SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Amendment No. 1
on
FORM 8-K/A-1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report: October 22, 1998
DELUXE CORPORATION
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(Exact name of registrant as specified in its charter)
MINNESOTA 1-7945 41-0216800
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(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
3680 Victoria Street North, Shoreview, Minnesota 55126
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(Address of principal executive offices) (Zip Code)
612/483-7111
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(Registrant's telephone number, including area code)
N/A
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(Former name or former address, if changed since last report)
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The information supplied under Item 5 of the Current Report on Form 8-K filed by
the Company with the Securities and Exchange Commission on October 22, 1998 is
hereby amended to read in full as follows:
Item 5. Other Events
RISK FACTORS AND CAUTIONARY STATEMENTS
When used in this current Report on Form 8-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 discussion supersedes the discussion in Item 5 of the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998.
Earnings Estimates; Cost Reductions. 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 earnings from
operations. Any forecast, including the Company's current statement that it
expects fourth quarter earnings to fall between $.65 and $.71 per share (and
between $2.29 and $2.35 per share for 1998, after excluding the $70 million
pre-tax charge taken by the Company in the third quarter) to achieve at least 11
to 15 percent annual growth in earnings in1999 and 2000, regarding the Company's
future performance reflects various assumptions, including assumptions regarding
the timing of certain anticipated divestitures (See "Sale of Businesses"). 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. Further, it is not
expected that the earnings growth projected for 1999 and 2000 will be
representative of results that may be achieved in subsequent years.
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
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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 reasonableness of the assumptions on which they are based.
Sale of Businesses. The Company has a continuing intention to divest the
remaining businesses comprising its Deluxe Direct segment (Current Social
Expressions and PaperDirect, Inc.) and has announced its intention to divest its
Deluxe Direct Response business unit. Although the Company has entered into
non-binding letters of intent providing for the sale of these businesses with
potential buyers, definitive divestiture agreements have not yet been
negotiated. A failure to reach agreement on the exact terms of one or more of
the planned divestitures could 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. Any such delay would also
postpones 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 (including the Company's current
review of its Selling, General and Administrative cost levels), there can be no
assurance that the projected $100 million of pre-tax annual cost savings will be
fully realized or will be achieved within the time periods expected. The
implementation of the printing plant closures upon which some of the anticipated
savings depend 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. The
Company has previously experienced unanticipated delays in the planned roll-out
of its on-line ordering system. Although the Company expects to again begin
converting customers to this new system in the fourth quarter of 1998 and
believes that the delays it has experienced will not materially affect its
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current plant closing schedule, there can be no assurances such will be the case
or that additional sources of delays will not be encountered because of the
complexities inherent in the development of software products as sophisticated
as those needed to accomplish this task. Any such event could adversely affect
the planned consolidation of the Company's printing facilities and the
achievement of the expected productivity improvements and delay the realization
or reduce the amount of the anticipated expense reductions. In addition, the
achievement of the targeted level of cost savings is dependent upon the
successful execution of a variety of other cost reduction strategies throughout
the Company's operations. These additional efforts include the consolidation of
the Company's purchasing process and certain administrative and sales support
organizations, the disposition of unprofitable or low-margin businesses,
headcount reductions and other efforts. The optimum means of realizing many of
these strategies is still being evaluated by the Company. Unexpected delays,
complicating factors and other hindrances are common in the implementation of
these types of endeavors and can arise from a variety of sources, some of which
are likely to have been unanticipated. In addition, the Company may incur
charges (such as the recently-announced $34 million reserve for severance
payments and infrastructure cost reductions) against its earnings reflective of
the anticipated cost of some of the programs. 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.
Other Dispositions and Acquisitions. In connection with its ongoing
restructuring, the Company may also consider divesting or discontinuing the
operations of various business units and assets and the Company may undertake
one or more significant acquisitions. Any such divestiture or discontinuance
could result in write-offs by the Company, some or all of which could be
significant. In addition, a significant acquisition could result in future
earnings dilution for the Company's shareholders.
Effect of Financial Institution Consolidation. There is an ongoing trend towards
increasing consolidation within the banking industry that has resulted in
increased competition and consequent 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.
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Capital Expense Reductions. The Company has announced that it expects that its
1998 capital spending budget is expected to decline significantly from previous
estimates due to the application of a new methodology for evaluating the
Company's projected return on various forms of investment. The use of this
methodology represents a revised analytic approach by the Company and the
long-term benefits to be derived therefrom cannot presently be precisely
determined.
Raw Material Postage Costs and Delivery 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 business. Events such as the 1997 UPS strike can also
adversely impact the Company's margins by imposing higher delivery costs.
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 prices 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 similar pressures can
reasonably be expected in the future, although the timing and amount of reduced
profits that may result from such pressure is unascertainable.
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 electronic and other bill paying services, home banking applications and
Internet-based retail services, are in various stages of maturity or development
and additional systems will likely be introduced. The Company believes that
there will continue to be a substantial market for checks for the foreseeable
future, although a reduction in the volume of checks used by consumers is
expected. The rate and the extent to which alternative payment methods will
achieve consumer acceptance and replace checks cannot, however, be predicted
with certainty. A surge in the popularity of any of these alternative payment
methods could have 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.
HCL Joint Venture. There can be no assurance that the software, transaction
processing services and products and software development services proposed to
be offered by the Company's joint venture with HCL Corporation of New Delhi,
India 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.
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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.
Debit Bureau. The Company has recently announced an alliance with several
entities that is intended to offer decision support tools and information to
retailers and financial institutions that offer or accept direct debit-based
products, such as checking accounts, ATM cards and debit cards. To date, this
effort has primarily been directed towards the creation of the supporting data
warehouse and research regarding the utility and value of the data available to
the Company for use in this area. There can be no assurance that this effort
will result in the introduction of a significant number of new products or the
generation of incremental revenues in material amounts. In any event, the
continued development of the debit bureau is expected to require a significant
level of investment by the Company.
Limited Source of Supply. The Company's check printing business utilizes a paper
printing plate material that is available from only a limited number of sources.
The Company believes it has a reliable source of supply for this material and
that it maintains an inventory sufficient to avoid any production disruptions in
the event of an interruption of its supply. In the event, however, that the
Company's current supplier becomes unwilling or unable to supply the required
printing plate material at an acceptable price and the Company is unable to
locate a suitable alternative source within a reasonable time frame, the Company
would be forced to convert its facilities to an alternative printing process.
Any such conversion would require the unanticipated investment of significant
sums and there can be no assurance that the conversion could be accomplished
without production delays.
Seasonality. A significant portion of the revenues and earnings of the Company's
Deluxe Direct segment 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.
Year 2000. In 1996, the Company initiated a companywide program to prepare its
computer systems and applications for the year 2000. The scope of the Company's
year 2000 effort encompasses all computerized assets across the Company.
Included in the assessment and repair are PC's and related equipment, data
centers, networks, facilities, third party systems and internal department
applications, as well as the production applications in support of the Company's
products and services. In addition to these computerized assets, the Company is
also assessing the year 2000 compliancy of certain third parties, including both
important non-IT providers and key customers. Contingency plans are being
developed where the Company's risk assessment determines it to be necessary to
ensure continued provision of the Company's products and services.
Because of the nature of the Company's business, the year 2000 issue would, if
unaddressed, pose a significant business risk for the Company. The Company
presently believes that with the planned modifications to existing systems and
the replacement of other systems, the year 2000 compliance issue will be
resolved in a timely manner and will not pose significant operational
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problems for the Company, although there can be no absolute assurances in this
regard. Nor can there be any absolute assurance that unanticipated expenses
related to the Company's ongoing year 2000 compliance efforts will not be
incurred. As previously noted, the Company has communicated with its key
suppliers and customers to determine their year 2000 readiness and the extent to
which the Company is vulnerable to any third party year 2000 issues. There can
be no guarantee that the systems of other companies on which the Company's
systems rely will be converted in a timely manner or in a manner that is
compatible with the Company's systems. A failure by such a company to convert
their systems in a timely manner or a conversion that renders such systems
incompatible with those of the Company could have a material adverse effect on
the Company.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this amendment to be signed on its behalf by the
undersigned, thereunto duly authorized.
DELUXE CORPORATION
(Registrant)
By: /s/ Lawrence J. Mosner
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Lawrence J. Mosner
Executive Vice President
Dated: October 22, 1998
