Deluxe Corporation (SPREADSHEET)

Model FactsThis spreadsheet supports STUDENT analysis of the case, "Deluxe Corporation" (Case 35).Please note:This is a working model. Assumptions / Inputs presented can be changed to vary the results. Please press F9 to recalculate results after changing assumptions.This model contains an intentional circularity. To resolve this circularity, please set Excel to recalculate the model a number of times (20 to 50). See TOOLS/OPTIONS/CALCULATION, and check ITERATION.Copyright 2005, by the University of Virginia Darden School Foundation.

Exh. 1Exhibit 1Ten Year Financial SummaryExhibit 1Deluxe Corp. Ten-Year Financial Summary(in U.S.$ millions except per share values and numbers of shares)at fiscal years ended December 311992199319941995199619971998199920002001Selected Income Statement InformationNet sales$1,534.4$1,581.8$1,747.9$1,858.0$1,895.7$1,919.4$1,931.8$1,650.5$1,262.7$1,278.4Operating expenses$722.2$739.5$797.3$819.4$862.4$806.7$805.9$688.9$417.9$421.1Profit from operations$812.2$842.3$950.6$1,038.6$1,033.3$1,112.7$1,125.9$961.6$844.8$857.2Interest expense$15.4$10.3$11.3$14.7$12.0$9.7$9.7$9.5$10.8$5.6Net earnings$202.8$141.9$140.9$87.0$65.5$44.7$143.1$203.0$161.9$185.9Common shares, end of year (000s)83,79782,54982,37582,36482,05681,32680,48172,02072,55564,102Common shares repurchased (000s)(2,197)(1,341)(1,191)(1,414)(1,715)(1,833)(9,573)(48)(11,332)(3,898)Common shares issued (000s)9491,1671,1811,1069859881,1125832,8901,255Earnings per share1$2.42$2.09$1.71$1.15$1.65$2.15$2.34$2.64$2.34$2.70Dividend per share$1.34$1.42$1.46$1.48$1.48$1.48$1.48$1.48$1.48$1.48Selected Balance Sheet InformationWorking capital$330.9$386.9$224.5$130.4$12.3$108.1$131.0$167.8$14.0$116.6Net property, plant, & equipment$389.0$401.6$461.8$494.2$446.9$415.0$340.1$294.8$174.0$149.6Total assets$1,199.6$1,252.0$1,256.3$1,295.1$1,176.4$1,148.4$1,171.5$992.6$649.5$537.7Long-term debt$115.5$110.8$110.9$111.0$108.9$110.0$106.3$115.5$10.2$10.1Common stockholders' equity$829.8$801.2$814.4$780.4$712.9$610.2$606.6$417.3$262.8$78.6Book value: LT debt/capital12.2%12.1%12.0%12.5%13.3%15.3%14.9%21.7%3.7%11.4%Market value: LT debt/capital2.9%3.6%4.9%4.4%3.9%3.8%3.5%5.5%0.6%0.4%Selected Valuation Information (year-end)Deluxe Corp. stock price$ 46.75$ 36.25$ 26.38$ 29.00$ 32.75$ 34.50$ 36.56$ 27.44$ 25.27$ 41.58S&P 500 Composite Index418.17464.30462.62576.70700.92941.641,072.321,281.911,364.441,104.61Deluxe Corp. average P/E217.60x19.00x17.40x25.90x20.60x15.40x14.30x12.70x10.20x11.01xS&P 500 Composite average P/E224.38x24.11x18.36x16.92x20.26x23.88x27.45x31.43x26.29x29.50xDeluxe Corp. market/book ratio4.72x3.73x2.67x3.06x3.77x4.60x4.85x4.74x6.98x33.91xDeluxe Corp. Beta1.001.001.000.950.900.950.850.900.900.85Yield on 20 year T-bonds7.67%6.48%8.02%6.01%6.73%6.02%5.39%6.83%5.59%5.74%Yield on 90-day T-bills3.08%3.01%5.53%4.96%5.07%5.22%4.37%5.17%5.73%1.71%Total annual ret. on large co. stocks7.67%9.99%1.31%37.43%23.07%33.36%28.58%21.04%-9.11%-11.88%Notes:1. Primary earnings through 1997; then diluted.2. P/E ratios are computed on earnings before restructuring charges, litigation award, and other extraordinary items.Sources of data: S&P's Research Insight; Value Line Investment Survey; Datastream Advance; Ibbotson Associates, Stocks, Bonds Bills & Inflation Yearbook 2002.

Exh. 2Exhibit 2Deluxe Corp.Consolidated Statement of Income(in U.S. $ millions)Years ended December 3120012000Revenue$1,278.4$1,262.7Cost of goods sold453.8453.0Selling, general, and admin. expense514.4518.2Goodwill amortization expense6.25.2Asset impairment and disposition losses2.17.3Total costs976.4983.8Profit/(loss) from operations302.0278.9Interest income2.44.8Other income(1.2)1.2Interest expense(5.6)(11.4)Earnings/(loss) before taxes297.6273.4Tax expense111.6104.0Discontinued operations income/(loss)-0(7.5)Net earnings/(loss)$185.9$161.9Source of data: Company regulatory filings.

Exh. 3Exhibit 3Deluxe Corp.Consolidated Balance Sheets(in U.S. $ millions)20012000AssetsCurrent assetsCash and cash equivalents$9.6$80.7Marketable securities-018.5Trade accounts receivable net37.746.0Inventories11.211.3Supplies11.111.8Deferred income taxes4.67.4Prepaid expenses and other9.912.0Total current assets84.0187.8Long-term investments37.735.6Property, plant, and equipment net 151.1174.0Intangibles net115.0134.5Goodwillnet82.288.4Other noncurrent assets67.936.2Total assets$537.8$656.4Liabilities and Stockholders' EquityCurrent liabilitiesAccounts payable$52.8$44.7Accrued liabilities162.9148.5Short-term debt150.0-0Long-term debt due within one year1.4100.7Total current liabilities367.1293.9Long-term debt10.110.2Deferred income taxes44.951.1Other long-term liabilities37.038.3Total liabilities459.1393.5Common stockholders' equityCommon shares64.172.6Additional paid-in capital-044.2Retained earnings14.6146.2Unearned compensation0.10.1Accum. other comprehensive income-0(0.2)Total common stockholders' equity78.7262.9Total liabilities and stockholders' equity$537.8$656.4Source of data: Company regulatory filings.

Exh. 4Exhibit 4Deluxe Corp. Financial Forecast, 2002-2006(values in U.S. $ millions)ActualProjected200120022003200420052006Annual increase in sales1.2%1.4%1.6%2.0%2.2%2.4%Operating profit/sales23.6%26.6%26.7%26.7%26.7%26.7%Tax rate37.0%38.0%Working capital/sales9.1%9.1%Dividend payout ratio52.0%Income StatementNet sales$1,278.4$1,296.3$1,317.0$1,343.4$1,372.9$1,405.9Operating profit302.0344.8351.6358.7366.6375.4Interest expense, net3.24.04.04.04.04.0Pretax income298.8340.8347.6354.7362.6371.4Tax expense111.6129.5132.1134.8137.8141.1Net income187.1211.3215.5219.9224.8230.3Dividends94.994.994.994.994.994.9Retentions to earnings$92.2$116.4$120.7$125.0$129.9$135.4Balance SheetCash$9.6$124.3$243.1$365.8$493.0$625.4Working capital (without debt)116.6118.2120.1122.5125.2128.2Net fixed assets151.1151.1151.1151.1151.1151.1Total assets277.2393.6514.3639.3769.3904.6Debt (long- and short-term)161.5161.5161.5161.5161.5161.5Other long-term liabilities37.037.037.037.037.037.0Equity78.7195.2315.8440.9570.8706.2Total capital$277.2$393.6$514.3$639.3$769.3$904.6Free Cash FlowsEBIT$344.8$351.6$358.7$366.6$375.4Less taxes on EBIT(131.0)(133.6)(136.3)(139.3)(142.6)Plus depreciation50.050.050.050.050.0Less capital expenditures(50.0)(50.0)(50.0)(50.0)(50.0)Less additions to/plus reductions in workng capital(1.6)(1.9)(2.4)(2.7)(3.0)Free cash flow$212.2$216.1$220.0$224.6$229.7Source: Case writers' analysis, consistent with forecast expectations of securities analysts.

Exh. 6Exhibit 6Key Industrial Financial Ratios by Rating CategoriesCredit RatingInvestment gradeNoninvestment gradeKey Industrial Financial Ratios (Three-year medians 200002)AAAAA A BBB BB B EBIT interest coverage (x)23.413.36.33.92.21.0EBITDA interest coverage (x)25.316.98.55.43.21.7Funds from operations/total debt (%)214.265.742.230.619.710.4Free operating cash flow/total debt (%)156.633.622.312.87.31.5Return on capital (%)35.026.618.113.111.58.0Operating income/sales (%)23.424.018.115.515.414.7Long-term debt/capital (%)(1.1)21.133.840.353.672.6Total debt/capital, incl. short-term debt (%)5.035.942.647.057.775.1Standard & Poor's defined these ratios based on the book value of these items as follows:EBIT interest coverage = EBIT/interest expense.EBITDA interest coverage = (EBIT plus depreciation and amortization)/interest expenseLong-term debt/capital = long-term debt/(long-term debt + stockholders' equity)Total debt/capital, incl. short-term debt = (short-term debt + long-term debt)/(short-term debt + long-term debt + stockholders' equity)Source of data: Standard & Poor's CreditStats.

Exh. 7EBIT Coverage Ratio199219931994199519961997199819992000200120.96278628997183427.32843472402794320.66864133343321416.05844777933036121.94097489912891432.42794154256190432.76179634197199430.99419807047712526.26916936435850455.203296095111199

EBIT Divided by Interest

Exh. 8Exhibit 8Capital Costs by Rating CategoryAAAAAABBBBBBCost of debt (pretax)5.47%5.50%5.70%6.30%9.00%12.00%Cost of equity10.25%10.35%10.50%10.60%12.00%14.25%Source of data: Hudson Bancorp

Exh. 9Exhibit 9Capital Market Conditons(as of July 31, 2002)U.S. Treasury ObligationsYieldOther InstrumentsYield90-day bills1.69%Discount Notes1.70%180-day bills1.68%Certificates of Deposit (3-month)1.72%2-year notes2.23%Commercial Paper (6-month)1.75%3-year notes2.79%Term Fed Funds1.78%5-year notes3.45%10-year notes4.46%30-year notes5.30%Corporate Debt Obligations (10-year)YieldAAA5.51%AA 5.52%A5.70%BBB6.33%BB 9.01%B11.97%Source of data: Bloomberg LP, S&P's Research Insight, Value Line Investment Survey, Datastream Advance

data Exh. 7Exhibit 7Deluxe Corp.EBIT Interest Coverage Ratios By Year1992199319941995199619971998199920002001EBIT322.2280.8233.7236.3262.8315.9316.6293.8284.7308.2Interest expense15.410.311.314.712.09.79.79.510.85.6Coverage ratio (x)21.0x27.3x20.7x16.1x21.9x32.4x32.8x31.0x26.3x55.2x

other supporting dataDELUXE CORPSources of data:TICKER: DLXS&P's Research Insight, Value Line Investment Survey, Datastream AdvanceSIC: 2780GICS: 20201010Dec92Dec93Dec94Dec95Dec96Dec97Dec98Dec99Dec00Dec01Sales1534.35095214841581.76696777341747.92004394531857.98095703131895.66394042971919.36596679691931.79602050781650.51262.71203613281278.375Cost of Sales722.1550292969739.492980957797.3140258789819.4080200195862.3579711914806.6710205078805.8740234375688.9359741211417.8819885254421.1489868164Gross Profit812.1959228516842.2739868164950.60601806641038.57293701171033.30596923831112.69494628911125.9219970703961.5640258789844.8300476074857.2260131836EBITDA388.8340148926353.1470031738320.075012207339.5870056152329.0780029297384.7290039063375.5409851074348.0989990234318.0539855957345.8569946289EBIT322.2189941406280.8269958496233.658996582236.283996582262.8089904785315.9129943848316.6099853516293.7940063477284.6789855957308.200012207Interest Expense15.371000289910.276000022911.305000305214.713999748211.97799968729.74199962629.66399955759.479000091610.83699989325.5830001831Total Taxes121.999000549394.0520019531100.019996643174.885002136253.301998138470.477996826299.8519973755121.6330032349103.9570007324111.6340026855Depreciation66.614997863872.319999694886.4160003662103.303001403866.268997192468.816001892158.930999755954.305000305233.37537.6570014954Net Income202.783996582141.8609924316140.865997314587.021003723165.462997436544.672000885143.06300354203.0220031738161.9360046387185.8999938965Com Shares Outstanding83.796997070382.549003601182.37582.363998413182.055999755981.325996398980.481002807672.019996643172.555000305264.1019973755Treasury Stock-# Com Shares0000000000Treasury Stock-Total $ Amt0000000000Earnings Per Share (Value Line)2.42000007632.091.71000003811.14999997621.652.152.342.642.33999991422.70Div. Per Share (Value Line)1.341.421.461.481.481.481.481.481.481.48Working Capital (Value Line)330.9386.9224.5130.412.3108.1131167.814116.6PP&E-Total Net389.016998291401.6409912109461.8179931641494.157989502446.858001709415.0079956055340.0769958496294.7850036621173.9559936523149.5520019531Assets-Total1199.55603027341251.99401855471256.27197265631295.09497070311176.43994140631148.36401367191171.5190429688992.6430053711649.4689941406537.7210083008LT Debt-Total115.5220031738110.7549972534110.8669967651110.9970016479108.93699646109.986000061106.3209991455115.541999816910.201000213610.0839996338Preferred Stock0000000000Common Equity-Total829.8079833984801.2490234375814.3930053711780.3740234375712.916015625610.2479858398606.5650024414417.308013916262.80801391678.6050033569Long-Term Debt/Total Capital12.22028297912.144134654511.982253160712.452391335913.255045955415.270870122614.914165965521.68377688113.736506896611.3700676451Price-Close Fiscal Year46.7536.2526.3752932.7534.536.562527.437525.270000457841.5800018311Avg. Annl. P/E (Value Line)17.61917.425.920.615.414.312.710.211.01Price to Book Fiscal Yr End4.72098346123.73467084472.66780364113.0607834663.7694958814.59771623244.8490003134.98487672066.976538062835.1011246817Beta0.900.900.85Gov Bonds-20 Year7.676.488.026.016.736.025.396.835.595.74T-Bill-3 Month3.083.015.534.965.075.224.375.175.731.71S&P 500 (Datastream)418.17464.30462.62576.70700.92941.641072.321281.911364.441104.61S&P 500 P/E (Datastream)24.3824.1118.3616.9220.2623.8827.4531.4326.2929.50