Company
anticipates that approximately $24.2 million of cash will be paid out in 1997 on
1996 restructuring accruals.
CAPITAL RESOURCES - In 1996, the Company made numerous business acquisitions and
divestitures from which the Company derived $98.1 million in net cash proceeds.
In 1995, the Company made one acquisition at a cost of $38.8 million. In 1994,
the Company made several acquisitions at an aggregate cost of $53.8 million.
Purchases of property, plant, and equipment required cash outlays of $92
million in 1996, compared to $125.1 million in 1995 and $126.2 million in 1994.
The Company anticipates capital expenditures of approximately $130 million in
1997 for information technology upgrades and replacement and for expansion of
the Company's capabilities to provide enhanced product offerings to its
customers.
The Company has uncommitted bank lines of credit of $190.3 million. At
December 31, 1996, $17 million was outstanding at an interest rate of 6.5%. At
December 31, 1995, $14.2 million was outstanding at an interest rate of 6.6%.
The average amount drawn from these lines in 1996 was $14.5 million at a
weighted average interest rate of 6.29%. Also, the Company has in place a $150
million committed line of credit as support for commercial paper and as a source
of cash. The average amount of commercial
16
paper outstanding in 1996 was $13.3 million at a weighted average interest rate
of 5.63%. No commercial paper was outstanding as of December 31, 1996. As of
December 31, 1995, $34.7 million of commercial paper was issued and outstanding
at a weighted average interest rate of 6.09%. 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 securities of the
Company, capital expenditures, and possible acquisitions. As of December 31,
1996 and 1995, no such notes were issued or outstanding.
Cash dividends totaled $122 million in 1996, compared to $122.1 million in
1995 and $120.5 million in 1994. The payout of earnings was 186.3% in 1996,
140.4% in 1995, and 85.5% in 1994. In December 1996, the Company's board of
directors amended the Company's stock purchase plan to permit the repurchase of
up to 10 million shares of Deluxe common stock. The board authorized the
repurchase of up to 5 million shares under this plan.
OUTLOOK - The Company's declining profits over the past few years have required
management to re-evaluate all aspects of the Company's business. The results of
operations over these years and in the immediate future include significant
actions intended to position the Company for profitable growth. In 1997, the
Company expects to complete a program of divesting businesses that do not focus
on providing products and services to the financial institution and retail
markets. Additionally, the Company will continue its re-engineering efforts
throughout the organization. This is expected to result in reduced costs and
improved profitability. These changes have required, and may continue to
require, charges to earnings as evidenced by the 1996 and 1995 pretax charges to
continuing operations and the discontinuation of the Printwise ink business in
1995. While the Company may be required to record additional charges in the
future, the Company expects the amount and degree of these charges to lessen as
it completes its reorganization and begins to reap the financial and operational
benefits of its efforts.
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 material
loss or unauthorized use. These systems produce records adequate for preparation
of financial information. We believe the Company's systems are effective, and
the costs of the systems do not exceed the benefits obtained.
The audit committee of the board of directors 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.
/s/ J.A. Blanchard III
J.A. Blanchard III
Chairman, President, and
Chief Executive Officer
/s/ Charles M. Osborne
Charles M. Osborne
Senior Vice President and
Chief Financial Officer
February 10, 1997
17
ELEVEN-YEAR SUMMARY
<TABLE>
<CAPTION>
===================================================================================================================
Years ended December 31 (dollars in thousands except per share amounts)
1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $1,895,664 $1,857,981 $1,747,644 $1,581,767
Salaries and wages 586,949 551,788 519,901 491,868
Employee profit sharing and pension plan expense 52,649 57,958 59,370 61,162
Employee bonus and stock purchase discount expense 19,294 21,087 22,331 20,215
Provision for income taxes 53,302 74,885 102,453 94,052
Income from continuing operations 65,463 94,434 144,253 141,861
Return on sales 3.45% 5.08% 8.25% 8.97%
Per share .80 1.15 1.75 1.71
Return on average shareholders' equity 8.77% 11.84% 17.86% 17.40%
Return on average assets 5.30% 7.40% 11.50% 11.57%
Net income 65,463 87,021 140,866 141,861
Per share .80 1.06 1.71 1.71
Cash dividends paid 121,976 122,143 120,503 117,945
Per share 1.48 1.48 1.46 1.42
Shareholders' equity 712,916 780,374 814,393 801,249
Book value per share 8.69 9.47 9.89 9.66
Additions to machinery and equipment 88,254 86,366 86,411 45,675
Additions to realty and leaseholds 3,784 38,702 39,815 16,435
Depreciation and amortization expense 106,636 103,303 85,906 72,320
Working capital increase (decrease) 95,857 (118,116) (94,086) (162,387)
Total assets 1,176,440 1,295,095 1,256,272 1,251,994
Long-term debt 108,937 110,997 110,867 110,755
Average common shares outstanding (thousands) 82,311 82,420 82,400 82,936
Number of employees 19,643 19,286 18,839 17,748
Number of production and service facilities 81 81 78 73
Facility area - square feet (thousands) 4,721 5,084 4,830 4,623
===================================================================================================================
</TABLE>
INCOME FROM CONTINUING OPERATIONS
(DOLLARS IN MILLIONS)
[BAR CHART OMITTED]
RETURN ON AVERAGE SHAREHOLDERS' EQUITY
(PERCENT)
[BAR CHART OMITTED]
RETURN ON AVERAGE ASSETS
(PERCENT)
[BAR CHART OMITTED]
18
<TABLE>
<CAPTION>
====================================================================================================================================
1992 1991 1990 1989 1988 1987 1986
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales $1,534,351 $1,474,482 $1,413,553 $1,315,828 $1,195,971 $948,010 $866,829
Salaries and wages 456,893 444,987 417,193 393,339 367,302 300,225 272,526
Employee profit sharing and pension plan expense 60,307 55,410 52,314 48,423 44,398 39,567 36,630
Employee bonus and stock purchase discount expense 25,494 22,417 20,598 17,876 13,698 13,686 12,702
Provision for income taxes 121,999 112,591 110,345 93,691 83,288 88,137 101,891
Income from continuing operations 202,784 182,902 172,161 152,631 143,354 148,512 121,109
Return on sales 13.22% 12.40% 12.18% 11.60% 11.99% 15.67% 13.97%
Per share 2.42 2.18 2.03 1.79 1.68 1.74 1.42
Return on average shareholders' equity 25.70% 25.69% 26.36% 25.47% 27.08% 32.86% 31.57%
Return on average assets 17.64% 18.08% 19.44% 18.69% 17.35% 19.45% 20.50%
Net income 202,784 182,902 172,161 152,631 143,354 148,512 121,109
Per share 2.42 2.18 2.03 1.79 1.68 1.74 1.42
Cash dividends paid 112,483 102,512 93,109 83,679 73,392 64,849 49,630
Per share 1.34 1.22 1.10 .98 .86 .76 .58
Shareholders' equity 829,808 747,976 675,792 630,643 567,731 490,820 413,132
Book value per share 9.90 8.91 8.04 7.40 6.65 5.77 4.85
Additions to machinery and equipment 52,598 48,605 49,233 55,658 59,252 45,868 27,733
Additions to realty and leaseholds 19,013 23,896 14,722 32,764 19,634 15,841 9,529
Depreciation and amortization expense 66,615 75,976 74,050 67,340 59,846 45,462 32,079
Working capital increase (decrease) 55,975 185,879 50,176 42,063 30,601 (121,582) (23,066)
Total assets 1,199,556 1,099,059 923,902 847,002 786,110 866,270 660,969
Long-term debt 115,522 110,575 11,911 10,169 10,933 12,886 14,152
Average common shares outstanding (thousands) 83,861 84,005 84,638 85,346 85,255 85,242 85,487
Number of employees 17,400 17,563 17,174 16,948 16,628 15,346 13,502
Number of production and service facilities 85 82 81 79 77 74 70
Facility area - square feet (thousands) 5,454 5,238 5,060 4,980 4,650 4,180 3,450
====================================================================================================================================
</TABLE>
SHAREHOLDERS' EQUITY
(DOLLARS IN MILLIONS)
[BAR CHART OMITTED]
WORKING CAPITAL
(DOLLARS IN MILLIONS)
[BAR CHART OMITTED]
FACILITY AREA
(MILLIONS OF SQUARE FEET)
[BAR CHART OMITTED]
19
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
==============================================================================================
December 31 (dollars in thousands) 1996 1995
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 142,571 $ 13,668
Marketable securities 6,270
Trade accounts receivable 145,475 169,310
Inventories:
Raw material 20,194 22,475
Semi-finished goods 14,549 24,861
Finished goods 21,295 28,566
Supplies 11,503 11,139
Deferred advertising 14,222 20,017
Deferred income taxes 31,413 35,926
Prepaid expenses and other current assets 48,302 48,866
- ----------------------------------------------------------------------------------------------
Total current assets 449,524 381,098
LONG-TERM INVESTMENTS 59,138 48,147
PROPERTY, PLANT, AND EQUIPMENT
Land 42,563 43,632
Buildings and improvements 307,018 299,954
Machinery and equipment 553,955 578,922
Construction in progress 1,382 18,315
- ----------------------------------------------------------------------------------------------
Total 904,918 940,823
Less accumulated depreciation 458,060 446,665
- ----------------------------------------------------------------------------------------------
Property, plant, and equipment - net 446,858 494,158
INTANGIBLES
Cost in excess of net assets acquired - net 139,593 301,289
Other intangible assets - net 81,327 70,403
- ----------------------------------------------------------------------------------------------
Total intangibles 220,920 371,692
- ----------------------------------------------------------------------------------------------
Total assets $ 1,176,440 $ 1,295,095
==============================================================================================
CURRENT LIABILITIES
Accounts payable $ 63,810 $ 75,644
Accrued liabilities:
Wages, including vacation pay 56,471 51,549
Employee profit sharing and pension 52,879 56,906
Accrued rebates 33,975 31,373
Other 110,625 95,675
Short-term debt 17,011 48,962
Long-term debt due within one year 6,606 8,699
- ----------------------------------------------------------------------------------------------
Total current liabilities 341,377 368,808
LONG-TERM DEBT 108,937 110,997
DEFERRED INCOME TAXES 13,210 34,916
SHAREHOLDERS' EQUITY
Common shares $1 par value (authorized: 500,000,000 shares;
issued: 1996 - 82,056,203 shares 1995 - 82,364,378 shares) 82,056 82,364
Additional paid-in capital 1,455
Retained earnings 631,151 697,036
Unearned compensation (937) (739)
Net unrealized loss - marketable securities (242)
Cumulative translation adjustment 646 500
- ----------------------------------------------------------------------------------------------
Shareholders' equity 712,916 780,374
- ----------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 1,176,440 $ 1,295,095
==============================================================================================
See Notes to Consolidated Financial Statements
</TABLE>
20
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
======================================================================================================================
Years ended December 31 (dollars in thousands except per share amounts) 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES $ 1,895,664 $ 1,857,981 $ 1,747,644
- ----------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Cost of sales 895,884 858,102 784,452
Selling, general, and administrative 728,828 737,050 631,660
Goodwill impairment charge 111,900
Employee profit sharing and pension 52,649 57,958 59,370
Employee bonus and stock purchase discount 19,294 21,087 22,331
- ----------------------------------------------------------------------------------------------------------------------
Total 1,808,555 1,674,197 1,497,813
- ----------------------------------------------------------------------------------------------------------------------
Income from operations 87,109 183,784 249,831
OTHER INCOME (EXPENSE)
Other income (expense) 42,305 (1,404) 6,608
Interest expense (10,649) (13,061) (9,733)
- ----------------------------------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 118,765 169,319 246,706
- ----------------------------------------------------------------------------------------------------------------------
PROVISION FOR INCOME TAXES 53,302 74,885 102,453
- ----------------------------------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS 65,463 94,434 144,253
======================================================================================================================
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 $ 65,463 $ 87,021 $ 140,866
======================================================================================================================
EARNINGS PER SHARE - Based on average shares outstanding
Income from continuing operations $ .80 $ 1.15 $ 1.75
Loss from discontinued operations (.09) (.04)
- ----------------------------------------------------------------------------------------------------------------------
NET INCOME PER SHARE $ .80 $ 1.06 $ 1.71
- ----------------------------------------------------------------------------------------------------------------------
CASH DIVIDENDS PER COMMON SHARE $ 1.48 $ 1.48 $ 1.46
======================================================================================================================
See Notes to Consolidated Financial Statements
</TABLE>
21
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
===============================================================================================================================
Years ended December 31 (dollars in thousands) 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
NET INCOME $ 65,463 $ 87,021 $ 140,866
Discontinued operations 7,413 3,387
- -------------------------------------------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS 65,463 94,434 144,253
Adjustments to reconcile income from continuing operations to net cash
provided by operating activities:
Depreciation 66,269 69,027 59,367
Amortization of intangibles 40,367 34,276 26,539
Goodwill impairment charge 111,900
Stock purchase discount 7,478 8,185 8,369
Net gain on sales of businesses (37,007)
Deferred income taxes (20,690) (9,201) 4,645
Changes in assets and liabilities, net of effects from acquisitions,
discontinued operations, and sales of businesses:
Trade accounts receivable 13,082 (24,949) (13,430)
Inventories 13,367 12,893 (17,226)
Accounts payable (11,456) 6,631 12,096
Other assets and liabilities 41,870 23,346 (25,589)
- -------------------------------------------------------------------------------------------------------------------------------
Net cash provided by continuing operations 290,643 214,642 199,024
Net cash provided by (used in) discontinued operations 60 (5,315) (5,206)
- -------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 290,703 209,327 193,818
- -------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of marketable securities with maturities of more than 3 months (13,115)
Proceeds from sales of marketable securities with maturities of more than 3 months 6,250 28,878 49,326
Net reductions of marketable securities with maturities of 3 months or less 16,000 20,000
Purchases of long-term investments (5,000)
Purchases of property, plant, and equipment (92,038) (125,068) (126,226)
Payments for acquisitions, net of cash acquired (15,098) (37,313) (53,796)
Net proceeds from sales of businesses and discontinued operations, net of cash sold 112,913
Other 11,488 (2,858) (17,933)
- -------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 23,515 (120,361) (146,744)
- -------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net (payments on) proceeds from short-term debt (32,428) 36,312 11,219
Payments on long-term debt (10,934) (8,918) (8,230)
Payments to retire common stock (48,065) (34,715) (39,638)
Proceeds from issuing stock under employee plans 28,088 25,027 25,114
Cash dividends paid to shareholders (121,976) (122,143) (120,503)
- -------------------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (185,315) (104,437) (132,038)
- -------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $ 128,903 $ (15,471) $ (84,964)
- -------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 13,668 29,139 114,103
- -------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 142,571 $ 13,668 $ 29,139
===============================================================================================================================
Supplementary cash flow disclosure:
Interest paid $ 12,001 $ 12,519 $ 10,446
Income taxes paid 83,600 93,023 94,395
===============================================================================================================================
See Notes to Consolidated Financial Statements
</TABLE>
22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1.
SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION - The consolidated financial statements include the accounts of
the Company and all wholly owned subsidiaries. All significant intercompany
accounts, transactions, and profits have been eliminated.
CASH AND CASH EQUIVALENTS - The Company considers all cash on hand, money market
funds, and other highly liquid investments with original maturities of three
months or less to be cash and cash equivalents. The carrying amounts reported in
the balance sheets for cash and cash equivalents approximate fair value.
MARKETABLE SECURITIES - Marketable securities consist of both debt and equity
securities. They are classified as available for sale and 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 other income. The cost of securities sold is
determined using the specific identification method.
INVENTORY - Inventory is stated at the lower of cost or market. Cost is
determined using the last-in, first-out (LIFO) method for substantially all
inventory. LIFO inventories at December 31, 1996 and 1995, were approximately
$11.6 million and $18.4 million, respectively, less than replacement cost.
PROPERTY, PLANT, AND EQUIPMENT - Property, plant, and equipment, including
leasehold and other improvements that extend an asset's useful life or
productive capabilities, are stated at historical 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 presented in the balance sheet net of accumulated
amortization. Amortization expense is determined on the straight-line basis over
periods of five to 30 years for cost in excess of net assets acquired
(goodwill), and three to five years for other intangibles. Other intangibles
consist primarily of purchased and internally developed software. Total
intangibles at December 31 were as follows (dollars in thousands):
==========================================================================
1996 1995
- --------------------------------------------------------------------------
Cost in excess of net assets acquired $ 317,315 $ 363,756
Other intangible assets 146,581 126,636
- --------------------------------------------------------------------------
Total $ 463,896 $ 490,392
Less goodwill impairment charge
(see note 3) (111,900)
Less other accumulated amortization (131,076) (118,700)
- --------------------------------------------------------------------------
Intangibles - net $ 220,920 $ 371,692
==========================================================================
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 approximates their fair values.
IMPAIRMENT OF LONG-LIVED ASSETS - During 1995, the Company adopted the Statement
of Financial Accounting 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
for financial impairment, and will continue to evaluate them as events or
changes in circumstances indicate that the carrying amount of such assets may
not be fully recoverable.
The Company evaluates the recoverability of long-lived assets not held for
sale by measuring the carrying amount of the assets against the estimated
undiscounted future cash flows associated with them. At the time such
evaluations indicate that the future undiscounted 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 values. Based on these
evaluations, there were no adjustments to the carrying value of long-lived
assets in 1996 or 1995.
The Company evaluates the recoverability of long-lived assets held for sale
by comparing the asset's carrying amount with its fair value less cost to sell.
In December 1996, the Company recorded a charge of $111.9 million as a result
of its decision to dispose of businesses within its Deluxe Direct segment (see
note 3).
INCOME TAXES - Deferred income taxes result from temporary differences between
the financial reporting basis of assets and liabilities and their respective tax
reporting bases. Future tax benefits are recognized to the extent that
realization of such benefits is more likely than not.
ACCRUED REBATES - On occasion, the Company enters into contractual agreements
with its customers for rebates on certain products it sells. The Company records
these amounts as reductions to sales and accrues them on the balance sheet as
incurred.
DEFERRED ADVERTISING - These costs consist of materials, production, postage,
and design expenditures 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 streams of the individual
catalogs. The actual timing of these revenue streams may differ from these
estimates. The total amount of deferred advertising costs charged to expense for
1996, 1995, and 1994 was $107.4 million, $126.3 million, and $130.5 million,
respectively.
TRANSLATION ADJUSTMENT - The financial position and results of operations of the
Company's international subsidiaries are measured using local currencies as the
functional currencies. Assets and liabilities of these operations were
translated at the
23
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.
STOCK-BASED COMPENSATION - In October 1995, the Financial Accounting Standards
Board issued SFAS No. 123, "Accounting for Stock-Based Compensation," which was
effective for the Company on January 1, 1996. The statement requires a fair
value method of accounting for non-employee awards. It encourages (but does not
require) this method of accounting for employee awards as well. The Company has
elected not to change to the fair value method of accounting for stock-based
compensation awarded to employees and will continue to account for such
transactions in accordance with Accounting Principles Board (APB) Opinion No.
25, "Accounting for Stock Issued to Employees" (see note 7).
RECLASSIFICATIONS - Certain prior years' amounts have been reclassified to
conform to the 1996 presentation. These reclassifications did not affect net
income or shareholders' equity.
USE OF ESTIMATES - The Company has prepared the accompanying financial
statements in conformity with generally accepted accounting principles. In this
process, it is necessary for management to make certain assumptions and related
estimates affecting the amounts reported in the financial statements and
attached notes. These estimates and assumptions are developed based upon all
information available using management's best efforts. However, actual results
can differ from assumed and estimated amounts.
NOTE 2.
RESTRUCTURING CHARGE
In the first quarter of 1996, the Company announced a plan to close an
additional 21 of its financial institution check printing plants over a two-year
period. These plant closings were made possible by advancements in the Company's
telecommunications, order processing, and printing technologies. Upon the
completion of this restructuring, the Company's 15 remaining plants will be
equipped with sufficient capacity to produce at or above current order volumes.
Also, during the first quarter of 1996, the Company announced a plan to move the
operating and administrative facilities of one of its direct mail businesses
from New Jersey to Colorado. In conjunction with these plans, the Company
recorded a pretax charge of $45.4 million in 1996. The charge consisted of
estimated costs for asset dispositions ($9 million) and employee severance
($36.4 million). This charge is reflected in cost of sales ($35.2 million) and
selling, general, and administrative expense ($10.2 million) in the 1996
statement of income. As of December 31, 1996, seven of the 21 plants had been
closed. At December 31, 1996, the remaining restructuring accrual, the majority
of which is expected to be paid out in 1997, consisted of $29.1million for
employee severance costs and $3.8 million for estimated losses on asset
dispositions.
During 1994, the Company substantially completed a 1993 restructuring plan
which closed 16 underutilized check printing plants. The plan was completed
without incurring certain costs that were included in the charge recorded in
1993. As a result, the Company recorded a $10 million credit in 1994 to reduce
its restructuring accrual. This credit is included in selling, general, and
administrative expenses on the 1994 statement of income.
NOTE 3.
GOODWILL IMPAIRMENT CHARGE
During December 1996, the Company announced its plans to divest three of the
businesses in the Deluxe Direct segment - Nelco, Inc., PaperDirect, Inc., and
the Social Expressions unit of Current, Inc. Based on fair market value
estimates, the Company recorded a charge of $111.9 million to write down the
carrying amounts of these businesses to estimated fair value less cost to sell.
This charge is included in the Company's results from operations for the year
ended December 31, 1996, as goodwill impairment charge. The Company will not
depreciate or amortize any of the long-term assets of these businesses while
they are held for disposal. The Company anticipates completing these divestiture
efforts in 1997. At December 31, 1996, the remaining carrying amount of these
businesses was $158.5 million. Together, these businesses recorded sales of
$257.4 million, $304.6 million, and $313.2 million and contributed a net loss of
$8.4 million, $34.6 million, and $5.2 million in 1996, 1995, and 1994,
respectively, excluding the goodwill impairment charge in 1996.
NOTE 4.
BUSINESS COMBINATIONS
1996 DIVESTITURES - During 1996, as part of the overall reorganization process,
the Company sold its Health Care Forms, T/Maker Company, Financial Alliance
Processing Services, Inc., U.K. forms, and internal bank forms businesses. The
aggregate sales price for these businesses was $133.3 million consisting of cash
proceeds of $116.7 million and notes receivable of $16.6 million. The resultant
aggregate net gain on these sales was $37 million. The consolidated financial
statements of the Company include the results of these businesses through their
individual sale dates. In aggregate, the financial
24
statements of the Company include revenues from these businesses of $118.1
million, $133.2 million, and $89.9 million in 1996, 1995, and 1994,
respectively. Also, they contributed net income of $2.6 million in 1996, and net
losses of $9.3 million and $3.8 million in 1995 and 1994, respectively.
1996 ACQUISITIONS - During 1996, the Company purchased a number of businesses in
the collections and database marketing fields. The aggregate amount paid for
these acquisitions was $18.6 million. Additionally, under the purchase
agreements, the Company may have to pay additional amounts up to $14.3 million
contingent on the future net earnings of some of these acquired businesses.
Each acquisition was accounted for using the purchase method. Accordingly,
the consolidated financial statements of the Company include the results of
these businesses subsequent to their purchase dates. The purchase price for each
acquisition was allocated to the assets acquired and liabilities assumed based
on their fair values at the time of purchase. The aggregate cost in excess of
net assets acquired for these acquisitions was $16.5 million, which was recorded
as goodwill and is being amortized over periods ranging from five to 25 years.
The combined effect of these acquisitions did not have a material pro forma
impact on the operations of the Company.
1996 JOINT VENTURE - During 1996, the Company entered into an agreement to form
a joint venture with HCL Corporation of India. This venture will provide payment
system products and services, as well as software services, to financial
institutions both domestically and internationally. As of December 31, 1996, the
joint venture had not yet commenced operations. Thus, it had no impact on the
Company's 1996 results of operations.
1995 ACQUISITIONS - On January 10, 1995, the Company acquired all of the
outstanding stock of Financial Alliance Processing Services, Inc., a provider of
merchant credit card processing, for $38.8 million. The acquisition was
accounted for under the purchase method. Accordingly, the purchase price was
allocated to the assets acquired based on their fair values on the date of
purchase. The total cost in excess of the fair value of the net assets acquired
of $36.6 million was recorded as goodwill and was being amortized over a 10-year
period. In December 1996, the Company sold all of its capital interest in
Financial Alliance Processing Services, Inc. The effect of this acquisition and
subsequent divestiture did not have a material pro forma impact on the Company's
operations.
1994 ACQUISITIONS - 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. (subsequently renamed Deluxe Data International Ltd.), a United
Kingdom-based developer of open systems architecture for large financial
institutions; and the assets of Pacific Medsoft (subsequently integrated into
Deluxe Health Care Forms), a developer of software for medical professionals.
The aggregate paid for these acquisitions was $53.8 million. Each acquisition
was accounted for using the purchase method. Accordingly, the consolidated
financial statements of the Company include the results of these businesses
subsequent to their purchase dates. Additionally, the purchase price for each
acquisition was allocated to the assets acquired and liabilities assumed based
on their fair values at the time of purchase. The aggregate cost in excess of
net assets acquired for these acquisitions was $48.6 million, which was recorded
as goodwill and is being amortized over periods ranging from 10 to 25 years.
T/Maker Company and the assets acquired from Pacific Medsoft were sold during
1996. The combined effect of these acquisitions and divestitures did not have a
material pro forma impact on the operations of the Company.
NOTE 5.
MARKETABLE SECURITIES
On December 31, 1996, the Company held no marketable securities. Debt securities
held on this date of $73.3 million (included in cash and cash equivalents) are
highly liquid and have experienced no material aggregate unrealized holding gain
or loss as of December 31, 1996. On December 31, 1995, marketable securities
available for sale consisted of debt securities with a cost of $21.3 million
($15 million was included in cash and cash equivalents). In aggregate, these
securities had a fair value that was $.4 million less than cost.
Proceeds from sales of marketable securities available for sale were $6.3
million in 1996 and $54.6 million and $73.3 million in 1995 and 1994,
respectively. The Company realized net losses of $36,000 in 1996, and $1.1
million and $.5 million in 1995 and 1994, respectively, on these sales.
NOTE 6.
PROVISION FOR INCOME TAXES
The components of the provision for income taxes from continuing operations are
as follows (dollars in thousands):
====================================================================
1996 1995 1994
- --------------------------------------------------------------------
Current tax provision:
Federal $67,749 $71,884 $82,295
State 11,794 17,845 13,842
- --------------------------------------------------------------------
Total 79,543 89,729 96,137
Deferred tax (benefit) provision:
Federal (29,581) (10,587) 5,428
State 3,340 (4,257) 888
- --------------------------------------------------------------------
Total $53,302 $74,885 $102,453
====================================================================
25
The Company's effective tax rate on pretax income from continuing
operations differs from the U.S. Federal statutory tax rate of 35% as follows
(dollars in thousands):
===============================================================
1996 1995 1994
- ---------------------------------------------------------------
Income tax at Federal
statutory rate $41,568 $59,262 $86,346
State income taxes net of
Federal income tax benefit 9,837 8,832 9,574
Amortization and write-down of
non-deductible intangibles 44,170 5,978 4,077
Recognition of excess of tax
basis over book investment
in subsidiaries sold and
held for disposal (45,430)
Change in valuation allowance 7,496 4,355 3,682
Other (4,339) (3,542) (1,226)
- ---------------------------------------------------------------
Provision for income taxes $53,302 $74,885 $102,453
===============================================================
Tax effected temporary differences which give rise to a significant portion
of deferred tax assets and liabilities at December 31, 1996 and 1995, are as
follows (dollars in thousands):
<TABLE>
<CAPTION>
=====================================================================================
1996 1995
- -------------------------------------------------------------------------------------
DEFERRED TAX DEFERRED TAX Deferred tax Deferred tax
ASSETS LIABILITIES assets liabilities
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Property, plant,
and equipment $26,879 $33,889
Deferred advertising 5,129 6,188
Employee benefit
plans $11,270 $14,154
Inventory 3,077 9,278
Intangibles 9,284 3,758
Foreign net operating
loss carryforwards 8,059 6,033
Excess of tax basis
over book invest-
ment in subsidiaries
held for disposal 30,417
Restructuring accrual 12,898 4,771
Miscellaneous
reserves and
accruals 8,868 12,293
All other 8,490 7,390 12,003 4,420
- -------------------------------------------------------------------------------------
Subtotal 83,079 48,682 58,532 48,255
- -------------------------------------------------------------------------------------
Valuation allowance (16,194) (9,267)
- -------------------------------------------------------------------------------------
Total deferred taxes $66,885 $48,682 $49,265 $48,255
=====================================================================================
</TABLE>
In accordance with SFAS No. 109, "Accounting for Income Taxes," the Company
does not recognize deferred tax assets for the excess of tax basis over the
basis for financial reporting of investments in subsidiaries until it becomes
apparent that these temporary differences will reverse in the foreseeable
future. The tax benefit arising from the difference in tax and financial
reporting bases in subsidiaries was recognized in 1996 for those subsidiaries
sold during the year (see note 4). Additionally, in December 1996, the Company
announced its intention to sell certain businesses within its Deluxe Direct
segment. The deferred tax assets relating to the investments in these
subsidiaries were reflected in the Company's financial statements at December
31, 1996, to the extent that realization of such benefits was more likely than
not. The remainder of the valuation allowance at December 31, 1996 and 1995,
relates to the uncertainty of realizing foreign deferred tax assets.
NOTE 7.
EMPLOYEE BENEFIT AND STOCK-
BASED COMPENSATION PLANS
As of December 31, 1996, the Company has two primary stock-based compensation
plans under which a variety of stock-based awards may be granted to employees of
the Company. The Company applies APB Opinion No. 25, "Accounting for Stock
Issued to Employees," in its accounting for these plans. Accordingly, no
compensation cost has been recognized for fixed stock options issued under the
stock incentive plan. In October 1995, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No.123, "Accounting for
Stock-Based Compensation," which requires adoption of the disclosure provisions
and the recognition and measurement provisions for non-employee transactions no
later than fiscal year 1996. As permitted by the standard, the Company continues
to account for its employee stock-based compensation under APB Opinion No. 25.
The Company has determined that the effect of applying SFAS No.123's fair value
recognition and measurement provisions to all its employee stock-based
compensation would be insignificant to the Company's reported net income and
earnings per share for the years ended December 31, 1996 and 1995. As such, the
additional disclosures promulgated by the statement are not included in these
notes.
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 the
employees' purchase price and the fair value of the stock was $7.5 million, $8.2
million, and $8.4 million in 1996, 1995, and 1994, respectively. Under the plan,
907,424, 1,121,153, and 1,152,687 shares were issued at prices ranging from
$22.41 to $28.04, $20.07 to $24, and $19.60 to $26.35 in 1996, 1995, and 1994,
respectively.
26
STOCK INCENTIVE PLAN - Under the stock incentive plan, stock-based awards may be
issued to employees via a broad range of methods, including non-qualified or
incentive stock options, restricted stock and restricted stock units, stock
appreciation rights, and other awards based on the value of the Company's common
stock. The plan was amended in 1996 to reserve an aggregate of 7 million shares
of common stock for issuance. Through 1996, the Company has issued non-vested,
restricted shares, restricted stock units, performance stock units, and
non-qualified and incentive stock options. All options allow for the purchase of
common stock at prices equal to the market value at the date of grant. Options
become exercisable in varying amounts beginning generally one year after the
date of grant. Information regarding the options issued under the current plan,
which was adopted in 1994, and the remaining options outstanding under the
former plan adopted in 1984, is as follows:
=====================================================================
1996 1995 1994
- ---------------------------------------------------------------------
Outstanding, January 1 2,147,573 2,212,149 1,567,140
Granted 631,250 204,899 716,369
Exercised (144,039) (44,566) (7,865)
Canceled (496,225) (224,909) (63,495)
- ---------------------------------------------------------------------
Outstanding, December 31 2,138,559 2,147,573 2,212,149
- ---------------------------------------------------------------------
Exercisable, December 31 1,432,206 1,521,524 1,256,885
- ---------------------------------------------------------------------
Options were granted at prices ranging from $30 to $39.125 per share in
1996, $27.375 to $30.75 per share in 1995, and $27.125 to $37.25 per share in
1994. Options were exercised in 1996, 1995, and 1994 at average prices of
$30.71, $28.43, and $21.39, respectively. Options were outstanding at December
31, 1996, 1995, and 1994, at average prices per share of $33.92, $34.81, and
$35.04, respectively. At December 31, 1996, 5.6 million shares remain available
for issuance under the plan.
PROFIT SHARING AND PENSION PLAN - The Company maintains profit sharing plans and
a defined contribution pension plan to provide retirement for 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 based on the Company's
performance, but are limited to 15% of eligible compensation less the amount
contributed to the pension plan. Pension expense for 1996, 1995, and 1994 was
$19.9 million, $20.8 million, and $21.1 million, respectively.
NOTE 8.
POSTRETIREMENT 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 attain the appropriate years of service and 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):
==============================================================
1996 1995
- --------------------------------------------------------------
Accumulated postretirement benefit obligation:
Retirees $46,645 $49,084
Fully eligible plan participants 38 88
Other active participants 12,462 14,720
- --------------------------------------------------------------
Total 59,145 63,892
Less:
Fair value of plan assets (debt and
equity securities) 51,828 44,702
Unrecognized prior service cost 1,891 3,718
Unrecognized net (gain) loss (3,309) 3
Unrecognized transition obligation 10,872 19,386
- --------------------------------------------------------------
Portion of postretirement benefit cost
accrued in the balance sheet $(2,137) $(3,917)
==============================================================
Net postretirement benefit cost for the year ended December 31 consisted of
the following components (in thousands):
========================================================================
1996 1995 1994
- ------------------------------------------------------------------------
Service cost-benefits earned
during the year $ 899 $ 474 $ 785
Interest cost on the accumulated
postretirement benefit obligation 4,416 4,392 4,219
Actual (return) loss on plan assets (7,126) (9,897) 402
Amortization of transition obligation 1,025 1,140 1,140
Net amortization and deferral of
gains and losses 3,194 6,604 (3,559)
- ------------------------------------------------------------------------
Net postretirement benefit cost 2,408 2,713 2,987
Curtailment loss 3,019
========================================================================
Total postretirement benefit cost $ 5,427 $ 2,713 $ 2,987
========================================================================
As a result of the 1996 plan to close 21 financial institution check
printing plants (see note 2), as well as the sale of the Company's Health Care
Forms and internal bank forms businesses in 1996 (see note 4), the Company
recognized a postretirement benefit curtailment loss of $3 million in 1996.
27
In measuring the accumulated postretirement benefit obligation as of
December 31, 1996, the Company's health care inflation rate for 1997 was assumed
to be 10% 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 the next eight years 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 $7.8 million, and the service and interest
cost components of the net postretirement benefit cost by approximately $1
million. The discount rate used in determining the accumulated postretirement
benefit obligation as of December 31, 1996 and 1995, was 7.25%. The expected
long-term rate of return on plan assets used to determine the net periodic
postretirement benefit cost was 9.5% in 1996 and 1995.
NOTE 9.
LEASE AND DEBT COMMITMENTS
Long-term debt was as follows at December 31 (dollars in thousands):
=====================================================================
1996 1995
- ---------------------------------------------------------------------
8.55% unsecured and unsubordinated notes
due February 15, 2001 $100,000 $100,000
Other 15,543 19,696
- ---------------------------------------------------------------------
Total long-term debt 115,543 119,696
Less amount due within one year 6,606 8,699
- ---------------------------------------------------------------------
Total $108,937 $110,997
=====================================================================
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 $107 million
and $112 million at December 31, 1996 and 1995, respectively, based on quoted
market prices.
Other long-term debt consists principally of capital leases on equipment
and payments due under non-compete agreements. The capital lease obligations
bear interest rates of 5% to 18% and are due through the year 2011. Carrying
value materially approximates fair value for these obligations.
Maturities of long-term debt for the five years ending December 31, 2001,
are $6.6 million, $5.2 million, $2.5 million, $.2 million, and $100 million, and
$1 million thereafter.
The Company has uncommitted lines of credit for $190.3 million. The average
amount drawn on those lines during 1996 was $14.5 million at a weighted average
interest rate of 6.29%. At December 31, 1996, $17 million was outstanding at an
interest rate of 6.5%. At December 31, 1995, $14.2 million was outstanding at an
interest rate of 6.6%. The Company also has in place a $150 million committed
line of credit 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%. No commercial paper was outstanding at December 31,
1996. 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, 1996 and 1995, no such notes were issued or
outstanding.
Minimum future rental payments for leased facilities and equipment for the
five years ending December 31, 2001, are $29.2 million, $21.7 million, $13.6
million, $6.5 million, and $4.5 million, and $5.9 million thereafter. Rental
expense was $40.4 million, $44.3 million, and $40.7 million for 1996, 1995, and
1994, respectively.
NOTE 10.
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.
28
Effective February 1997, the Company amended the above mentioned plan. The
changes include an extension of the plan through January 31, 2007, an increase
in the initial exercise price of the rights from $100 to $150 per share, and a
decrease in the ownership threshold that triggers the exercisability of the
rights for discounted securities to 15%. The amended plan also changes the
redemption provisions applicable to the rights.
NOTE 11.
SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
====================================================================================================================================
(Dollars in thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
Unrealized
Additional change Cumulative
Common paid-in Retained Unearned marketable translation
shares capital earnings compensation securities adjustment
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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 (149) (2,054) 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 (739) (242) 500
Net income 65,463
Cash dividends (121,976)
Common stock issued 1,106 35,824
Common stock retired (1,414) (37,279) (9,372)
Unearned compensation (198)
Unrealized fair value adjustments, net of taxes of $130 242
Translation adjustment 146
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 $82,056 $ 0 $ 631,151 $(937) $ 0 $646
===================================================================================================================================
</TABLE>
NOTE 12.
BUSINESS SEGMENT INFORMATION
The Company has classified its operations into three business segments: Deluxe
Financial Services, Deluxe Electronic Payment Systems, and Deluxe Direct. Deluxe
Financial Services provides check printing, direct marketing, customer database
management, and related services to financial institutions. It also provides
checks directly to households and small businesses. It also provides payment
protection and collections services to financial institutions and the retail
market primarily in the United States. Deluxe Electronic Payment Systems
provides debit transaction processing and other electronic banking functions in
the United States and internationally. Deluxe Direct primarily sells greeting
cards, stationery, health care and tax forms, and specialty paper products
through direct mail to customers primarily in the United States. As a result of
the Company's strategic reorganization process, the Company determined that the
businesses in the Deluxe Direct segment do not fit
29
into the Company's long-term plans. During 1996, a number of these businesses
were sold and three more are expected to be sold in 1997.
For the three years ended December 31, 1996, the Company's segment
information is as follows. The costs of the Company's corporate operations have
been allocated to each segment based on the services provided to them. Prior
years' amounts have been restated to conform to the 1996 segment structure.
<TABLE>
<CAPTION>
==============================================================================================================
Deluxe Financial Deluxe Electronic
1996 (dollars in thousands) Services Payment Systems Deluxe Direct Total
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $1,390,259 $129,920 $375,485 $1,895,664
Income from operations 251,621 (25,154) (139,358) 87,109
Identifiable assets 781,996 160,716 233,728 1,176,440
Depreciation and amortization 56,860 21,638 28,138 106,636
Capital expenditures 76,815 5,576 9,647 92,038
- --------------------------------------------------------------------------------------------------------------
1995
Net sales $1,295,697 $124,509 $437,775 $1,857,981
Income from operations 257,330 1,778 (75,324) 183,784
Identifiable assets 628,773 135,851 530,471 1,295,095
Depreciation and amortization 53,606 18,291 31,406 103,303
Capital expenditures 75,662 19,330 30,076 125,068
- --------------------------------------------------------------------------------------------------------------
1994
Net sales $1,245,552 $98,995 $403,097 $1,747,644
Income from operations 267,942 2,309 (20,420) 249,831
Identifiable assets 643,575 129,030 483,667 1,256,272
Depreciation and amortization 47,987 16,592 21,327 85,906
Capital expenditures 86,687 7,582 31,957 126,226
- --------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE 13.
DISCONTINUED OPERATIONS
On November 29, 1995, the Company adopted a plan to exit the Printwise ink
business. The Company disposed of substantially all the assets of the business
in 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, consisted primarily of property, plant, and equipment. The
loss on the disposal of Printwise did not differ significantly from the
estimated loss as of December 31, 1995. Summarized results of Printwise since
inception are as follows.
===================================================================
YEARS ENDED DECEMBER 31 (dollars in thousands) 1995 1994
- -------------------------------------------------------------------
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)
===================================================================
30
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, 1996 and 1995, and the
related consolidated statements of income and cash flows for each of the three
years in the period ended December 31, 1996. 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, 1996 and 1995, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Minneapolis, Minnesota
February 10, 1997
SUMMARIZED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
===================================================================================================================================
1996 QUARTER ENDED (dollars in thousands except per share amounts) MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $488,088 $466,580 $460,520 $480,476
Cost of sales 250,662 211,543 209,670 224,009
Net income (loss) 18,921(1) 38,056 33,524 (25,038)(1)
Per share of common stock
Net income (loss) .23 .46 .41 (.30)
Cash dividends .37 .37 .37 .37
- -----------------------------------------------------------------------------------------------------------------------------------
===================================================================================================================================
1995 quarter ended (dollars in thousands except per share amounts) March 31 June 30 September 30 December 31
- -----------------------------------------------------------------------------------------------------------------------------------
Net sales $465,388 $442,266 $449,203 $501,124
Cost of sales 209,783 200,729 202,099 245,491
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
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) 1996 first and fourth quarter results include net pretax charges of $34.8
million and $107.5 million, respectively, related to production
consolidation (see note 2), goodwill impairment (see note 3), gains and
losses on sales of businesses (see note 4), postretirement benefit
curtailment loss (see note 8), and write-offs of non-performing assets.
(2) 1995 fourth quarter results include pretax charges of $62.5 million,
primarily related to costs associated with the elimination of product lines
that were unprofitable or did not fit with the Company's long-term strategy
and write-offs of non-performing assets.
31
32
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.
STOCK PRICE RANGE
(DOLLARS)
[BAR CHART OMITTED]
===============================================================
1996 QUARTER HIGH LOW CLOSE
- ---------------------------------------------------------------
1st 33 5/8 27 31 3/8
2nd 37 7/8 30 1/4 35 1/2
3rd 39 3/4 33 37 3/4
4th 39 3/8 29 3/4 32 3/4
- ---------------------------------------------------------------
===============================================================
1995 Quarter High Low Close
- ---------------------------------------------------------------
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
- ---------------------------------------------------------------
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 at
6:30 p.m. on Tuesday, May 6, 1997, at the Radisson Hotel, 11 East Kellogg
Boulevard, St. Paul, Minnesota.
FORM 10-K AVAILABLE
A copy of the Company's Annual Report on Form 10-K, as 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.
SHAREHOLDER INQUIRIES
Please send requests for additional information to corporate headquarters to the
attention of:
Stuart Alexander, Vice President
(612) 483-7358
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 21, July 21, October 20, Wednesday, January 21,
1998.
Dividends are announced the second week of February, May, August, and November.
WEB SITE
Visit our Internet home page at: www.deluxe.com
FORWARD-LOOKING STATEMENTS
We use "forward-looking statements," as defined in the Private Securities Reform
Act of 1995, in this year's annual report. These statements typically address
management's present expectations about future performance and typically include
wording such as "should result," "expect," "anticipate," "estimate," or similar
expressions. Because of the unavoidable risks and uncertainties of predicting
the future, Deluxe's actual results may vary from management's current
expectations. These variations may be significant and may not always be
positive. Additional information about factors that may affect our current
estimates appears in our Form 10-K filed with the Securities and Exchange
Commission on March 31, 1997. To obtain a copy, we encourage investors to call
our shareholder information line (1-888-359-6397).
33
Exhibit 21.1
DELUXE CORPORATION SUBSIDIARIES
Chex Systems, Inc.
Connex Europe S.R.L. (Italy)
Current, Inc.
Deluxe Business Forms and Supplies, Inc.
Deluxe Canada, Inc.
Deluxe Check Printers, Inc.
Deluxe Check Texas, Inc.
Deluxe Check Printers Texas, L.P.
Deluxe Data International Limited
Deluxe Data Systems, Inc.
Deluxe Direct., Inc.
Deluxe Payment Protection Systems, Inc.
Deluxe (UK) Limited
ESP Employment Screening Partners, Inc.
Nelco, Inc.
NRC Holding Corporation
National Credit Services Corporation
National Receivables Corporation
United Creditors Alliance Corporation
National Revenue Corporation
PaperDirect, Inc.
PaperDirect Pacific Exports Pty. Limited
PaperDirect Pacific Holdings, Ltd.
PaperDirect Pacific Pty. Limited
United Creditors' Alliance International Limited
Exhibit 24.1
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 1/31/97
- --------------------------------------------------------------------------------
John A. Blanchard III, Director and Principal Executive Officer
/s/ Harold V. Haverty 1/31/97
- --------------------------------------------------------------------------------
Harold V. Haverty, Director
/s/ Whitney MacMillan 3/9/97
- --------------------------------------------------------------------------------
Whitney MacMillan, Director
/s/ James J. Renier 1/31/97
- --------------------------------------------------------------------------------
James J. Renier, Director
/s/ Barbara B. Grogan 1/31/97
- --------------------------------------------------------------------------------
Barbara B. Grogan, Director
/s/ Allen F. Jacobson 3/10/97
- --------------------------------------------------------------------------------
Allen F. Jacobson, Director
/s/ Stephen P. Nachtsheim 1/31/97
- --------------------------------------------------------------------------------
Stephen P. Nachtsheim, Director
/s/ Calvin W. Aurand, Jr. 1/31/97
- --------------------------------------------------------------------------------
Calvin W. Aurand, Jr., Director
/s/ Donald R. Hollis 1/31/97
- --------------------------------------------------------------------------------
Stephen P. Nachtsheim, Director
/s/ Robert C. Salipante 1/31/97
- --------------------------------------------------------------------------------
Robert C. Salipante, Director
/s/ Charles M. Osborne 1/31/97
- --------------------------------------------------------------------------------
Charles M. Osborne, Principal Financial Officer and
Principal Accounting Officer
Exhibit 99.1
RISK FACTORS AND CAUTIONARY STATEMENTS
When used in this Form 10-K and in future filings by the Company with the
Securities and Exchange Commission, in the Company's press releases and in oral
statements made with the approval of an authorized executive officer, the words
or phrases "should result," "are expected to," "will continue," "will
approximate," "is anticipated," "estimate," "project" or similar expressions are
intended to identify "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. These statements are
necessarily subject to certain risks and uncertainties, including those
discussed below, that could cause actual results to differ materially from the
Company's historical experience and its present expectations or projections.
Caution should be taken not to place undue reliance on any such forward-looking
statements, which speak only as of the date made. The factors listed below could
affect the Company's financial performance and could cause the Company's actual
results for future periods to differ from any opinions or statements expressed
with respect thereto. Such differences could be material and adverse.
The Company will not undertake and specifically declines any obligation to
publicly release the result of any revisions which may be made to any
forward-looking statements to reflect events or circumstances occurring after
the date of such statements or to reflect the occurrence of anticipated or
unanticipated events. This Exhibit 99.2 supersedes and replaces the discussions
in Item 5 of the Company's Quarterly Reports on Form 10-Q for the quarters ended
June 30, 1996 and September 30, 1996. Capitalized terms used without definition
herein have the meanings assigned to such terms in the Annual Report on Form
10-K of which this Exhibit is a part.
Timing and Amount of Anticipated Cost Reductions. With regard to the results of
the Company's ongoing cost reduction efforts, there can be no assurance that the
anticipated $150 million of annualized pre-tax cost savings will be fully
realized or will be achieved within the time periods expected. The
implementation of the printing plant closures is, in large part, dependent upon
the successful development of the software needed to streamline the check
ordering process and redistribute the resultant order flow among the Company's
remaining printing plants. Because of the complexities inherent in and the
lengthy testing periods associated with the development of software products as
sophisticated as those needed to accomplish this task, there can be no assurance
that unanticipated development delays will not occur. Any such occurrence could
adversely affect the planned consolidation of the Company's printing facilities
and delay the realization or reduce the amount of the anticipated expense
reductions. The Company may defer one or more plant closings previously
scheduled for 1997 into the first half of 1998.
In addition, the achievement of the expected level of cost savings is dependent
upon the successful execution of a variety of other cost reduction strategies.
These additional efforts include the consolidation of the Company's purchasing
process, the disposition of unprofitable or low-margin businesses and other
efforts. The optimum means of actualizing many of these strategies is, in some
cases, still being evaluated by the Company. Unexpected delays, complicating
factors and other hindrances are common in these types of endeavors and can
arise from a variety of sources, some of which are likely to have been
unanticipated. A failure to timely achieve one or more of the Company's primary
cost reduction objectives could materially reduce the benefit to the Company of
its cost savings programs and strategies or substantially delay the full
realization of their expected benefits.
Further, there can be no assurance that increased expenses attributable to other
areas of the Company's operations or to increases in raw material, labor,
equipment or other costs will not offset some or all of the savings expected to
be achieved through the cost reduction efforts. Competitive pressures and other
market factors may also require the Company to share the benefit of some or all
of any savings with its customers or otherwise adversely affect the prices it
receives or the market for its products. As a result, even if the expected cost
reductions are fully achieved in a timely manner, such reductions are not likely
to be fully reflected by commensurate gains in the Company's net income, cash
position, dividend rate or the price of its Common Stock.
Effect of Financial Institution Consolidation. There is an ongoing trend towards
increasing consolidation within the banking industry that has resulted in
increased competition and pressure on check prices. This concentration greatly
increases the importance to the Company of retaining its major customers and
attracting significant additional customers in an increasingly competitive
environment. Although the Company devotes considerable efforts towards the
development of a competitively priced, high quality suite of products for the
financial services industry, there can be no assurance that significant
customers will not be lost nor that any such loss can be counterbalanced through
the addition of new customers or by expanded sales to the Company's remaining
customers.
Raw Materials and Postage Costs. Increases in the price of paper and the cost of
postage can adversely affect the profitability of the Company's printing and
mail order businesses. Competitive pressures and overall trends in the
marketplace may have the effect of inhibiting the Company's ability to reflect
increased costs of production in the retail prices of its products.
Competition. Although the Company believes it is the leading check printer in
the United States, it faces considerable competition from other smaller
companies in both its traditional marketing channel to financial institutions
and from direct mail marketers of checks. From time to time, one or more of
these competitors reduce the price of their products in an attempt to gain
market share. The corresponding pricing pressure placed on the Company has
resulted in reduced profit margins in the past and there can be no assurance
that similar pressures will not be exerted in the future.
Check printing is, and is expected to continue to be, an essential part of the
Company's business and the principal source of its operating income for at least
the next several years. A wide variety of alternative payment delivery systems,
including credit cards, debit cards, smart cards, ATM machines, direct deposit
and bill paying services, home banking applications and Internet-based retail
services, are in various stages of development and additional systems will
likely be introduced. Although the Company expects that there will continue to
be a substantial market for checks for the foreseeable future, the rate and the
extent to which these alternative systems will achieve consumer acceptance and
replace checks cannot be predicted. The creation of these alternative payment
methodologies has also resulted in an increased interest in transaction
processing as a source of revenue, which has led to increased competition for
DEPS.
A surge in the popularity of any of these alternative payment methods could have
a material, adverse effect on the demand for the Company's primary products and
its account verification, payment protection and collection services. In
addition, the publicity generated by the promoters of these systems and the
attendant media coverage of their development and introduction may have a
depressing effect on the market price of the Company's Common Stock that is
disproportionate to their actual competitive impact.
Seasonality. A significant portion of the revenues and earnings of the Company's
Deluxe Direct market serving unit is dependent upon its results of operations
during the fourth quarter season. As a result, the results reported for this
segment during the first three quarters of any given year are not necessarily
indicative of those which may be expected for the entire year.
Earnings Estimates. From time to time, authorized representatives of the Company
may comment on the perceived reasonableness of published reports by independent
analysts regarding the Company's projected future performance. Such comments
should not be interpreted as an endorsement or adoption of any given estimate or
range of estimates or the assumptions and methodologies upon which such
estimates are based. Generally speaking, the Company does not make public its
own internal projections, budgets or estimates. Undue reliance should not be
placed on any comments regarding the conformity, or lack thereof, of any
independent estimates with the Company's own present expectations regarding its
future results of operations.
The methodologies employed by the Company in arriving at its own internal
projections and the approaches taken by independent analysts in making their
estimates are likely different in many significant respects. Although the
Company may presently perceive a given estimate to be reasonable, changes in the
Company's business, market conditions or the general economic climate may have
varying effects on the results obtained through the use of differing analyses
and assumptions. The Company expressly disclaims any continuing responsibility
to advise analysts or the public markets of its view regarding the current
accuracy of the published estimates of outside analysts. Persons relying on such
estimates should pursue their own independent investigation and analysis of
their accuracy and the reasonableness of the assumptions for which they are
based.
From time to time, the authorized representatives of the Company may make
predictions or forecasts regarding the Company's future results, including
estimated earnings or earning from operations. Any forecast regarding the
Company's future performance reflects various assumptions. These assumptions are
subject to significant uncertainties and, as a matter of course, many of them
will prove to be incorrect. Further, the achievement of any forecast depends on
numerous factors, many of which are beyond the Company's control. As a result,
there can be no assurance that the Company's performance will be consistent with
any management forecasts and the variation from such forecasts may be material
and adverse. Investors are cautioned not to base their entire analysis of the
Company's business and prospects upon isolated predictions, but instead are
encouraged to utilize the entire available mix of historical and forward-looking
information made available by the Company and other information affecting the
Company and its products when evaluating the Company's prospective results of
operations.
HCL Joint Venture. Although the Company has reached an agreement in principle to
form a joint venture with HCL, a number of ancillary agreements have not yet
been finalized and several conditions precedent to the formation of the joint
venture have not yet been fulfilled. Accordingly, the joint venture has not yet
commenced operations. Transactions of this type are typically complex and
difficult to structure, and the level of complexity is heightened when, as is
the case with HCL, the joint venture involves foreign persons and/or entities.
Significant, unforeseen issues may arise that could delay, or prevent
altogether, the formal creation of the joint venture.
Moreover, even if the joint venture successfully commences operations, there can
be no assurance that its proposed software and transaction processing products
and software development services will achieve market acceptance in either the
United States or India. In addition, the Company has no operational experience
in India and only limited international exposure to date. Operations in foreign
countries are subject to numerous potential obstacles including, among other
things, cultural differences, political unrest, export controls, governmental
interference or regulation (both domestic and foreign), currency fluctuations,
personnel issues and varying competitive conditions. There can be no assurance
that one or more of these factors, or additional causes or influences, many of
which are likely to have been unanticipated and beyond the ability of the
Company to control, may not operate to inhibit the success of the venture. As a
result, there can be no assurance that, even if it commences active operations,
the HCL joint venture will generate significant revenues or profits or provide
an adequate return on any investment by the Company.
Sales of Businesses. The Company indicated its intention to divest the
businesses comprising its Deluxe Direct MSU, but it has not reached agreement
with any prospective buyers. As a result, the possibility exists that the
Company will not identify a suitable buyer or receive an acceptable price for
the entities to be divested. A failure to identify an appropriate buyer and/or
reach an acceptable purchase price would materially delay the anticipated sales
and could result in further write-offs by the Company, some of which could be
significant. In addition, a delay in the execution of these sales could cause
the Company to incur continued operating losses from the businesses sought to be
divested, or make unanticipated investments in those businesses, and would
postpone the receipt and use by the Company of the proceeds expected to be
generated thereby.
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<S> <C>
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<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 142,571
<SECURITIES> 0
<RECEIVABLES> 145,475
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<CURRENT-ASSETS> 449,524
<PP&E> 904,918
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0
0
<COMMON> 82,056
<OTHER-SE> 630,860
<TOTAL-LIABILITY-AND-EQUITY> 1,176,440
<SALES> 1,895,664
<TOTAL-REVENUES> 1,895,664
<CGS> 895,884
<TOTAL-COSTS> 1,808,555
<OTHER-EXPENSES> (42,305)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,649
<INCOME-PRETAX> 118,765
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