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Deluxe Reports Q4 and Full-Year Results: Exceed Guidance

Friday, January 28, 2005

Press release from the issuing company

ST. PAUL, Minn., Jan. 27 -- Deluxe Corporation, the nation's leading check printing company, reported fourth quarter diluted earnings per share (EPS) of $0.92 on net income of $46.8 million. Diluted earnings per share and net income for the fourth quarter in 2003 were $0.77 and $39.4 million, respectively. "We finished a very good year and exceeded the high end of our EPS guidance in the fourth quarter as a result of strong operating performance, including the NEBS acquisition, and a favorable tax rate that contributed $0.06 per share," said Lawrence J. Mosner, chairman and CEO of Deluxe Corporation. "The NEBS integration is going exceptionally well," Mosner continued. "We are pursuing the right strategy to position the Company for growth. In addition, given that we expect the cash generated from the business to remain strong, the board has increased the quarterly dividend $0.03, to $0.40 per share." Deluxe last raised its dividend in 1994. Fourth Quarter Performance Deluxe's fourth quarter net income was $46.8 million, compared to $39.4 million during the same quarter in 2003. EPS was $0.92 per diluted share compared to $0.77 for the same period a year ago. EPS was negatively affected $0.04 due to stock-based compensation expense and $0.04 due to New England Business Service, Inc. (NEBS) integration related expenses. Revenue was $476.9 million in the fourth quarter, compared to $300.5 million during the same quarter a year ago. Fourth quarter 2004 revenue included $191.7 million from the acquired NEBS business. The $15.3 million decrease in revenue for the Company's other businesses was due to a 9.4 percent decline in unit volume, partially offset by a 4.8 percent increase in revenue per unit. Gross margin was 65.5 percent of revenue for the quarter, flat compared to 65.6 percent in 2003. The addition of NEBS' lower margin business was offset by the increase in revenue per unit, continued productivity improvements and cost management efforts. Selling, general, and administrative expense (SG&A) increased $103.6 million to 47.7 percent as a percentage of revenue, compared to 41.2 percent in the fourth quarter of 2003. The addition of NEBS' SG&A expenses, the impact of performance-based and stock-based compensation expense, and integration costs were partially offset by the Company's cost management actions during the past year, along with reduced discretionary spending. As a result, operating income was $85.0 million in the fourth quarter compared to $68.7 million last year. NEBS contributed $18.4 million of operating income after including $9.3 million of acquisition-related amortization expense and $2.7 million of integration costs. Operating margin was 17.8 percent of revenue, compared to 22.9 percent in the prior year, a reflection of NEBS' lower margin business. Full-Year Performance Deluxe's net income for the year was $198.0 million, compared to $192.5 million during the same period in 2003. EPS was $3.92 per diluted share compared to $3.49 a year ago. EPS was positively affected $0.34 due to the net impact of shares outstanding compared to 2003 and $0.10 due to a contract buy-out in the third quarter. EPS was negatively affected $0.14 due to stock- based compensation expense and $0.11 due to acquisition and integration expenses. Revenue was $1,567.0 million for the year, compared to $1,242.1 million for 2003. Total year revenue includes $363.2 million from the acquired NEBS business. The decrease in revenue for the other businesses was due to a 6.1 percent decline in unit volume, partially offset by a 2.6 percent increase in revenue per unit. Gross margin was 65.8 percent of revenue for the year, flat compared to 65.7 percent in 2003. The addition of NEBS' lower margin business was offset by higher revenue per unit, continued productivity improvements, and cost management efforts. SG&A as a percentage of revenue was 43.6 percent compared to 39.6 percent in 2003 and SG&A dollars increased $190.7 million from last year. The addition of NEBS' SG&A expenses, the impact of performance-based and stock- based compensation, and acquisition and integration costs, were partially offset by the Company's cost management actions during the past year, along with reduced discretionary spending. As a result, operating income was $347.9 million, compared to $318.9 million last year. NEBS contributed $22.7 million of 2004 operating income after including $19.1 million of additional acquisition-related amortization expense and $7.1 million of integration costs. Operating margin was 22.2 percent of revenue, compared to 25.7 percent last year, a reflection of NEBS' lower margin business. Interest expense increased to $32.9 million for the year, compared to $19.2 million in 2003 due primarily to higher debt levels related to financing the NEBS acquisition. Business Outlook The Company expects 2005 first quarter diluted EPS to be in the range of $0.75 to $0.79 per share, and approximately $3.30 per share for the full-year. Cash from operating activities is expected to be in excess of $265 million for 2005. "Small Business Services has outperformed our expectations after just six months into the integration," said Mosner. "We're delivering on the anticipated integration cost synergies, and we're still benefiting from our ongoing cost management efforts. In addition, we are updating our 2005 outlook for Financial Services. We now expect operating margins in this segment to be down approximately four percentage points, which is at the low end of the range we provided last quarter." Mosner added, "During the next 12 months, we will continue to focus on the integration process and implementing our plan for Small Business Services. Looking farther out to 2006 and 2007, we anticipate growth in this segment as a result of a larger customer base, expanded products and services, and additional synergy cost efficiencies. Growth in Small Business Services will drive consolidated revenue, operating profit and cash flows higher than 2005."

 

 

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