UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
AMENDMENT NO. 1 TO
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934. FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998.
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, including area code: (651) 483-7111.
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, par value $1.00 per share New York Stock Exchange
(Title of Class) (Name of each exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. _x_ Yes __ No
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 $2,671,087,198 based on the last sales price of the registrant's
common stock on the New York Stock Exchange on March 8, 1999. The number of
outstanding shares of the registrant's common stock as of March 8, 1999, was
79,405,544.
1
Documents Incorporated by Reference:
1. Portions of the registrant's annual report to shareholders for the fiscal
year ended December 31, 1998, as amended hereby (the "Amended Annual
Report"), are incorporated by reference in Parts I and II.
PART I
ITEM 1. NARRATIVE DESCRIPTION OF BUSINESS
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The information appearing under the caption "Note 14. Business Segment
Information" on pages 32-34 of the Amended Annual Report is incorporated by
reference.
FINANCIAL INFORMATION ABOUT DOMESTIC OPERATIONS AND EXPORT SALES
The information appearing under the caption "Note 14. Business Segment
Information" on page 34 of the Amended Annual Report is incorporated by
reference.
PART II
ITEM 6. SELECTED FINANCIAL DATA
The information appearing under the caption "Five-year Summary" on page 12
of the Amended 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 1 through 10 of the Amended Annual Report is incorporated by
reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements, notes and independent auditors' report on pages 13
through 36 of the Amended Annual Report and the information appearing under the
caption "Summarized Quarterly Financial Data" (unaudited) on page 37 of the
Amended Annual Report is incorporated by reference.
On December 31, 1998, the registrant received a number of questions and
comments from the Securities and Exchange Commission's Division of Corporate
Finance (the "Division") with respect to the registrant's Annual Report on Form
10-K for the year ended December 31, 1997 and its quarterly Report on Form 10-Q
for the Quarter ended September 30, 1998. From January through September of
1999, representatives of the registrant and the Division engaged in an extensive
dialog concerning the comments raised by the Division. The principal focus of
these discussions related to the $36.4 million accrual
2
recorded by the registrant in the third quarter of 1998 to reserve for expected
future losses on the existing long-term contracts and relationships of its
Deluxe Government Services segment.
In the first quarter of 1999, the registrant determined that one
relationship included in the 1998 loss accrual should no longer be included
because the definitive agreement between the registrant and the prime contractor
remains subject to negotiation. By not considering this relationship in the
charge for expected future losses, $4.3 million of assets dedicated to this
relationship were exposed to impairment. The resulting reclassification between
accrued contract/relationship losses and the write-off of the long-lived assets
dedicated to this relationship was recorded in the first quarter of 1999.
As a result of extended discussions with the Division, the registrant
concluded its method of calculating a contract's costs should exclude the
depreciation and amortization associated with any assets related to that
contract which are determined to be impaired pursuant to the registrant's policy
on impairment of long-lived assets. The principal impact of this revised
methodology is to record an asset impairment charge of $26.3 million at
September 30, 1998. In calculating the impairment charge, the Company determined
that the assets utilized by this business have no fair market value. Thus, the
long-lived assets of this business were reduced to a carrying value of $0. In
addition, the Company revised the amount of the reserve recorded for expected
future losses on long-term service contracts and relationships and reversed
$21.7 million of the original loss reserve at September 30, 1998. In effect,
this revised approach results in the immediate recognition by the registrant of
the impairment of the assets employed on its loss contracts, as opposed to
depreciating those assets over time and including the amount of such
depreciation in the estimated amount of the future losses from these long-term
service contracts.
As a collorary to the revised methodology, however, the assets associated
with the profitable long-term service contracts of the registrant's Deluxe
Government Services segment must also be written-off. Originally, these assets
were not encompassed within the loss contract accrual because the related
contracts were profitable. Incorporating the assets employed on the profitable
contracts into the impairment analysis increases the impaired asset write-down
by an additional $4.6 million as of September 30, 1998 and increases the amount
of the registrant's third quarter charge by an equivalent amount. This
additional write-down, in conjunction with the related reduction in the amount
of depreciation expense in the fourth quarter of 1998, reduced the Company's
after-tax reported earnings by $2.9 million, or $.04 per share, for the quarter
ended September 30, 1998 and by $2.3 million, or $.03 per share for the year
ended December 31, 1998. The other primary effects of the revised methodology
are presented in the revised financial statements included in the Amended Annual
Report.
The registrant has recently been notified that the prime contractor for a
number of states and state coalitions for which the registrant's Deluxe
Government Services business provides switching services does not intend to
renew its switching agreement with the registrant. The registrant's Deluxe
Government Services business is currently negotiating with the contractor
regarding the timing and cost of this transition and the subsequent conversion
of the
3
switching services to a third party. The registrant will adjust the charge
described above when the results of these negotiations are reasonably estimable.
It is possible that the loss of this contract and revenue stream will require
the registrant to record an additional accrual.
For purposes of this 10-K/A, and in accordance with Rule 12b-15 under the
Securities Exchange Act of 1934, as amended, the registrant has amended and
restated in its entirety each item of its Annual Report on Form 10-K which has
been affected by the financial statement restatement. In order to preserve the
nature and character of the disclosures set forth in such items as of the
original filing date of such Report, this Form 10-K/A does not otherwise modify
the disclosures in that report which were not affected by the restatement.
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 with or incorporated by reference in this report:
Financial Statements Page in
-------------------- Amended Annual Report
---------------------
Consolidated Balance Sheets for the years ended December 31, 1998
and 1997...........................................................................13
Consolidated Statements of Income for each of the three years in the
period ended December 31, 1998.....................................................14
Consolidated Statements of Comprehensive Income for each of the three
years in the period ended December 31, 1998........................................14
Consolidated Statements of Cash Flows for each of the three years in
the period ended December 31, 1998.................................................15
Notes to Consolidated Financial Statements..............................................16 - 35
Independent Auditors' Report ...........................................................36
Supplemental Financial Information (Unaudited):
Summarized Quarterly Financial Data.....................................................37
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, 33-62041,
333-03625 and 33-48967..................................................................F-1
(c) The following exhibits are filed as part of or are incorporated in this
report by reference:
Exhibit Method of
Number Description Filing
------ ----------- ------
12.5 Amended Statement re: computation of ratios Filed
herewith
4
13.1 1998 Annual Report to shareholders (as amended Filed
September 24, 1999). herewith
13.2 Amended Financial Highlights to the 1998 Annual Report Filed
herewith
23.1 Consent of Experts and Counsel (incorporated by reference to
page F-1 of this Amended Annual Report on Form 10-K). *
24.1 Power of attorney (incorporated by reference to Exhibit 24.1 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1998). *
27.5 Amended Financial Data Schedule for the year ended Filed
December 31, 1998. herewith
- ------------------
*Incorporated by reference
5
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.
DELUXE CORPORATION
Date: October 7, 1999 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 October 7,1999.
SIGNATURE TITLE
- --------- -----
By /s/ John A. Blanchard III Chairman of the Board of Directors,
-------------------------------------- President and Chief Executive Officer
John A. Blanchard III (Principal Executive Officer)
By /s/ Thomas W. VanHimbergen Senior Vice President and Chief Financial Officer
-------------------------------------- (Principal Financial Officer and Principal
Thomas W. VanHimbergen Accounting Officer)
/s/ Lawrence J. Mosner
--------------------------------------
Lawrence J. Mosner Vice-Chairman of the
Board of Directors
*
--------------------------------------
James J. Renier Director
*
--------------------------------------
Barbara B. Grogan Director
*
--------------------------------------
Stephen P. Nachtsheim Director
*
--------------------------------------
Calvin W. Aurand, Jr. Director
*
--------------------------------------
Donald R. Hollis Director
*
--------------------------------------
6
Robert C. Salipante Director
*
--------------------------------------
Jack Robinson Director
*
--------------------------------------
Hatim A. Tyabji Director
*By:/s/ John A. Blanchard III
--------------------------------------
John A. Blanchard III
Attorney-in-Fact
7
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements Nos.
2-96963, 33-53585, 33-57261, 333-03625 and 33-48967 on Form S-8 and 33-32279,
33-58510 and 33-62041 on Form S-3 of our report dated January 26, 1999,
September 24, 1999, as to Note 16 (which expresses an unqualified opinion and
includes explanatory paragraph relating to the restatement described in Note
16), incorporated by reference in this Amendment No. 1 to the Annual Report on
Form 10-K of Deluxe Corporation for the year ended December 31, 1998.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Minneapolis, Minnesota
October 4, 1999
F-1
EXHIBIT INDEX
The following exhibits are filed as part of this report:
Exhibit Page
Number Description Number
------ ----------- ------
12.5 Amended Statement re: computation of ratios
13.1 1998 Annual Report to Shareholders (as amended
September 24, 1999)
13.2 Amended Financial Highlights to the 1998 Annual
Report
27.5 Amended Financial Data Schedule for the year
ended December 31, 1998