QUESTION ON FINANCE
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EXCELTOBEUSEDTOANSWER.xlsxModel Facts
| This 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. 1
| Exhibit 1 | |||||||||||
| Ten Year Financial Summary | |||||||||||
| Exhibit 1 | |||||||||||
| Deluxe Corp. Ten-Year Financial Summary | |||||||||||
| (in U.S.$ millions except per share values and numbers of shares) | |||||||||||
| at fiscal years ended December 31 | |||||||||||
| 1992 | 1993 | 1994 | 1995 | 1996 | 1997 | 1998 | 1999 | 2000 | 2001 | ||
| Selected Income Statement Information | |||||||||||
| Net 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 | $1,278.4 | |
| Operating expenses | $722.2 | $739.5 | $797.3 | $819.4 | $862.4 | $806.7 | $805.9 | $688.9 | $417.9 | $421.1 | |
| Profit from operations | $812.2 | $842.3 | $950.6 | $1,038.6 | $1,033.3 | $1,112.7 | $1,125.9 | $961.6 | $844.8 | $857.2 | |
| Interest expense | $15.4 | $10.3 | $11.3 | $14.7 | $12.0 | $9.7 | $9.7 | $9.5 | $10.8 | $5.6 | |
| Net earnings | $202.8 | $141.9 | $140.9 | $87.0 | $65.5 | $44.7 | $143.1 | $203.0 | $161.9 | $185.9 | |
| Common shares, end of year (000s) | 83,797 | 82,549 | 82,375 | 82,364 | 82,056 | 81,326 | 80,481 | 72,020 | 72,555 | 64,102 | |
| Common 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) | 949 | 1,167 | 1,181 | 1,106 | 985 | 988 | 1,112 | 583 | 2,890 | 1,255 | |
| Earnings per share1 | $2.42 | $2.09 | $1.71 | $1.15 | $1.65 | $2.15 | $2.34 | $2.64 | $2.34 | $2.70 | |
| Dividend per share | $1.34 | $1.42 | $1.46 | $1.48 | $1.48 | $1.48 | $1.48 | $1.48 | $1.48 | $1.48 | |
| Selected Balance Sheet Information | |||||||||||
| Working capital | $330.9 | $386.9 | $224.5 | $130.4 | $12.3 | $108.1 | $131.0 | $167.8 | $14.0 | $116.6 | |
| Net property, plant, & equipment | $389.0 | $401.6 | $461.8 | $494.2 | $446.9 | $415.0 | $340.1 | $294.8 | $174.0 | $149.6 | |
| Total 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 | $537.7 | |
| Long-term debt | $115.5 | $110.8 | $110.9 | $111.0 | $108.9 | $110.0 | $106.3 | $115.5 | $10.2 | $10.1 | |
| Common stockholders' equity | $829.8 | $801.2 | $814.4 | $780.4 | $712.9 | $610.2 | $606.6 | $417.3 | $262.8 | $78.6 | |
| Book value: LT debt/capital | 12.2% | 12.1% | 12.0% | 12.5% | 13.3% | 15.3% | 14.9% | 21.7% | 3.7% | 11.4% | |
| Market value: LT debt/capital | 2.9% | 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 | $ 41.58 | |
| S&P 500 Composite Index | 418.17 | 464.30 | 462.62 | 576.70 | 700.92 | 941.64 | 1,072.32 | 1,281.91 | 1,364.44 | 1,104.61 | |
| Deluxe Corp. average P/E2 | 17.60x | 19.00x | 17.40x | 25.90x | 20.60x | 15.40x | 14.30x | 12.70x | 10.20x | 11.01x | |
| S&P 500 Composite average P/E2 | 24.38x | 24.11x | 18.36x | 16.92x | 20.26x | 23.88x | 27.45x | 31.43x | 26.29x | 29.50x | |
| Deluxe Corp. market/book ratio | 4.72x | 3.73x | 2.67x | 3.06x | 3.77x | 4.60x | 4.85x | 4.74x | 6.98x | 33.91x | |
| Deluxe Corp. Beta | 1.00 | 1.00 | 1.00 | 0.95 | 0.90 | 0.95 | 0.85 | 0.90 | 0.90 | 0.85 | |
| Yield on 20 year T-bonds | 7.67% | 6.48% | 8.02% | 6.01% | 6.73% | 6.02% | 5.39% | 6.83% | 5.59% | 5.74% | |
| Yield on 90-day T-bills | 3.08% | 3.01% | 5.53% | 4.96% | 5.07% | 5.22% | 4.37% | 5.17% | 5.73% | 1.71% | |
| Total annual ret. on large co. stocks | 7.67% | 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. 2
| Exhibit 2 | ||||
| Deluxe Corp. | ||||
| Consolidated Statement of Income | ||||
| (in U.S. $ millions) | ||||
| Years ended December 31 | ||||
| 2001 | 2000 | |||
| Revenue | $1,278.4 | $1,262.7 | ||
| Cost of goods sold | 453.8 | 453.0 | ||
| Selling, general, and admin. expense | 514.4 | 518.2 | ||
| Goodwill amortization expense | 6.2 | 5.2 | ||
| Asset impairment and disposition losses | 2.1 | 7.3 | ||
| Total costs | 976.4 | 983.8 | ||
| Profit/(loss) from operations | 302.0 | 278.9 | ||
| Interest income | 2.4 | 4.8 | ||
| Other income | (1.2) | 1.2 | ||
| Interest expense | (5.6) | (11.4) | ||
| Earnings/(loss) before taxes | 297.6 | 273.4 | ||
| Tax expense | 111.6 | 104.0 | ||
| Discontinued operations income/(loss) | -0 | (7.5) | ||
| Net earnings/(loss) | $185.9 | $161.9 | ||
| Source of data: Company regulatory filings. |
Exh. 3
| Exhibit 3 | |||||
| Deluxe Corp. | |||||
| Consolidated Balance Sheets | |||||
| (in U.S. $ millions) | |||||
| 2001 | 2000 | ||||
| Assets | |||||
| Current assets | |||||
| Cash and cash equivalents | $9.6 | $80.7 | |||
| Marketable securities | -0 | 18.5 | |||
| Trade accounts receivable – net | 37.7 | 46.0 | |||
| Inventories | 11.2 | 11.3 | |||
| Supplies | 11.1 | 11.8 | |||
| Deferred income taxes | 4.6 | 7.4 | |||
| Prepaid expenses and other | 9.9 | 12.0 | |||
| Total current assets | 84.0 | 187.8 | |||
| Long-term investments | 37.7 | 35.6 | |||
| Property, plant, and equipment – net | 151.1 | 174.0 | |||
| Intangibles – net | 115.0 | 134.5 | |||
| Goodwill–net | 82.2 | 88.4 | |||
| Other noncurrent assets | 67.9 | 36.2 | |||
| Total assets | $537.8 | $656.4 | |||
| Liabilities and Stockholders' Equity | |||||
| Current liabilities | |||||
| Accounts payable | $52.8 | $44.7 | |||
| Accrued liabilities | 162.9 | 148.5 | |||
| Short-term debt | 150.0 | -0 | |||
| Long-term debt due within one year | 1.4 | 100.7 | |||
| Total current liabilities | 367.1 | 293.9 | |||
| Long-term debt | 10.1 | 10.2 | |||
| Deferred income taxes | 44.9 | 51.1 | |||
| Other long-term liabilities | 37.0 | 38.3 | |||
| Total liabilities | 459.1 | 393.5 | |||
| Common stockholders' equity | |||||
| Common shares | 64.1 | 72.6 | |||
| Additional paid-in capital | -0 | 44.2 | |||
| Retained earnings | 14.6 | 146.2 | |||
| Unearned compensation | 0.1 | 0.1 | |||
| Accum. other comprehensive income | -0 | (0.2) | |||
| Total common stockholders' equity | 78.7 | 262.9 | |||
| Total liabilities and stockholders' equity | $537.8 | $656.4 | |||
| Source of data: Company regulatory filings. |
Exh. 4
| Exhibit 4 | |||||||
| Deluxe Corp. Financial Forecast, 2002-2006 | |||||||
| (values in U.S. $ millions) | |||||||
| Actual | Projected | ||||||
| 2001 | 2002 | 2003 | 2004 | 2005 | 2006 | ||
| Annual increase in sales | 1.2% | 1.4% | 1.6% | 2.0% | 2.2% | 2.4% | |
| Operating profit/sales | 23.6% | 26.6% | 26.7% | 26.7% | 26.7% | 26.7% | |
| Tax rate | 37.0% | 38.0% | |||||
| Working capital/sales | 9.1% | 9.1% | |||||
| Dividend payout ratio | 52.0% | ||||||
| Income Statement | |||||||
| Net sales | $1,278.4 | $1,296.3 | $1,317.0 | $1,343.4 | $1,372.9 | $1,405.9 | |
| Operating profit | 302.0 | 344.8 | 351.6 | 358.7 | 366.6 | 375.4 | |
| Interest expense, net | 3.2 | 4.0 | 4.0 | 4.0 | 4.0 | 4.0 | |
| Pretax income | 298.8 | 340.8 | 347.6 | 354.7 | 362.6 | 371.4 | |
| Tax expense | 111.6 | 129.5 | 132.1 | 134.8 | 137.8 | 141.1 | |
| Net income | 187.1 | 211.3 | 215.5 | 219.9 | 224.8 | 230.3 | |
| Dividends | 94.9 | 94.9 | 94.9 | 94.9 | 94.9 | 94.9 | |
| Retentions to earnings | $92.2 | $116.4 | $120.7 | $125.0 | $129.9 | $135.4 | |
| Balance Sheet | |||||||
| Cash | $9.6 | $124.3 | $243.1 | $365.8 | $493.0 | $625.4 | |
| Working capital (without debt) | 116.6 | 118.2 | 120.1 | 122.5 | 125.2 | 128.2 | |
| Net fixed assets | 151.1 | 151.1 | 151.1 | 151.1 | 151.1 | 151.1 | |
| Total assets | 277.2 | 393.6 | 514.3 | 639.3 | 769.3 | 904.6 | |
| Debt (long- and short-term) | 161.5 | 161.5 | 161.5 | 161.5 | 161.5 | 161.5 | |
| Other long-term liabilities | 37.0 | 37.0 | 37.0 | 37.0 | 37.0 | 37.0 | |
| Equity | 78.7 | 195.2 | 315.8 | 440.9 | 570.8 | 706.2 | |
| Total capital | $277.2 | $393.6 | $514.3 | $639.3 | $769.3 | $904.6 | |
| Free Cash Flows | |||||||
| EBIT | $344.8 | $351.6 | $358.7 | $366.6 | $375.4 | ||
| Less taxes on EBIT | (131.0) | (133.6) | (136.3) | (139.3) | (142.6) | ||
| Plus depreciation | 50.0 | 50.0 | 50.0 | 50.0 | 50.0 | ||
| Less 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 | $229.7 | ||
| Source: Case writers' analysis, consistent with forecast expectations of securities analysts. | |||||||
Exh. 6
| Exhibit 6 | ||||||||||||
| Key Industrial Financial Ratios by Rating Categories | ||||||||||||
| Credit Rating | ||||||||||||
| Investment grade | Noninvestment grade | |||||||||||
| Key Industrial Financial Ratios (Three-year medians 2000–02) | AAA | AA | A | BBB | BB | B | ||||||
| EBIT interest coverage (x) | 23.4 | 13.3 | 6.3 | 3.9 | 2.2 | 1.0 | ||||||
| EBITDA interest coverage (x) | 25.3 | 16.9 | 8.5 | 5.4 | 3.2 | 1.7 | ||||||
| Funds from operations/total debt (%) | 214.2 | 65.7 | 42.2 | 30.6 | 19.7 | 10.4 | ||||||
| Free operating cash flow/total debt (%) | 156.6 | 33.6 | 22.3 | 12.8 | 7.3 | 1.5 | ||||||
| Return on capital (%) | 35.0 | 26.6 | 18.1 | 13.1 | 11.5 | 8.0 | ||||||
| Operating income/sales (%) | 23.4 | 24.0 | 18.1 | 15.5 | 15.4 | 14.7 | ||||||
| Long-term debt/capital (%) | (1.1) | 21.1 | 33.8 | 40.3 | 53.6 | 72.6 | ||||||
| Total debt/capital, incl. short-term debt (%) | 5.0 | 35.9 | 42.6 | 47.0 | 57.7 | 75.1 | ||||||
| Standard & 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 expense | ||||||||||||
| Long-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. 7
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 20.962786289971834 27.328434724027943 20.668641333433214 16.058447779330361 21.940974899128914 32.427941542561904 32.761796341971994 30.994198070477125 26.269169364358504 55.203296095111199
EBIT Divided by Interest
Exh. 8
| Exhibit 8 | |||||||
| Capital Costs by Rating Category | |||||||
| AAA | AA | A | BBB | BB | B | ||
| Cost of debt (pretax) | 5.47% | 5.50% | 5.70% | 6.30% | 9.00% | 12.00% | |
| Cost of equity | 10.25% | 10.35% | 10.50% | 10.60% | 12.00% | 14.25% | |
| Source of data: Hudson Bancorp | |||||||
Exh. 9
| Exhibit 9 | ||||||
| Capital Market Conditons | ||||||
| (as of July 31, 2002) | ||||||
| U.S. Treasury Obligations | Yield | Other Instruments | Yield | |||
| 90-day bills | 1.69% | Discount Notes | 1.70% | |||
| 180-day bills | 1.68% | Certificates of Deposit (3-month) | 1.72% | |||
| 2-year notes | 2.23% | Commercial Paper (6-month) | 1.75% | |||
| 3-year notes | 2.79% | Term Fed Funds | 1.78% | |||
| 5-year notes | 3.45% | |||||
| 10-year notes | 4.46% | |||||
| 30-year notes | 5.30% | |||||
| Corporate Debt Obligations (10-year) | Yield | |||||
| AAA | 5.51% | |||||
| AA | 5.52% | |||||
| A | 5.70% | |||||
| BBB | 6.33% | |||||
| BB | 9.01% | |||||
| B | 11.97% | |||||
| Source of data: Bloomberg LP, S&P's Research Insight, Value Line Investment Survey, Datastream Advance |
data Exh. 7
| Exhibit 7 | |||||||||||
| Deluxe Corp. | |||||||||||
| EBIT Interest Coverage Ratios By Year | |||||||||||
| 1992 | 1993 | 1994 | 1995 | 1996 | 1997 | 1998 | 1999 | 2000 | 2001 | ||
| EBIT | 322.2 | 280.8 | 233.7 | 236.3 | 262.8 | 315.9 | 316.6 | 293.8 | 284.7 | 308.2 | |
| Interest expense | 15.4 | 10.3 | 11.3 | 14.7 | 12.0 | 9.7 | 9.7 | 9.5 | 10.8 | 5.6 | |
| Coverage ratio (x) | 21.0x | 27.3x | 20.7x | 16.1x | 21.9x | 32.4x | 32.8x | 31.0x | 26.3x | 55.2x |
other supporting data
| DELUXE CORP | Sources of data: | ||||||||||
| TICKER: DLX | S&P's Research Insight, Value Line Investment Survey, Datastream Advance | ||||||||||
| SIC: 2780 | |||||||||||
| GICS: 20201010 | |||||||||||
| Dec92 | Dec93 | Dec94 | Dec95 | Dec96 | Dec97 | Dec98 | Dec99 | Dec00 | Dec01 | ||
| Sales | 1534.3509521484 | 1581.7669677734 | 1747.9200439453 | 1857.9809570313 | 1895.6639404297 | 1919.3659667969 | 1931.7960205078 | 1650.5 | 1262.7120361328 | 1278.375 | |
| Cost of Sales | 722.1550292969 | 739.492980957 | 797.3140258789 | 819.4080200195 | 862.3579711914 | 806.6710205078 | 805.8740234375 | 688.9359741211 | 417.8819885254 | 421.1489868164 | |
| Gross Profit | 812.1959228516 | 842.2739868164 | 950.6060180664 | 1038.5729370117 | 1033.3059692383 | 1112.6949462891 | 1125.9219970703 | 961.5640258789 | 844.8300476074 | 857.2260131836 | |
| EBITDA | 388.8340148926 | 353.1470031738 | 320.075012207 | 339.5870056152 | 329.0780029297 | 384.7290039063 | 375.5409851074 | 348.0989990234 | 318.0539855957 | 345.8569946289 | |
| EBIT | 322.2189941406 | 280.8269958496 | 233.658996582 | 236.283996582 | 262.8089904785 | 315.9129943848 | 316.6099853516 | 293.7940063477 | 284.6789855957 | 308.200012207 | |
| Interest Expense | 15.3710002899 | 10.2760000229 | 11.3050003052 | 14.7139997482 | 11.9779996872 | 9.7419996262 | 9.6639995575 | 9.4790000916 | 10.8369998932 | 5.5830001831 | |
| Total Taxes | 121.9990005493 | 94.0520019531 | 100.0199966431 | 74.8850021362 | 53.3019981384 | 70.4779968262 | 99.8519973755 | 121.6330032349 | 103.9570007324 | 111.6340026855 | |
| Depreciation | 66.6149978638 | 72.3199996948 | 86.4160003662 | 103.3030014038 | 66.2689971924 | 68.8160018921 | 58.9309997559 | 54.3050003052 | 33.375 | 37.6570014954 | |
| Net Income | 202.783996582 | 141.8609924316 | 140.8659973145 | 87.0210037231 | 65.4629974365 | 44.672000885 | 143.06300354 | 203.0220031738 | 161.9360046387 | 185.8999938965 | |
| Com Shares Outstanding | 83.7969970703 | 82.5490036011 | 82.375 | 82.3639984131 | 82.0559997559 | 81.3259963989 | 80.4810028076 | 72.0199966431 | 72.5550003052 | 64.1019973755 | |
| Treasury Stock-# Com Shares | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |
| Treasury Stock-Total $ Amt | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |
| Earnings Per Share (Value Line) | 2.4200000763 | 2.09 | 1.7100000381 | 1.1499999762 | 1.65 | 2.15 | 2.34 | 2.64 | 2.3399999142 | 2.70 | |
| Div. Per Share (Value Line) | 1.34 | 1.42 | 1.46 | 1.48 | 1.48 | 1.48 | 1.48 | 1.48 | 1.48 | 1.48 | |
| Working Capital (Value Line) | 330.9 | 386.9 | 224.5 | 130.4 | 12.3 | 108.1 | 131 | 167.8 | 14 | 116.6 | |
| PP&E-Total Net | 389.016998291 | 401.6409912109 | 461.8179931641 | 494.157989502 | 446.858001709 | 415.0079956055 | 340.0769958496 | 294.7850036621 | 173.9559936523 | 149.5520019531 | |
| Assets-Total | 1199.5560302734 | 1251.9940185547 | 1256.2719726563 | 1295.0949707031 | 1176.4399414063 | 1148.3640136719 | 1171.5190429688 | 992.6430053711 | 649.4689941406 | 537.7210083008 | |
| LT Debt-Total | 115.5220031738 | 110.7549972534 | 110.8669967651 | 110.9970016479 | 108.93699646 | 109.986000061 | 106.3209991455 | 115.5419998169 | 10.2010002136 | 10.0839996338 | |
| Preferred Stock | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |
| Common Equity-Total | 829.8079833984 | 801.2490234375 | 814.3930053711 | 780.3740234375 | 712.916015625 | 610.2479858398 | 606.5650024414 | 417.308013916 | 262.808013916 | 78.6050033569 | |
| Long-Term Debt/Total Capital | 12.220282979 | 12.1441346545 | 11.9822531607 | 12.4523913359 | 13.2550459554 | 15.2708701226 | 14.9141659655 | 21.6837768811 | 3.7365068966 | 11.3700676451 | |
| Price-Close Fiscal Year | 46.75 | 36.25 | 26.375 | 29 | 32.75 | 34.5 | 36.5625 | 27.4375 | 25.2700004578 | 41.5800018311 | |
| Avg. Annl. P/E (Value Line) | 17.6 | 19 | 17.4 | 25.9 | 20.6 | 15.4 | 14.3 | 12.7 | 10.2 | 11.01 | |
| Price to Book Fiscal Yr End | 4.7209834612 | 3.7346708447 | 2.6678036411 | 3.060783466 | 3.769495881 | 4.5977162324 | 4.849000313 | 4.9848767206 | 6.9765380628 | 35.1011246817 | |
| Beta | 0.90 | 0.90 | 0.85 | ||||||||
| Gov Bonds-20 Year | 7.67 | 6.48 | 8.02 | 6.01 | 6.73 | 6.02 | 5.39 | 6.83 | 5.59 | 5.74 | |
| T-Bill-3 Month | 3.08 | 3.01 | 5.53 | 4.96 | 5.07 | 5.22 | 4.37 | 5.17 | 5.73 | 1.71 | |
| S&P 500 (Datastream) | 418.17 | 464.30 | 462.62 | 576.70 | 700.92 | 941.64 | 1072.32 | 1281.91 | 1364.44 | 1104.61 | |
| S&P 500 P/E (Datastream) | 24.38 | 24.11 | 18.36 | 16.92 | 20.26 | 23.88 | 27.45 | 31.43 | 26.29 | 29.50 |
