þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Minnesota | 41-0216800 | |
(State or other jurisdiction of
incorporation or organization) |
(I.R.S. Employer
Identification No.) |
|
3680 Victoria St. N., Shoreview, Minnesota | 55126-2966 | |
(Address of principal executive offices) | (Zip Code) |
Large accelerated filer þ | Accelerated filer o |
Non-accelerated filer
o
(Do not check if a smaller reporting company) |
Smaller reporting company o |
2
Quarter Ended March 31, | ||||||||
2009 | 2008 | |||||||
Revenue
|
$ | 339,520 | $ | 377,077 | ||||
Restructuring charges
|
1,507 | 37 | ||||||
Other cost of goods sold
|
127,752 | 142,901 | ||||||
|
||||||||
Total cost of goods sold
|
129,259 | 142,938 | ||||||
|
||||||||
Gross Profit
|
210,261 | 234,139 | ||||||
|
||||||||
Selling, general and administrative expense
|
158,356 | 179,152 | ||||||
Restructuring reversals
|
(177 | ) | (539 | ) | ||||
Asset impairment charges
|
24,900 | | ||||||
|
||||||||
Operating Income
|
27,182 | 55,526 | ||||||
|
||||||||
Gain on early debt extinguishment
|
9,834 | | ||||||
Interest expense
|
(12,420 | ) | (12,753 | ) | ||||
Other income
|
357 | 495 | ||||||
|
||||||||
Income Before Income Taxes
|
24,953 | 43,268 | ||||||
|
||||||||
Income tax provision
|
12,449 | 15,491 | ||||||
|
||||||||
Income From Continuing Operations
|
12,504 | 27,777 | ||||||
|
||||||||
Net Loss from Discontinued Operations
|
| (460 | ) | |||||
|
||||||||
Net Income
|
$ | 12,504 | $ | 27,317 | ||||
|
||||||||
|
||||||||
Basic Earnings per Share:
|
||||||||
Income from continuing operations
|
$ | 0.24 | $ | 0.54 | ||||
Net loss from discontinued operations
|
| (0.01 | ) | |||||
Basic earnings per share
|
0.24 | 0.53 | ||||||
|
||||||||
Diluted Earnings per Share:
|
||||||||
Income from continuing operations
|
$ | 0.24 | $ | 0.53 | ||||
Net loss from discontinued operations
|
| (0.01 | ) | |||||
Diluted earnings per share
|
0.24 | 0.52 | ||||||
|
||||||||
Cash Dividends per Share
|
$ | 0.25 | $ | 0.25 | ||||
|
||||||||
Comprehensive Income
|
$ | 14,522 | $ | 27,912 |
3
Quarter Ended | ||||||||
March 31, | ||||||||
2009 | 2008 | |||||||
Cash Flows from Operating Activities:
|
||||||||
Net income
|
$ | 12,504 | $ | 27,317 | ||||
Adjustments to reconcile net income to net cash provided by operating
activities of continuing operations:
|
||||||||
Net loss from discontinued operations
|
| 460 | ||||||
Depreciation
|
5,622 | 5,175 | ||||||
Amortization of intangibles
|
11,231 | 10,269 | ||||||
Asset impairment charges
|
24,900 | | ||||||
Amortization of contract acquisition costs
|
6,333 | 6,243 | ||||||
Employee share-based compensation expense
|
1,495 | 2,765 | ||||||
Deferred income taxes
|
1,429 | 1,669 | ||||||
Gain on early debt extinguishment
|
(9,834 | ) | | |||||
Other non-cash items, net
|
6,095 | 3,674 | ||||||
Changes in assets and liabilities, net of effect of acquisition and
discontinued operations:
|
||||||||
Trade accounts receivable
|
10,728 | 4,769 | ||||||
Inventories and supplies
|
61 | (218 | ) | |||||
Other current assets
|
(972 | ) | (14 | ) | ||||
Non-current assets
|
3,859 | 2,482 | ||||||
Accounts payable
|
2.842 | (5,866 | ) | |||||
Contract acquisition payments
|
(14,056 | ) | (2,846 | ) | ||||
Other accrued and other non-current liabilities
|
734 | (25,767 | ) | |||||
|
||||||||
Net cash provided by operating activities of continuing operations
|
62,971 | 30,112 | ||||||
|
||||||||
|
||||||||
Cash Flows from Investing Activities:
|
||||||||
Purchases of capital assets
|
(9,958 | ) | (5,802 | ) | ||||
Payment for acquisition, net of cash acquired
|
| (260 | ) | |||||
Purchase of customer list
|
(614 | ) | | |||||
Other
|
(232 | ) | 176 | |||||
|
||||||||
Net cash used by investing activities of continuing operations
|
(10,804 | ) | (5,886 | ) | ||||
|
||||||||
|
||||||||
Cash Flows from Financing Activities:
|
||||||||
Net (payments) proceeds from short-term debt
|
(9,770 | ) | 4,345 | |||||
Payments on long-term debt
|
(21,654 | ) | (422 | ) | ||||
Change in book overdrafts
|
(5,348 | ) | (6,695 | ) | ||||
Proceeds from issuing shares under employee plans
|
1,016 | 1,636 | ||||||
Excess tax benefit from share-based employee awards
|
8 | 92 | ||||||
Payments for common shares repurchased
|
(1,319 | ) | (13,943 | ) | ||||
Cash dividends paid to shareholders
|
(12,811 | ) | (12,871 | ) | ||||
|
||||||||
Net cash used by financing activities of continuing operations
|
(49,878 | ) | (27,858 | ) | ||||
|
||||||||
|
||||||||
Effect of Exchange Rate Change on Cash
|
(359 | ) | (242 | ) | ||||
Cash Used by Operating Activities of Discontinued Operations
|
(470 | ) | (131 | ) | ||||
Cash Used by Investing Activities of Discontinued Operations
|
(6 | ) | | |||||
|
||||||||
Net Change in Cash and Cash Equivalents
|
1,454 | (4,005 | ) | |||||
Cash and Cash Equivalents: Beginning of Period
|
15,590 | 21,615 | ||||||
|
||||||||
End of Period
|
$ | 17,044 | $ | 17,610 | ||||
|
4
5
March 31, | December 31, | |||||||
(in thousands) | 2009 | 2008 | ||||||
Raw materials
|
$ | 4,408 | $ | 4,047 | ||||
Semi-finished goods
|
10,489 | 10,807 | ||||||
Finished goods
|
6,655 | 6,608 | ||||||
|
||||||||
Total inventories
|
21,552 | 21,462 | ||||||
Supplies, primarily production
|
4,307 | 4,329 | ||||||
|
||||||||
Inventories and supplies
|
$ | 25,859 | $ | 25,791 | ||||
|
6
Carrying | ||||||||
(in thousands) | amount | Fair value | ||||||
Cash and cash equivalents
|
$ | 17,044 | $ | 17,044 | ||||
Cash held for customers
|
24,259 | 24,259 | ||||||
Long-term mutual fund investment
|
1,543 | 1,543 | ||||||
Short-term debt
|
68,230 | 68,230 | ||||||
Long-term debt
|
742,830 | 518,891 |
Fair value measurements using | ||||||||||||||||||||
Fair value | Quoted prices in | |||||||||||||||||||
as of | active markets for | Significant other | Significant | |||||||||||||||||
measurement | identical assets | observable inputs | unobservable inputs | |||||||||||||||||
(in thousands) | date | (Level 1) | (Level 2) | (Level 3) | Impairment charge | |||||||||||||||
Goodwill
(1)
|
$ | 20,245 | $ | | $ | | $ | 20,245 | $ | 20,000 | ||||||||||
Indefinite-lived
trade name
|
19,100 | | | 19,100 | 4,900 |
(1) | Represents the implied fair value of the goodwill assigned to the reporting unit for which we were required to calculate this amount. |
7
March 31, 2009 | December 31, 2008 | |||||||||||||||||||||||
Gross carrying | Accumulated | Net carrying | Gross carrying | Accumulated | Net carrying | |||||||||||||||||||
(in thousands) | amount | amortization | amount | amount | amortization | amount | ||||||||||||||||||
Indefinite-lived:
|
||||||||||||||||||||||||
Trade name
|
$ | 19,100 | $ | | $ | 19,100 | $ | 24,000 | $ | | $ | 24,000 | ||||||||||||
Amortizable intangibles:
|
||||||||||||||||||||||||
Internal-use software
|
318,257 | (265,794 | ) | 52,463 | 315,493 | (260,320 | ) | 55,173 | ||||||||||||||||
Customer lists/relationships
|
125,795 | (100,301 | ) | 25,494 | 125,530 | (96,963 | ) | 28,567 | ||||||||||||||||
Distributor contracts
|
30,900 | (23,243 | ) | 7,657 | 30,900 | (22,792 | ) | 8,108 | ||||||||||||||||
Trade names
|
54,861 | (21,445 | ) | 33,416 | 54,861 | (19,920 | ) | 34,941 | ||||||||||||||||
Other
|
8,437 | (5,453 | ) | 2,984 | 8,505 | (5,213 | ) | 3,292 | ||||||||||||||||
|
||||||||||||||||||||||||
Amortizable intangibles
|
538,250 | (416,236 | ) | 122,014 | 535,289 | (405,208 | ) | 130,081 | ||||||||||||||||
|
||||||||||||||||||||||||
Intangibles
|
$ | 557,350 | $ | (416,236 | ) | $ | 141,114 | $ | 559,289 | $ | (405,208 | ) | $ | 154,081 | ||||||||||
|
Small | ||||||||||||
Business | Direct | |||||||||||
(in thousands) | Services | Checks | Total | |||||||||
Balance, December 31, 2008
|
$ | 570,807 | $ | 82,237 | $ | 653,044 | ||||||
Impairment charge (see Note 7)
|
(20,000 | ) | | (20,000 | ) | |||||||
Currency translation adjustment
|
(54 | ) | | (54 | ) | |||||||
|
||||||||||||
Balance, March 31, 2009
|
$ | 550,753 | $ | 82,237 | $ | 632,990 | ||||||
|
March 31, | December 31, | |||||||
(in thousands) | 2009 | 2008 | ||||||
Contract acquisition costs (net of accumulated amortization of
$104,159 and $99,502, respectively)
|
$ | 60,638 | $ | 37,706 | ||||
Deferred advertising costs
|
16,599 | 20,189 | ||||||
Other
|
21,250 | 21,980 | ||||||
|
||||||||
Other non-current assets
|
$ | 98,487 | $ | 79,875 | ||||
|
8
Quarter Ended March 31, | ||||||||
(in thousands) | 2009 | 2008 | ||||||
Balance, beginning of year
|
$ | 37,706 | $ | 55,516 | ||||
Additions
(1)
|
29,265 | 2,976 | ||||||
Amortization
|
(6,333 | ) | (6,243 | ) | ||||
|
||||||||
Balance, end of period
|
$ | 60,638 | $ | 52,249 | ||||
|
(1) | Contract acquisition costs are accrued upon contract execution. Cash payments made for contract acquisition costs were $14,056 for the quarter ended March 31, 2009 and $2,846 for the quarter ended March 31, 2008. |
March 31, | December 31, | |||||||
(in thousands) | 2009 | 2008 | ||||||
Customer rebates
|
$ | 26,573 | $ | 29,113 | ||||
Cash held for customers
|
24,259 | 26,078 | ||||||
Interest
|
15,769 | 5,394 | ||||||
Restructuring (see Note 6)
|
15,669 | 20,379 | ||||||
Contract acquisition costs
|
13,535 | 4,326 | ||||||
Wages, including vacation
|
13,144 | 12,176 | ||||||
Employee profit sharing and pension
|
8,575 | 15,061 | ||||||
Other
|
34,643 | 30,072 | ||||||
|
||||||||
Accrued liabilities
|
$ | 152,167 | $ | 142,599 | ||||
|
9
Quarter Ended March 31, | ||||||||
(in thousands, except per share amounts) | 2009 | 2008 | ||||||
Earnings per share basic:
|
||||||||
Income from continuing operations
|
$ | 12,504 | $ | 27,777 | ||||
Income allocated to participating securities
|
(100 | ) | (303 | ) | ||||
|
||||||||
Income available to common shareholders
|
$ | 12,404 | $ | 27,474 | ||||
|
||||||||
Weighted-average shares outstanding
|
50,714 | 51,070 | ||||||
Earnings per share basic
|
$ | 0.24 | 0.54 | |||||
|
||||||||
Earnings per share diluted:
|
||||||||
Income from continuing operations
|
$ | 12,504 | 27,777 | |||||
Income allocated to participating securities
|
(100 | ) | (303 | ) | ||||
Re-measurement of share-based awards classified as
liabilities
|
(160 | ) | (221 | ) | ||||
|
||||||||
Income available to common shareholders
|
$ | 12,244 | $ | 27,253 | ||||
|
||||||||
Weighted-average shares outstanding
|
50,714 | 51,070 | ||||||
Dilutive impact of options and employee stock purchase plan
|
12 | 18 | ||||||
|
||||||||
Weighted-average shares and potential dilutive shares outstanding
|
50,726 | 51,088 | ||||||
Earnings per share diluted
|
$ | 0.24 | $ | 0.53 | ||||
Antidilutive options excluded from calculation
|
3,169 | 3,709 |
December 31, | ||||
(in thousands) | 2008 | |||
Trade accounts receivable
|
$ | 852 | ||
Inventories and supplies
|
36 | |||
Other current assets
|
120 | |||
Accounts payable and accrued liabilities
|
(330 | ) | ||
|
||||
Net assets of discontinued operations
|
$ | 678 | ||
|
10
Quarter Ended March 31, | ||||||||
(in thousands) | 2009 | 2008 | ||||||
Revenue
|
$ | 816 | $ | 4,136 | ||||
Loss from operations
|
$ | (155 | ) | $ | (697 | ) | ||
Gain from disposal
|
155 | | ||||||
Income tax benefit
|
| 237 | ||||||
|
||||||||
Net loss from discontinued operations
|
$ | | $ | (460 | ) | |||
|
11
NEBS
acquisition |
2006 | 2007 | 2008 | 2009 | ||||||||||||||||||||
(in thousands) | related | initiatives | initiatives | initiatives | initiatives | Total | ||||||||||||||||||
Balance, December 31, 2008
|
$ | 19 | $ | 195 | $ | 335 | $ | 19,830 | $ | | $ | 20,379 | ||||||||||||
Restructuring charges
|
| | | 886 | 132 | 1,018 | ||||||||||||||||||
Restructuring reversals
|
(19 | ) | | (4 | ) | (606 | ) | | (629 | ) | ||||||||||||||
Payments, primarily severance
|
| (62 | ) | (160 | ) | (4,462 | ) | (8 | ) | (4,692 | ) | |||||||||||||
|
||||||||||||||||||||||||
Balance, March 31, 2009
|
$ | | $ | 133 | $ | 171 | $ | 15,648 | $ | 124 | $ | 16,076 | ||||||||||||
|
||||||||||||||||||||||||
|
||||||||||||||||||||||||
Cumulative amounts:
|
||||||||||||||||||||||||
Restructuring accruals
|
$ | 30,243 | $ | 10,864 | $ | 7,181 | $ | 27,020 | $ | 132 | $ | 75,440 | ||||||||||||
Restructuring reversals
|
(859 | ) | (1,671 | ) | (1,409 | ) | (2,137 | ) | | (6,076 | ) | |||||||||||||
Payments, primarily severance
|
(29,384 | ) | (9,060 | ) | (5,601 | ) | (9,235 | ) | (8 | ) | (53,288 | ) | ||||||||||||
|
||||||||||||||||||||||||
Balance, March 31, 2009
|
$ | | $ | 133 | $ | 171 | $ | 15,648 | $ | 124 | $ | 16,076 | ||||||||||||
|
(1) | Includes accruals related to our cost reduction initiatives for 2006 through 2009 and the NEBS acquisition in June 2004. |
12
Postretirement benefit | ||||||||||||||||
plan | Pension plans | |||||||||||||||
(in thousands) | 2009 | 2008 | 2009 | 2008 | ||||||||||||
Service cost
|
$ | | $ | 24 | $ | | $ | | ||||||||
Interest cost
|
2,044 | 1,989 | 263 | 129 | ||||||||||||
Expected return on plan assets
|
(1,460 | ) | (2,183 | ) | (57 | ) | (71 | ) | ||||||||
Amortization of prior service credit
|
(990 | ) | (990 | ) | | | ||||||||||
Amortization of net actuarial losses
|
3,510 | 2,369 | 9 | 3 | ||||||||||||
|
||||||||||||||||
Total periodic benefit expense
|
3,104 | 1,209 | 215 | 61 | ||||||||||||
Settlement loss
|
| | 402 | 111 | ||||||||||||
|
||||||||||||||||
Net periodic benefit expense
|
$ | 3,104 | $ | 1,209 | $ | 617 | $ | 172 | ||||||||
|
March 31, | December 31, | |||||||
(in thousands) | 2009 | 2008 | ||||||
5.0% senior, unsecured notes due December 15, 2012, net of discount
|
$ | 279,654 | $ | 299,250 | ||||
5.125% senior, unsecured notes due October 1, 2014, net of discount
|
263,176 | 274,646 | ||||||
7.375% senior, unsecured notes due June 1, 2015
|
200,000 | 200,000 | ||||||
|
||||||||
Long-term portion of debt
|
742,830 | 773,896 | ||||||
|
||||||||
Amounts drawn on credit facilities
|
$ | 68,230 | $ | 78,000 | ||||
Capital lease obligation due within one year
|
972 | 1,440 | ||||||
|
||||||||
Short-term portion of debt
|
69,202 | 79,440 | ||||||
|
||||||||
Total debt
|
$ | 812,032 | $ | 853,336 | ||||
|
13
Total | Expiration | Commitment | ||||||||||
(in thousands) | available | Date | Fee | |||||||||
Five year line of credit
|
$ | 275,000 | July 2010 | .175 | % | |||||||
Amounts drawn on line of credit
|
(68,230 | ) | ||||||||||
Outstanding letters of credit
|
(10,125 | ) | ||||||||||
|
||||||||||||
Net available for borrowing as of
March 31, 2009
|
$ | 196,645 | ||||||||||
|
14
Accumulated | ||||||||||||||||||||||||
Common shares | Additional | other | Total | |||||||||||||||||||||
Number | Par | paid-in | Retained | comprehensive | shareholders | |||||||||||||||||||
(in thousands) | of shares | value | capital | earnings | loss | equity | ||||||||||||||||||
Balance, December 31, 2008
|
51,131 | $ | 51,131 | $ | 54,207 | $ | 12,682 | $ | (64,954 | ) | $ | 53,066 | ||||||||||||
Net income
|
| | | 12,504 | | 12,504 | ||||||||||||||||||
Cash dividends
|
| | | (12,811 | ) | | (12,811 | ) | ||||||||||||||||
Common shares issued
|
139 | 139 | 877 | | | 1,016 | ||||||||||||||||||
Tax impact of share-based
awards
|
| | (1,776 | ) | | | (1,776 | ) | ||||||||||||||||
Common shares repurchased
|
(120 | ) | (120 | ) | (1,199 | ) | | | (1,319 | ) | ||||||||||||||
Other common shares retired
|
(43 | ) | (43 | ) | (408 | ) | | | (451 | ) | ||||||||||||||
Share-based compensation
|
| | 1,705 | | | 1,705 | ||||||||||||||||||
Amortization of postretirement
prior service credit, net of tax
|
| | | | (612 | ) | (612 | ) | ||||||||||||||||
Amortization of postretirement
net actuarial losses, net of tax
|
| | | | 2,953 | 2,953 | ||||||||||||||||||
Amortization of loss on
derivatives, net of tax
|
| | | | 668 | 668 | ||||||||||||||||||
Currency translation adjustment
|
| | | | (991 | ) | (991 | ) | ||||||||||||||||
Balance, March 31, 2009
|
51,107 | $ | 51,107 | $ | 53,406 | $ | 12,375 | $ | (62,936 | ) | $ | 53,952 | ||||||||||||
March 31, | December 31, | |||||||
(in thousands) | 2009 | 2008 | ||||||
Postretirement and defined benefit pension plans:
|
||||||||
Unrealized prior service credit
|
$ | 22,246 | $ | 22,858 | ||||
Unrealized net actuarial losses
|
(78,066 | ) | (81,019 | ) | ||||
|
||||||||
Postretirement and defined benefit pension plans, net of tax
|
(55,820 | ) | (58,161 | ) | ||||
Loss on derivatives, net of tax
|
(6,830 | ) | (7,498 | ) | ||||
Currency translation adjustment
|
(286 | ) | 705 | |||||
|
||||||||
Accumulated other comprehensive loss
|
$ | (62,936 | ) | $ | (64,954 | ) | ||
|
15
Reportable Business Segments | ||||||||||||||||||||||
Small | ||||||||||||||||||||||
(in thousands) |
Business
Services |
Financial
Services |
Direct
Checks |
Corporate | Consolidated | |||||||||||||||||
Revenue from external customers:
|
2009 | $ | 193,283 | $ | 102,003 | $ | 44,234 | $ | | $ | 339,520 | |||||||||||
|
2008 | 211,714 | 113,930 | 51,433 | | 377,077 | ||||||||||||||||
Operating (loss) income:
|
2009 | (6,628 | ) | 19,561 | 14,249 | | 27,182 | |||||||||||||||
|
2008 | 21,860 | 18,970 | 14,696 | | 55,526 | ||||||||||||||||
Depreciation and amortization
|
2009 | 13,346 | 2,511 | 996 | | 16,853 | ||||||||||||||||
expense:
|
2008 | 11,955 | 2,390 | 1,099 | | 15,444 | ||||||||||||||||
Asset impairment charges:
|
2009 | 24,900 | | | | 24,900 | ||||||||||||||||
|
2008 | | | | | | ||||||||||||||||
Total assets:
|
2009 | 739,800 | 68,768 | 98,448 | 284,230 | 1,191,246 | ||||||||||||||||
|
2008 | 726,666 | 69,888 | 100,863 | 276,368 | 1,173,785 | ||||||||||||||||
Capital asset purchases:
|
2009 | | | | 9,958 | 9,958 | ||||||||||||||||
|
2008 | | | | 5,802 | 5,802 |
16
| We could lose a significant contract, which would have a negative impact on our results of operations. | ||
| We may be unable to recover the value of any related unamortized contract acquisition cost and/or accounts receivable. Contract acquisition costs, which are treated as pre-paid product discounts, are sometimes utilized in our Financial Services segment when signing or renewing contracts with our financial institution clients. As of March 31, 2009, contract acquisition costs totalled $60.6 million, while liabilities for contract acquisition costs not paid as of March 31, 2009 were $20.7 million. These costs are recorded as non-current assets upon contract execution and are amortized, generally on the straight-line basis, as reductions of revenue over the related contract term. In most situations, the contract requires a financial institution to reimburse us for the unamortized contract acquisition cost if it terminates its contract with us prior to the end of the contract term. Our contract acquisition costs are comprised of amounts paid to individual financial institutions, many of which are smaller and would not have a significant impact on our consolidated financial statements if they were deemed unrecoverable. However, the inability to recover amounts paid to one or more of our larger financial institution clients could have a significant negative impact on our consolidated results of operations. | ||
| If one or more of our financial institution clients is taken over by a financial institution that is not one of our clients, we could lose significant business. In the case of a cancelled contract, we may be entitled to collect a contract termination payment. However, if a financial institution fails, we may be unable to collect that termination payment. We have no indication at this time that any significant contract terminations are likely. | ||
| If one or more of our larger clients were to consolidate with a financial institution that is not one of our clients, our results of operations could be positively impacted if we retain the client, as well as obtain the additional business from the other party in the consolidation. | ||
| If two of our financial institution clients consolidate, the increase in general negotiating leverage possessed by the consolidated entities often results in new contracts which are not as favorable to us as those historically negotiated with the clients individually. | ||
| We could generate non-recurring conversion revenue. Conversions are driven by the need to replace obsolete checks after one financial institution merges with or acquires another. However, we presently do not have specific information that indicates that we should expect to generate significant income from conversions. |
17
| Various initiatives to reduce our cost structure, primarily within sales and marketing, information technology and manufacturing; | ||
| Net pre-tax gains of $9.3 million from the retirement of long-term notes, including additional interest expense of $0.5 million related to accelerating the amortization of a portion of the loss on a derivative associated with the notes; and | ||
| Higher Direct Checks revenue per order resulting from price increases and increased sales of fraud protection services. | ||
These benefits were more than offset by the following: | |||
| Asset impairment charges of $24.9 million within Small Business Services related to goodwill and an indefinite-lived trade name resulting from declines in our stock price during the first quarter of 2009 coupled with the continuing impact of the economic downturn on our expected operating results; | ||
| Lower volume in Small Business Services due primarily to changes in our customers buying patterns as a result of the economic recession; | ||
| Reduced volume for our personal check businesses due to the continuing decline in check usage and turmoil in the financial services industry; | ||
| Increases in paper prices and delivery rates; | ||
| One less production day in 2009, as compared to the first quarter of 2008; |
18
| Increased retiree medical expenses related primarily to losses on plan assets during 2008; and | ||
| Restructuring related costs in 2009 related to previously announced cost reduction initiatives. |
19
Quarter Ended March 31, | ||||||||||||
(in thousands, except per order amounts) | 2009 | 2008 | Change | |||||||||
Revenue
|
$ | 339,520 | $ | 377,077 | (10.0 | %) | ||||||
|
||||||||||||
Orders
|
15,110 | 15,947 | (5.2 | %) | ||||||||
Revenue per order
|
$ | 22.47 | $ | 23.65 | (5.0 | %) |
20
Quarter Ended March 31, | ||||||||||||
(in thousands) | 2009 | 2008 | Change | |||||||||
Gross profit
|
$ | 210,261 | $ | 234,139 | (10.2 | %) | ||||||
Gross margin
|
61.9 | % | 62.1 | % | (0.2 | )pt. |
Quarter Ended March 31, | ||||||||||||
(in thousands) | 2009 | 2008 | Change | |||||||||
SG&A expense
|
$ | 158,356 | $ | 179,152 | (11.6 | %) | ||||||
SG&A as a percentage of revenue
|
46.6 | % | 47.5 | % | (0.9 | )pt. |
Quarter Ended March 31, | ||||||||||||
(in thousands) | 2009 | 2008 | Change | |||||||||
Asset impairment charges
|
$ | 24,900 | $ | | $ | 24,900 |
Quarter Ended March 31, | ||||||||||||
(in thousands) | 2009 | 2008 | Change | |||||||||
Gain on early debt extinguishment
|
$ | 9,834 | $ | | $ | 9,834 |
21
Quarter Ended March 31, | ||||||||||||
(in thousands) | 2009 | 2008 | Change | |||||||||
Interest expense
|
$ | 12,420 | $ | 12,753 | (2.6 | %) | ||||||
Weighted-average debt outstanding
|
835,892 | 849,627 | (1.6 | %) | ||||||||
Weighted-average interest rate
|
5.26 | % | 5.53 | % | (0.27 | )pt. |
Quarter Ended March 31, | ||||||||||||
(in thousands) | 2009 | 2008 | Change | |||||||||
Income tax provision
|
$ | 12,449 | $ | 15,491 | (19.6 | %) | ||||||
Effective tax rate
|
49.9 | % | 35.8 | % | 14.1 | pt. |
22
Quarter Ended March 31, | ||||||||||||
(in thousands) | 2009 | 2008 | Change | |||||||||
Revenue
|
$ | 193,283 | $ | 211,714 | (8.7 | %) | ||||||
Operating (loss) income
|
(6,628 | ) | 21,860 | (130.3 | %) | |||||||
% of revenue
|
(3.4 | %) | 10.3 | % | (13.7 | )pt. |
Quarter Ended March 31, | ||||||||||||
(in thousands) | 2009 | 2008 | Change | |||||||||
Revenue
|
$ | 102,003 | $ | 113,930 | (10.5 | %) | ||||||
Operating income
|
19,561 | 18,970 | 3.1 | % | ||||||||
% of revenue
|
19.2 | % | 16.7 | % | 2.5 | pt. |
23
Quarter Ended March 31, | ||||||||||||
(in thousands) | 2009 | 2008 | Change | |||||||||
Revenue
|
$ | 44,234 | $ | 51,433 | (14.0 | %) | ||||||
Operating income
|
14,249 | 14,696 | (3.0 | %) | ||||||||
% of revenue
|
32.2 | % | 28.6 | % | 3.6 | pt. |
Quarter Ended March 31, | ||||||||||||
(in thousands) | 2009 | 2008 | Change | |||||||||
Continuing operations:
|
||||||||||||
Net cash provided by operating
activities
|
$ | 62,971 | $ | 30,112 | $ | 32,859 | ||||||
Net cash used by investing activities
|
(10,804 | ) | (5,886 | ) | (4,918 | ) | ||||||
Net cash used by financing activities
|
(49,878 | ) | (27,858 | ) | (22,020 | ) | ||||||
Effect of exchange rate change on cash
|
(359 | ) | (242 | ) | (117 | ) | ||||||
|
||||||||||||
Net cash provided (used) by
continuing operations
|
1,930 | (3,874 | ) | 5,804 | ||||||||
Net cash used by operating activities
of discontinued operations
|
(470 | ) | (131 | ) | (339 | ) | ||||||
Net cash used by investing activities
of discontinued operations
|
(6 | ) | | (6 | ) | |||||||
|
||||||||||||
Net change in cash and cash
equivalents
|
$ | 1,454 | $ | (4,005 | ) | $ | 5,459 | |||||
|
24
Quarter Ended March 31, | ||||||||||||
(in thousands) | 2009 | 2008 | Change | |||||||||
Contract acquisition payments
|
$ | 14,056 | $ | 2,846 | $ | 11,210 | ||||||
Employee profit sharing and
pension contributions
|
11,430 | 35,126 | (23,696 | ) | ||||||||
Voluntary employee
beneficiary association
(VEBA) trust contributions
to fund medical benefits
|
11,100 | 11,800 | (700 | ) | ||||||||
Severance payments
|
4,483 | 2,037 | 2,446 | |||||||||
Income tax payments
|
4,189 | 5,630 | (1,441 | ) | ||||||||
Interest payments
|
640 | 1,782 | (1,142 | ) |
Quarter Ended March 31, | ||||||||||||
(in thousands) | 2009 | 2008 | Change | |||||||||
Net proceeds from short-term debt
|
$ | | $ | 4,345 | $ | (4,345 | ) | |||||
Proceeds from issuing shares
under employee plans
|
1,016 | 1,636 | (620 | ) |
Quarter Ended March 31, | ||||||||||||
(in thousands) | 2009 | 2008 | Change | |||||||||
Payments on long-term debt
|
$ | 21,654 | $ | 422 | $ | 21,232 | ||||||
Cash dividends paid to shareholders
|
12,811 | 12,871 | (60 | ) | ||||||||
Purchases of capital assets
|
9,958 | 5,802 | 4,156 | |||||||||
Net payments on short-term debt
|
9,770 | | 9,770 | |||||||||
Payments for common shares repurchased
|
1,319 | 13,943 | (12,624 | ) |
25
March 31, | December 31, | |||||||||||
(in thousands) | 2009 | 2008 | Change | |||||||||
Amounts
drawn on line of credit
|
$ | 68,230 | $ | 78,000 | $ | (9,770 | ) | |||||
Current portion of long-term debt
|
972 | 1,440 | (468 | ) | ||||||||
Long-term debt
|
742,830 | 773,896 | (31,066 | ) | ||||||||
|
||||||||||||
Total debt
|
812,032 | 853,336 | (41,304 | ) | ||||||||
Shareholders equity
|
53,952 | 53,066 | 886 | |||||||||
|
||||||||||||
Total capital
|
$ | 865,984 | $ | 906,402 | $ | (40,418 | ) | |||||
|
March 31, 2009 | December 31, 2008 | |||||||||||||||||||
Weighted- | Weighted- | |||||||||||||||||||
average | average | |||||||||||||||||||
interest | interest | |||||||||||||||||||
(in thousands) | Amount | rate | Amount | rate | Change | |||||||||||||||
Fixed interest rate
|
$ | 742,830 | 5.7 | % | $ | 773,896 | 5.7 | % | $ | (31,066 | ) | |||||||||
Floating interest rate
|
68,230 | 0.9 | % | 78,000 | 0.9 | % | (9,770 | ) | ||||||||||||
Capital lease
|
972 | 10.4 | % | 1,440 | 10.4 | % | (468 | ) | ||||||||||||
|
||||||||||||||||||||
Total debt
|
$ | 812,032 | 5.3 | % | $ | 853,336 | 5.2 | % | $ | (41,304 | ) | |||||||||
|
26
Total | Expiration | Commitment | ||||||||||
(in thousands) | available | date | fee | |||||||||
Five year line of credit
|
$ | 275,000 | July 2010 | .175 | % | |||||||
Amounts
drawn on line of credit
|
(68,230 | ) | ||||||||||
Outstanding letters of credit
|
(10,125 | ) | ||||||||||
|
||||||||||||
Net available for borrowing as of
March 31, 2009
|
$ | 196,645 | ||||||||||
|
Quarter Ended March 31, | ||||||||
(in thousands) | 2009 | 2008 | ||||||
Balance, beginning of year
|
$ | 37,706 | $ | 55,516 | ||||
Additions
(1)
|
29,265 | 2,976 | ||||||
Amortization
|
(6,333 | ) | (6,243 | ) | ||||
|
||||||||
Balance, end of period
|
$ | 60,638 | $ | 52,249 | ||||
|
(1) | Contract acquisition costs are accrued upon contract execution. Cash payments made for contract acquisition costs were $14,056 for the quarter ended March 31, 2009 and $2,846 for the quarter ended March 31, 2008. |
27
28
Weighted- | ||||||||||||
average | ||||||||||||
Carrying | Fair | interest | ||||||||||
(in thousands) | amount | value (1) | rate | |||||||||
Long-term notes maturing December 2012
|
$ | 279,654 | $ | 202,832 | 5.00 | % | ||||||
Long-term notes maturing October 2014
|
263,176 | 167,059 | 5.13 | % | ||||||||
Long-term notes maturing June 2015
|
200,000 | 149,000 | 7.38 | % | ||||||||
Amounts
drawn on line of credit
|
68,230 | 68,230 | 0.93 | % | ||||||||
Capital lease obligation maturing in September 2009
|
972 | 972 | 10.41 | % | ||||||||
|
||||||||||||
Total debt
|
$ | 812,032 | $ | 588,093 | 5.29 | % | ||||||
|
(1) | Based on quoted market rates as of March 31, 2009, except for our capital lease obligation which is shown at carrying value. |
29
30
Maximum | ||||||||||||||||
number (or | ||||||||||||||||
approximate | ||||||||||||||||
Total number of | dollar value) of | |||||||||||||||
shares (or units) | shares (or units) | |||||||||||||||
purchased as part | that may yet be | |||||||||||||||
Total number of | Average price | of publicly | purchased under | |||||||||||||
shares (or units) | paid per share | announced plans | the plans or | |||||||||||||
Period | purchased | (or unit) | or programs | programs | ||||||||||||
January 1, 2009
January 31, 2009
|
100,000 | $ | 11.61 | 100,000 | 6,383,900 | |||||||||||
|
||||||||||||||||
February 1, 2009
February 29, 2009
|
20,000 | 7.89 | 20,000 | 6,363,900 | ||||||||||||
|
||||||||||||||||
March 1, 2009
March 31, 2009
|
| | | 6,363,900 | ||||||||||||
Total
|
120,000 | $ | 10.99 | 120,000 | 6,363,900 | |||||||||||
31
Exhibit | Method of | |||
Number | Description | Filing | ||
|
||||
1.1
|
Purchase Agreement, dated September 28, 2004, by and among us and J.P. Morgan Securities Inc. and Wachovia Capital Markets, LLC, as representatives of the several initial purchasers listed in Schedule 1 of the Purchase Agreement (incorporated by reference to Exhibit 1.1 to the Current Report on Form 8-K filed with the Commission on October 4, 2004) | * | ||
|
||||
2.1
|
Agreement and Plan of Merger, dated as of May 17, 2004, by and among us, Hudson Acquisition Corporation and New England Business Service, Inc. (incorporated by reference to Exhibit (d)(1) to the Deluxe Corporation Schedule TO-T filed with the Commission on May 25, 2004) | * | ||
|
||||
2.2
|
Agreement and Plan of Merger, dated as of June 18, 2008, by and among us, Deluxe Business Operations, Inc., Helix Merger Corp. and Hostopia.com Inc. (excluding schedules which we agree to furnish to the Commission upon request) (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K filed with the Commission on June 23, 2008) | * | ||
|
||||
3.1
|
Articles of Incorporation (incorporated by reference to the Annual Report on Form 10-K for the year ended December 31, 1990) | * | ||
|
||||
3.2
|
Bylaws (incorporated by reference to Exhibit 3.2 to the Current Report on Form 8-K filed with the Commission on October 23, 2008) | * | ||
|
||||
4.1
|
Amended and Restated Rights Agreement, dated as of December 20, 2006, by and between us and Wells Fargo Bank, 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 Current Report on Form 8-K filed with the Commission on December 21, 2006) | * | ||
|
||||
4.2
|
First Supplemental Indenture dated as of December 4, 2002, by and between us and Wells Fargo Bank Minnesota, N.A. (formerly Norwest Bank Minnesota, National Association), as trustee (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed with the Commission on December 5, 2002) | * | ||
|
||||
4.3
|
Indenture, dated as of April 30, 2003, by and between us and Wells Fargo Bank Minnesota, N.A. (formerly Norwest Bank Minnesota, National Association), as trustee (incorporated by reference to Exhibit 4.8 to the Registration Statement on Form S-3 (Registration No. 333-104858) filed with the Commission on April 30, 2003) | * | ||
|
||||
4.4
|
Form of Officers Certificate and Company Order authorizing the 2014 Notes, series B (incorporated by reference to Exhibit 4.9 to the Registration Statement on Form S-4 (Registration No. 333-120381) filed with the Commission on November 12, 2004) | * |
32
Exhibit | Method of | |||
Number | Description | Filing | ||
|
||||
4.5
|
Specimen of 5 1/8% notes due 2014, series B (incorporated by reference to Exhibit 4.10 to the Registration Statement on Form S-4 (Registration No. 333-120381) filed with the Commission on November 12, 2004) | * | ||
|
||||
4.6
|
Indenture, dated as of May 14, 2007, by and between us and The Bank of New York Trust Company, N.A., as trustee (including form of 7.375% Senior Notes due 2015) (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed with the Commission on May 15, 2007) | * | ||
|
||||
4.7
|
Registration Rights Agreement, dated May 14, 2007, by and between us and J.P. Morgan Securities Inc., as representative of the several initial purchasers listed in Schedule I to the Purchase Agreement related to the 7.375% Senior Notes due 2015 (incorporated by reference to Exhibit 4.2 to the Current Report on Form 8-K filed with the Commission on May 15, 2007) | * | ||
|
||||
4.8
|
Specimen of 7.375% Senior Notes due 2015 (included in Exhibit 4.6) | * | ||
|
||||
10.1
|
Form of Cash Performance Award Agreement (ver. 2/09) | Filed herewith | ||
|
||||
10.2
|
Form of Non-qualified Stock Option Agreement (ver. 2/09) | Filed herewith | ||
|
||||
12.1
|
Statement re: Computation of Ratios | Filed herewith | ||
|
||||
31.1
|
CEO Certification of Periodic Report pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | Filed herewith | ||
|
||||
31.2
|
CFO Certification of Periodic Report pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | Filed herewith | ||
|
||||
32.1
|
CEO and CFO Certification of Periodic Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
Furnished
herewith |
* | Incorporated by reference |
33
34
DELUXE CORPORATION
(Registrant)
Date: April 30, 2009
/s/ Lee Schram
Lee Schram
Chief Executive Officer
(Principal Executive Officer)
Date: April 30, 2009
/s/ Richard S. Greene
Richard S. Greene
Chief Financial Officer
(Principal Financial Officer)
Date: April 30, 2009
/s/ Terry D. Peterson
Terry D. Peterson
Vice President, Investor Relations
and Chief
Accounting Officer
(Principal Accounting Officer)
Table of Contents
35
Exhibit No.
Description
Form of Cash Performance Award Agreement (ver. 2/09)
Form of Non-qualified Stock Option Agreement (ver. 2/09)
Statement re: Computation of Ratios
CEO Certification of Periodic Report pursuant to Section 302
of the Sarbanes-Oxley Act of 2002
CFO Certification of Periodic Report pursuant to Section 302
of the Sarbanes-Oxley Act of 2002
CEO and CFO Certification of Periodic Report pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
DELUXE
CORPORATION |
CASH PERFORMANCE
AWARD AGREEMENT |
AWARDED TO | AWARD DATE | TARGET PERFORMANCE PAYMENT | ||||||
|
||||||||
1. | The Award. Deluxe Corporation, a Minnesota corporation (Deluxe) hereby grants to you as of the above Award Date the right to receive a payment or payments in cash (the Performance Payments) under the terms and conditions contained in this Cash Performance Award Agreement (this Agreement) and in the 2008 Stock Incentive Plan (the Plan). You will be assigned an award percentage that will be used in calculating any Performance Payments made to you. | |
2. | Performance Period. The performance period for purposes of determining whether the Performance Payments will be made shall be the two-year period commencing on January 1 of the year in which this Award was granted (the Performance Period). | |
3. | Performance Goals. The performance goals for purposes of determining whether the Performance Payments will be paid are set forth in the attached Performance Goals Schedule. | |
4. | Payment . The Performance Payments shall be made if and to the extent that performance goals are achieved, as set forth in the attached Performance Goals Schedule and as determined and certified by the Compensation Committee of the Board of Directors (the Committee) in accordance with the Plan after the end of the Performance Period. In the event the Committee determines that the Target performance goal has been achieved, fifty percent of the applicable Performance Payment will be paid to you on or before March 15 of the year following completion of the Performance Period and the remaining fifty percent will be paid to you on or before March 15 of the second year following completion of the Performance Period. In the event that the Committee determines that the Target performance goal was not achieved, but that the Threshold performance goal was achieved, you will receive the applicable Performance Payment in a lump sum on or before March 15 of the second year following completion of the Performance Period. In the event that the Committee determines that the Threshold performance goal was not achieved, you will receive a payment equal to the minimum retention payment (Retention Payment), if any, specified on the Performance Goals Schedule on or before March 15 of the second year following completion of the Performance Period. Performance Payments (but not Retention Payments) may be adjusted by the Committee to the extent permitted by the Plan. | |
5. | Restrictions on Transfer . Neither the Performance Payments nor the Retention Payment, nor any rights therein, may be assigned, transferred or pledged, other than by will or the laws of descent and distribution, and any such attempted transfer shall be void. | |
6. | Forfeiture . Except as described in this Section, in the event your employment is terminated prior to January 1 of the second year following the end of the Performance Period, the Performance and Retention Payments, and your rights to receive them, shall be immediately and irrevocably forfeited, unless your termination occurs on or after the one-year anniversary of commencement of the Performance Period and is by reason of (a) involuntary termination without Cause, (b) resignation for Good Reason, (c) death, (d) Disability, or (e) Qualified Retirement (as those capitalized terms are defined in the Addendum to this Agreement). | |
In the event your employment is terminated on or after the one-year anniversary of commencement of the Performance Period and prior to the end of the Performance Period for any of the reasons (a) through (e) in the first paragraph of this Section, you or your estate shall be entitled to receive a pro-rata payment (based on the days elapsed in the Performance Period prior to the employment termination date) of either (x) the Retention Payment, or (y) if greater, the Performance Payment determined by the Committee upon completion of the Performance Period to be paid, in its sole discretion, to holders of similar Award Agreements, based on the attached Performance Goals Schedule. In the event your employment is terminated for any of the reasons (a) through (e) in the first paragraph of this Section after completion of the Performance Period but prior to a payment date, you or your estate shall be entitled to receive either the Retention Payment or, if greater, the Performance Payment determined by the Committee upon completion of the Performance Period to be paid, in its sole discretion, to holders of similar Award Agreements, based on the attached Performance Goals Schedule. Such payments shall be made at the same time that payments are made to active employees. | ||
If, in connection with or following a Change of Control (as defined in the Addendum to this Agreement), your employment is terminated for any of the reasons (a) through (e) in the first paragraph of this Section on or after the one-year anniversary of commencement of the Performance Period and prior to the end of the Performance Period, you or your estate shall be entitled to receive, on or before forty-five days after your employment termination, a pro-rata payment based on an assumption that the performance goals have been achieved at Target level, as set forth in the attached Performance Goals Schedule. If, in connection with or following a Change of Control, your employment is terminated for any of the reasons (a) through (e) in the first paragraph of this Section after the end of the Performance Period, you or your estate shall be entitled to receive, on or before forty-five days after your employment termination, the greater of the |
Retention Payment or the applicable Performance Payment based on the attached Performance Schedule. Notwithstanding the foregoing, in the event you are a key employee under Internal Revenue Code Section 409A and your employment termination following a Change of Control constitutes a Qualified Retirement after the end of the Performance Period, no Payment to you after such termination shall be made prior to six months after your date of termination. | ||
7. | Income Taxes. You are liable for any federal and state income or other taxes applicable upon the receipt of the Performance Payments, and you acknowledge that you should consult with your own tax advisor regarding the applicable tax consequences. Upon issuance of the Payments by Deluxe, you shall promptly pay to Deluxe in cash, unless otherwise withheld by Deluxe under applicable law, all applicable taxes required by Deluxe to be withheld or collected upon such payment. | |
8. | Terms and Conditions . This Agreement does not guarantee your continued employment or alter the right of Deluxe or its affiliates to terminate your employment at any time. This Award is granted pursuant to the Plan and is subject to its terms. In the event of any conflict between the provisions of this Agreement and the Plan, the provisions of the Plan shall govern. |
DELUXE CORPORATION
|
||||
BY: |
(I) | The date on which any one person, or more than one person acting as a group, acquires ownership of stock of Deluxe that, together with stock held by such person or group, constitutes more than 50% of the total fair market value or total voting power of the stock of Deluxe. If any one person, or more than one person acting as a group, is already considered to own more than 50% of the total fair market value or total voting power of the stock of the Deluxe, the acquisition of additional stock by the same person or persons is not considered to cause a Change in Control under this paragraph or paragraph (II). An increase in the percentage of stock owned by any one person, or persons acting as a group, as a result of a transaction in which Deluxe acquires its stock in exchange for property will be treated as an acquisition of stock for purposes of this paragraph. This paragraph applies only when there is a transfer or issuance of stock of Deluxe and stock in Deluxe remains outstanding after the transaction. | ||
(II) | The date any one person, or more than one person acting as a group, acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such person or persons) ownership of stock of Deluxe possessing 30% or more of the total voting power of the stock of such corporation. If any one person, or more than one person acting as a group, is already considered to own more than 30% of the total voting power of the stock of the Deluxe, the acquisition of additional stock by the same person or persons is not considered to cause a Change in Control under this paragraph. | ||
(III) | The date a majority of members of Deluxes board of directors is replaced during any 12-month period by directors whose appointment or election is not endorsed by a majority of the members of the board of directors before the date of the appointment or election. | ||
(IV) | The date that any one person, or more than one person acting as a group, acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such person or persons) assets from Deluxe that have a total gross fair market value equal to or more than 40% of the total gross fair market value of all of the assets of Deluxe immediately before such acquisition or acquisitions; provided that a Change in Control shall not result from a transfer of assets by Deluxe to (a) a shareholder of Deluxe (immediately prior to the transfer) in exchange for or with respect to Deluxes stock, (b) an entity, 50% or more of the total value or voting power of which is owned, directly or indirectly, by Deluxe immediately following the transfer, (c) a person, or more than one person acting as a group, that owns, directly or indirectly, 50% or more of the total value or voting power of all the outstanding stock of Deluxe immediately following the transfer, or (d) an entity, at least 50% of the total value or voting power of which is owned, directly or indirectly, by a person or group of persons described in clause (c) For this purpose, gross fair market value means the value of the assets of Deluxe, or the value of the assets being disposed of, determined without regard to any liabilities associated with such assets. |
DELUXE
CORPORATION |
NON-QUALIFIED STOCK OPTION AGREEMENT |
GRANT | # OF DELUXE CORP | OPTION PRICE | |||||||||
GRANTED TO | DATE | COMMON SHARES | PER SHARE | ||||||||
|
EXPIRATION DATE |
||||||||||
1. | GRANT | |
Deluxe Corporation (Deluxe) hereby grants to you the right to purchase the above stated number of shares of its common stock, par value $1.00 per share, at the price stated above (the Option). | ||
2. | DURATION AND EXERCISABILITY | |
You may not exercise any portion of this Option prior to one year from the date of grant set forth above (the Grant Date), and the Option expires seven years after the Grant Date (the Expiration Date). Commencing one year after the Grant Date you may exercise this Option in cumulative installments of 33-1/3 percent on and after the first, second, and third anniversaries of the Grant Date. This entire Option will vest earlier and become exercisable upon your Qualified Retirement, Disability, death, or termination without Cause. Qualified Retirement, Disability, and Cause are defined in the Addendum to this Agreement. | ||
3. | RETIREMENT, DISABILITY, DEATH OR TERMINATION | |
Upon your Qualified Retirement from Deluxe or an Affiliate (collectively, the Company), you will have three years from the date of your retirement to exercise this Option. If you die while employed, the representative of your estate or your heirs will have one year from the date of your death to exercise this Option. If your employment terminates due to Disability, you will have one year from the date of your termination to exercise this Option. If your employment is terminated by the Company without Cause, you will have three months from the date of your termination to exercise this Option. If you resign or otherwise voluntarily terminate your employment with the Company, you will have three months from the date of your termination to exercise this Option, to the extent the Option had vested as of your termination date. In no case, however, may this Option be exercised after the Expiration Date. If your employment with the Company is terminated for Cause, the entire unexercised portion of this Option will be canceled as of your last date of employment. | ||
4. | ACCELERATION OF EXERCISABILITY UPON CHANGE OF CONTROL |
(a) | Notwithstanding any installment or delayed exercise provision contained in this Agreement that would result in this Option becoming exercisable in full or in part at a later date, if, in connection with any Change of Control (as defined in the Addendum), the acquiring Person, surviving or acquiring corporation or entity, or an affiliate of such corporation or entity, elects to continue this Option in effect and to replace the shares of common stock issuable upon exercise of this Option with other equity securities that are registered under the Securities Act of 1933 and are freely transferable under all applicable federal and state securities laws and regulations, this Option shall become exercisable in full if, within twelve months of the date of the Change of Control, |
(i) | Your employment with the Company (or any successor company or affiliated entity with which you are then employed) is terminated by the Company or such other employer without Cause, | ||
(ii) | Your employment with the Company (or any successor company or affiliated entity with which you are then employed) is terminated by you for Good Reason (as defined in the Addendum), or | ||
(iii) | Any earlier date provided under this Agreement. |
In the event of any such Change of Control, the number of replacement equity securities issuable upon exercise of this Option shall be determined by multiplying the exchange ratio used in connection with the Change of Control for determining the number of replacement equity securities issuable for the outstanding shares of Deluxes common stock, or if there is no such ratio, an exchange ratio established or accepted by the Continuing Directors (as defined in the Addendum), and the exercise price per share of replacement equity security shall be adjusted by such exchange ratio so as to preserve the same economic value in this Option as existed prior to the Change of Control. In the event of any such Change of Control, all references herein to the common stock shall thereafter be deemed to refer to the replacement equity securities issuable upon exercise of this Option, references to Deluxe shall thereafter be deemed to refer to the issuer of such replacement equity securities, and all other terms of this Option shall continue in effect except as and to the extent modified by this subparagraph. | |||
(b) | If the Change of Control does not meet the continuation or replacement criteria specified in subparagraph (a) above, this Option shall become exercisable in full immediately upon the Change of Control. |
NQSO 2009 | Ver. 2/09 |
5. | FORFEITURE OF OPTION AND OPTION GAIN RESULTING FROM CERTAIN ACTIVITIES |
(a) | If, at any time within 12 months after the date that you have exercised any portion of this Option, you engage in any Forfeiture Activity (as defined below) then (i) the Option shall immediately terminate effective as of the date any such activity first occurred, and (ii) any gain received by you pursuant to the exercise of the Option must be paid to Deluxe within 30 days of demand by Deluxe. For purposes hereof, the gain on any exercise of the Option shall be determined by multiplying the number of shares purchased pursuant to the Option times the excess of the closing price on the New York Stock Exchange of a share of Deluxes common stock on the date of exercise (without regard to any subsequent increase or decrease in the fair market value of such shares) over the exercise price. | ||
(b) | As used herein, you shall be deemed to have engaged in a Forfeiture Activity if you (i) directly or indirectly, engage in any business activity on your own behalf or as a partner, stockholder, director, trustee, principal, agent, employee, consultant or otherwise of any person or entity which is in any respect in competition with or competitive with the Company or you solicit, entice or induce any employee or representative of the Company to engage in any such activity, (ii) directly or indirectly solicit, entice or induce (or assist any other person or entity in soliciting, enticing or inducing) any customer or potential customer (or agent, employee or consultant of any customer or potential customer) with whom you had contact in the course of your employment with the Company to deal with a competitor of the Company, (iii) fail to hold in a fiduciary capacity for the benefit of the Company all confidential information, knowledge and data, including customer lists and information, business plans and business strategy (Confidential Data) relating in any way to the business of the Company for so long as such Confidential Data remains confidential, or (iv) are terminated by the Company for Cause. | ||
(c) | If any court of competent jurisdiction shall determine that the foregoing forfeiture provisions are invalid in any respect, the court so holding may limit such provisions in any manner which the court determines such that the provisions shall be enforceable against you. | ||
(d) | By accepting this Agreement, you consent to a deduction from any amounts Company owes you from time to time (including amounts owed to you as wages or other compensation, fringe benefits, or vacation pay, as well as any other amounts owed to you by Company), to the extent of the amounts you owe Company under the foregoing provisions. Whether or not Company elects to make any set-off in whole or in part, if Company does not recover by means of set-off the full amount you owe, calculated as set forth above, you agree to pay immediately the unpaid balance to Company. | ||
(e) | You will be released from the forfeiture provisions of subparagraph (b)(i) in the event your employment with the Company has been involuntarily terminated without Cause due to a job elimination or other reduction in force. Otherwise, you may be released from the foregoing forfeiture provisions only if the Compensation Committee of the Deluxe Board (or its duly appointed agent) determines in its sole discretion that such action is in the best interests of Company. |
6. | TERMS AND CONDITIONS | |
This Option Agreement does not guarantee your continued employment or, subject to the provisions of any other written agreement between you and Deluxe or its Affiliates, alter the right of Deluxe or its Affiliates to terminate your employment at any time. You have no rights in the shares subject to this Option until such shares are received upon exercise of this Option. This Option is issued pursuant to the Deluxe Corporation 2008 Stock Incentive Plan (the Plan), and is subject to its terms. In the event of any conflict between the provisions of the Plan and this Option Agreement (which includes the Addendum to this Agreement), the provisions of the Plan shall prevail. |
DELUXE CORPORATION
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By | ||||
(I) | The date on which any one person, or more than one person acting as a group, acquires ownership of stock of Deluxe that, together with stock held by such person or group, constitutes more than 50% of the total fair market value or total voting power of the stock of Deluxe. If any one person, or more than one person acting as a group, is already considered to own more than 50% of the total fair market value or total voting power of the stock of the Deluxe, the acquisition of additional stock by the same person or persons is not considered to cause a Change in Control under this paragraph or paragraph (II). An increase in the percentage of stock owned by any one person, or persons acting as a group, as a result of a transaction in which Deluxe acquires its stock in exchange for property will be treated as an acquisition of stock for purposes of this paragraph. This paragraph applies only when there is a transfer or issuance of stock of Deluxe and stock in Deluxe remains outstanding after the transaction. | ||
(II) | The date any one person, or more than one person acting as a group, acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such person or persons) ownership of stock of Deluxe possessing 30% or more of the total voting power of the stock of such corporation. If any one person, or more than one person acting as a group, is already considered to own more than 30% of the total voting power of the stock of the Deluxe, the acquisition of additional stock by the same person or persons is not considered to cause a Change in Control under this paragraph. | ||
(III) | The date a majority of members of Deluxes board of directors is replaced during any 12-month period by directors whose appointment or election is not endorsed by a majority of the members of the board of directors before the date of the appointment or election. | ||
(IV) | The date that any one person, or more than one person acting as a group, acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such person or persons) assets from Deluxe that have a total gross fair market value equal to or more than 40% of the total gross fair market value of all of the assets of Deluxe immediately before such acquisition or acquisitions; provided that a Change in Control shall not result from a transfer of assets by Deluxe to (a) a shareholder of Deluxe (immediately prior to the transfer) in exchange for or with respect to Deluxes stock, (b) an entity, 50% or more of the total value or voting power of which is owned, directly or indirectly, by Deluxe immediately following the transfer, (c) a person, or more than one person acting as a group, that owns, directly or indirectly, 50% or more of the total value or voting power of all the outstanding stock of Deluxe immediately following the transfer, or (d) an entity, at least 50% of the total value or |
voting power of which is owned, directly or indirectly, by a person or group of persons described in clause (c) For this purpose, gross fair market value means the value of the assets of Deluxe, or the value of the assets being disposed of, determined without regard to any liabilities associated with such assets. |
Quarter Ended
March 31, |
Year Ended December 31, | |||||||||||||||||||||||||||
2009 | 2008 | 2007 | 2006 | 2005 | 2004 | 2003 | ||||||||||||||||||||||
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Earnings:
|
||||||||||||||||||||||||||||
Income from continuing operations before
income taxes
|
$ | 24,953 | $ | 160,176 | $ | 220,015 | $ | 142,788 | $ | 250,223 | $ | 316,453 | $ | 299,380 | ||||||||||||||
Interest expense (excluding capitalized interest)
(1)
|
12,420 | 50,421 | 55,294 | 56,661 | 56,604 | 32,851 | 19,241 | |||||||||||||||||||||
Portion of rent expense under long-term operating
leases representative of an interest factor
|
720 | 3,147 | 2,900 | 3,526 | 4,642 | 4,875 | 2,478 | |||||||||||||||||||||
|
||||||||||||||||||||||||||||
Total earnings
|
$ | 38,093 | $ | 213,744 | $ | 278,209 | $ | 202,975 | $ | 311,469 | $ | 354,179 | $ | 321,099 | ||||||||||||||
|
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Fixed charges:
|
||||||||||||||||||||||||||||
Interest expense (including capitalized interest)
(1)
|
$ | 12,420 | $ | 50,421 | $ | 55,294 | $ | 57,051 | $ | 57,399 | $ | 33,299 | $ | 19,241 | ||||||||||||||
Portion of rent expense under long-term operating
leases representative of an interest factor
|
720 | 3,147 | 2,900 | 3,526 | 4,642 | 4,875 | 2,478 | |||||||||||||||||||||
|
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Total fixed charges
|
$ | 13,140 | $ | 53,568 | $ | 58,194 | $ | 60,577 | $ | 62,041 | $ | 38,174 | $ | 21,719 | ||||||||||||||
|
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Ratio of earnings to fixed charges
|
2.9 | 4.0 | 4.8 | 3.4 | 5.0 | 9.3 | 14.8 |
(1) | Does not include interest expense related to uncertain positions recorded under Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes, which we adopted on January 1, 2007. |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | ||
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | ||
(c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | ||
(d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and | ||
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: April 30, 2009 | /s/ Lee Schram | |||
Lee Schram | ||||
Chief Executive Officer |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | ||
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | ||
(c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | ||
(d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and | ||
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: April 30, 2009 | /s/ Richard S. Greene | |||
Richard S. Greene | ||||
Chief Financial Officer |
(1) | the Quarterly Report on Form 10-Q of the Company for the quarter ended March 31, 2009 (the Report) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and |
(2) | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: April 30, 2009 | /s/ Lee Schram | |||
Lee Schram | ||||
Chief Executive Officer | ||||
/s/ Richard S. Greene | ||||
Richard S. Greene | ||||
Chief Financial Officer | ||||