UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For quarterly period ended March 31, 1997
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to _________________
Commission file number: 1-7945
DELUXE CORPORATION
(Exact name of registrant as specified in its charter)
MINNESOTA 41-0216800
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
3680 Victoria St. N., St. Paul, Minnesota 55126-2966
(Address of principal executive offices) (Zip code)
(612) 483-7111
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes __X__ No _____
The number of shares outstanding of registrant's common stock, par value $1.00
per share, at May 1, 1997 was 82,227,931.
Item I. Financial Statements
PART I. FINANCIAL INFORMATION
DELUXE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
March 31, 1997 December 31,
(Unaudited) 1996
----------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 121,348 $ 142,571
Marketable securities 7,967
Trade accounts receivable 156,586 145,475
Inventories:
Raw material 20,135 20,194
Semi-finished goods 12,300 14,549
Finished goods 17,398 21,295
Supplies 12,409 11,503
Deferred advertising 9,977 14,222
Deferred income taxes 31,893 31,413
Prepaid expenses and other current assets 48,409 48,302
----------- -----------
Total current assets 438,422 449,524
----------- -----------
LONG-TERM INVESTMENTS 62,054 59,138
PROPERTY, PLANT, AND EQUIPMENT
Land 42,548 42,563
Buildings and improvements 306,830 307,018
Machinery and equipment 548,449 553,955
Construction in progress 1,364 1,382
----------- -----------
Total 899,191 904,918
Less accumulated depreciation 459,405 458,060
----------- -----------
Property, plant, and equipment - net 439,786 446,858
INTANGIBLES
Cost in excess of net assets acquired - net 137,717 139,593
Other intangible assets - net 83,183 81,327
----------- -----------
Total intangibles 220,900 220,920
----------- -----------
TOTAL ASSETS $ 1,161,162 $ 1,176,440
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 62,121 $ 63,810
Accrued liabilities:
Wages, including vacation pay 59,659 56,471
Employee profit sharing and pension 13,141 52,879
Accrued rebates 34,936 33,975
Income taxes 27,341
Other 107,852 110,625
Short-term debt 819 17,011
Long-term debt due within one year 6,297 6,606
----------- -----------
Total current liabilities 312,166 341,377
----------- -----------
LONG-TERM DEBT 109,018 108,937
DEFERRED INCOME TAXES 13,752 13,210
SHAREHOLDERS' EQUITY
Common shares - $1 par value (authorized 500,000,000 shares;
issued: 82,163,422) 82,163 82,056
Additional paid-in capital 3,000
Retained earnings 642,153 631,151
Unearned compensation (845) (937)
Net unrealized loss - marketable securities (36)
Cumulative translation adjustment (209) 646
----------- -----------
Total shareholders' equity 726,226 712,916
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,161,162 $ 1,176,440
=========== ===========
See Notes to Consolidated Financial Statements
</TABLE>
<TABLE>
<CAPTION>
DELUXE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands Except per Share Amounts)
(Unaudited)
QUARTER ENDED MARCH 31,
1997 1996
------------ ------------
<S> <C> <C>
NET SALES $ 466,476 $ 488,088
OPERATING EXPENSES
Cost of sales 204,296 250,662
Selling, general and administrative 179,705 185,170
Employee profit sharing and pension 12,021 14,409
Employee bonus and stock purchase discount 4,312 3,901
------------ ------------
Total 400,334 454,142
------------ ------------
INCOME FROM OPERATIONS 66,142 33,946
OTHER INCOME (EXPENSE)
Other income 5,632 1,113
Interest expense (2,385) (2,788)
------------ ------------
INCOME BEFORE INCOME TAXES 69,389 32,271
PROVISION FOR INCOME TAXES 27,964 13,350
------------ ------------
NET INCOME $ 41,425 $ 18,921
============ ============
AVERAGE COMMON SHARES OUTSTANDING 82,125,412 82,407,794
NET INCOME PER SHARE $ 0.50 $ 0.23
CASH DIVIDENDS PER COMMON SHARE $ 0.37 $ 0.37
</TABLE>
See Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
DELUXE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Quarter Ended March 31, 1997 and 1996
(Dollars in Thousands)
(Unaudited)
1997 1996
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 41,425 $ 18,921
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 14,120 17,018
Amortization of intangibles 6,920 9,386
Stock purchase discount 1,735 1,997
Net gain on sale of business (3,500)
Changes in assets and liabilities, net of effects from acquisitions, discontinued
operations
and sale of business:
Trade accounts receivable (10,804) (3,738)
Inventories 7,309 9,615
Accounts payable (1,688) (16,764)
Other assets and liabilities (272) 12,755
--------- ---------
Net cash provided by continuing operations 55,245 49,190
Net cash used by discontinued operations (206) (1,036)
--------- ---------
Net cash provided by operating activities 55,039 48,154
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of marketable securities with maturities of more than 3 months 6,250
Purchases of marketable securities with maturities of more than 3 months (8,000)
Purchases of capital assets (21,510) (14,273)
Payments for acquisitions, net of cash acquired (4,323)
Net proceeds from sale of business and discontined
operations, net of cash sold 797
Other (308) (1,481)
--------- ---------
Net cash used in investing activities (29,021) (13,827)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on long-term debt (1,643) (2,288)
Payments to retire common stock (4,899) (9,277)
Proceeds from issuing stock under employee plans 5,674 6,284
Net (payments on) proceeds from short-term debt (15,950) 10,688
Cash dividends paid to shareholders (30,423) (30,545)
--------- ---------
Net cash used in financing activities (47,241) (25,138)
--------- ---------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (21,223) 9,189
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 142,571 13,668
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 121,348 $ 22,857
========= =========
</TABLE>
See Notes to Consolidated Financial Statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The consolidated balance sheet as of March 31, 1997, and the consolidated
statements of income for the quarters ended March 31, 1997 and 1996 are
unaudited; in the opinion of management, all adjustments necessary for a
fair presentation of such financial statements are included. Other than
those discussed in the notes below, such adjustments consist only of
normal recurring items. Interim results are not necessarily indicative of
results for a full year.
The financial statements and notes are presented in accordance with
instructions for Form 10-Q, and do not contain certain information
included in the Company's annual financial statements and notes.
2. At March 31, 1997, the Company has uncommitted bank lines of credit of
$189.8 million available at variable interest rates. As of that date, $.8
million was drawn on those lines at a weighted average interest rate of
6.8%. Also, the Company has in place a $150 million committed line of
credit which is available for borrowing and as support for commercial
paper. As of March 31, 1997, the Company had no commercial paper
outstanding. The Company has in place a medium-term note program for the
issuance of up to $300 million of medium-term notes to be used for general
corporate purposes, including working capital, capital expenditures,
possible acquisitions and repayment or repurchase of outstanding
indebtedness and other securities of the Company. As of March 31, 1997, no
such notes were issued or outstanding.
3. During the first quarter of 1996, the Company recorded charges of $34.8
million related to the closing of 21 of its check printing plants and the
movement of PaperDirect's operations from New Jersey to existing company
facilities in Colorado and Minnesota. As of March 31, 1997, 8 of the 21
plants have been closed. The $34.8 million of charges includes employee
severance costs and expected losses on the disposition of plant and
equipment. Expenses of $32 million are included in cost of goods sold and
$2.8 million in selling, general and administrative expense. The Company's
balance sheets reflect a restructuring accrual of $25.4 million and $29.1
million for employee severance costs and $3.7 million and $3.8 million for
estimated losses on assets disposition as of March 31, 1997 and December
31, 1996, respectively. The majority of these severance costs are expected
to be paid out in 1997 and early 1998 from cash generated from the
Company's operations.
4. In February, 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, EARNINGS PER SHARE.
The statement is effective for interim and annual periods ending after
December 15, 1997. The effect of this statement is not expected to
materially change the Company's reported earnings per share disclosures.
5. 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. Together, these
businesses recorded sales of $64.1 and $71.0 million and contributed net
income of approximately $3.9 million and a net loss of $2.6 million in the
first quarter of 1997 and 1996, respectively.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Company Profile
The Company has organized its many independent business units into three
reporting segments, Deluxe Financial Services, Deluxe Direct and Deluxe
Electronic Payment Systems. Through Deluxe Financial Services, the Company
provides check printing, direct marketing assistance, business forms and related
services to financial institutions and their customers in the United States,
Canada, and the United Kingdom and payment systems protection services,
including check authorization, account verification, and collection services to
financial institutions and retailers. Through Deluxe Direct, the Company
provides specialty papers to households and small businesses; tax forms and
electronic tax filing services to tax preparers; and direct mail greeting cards,
gift wrap, and related products to households. Through Deluxe Electronic Payment
Systems, the Company provides electronic funds transfer and other software
solutions to financial institutions and electronic benefit transfer services to
state governments.
Results of Operations - Quarter Ended March 31, 1997 Compared to the Quarter
Ended March 31, 1996
Net sales were $466.5 million for the first quarter of 1997, down 4.4% from the
first quarter of 1996, when sales were $488.1 million. Deluxe Financial
Services' revenue increased 6.0% over the first quarter of 1996, due to
acquisitions and volume increases from the payment protection and collection
businesses and direct mail checks. Deluxe Direct's revenue decreased 39.3% from
1996, due primarily to lost sales from divestitures and lower volume at the
direct mail businesses as a result of cutbacks in circulation. Deluxe Electronic
Payment Systems' revenue increased 5.3% over the first quarter of 1996 due to
increased volume for virtually all product lines.
Cost of sales decreased $46.4 million, or 18.5% from the first quarter of 1996.
Deluxe Financial Services' first quarter cost of sales decreased 10.2% from the
first quarter of 1996 due to divestitures and the restructuring charges taken in
the first quarter of 1996. Deluxe Direct's cost of sales decreased 49.1% from
the first quarter of 1996 due to divestitures and reduced sales at the direct
mail businesses. Deluxe Electronic Payment System's cost of sales increased 3.5%
due to increased salaries and wages as a result of an increase in highly trained
employees.
Selling, general and administrative expenses decreased $5.5 million or 3.0% in
the first quarter 1997 over the first quarter of 1996. Deluxe Financial
Services' first quarter 1997 selling, general and administrative expenses
increased 17.3% over the first quarter of 1996, due primarily to increased
marketing expenses and increased expenses for financial institution check
printing related to higher customer service call volumes and the implementation
of a new customer interface system. Deluxe Direct's selling, general and
administrative expenses decreased 43.0% from the first quarter of 1996, due
primarily to divestitures and the suspension of depreciation and amortization of
the segment's businesses held for sale (Nelco, Inc., PaperDirect, Inc., and the
Social Expressions unit of Current, Inc.). Deluxe Electronic Payment Systems'
selling, general and administrative expenses decreased 10.0% due primarily to
changes in the sales commission structure.
Net income was $41.4 million for the first quarter of 1997, or 8.9% of sales,
compared to $18.9 million for the first quarter of 1996, or 3.9% of sales. The
increase over 1996 is primarily attributable to lower selling, general and
administrative expenses in 1997, a $3.5 million pretax gain on the sale of one
of the Company's product lines, and restructuring charges recorded in 1996.
Financial Condition - Liquidity
Cash provided by continuing operations was $55.2 million for the first quarter
of 1997, compared with $49.2 million for the first quarter of 1996. This
represents the Company's primary source of working capital for financing capital
expenditures and paying cash dividends. The Company's working capital on March
31, 1997 was $126.3 million compared to $108.1 million on December 31, 1996. The
Company's current ratio on March 31, 1997 was 1.4 to 1 compared to 1.3 to 1 on
December 31, 1996.
Financial Condition - Capital Resources
Purchases of capital assets totaled $21.5 million for the first quarter of 1997
compared to $14.3 million during the comparable period one year ago. The
increase is the result of planned increases in the Deluxe Electronic Payment
Systems segment and corporate expenditures for a new entity-wide financial
system.
At March 31, 1997, the Company has uncommitted bank lines of credit of $189.8
million available at variable interest rates. As of that date, $.8 million was
drawn on those lines at a weighted average interest rate of 6.8%. Also, the
Company has in place a $150 million committed line of credit which is available
for borrowing and as support for commercial paper. As of March 31, 1997, the
Company had no commercial paper outstanding. The Company has in place a
medium-term note program for the issuance of up to $300 million of medium-term
notes to be used for general corporate purposes, including working capital,
capital expenditures, possible acquisitions and repayment or repurchase of
outstanding indebtedness and other securities of the Company. As of March 31,
1997, no such notes were issued or outstanding. Cash dividends totaled $30.4
million for the first quarter of 1997 compared to $30.5 million for the first
quarter of 1996.
PART II - OTHER INFORMATION
Item 2. Changes in Securities
During the first quarter, the Company extended the benefits afforded by the
Company's shareholder rights plan, dated as of February 12, 1988 (the "Existing
Plan"), by amending and restating its provisions. The amended plan, like the
Existing Plan, is intended to deter coercive or abusive tender offers and market
accumulations. The amended plan encourages an acquirer to negotiate with the
Company's Board of Directors and enhances the Board's ability to act in the best
interest of all of the Company's shareholders.
Among other things, the Amended and Restated Rights Agreement, dated as of
January 31, 1997 (the "Amended Agreement"), contains the following revisions to
the Existing Plan: (i) Norwest Bank Minnesota, National Association has been
appointed as Rights Agent; (ii) the term of the shareholder rights plan has been
extended from February 22, 1998 through January 31, 2007; (iii) the exercise
price of the Rights has been increased from $100 to $150 (subject to adjustment
under certain circumstances described in the Amended Agreement); (iv) the
threshold ownership requirement which triggers the exercisability of the Rights
has been reduced from 30% to 15%; (v) the circumstances under which the Rights
may be redeemed or the Amended Plan amended has been revised; (vi) the Board of
Directors may now exchange shares of the Company's Common Stock for the Rights
under certain circumstances; (vii) the events giving rise to the ability of the
holders of the Rights to purchase shares of the Company's Common Stock at a
discount from its current market price have been revised; and (viii) a provision
exempting certain permitted offers and inadvertent acquisitions from the
operation of the Amended Plan has been incorporated. The foregoing summary does
not purport to be complete and is qualified in its entirety by reference to the
full text of the Amended Agreement, a copy of which was filed as exhibit 4.1 to
the Company's Amendment No. 1 on Form 8-A/A-1 filed with the Securities and
Exchange Commission on February 7, 1997.
Item 5. Other Information
RISK FACTORS AND CAUTIONARY STATEMENTS
When used in this Form 10-Q 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 Item 5 statement supersedes and replaces the
discussion in Exhibit 99.1 of the Company's Annual Report on Form 10-K for the
year ended December 31, 1996. Capitalized terms used without definition herein
have the meanings assigned to such terms in the Quarterly Report on Form 10-Q of
which this Exhibit is a part.
Earnings Estimates. 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,
including the Company's current statement that its 1997 adjusted earnings from
operations will approximate $2.15 per share, 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 (including those described in this discussion), 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.
In addition, authorized representatives of the Company may occasionally 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.
Sales of Businesses. The Company has indicated its continuing intention to
divest the businesses comprising its Deluxe Direct MSU, but it has not reached
agreement with any prospective buyers nor has it received what it considers an
acceptable bid for any of such companies. 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.
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 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 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 expects to 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 and retail industries, 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. 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. 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
the Company's transaction processing businesses.
Seasonality. A significant portion of the revenues and earnings of the Company's
Deluxe Direct MSU is dependent upon its results of operations during the fourth
quarter. As a result, the results reported for this division during the first
three quarters of any given year are not necessarily indicative of those which
may be expected for the entire year.
HCL Joint Venture. Although the Company has reached an agreement in principle to
form a joint venture with HCL Corporation of New Delhi, India ("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.
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, there can be no assurance that the software and transaction processing
products and software development services proposed to be offered by the joint
venture 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,
will not operate to inhibit the success of the venture. As a result, there can
be no assurance that the HCL joint venture will generate significant revenues or
profits or provide an adequate return on any investment by the Company.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are filed as part of this report:
Exhibit No. Description Method of Filing
----------- ----------- ----------------
12.1 Computation of Ratio of Filed herewith
Earnings to Fixed Charges
27.1 Financial Data Schedule Filed herewith
(b) On February 7, 1997, the registrant filed a report on Form 8-K
describing an amendment to its Shareholders' Rights Plan
(See "Item 2. Changes in Securities").
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DELUXE CORPORATION
(Registrant)
Date May 15 1997 /s/ J.A. Blanchard III
J.A. Blanchard III, President
and Chief Executive Officer
(Principal Executive Officer)
Date May 15, 1997 /s/ Thomas W. VanHimbergen
Thomas W. VanHimbergen, Senior Vice President
and Chief Financial Officer
(Principal Financial Officer)
INDEX TO EXHIBITS
Exhibit No. Description Page No.
----------- ----------- --------
12.1 Computation of Ratio of
Earnings to FixedCharges
27.1 Financial Data Schedule
<TABLE>
<CAPTION>
Exhibit 12.1
DELUXE CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
Quarter
Ended Years Ended December 31,
March 31, ---------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings
Income from Continuing Operations
before Income Taxes $ 69,389 $118,765 $169,319 $246,706 $235,913 $324,783 $295,493
Interest expense
(excluding capitalized interest) 2,385 10,649 13,099 9,733 10,070 15,371 8,220
Portion of rent expense under
long-term operating leases
representative of an interest factor 3,473 13,467 14,761 13,554 13,259 12,923 11,807
Amortization of debt expense 30 121 84 84 84 84 71
-------- -------- -------- -------- -------- -------- --------
TOTAL EARNINGS $ 75,277 $143,002 $197,262 $270,077 $259,326 $353,161 $315,591
Fixed charges
Interest Expense
(including capitalized interest) $ 2,497 $ 11,978 $ 14,714 $ 10,492 $ 10,555 $ 15,824 $ 8,990
Portion of rent expense under
long-term operating leases
representative of an interest factor 3,473 13,467 14,761 13,554 13,259 12,923 11,807
Amortization of debt expense 30 121 84 84 84 84 71
-------- -------- -------- -------- -------- -------- --------
TOTAL FIXED CHARGES $ 6,000 $ 25,566 $ 29,559 $ 24,130 $ 23,898 $ 28,831 $ 20,868
RATIO OF EARNINGS
TO FIXED CHARGES: 12.5 5.6 6.7 11.2 10.9 12.2 15.1
</TABLE>
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