May 3, 2019 - 10-Q: Quarterly report pursuant to Section 13 or 15(d)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



[X]	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
	For the quarterly period ended	March 31, 2019
[ ]	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ________________________ to ________________________

Commission file number: 1-7945

DELUXE CORPORATION

(Exact name of registrant as specified in its charter)



Minnesota (State or other jurisdiction of incorporation or organization)	41-0216800 (I.R.S. Employer Identification No.)
3680 Victoria St. N., Shoreview, Minnesota (Address of principal executive offices)	55126-2966 (Zip Code)

(651) 483-7111

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files). [X] Yes [ ] No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.



Large accelerated filer [X]	Accelerated filer [ ]
Non-accelerated filer [ ]	Smaller reporting company [ ]
	Emerging growth company [ ]

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

[ ] Yes [X] No

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common Stock, par value $1.00 per share	DLX	New York Stock Exchange

The number of shares outstanding of registrant’s common stock, par value $1.00 per share, as of April 23, 2019 was 43,638,328.

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

DELUXE CORPORATION

CONSOLIDATED BALANCE SHEETS

(in thousands, except share par value)

(Unaudited)



	March 31, 2019			December 31, 2018
ASSETS
Current assets:
Cash and cash equivalents	$	61,529		$	59,740
Trade accounts receivable, net of allowances for uncollectible accounts	156,840			173,862
Inventories and supplies	45,052			46,441
Funds held for customers	92,954			100,982
Revenue in excess of billings	33,911			30,458
Other current assets	40,862			38,563
Total current assets	431,148			450,046
Deferred income taxes	4,102			2,886
Long-term investments	44,422			43,773
Property, plant and equipment (net of accumulated depreciation of $371,323 and $367,205, respectively)	89,926			90,342
Operating lease assets	48,494			—
Intangibles (net of accumulated amortization of $563,511 and $535,627, respectively)	339,639			359,965
Goodwill	1,160,821			1,160,626
Assets held for sale	1,350			1,350
Other non-current assets	202,509			196,108
Total assets	$	2,322,411		$	2,305,096

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	91,781		$	106,978
Accrued liabilities	264,668			284,281
Long-term debt due within one year	—			791
Total current liabilities	356,449			392,050
Long-term debt	946,000			911,073
Operating lease liabilities	36,087			—
Deferred income taxes	49,567			46,680
Other non-current liabilities	36,745			39,880
Commitments and contingencies (Notes 13 and 14)
Shareholders' equity:
Common shares $1 par value (authorized: 500,000 shares; outstanding: March 31, 2019 – 43,638; December 31, 2018 – 44,647)	43,638			44,647
Retained earnings	908,614			927,345
Accumulated other comprehensive loss	(54,689		)	(56,579		)
Total shareholders’ equity	897,563			915,413
Total liabilities and shareholders’ equity	$	2,322,411		$	2,305,096

See Condensed Notes to Unaudited Consolidated Financial Statements

DELUXE CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands, except per share amounts)

(Unaudited)



	Quarter Ended March 31,
	2019			2018
Product revenue	$	350,519		$	363,407
Service revenue	148,546			128,507
Total revenue	499,065			491,914
Cost of products	(131,263		)	(133,371		)
Cost of services	(68,360		)	(55,387		)
Total cost of revenue	(199,623		)	(188,758		)
Gross profit	299,442			303,156
Selling, general and administrative expense	(230,177		)	(211,154		)
Restructuring and integration expense	(5,492		)	(2,145		)
Asset impairment charges	—			(2,149		)
Operating income	63,773			87,708
Interest expense	(9,301		)	(5,579		)
Other income	1,766			1,289
Income before income taxes	56,238			83,418
Income tax provision	(15,048		)	(20,082		)
Net income	$	41,190		$	63,336
Comprehensive income	$	43,080		$	61,565
Basic earnings per share	0.93			1.32
Diluted earnings per share	0.93			1.31

See Condensed Notes to Unaudited Consolidated Financial Statements

DELUXE CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(in thousands)

(Unaudited)



	Common shares		Common shares par value			Additional paid-in capital			Retained earnings			Accumulated other comprehensive loss			Total
Balance, December 31, 2018	44,647		$	44,647		$	—		$	927,345		$	(56,579	)	$	915,413
Net income	—		—			—			41,190			—			41,190
Cash dividends ($0.30 per share)	—		—			—			(13,170		)	—			(13,170		)
Common shares issued	86		86			1,862			—			—			1,948
Common shares repurchased	(1,038	)	(1,038		)	(2,478		)	(46,484		)	—			(50,000		)
Other common shares retired	(57	)	(57		)	(2,615		)	—			—			(2,672		)
Employee share-based compensation	—		—			3,231			—			—			3,231
Adoption of Accounting Standards Update No. 2016-02 (Note 2)	—		—			—			(267		)	—			(267		)
Other comprehensive income	—		—			—			—			1,890			1,890
Balance, March 31, 2019	43,638		$	43,638		$	—		$	908,614		$	(54,689	)	$	897,563



	Common shares		Common shares par value			Additional paid-in capital			Retained earnings			Accumulated other comprehensive loss			Total
Balance, December 31, 2017	47,953		$	47,953		$	—		$	1,004,657		$	(37,597	)	$	1,015,013
Net income	—		—			—			63,336			—			63,336
Cash dividends ($0.30 per share)	—		—			—			(14,417		)	—			(14,417		)
Common shares issued	249		249			7,457			—			—			7,706
Common shares repurchased	(278	)	(278		)	(4,373		)	(15,345		)	—			(19,996		)
Other common shares retired	(83	)	(83		)	(6,046		)	—			—			(6,129		)
Employee share-based compensation	—		—			2,962			—			—			2,962
Adoption of Accounting Standards Update No. 2014-09	—		—			—			4,966			—			4,966
Adoption of Accounting Standards Update No. 2018-02	—		—			—			6,867			(6,867		)	—
Other comprehensive loss	—		—			—			—			(1,771		)	(1,771		)
Balance, March 31, 2018	47,841		$	47,841		$	—		$	1,050,064		$	(46,235	)	$	1,051,670

See Condensed Notes to Unaudited Consolidated Financial Statements

DELUXE CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)



	Quarter Ended March 31,
	2019			2018
Cash flows from operating activities:
Net income	$	41,190		$	63,336
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	4,245			3,675
Amortization of intangibles	28,174			27,466
Amortization of operating lease assets	4,030			—
Asset impairment charges	—			2,149
Amortization of prepaid product discounts	5,757			5,408
Deferred income taxes	1,640			(233		)
Employee share-based compensation expense	3,760			2,962
Loss (gain) on sales of businesses and customer lists	99			(7,228		)
Other non-cash items, net	3,038			1,361
Changes in assets and liabilities, net of effect of acquisitions:
Trade accounts receivable	15,927			12,763
Inventories and supplies	1,322			(189		)
Other current assets	(6,231		)	(3,536		)
Non-current assets	(1,557		)	(2,444		)
Accounts payable	(15,069		)	(3,789		)
Prepaid product discount payments	(9,189		)	(5,364		)
Other accrued and non-current liabilities	(31,737		)	(15,549		)
Net cash provided by operating activities	45,399			80,788
Cash flows from investing activities:
Purchases of capital assets	(14,619		)	(14,034		)
Payments for acquisitions, net of cash acquired	(444		)	(52,369		)
Purchases of customer funds marketable securities	(42		)	(46		)
Proceeds from customer funds marketable securities	42			46
Other	236			(450		)
Net cash used by investing activities	(14,827		)	(66,853		)
Cash flows from financing activities:
Proceeds from issuing long-term debt	82,500			824,625
Payments on long-term debt	(46,500		)	(792,200		)
Net change in customer funds obligations	(9,908		)	10,293
Proceeds from issuing shares under employee plans	1,548			5,169
Employee taxes paid for shares withheld	(2,672		)	(4,557		)
Payments for common shares repurchased	(50,000		)	(19,996		)
Cash dividends paid to shareholders	(13,118		)	(14,393		)
Other	(1,257		)	(3,205		)
Net cash (used) provided by financing activities	(39,407		)	5,736
Effect of exchange rate change on cash, cash equivalents, restricted cash and restricted cash equivalents	2,076			(2,011		)
Net change in cash, cash equivalents, restricted cash and restricted cash equivalents	(6,759		)	17,660
Cash, cash equivalents, restricted cash and restricted cash equivalents, beginning of year	145,259			128,819
Cash, cash equivalents, restricted cash and restricted cash equivalents, end of period (Note 3)	$	138,500		$	146,479

See Condensed Notes to Unaudited Consolidated Financial Statements

DELUXE CORPORATION

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share amounts)

Note 1: Consolidated financial statements

The consolidated balance sheet as of March 31, 2019, the consolidated statements of comprehensive income for the quarters ended March 31, 2019 and 2018, the consolidated statements of shareholders’ equity for the quarters ended March 31, 2019 and 2018, and the consolidated statements of cash flows for the quarters ended March 31, 2019 and 2018 are unaudited. The consolidated balance sheet as of December 31, 2018 was derived from audited consolidated financial statements, but does not include all disclosures required by generally accepted accounting principles (GAAP) in the United States of America. In the opinion of management, all adjustments necessary for a fair statement of the consolidated financial statements are included. Adjustments consist only of normal recurring items, except for any discussed in the notes below. Interim results are not necessarily indicative of results for a full year. The consolidated financial statements and notes are presented in accordance with instructions for Form 10-Q and do not contain certain information included in our annual consolidated financial statements and notes. The consolidated financial statements and notes appearing in this report should be read in conjunction with the consolidated audited financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2018 (the “2018 Form 10-K”).

Amounts within cash flows from operating activities on the consolidated statement of cash flows for the quarter ended March 31, 2018 have been modified to conform to the current year presentation. Loss (gain) on sales of businesses and customer lists is now presented separately. In the previous year, this amount was included within other non-cash items, net.

In November 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-18, Restricted Cash. This standard requires the statement of cash flows to explain the change during the period in the total of cash, cash equivalents, restricted cash and restricted cash equivalents. This standard was effective for us on January 1, 2018 and was required to be applied retrospectively. During the quarter ended December 31, 2018, we identified a misstatement in our statement of cash flows presentation under this standard. We concluded that the cash and cash equivalents included in funds held for customers should be included with cash, cash equivalents, restricted cash and restricted cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statements of cash flows, in accordance with ASU No. 2016-18. Additionally, we determined that gross redemptions and purchases of marketable debt securities included in funds held for customers should be presented as cash flows from investing activities in the statements of cash flows. This misstatement affected our consolidated statements of cash flows as presented in our 2018 Quarterly Reports on Form 10-Q.

We assessed the materiality of this misstatement on prior periods' financial statements in accordance with Securities and Exchange Commission Staff Accounting Bulletin No. 99, Materiality, codified in Accounting Standards Codification (ASC) 250, Presentation of Financial Statements. We concluded that the misstatement was not material to any prior interim period and therefore, amendments of previously filed reports are not required. In accordance with ASC 250, we have corrected the misstatement for all prior periods presented by revising the consolidated financial statements appearing herein. Periods not presented herein will be revised, as applicable, in future filings. The revisions had no impact on total assets, total liabilities, shareholders' equity, net income or net cash provided by operating activities.

The impact of the revisions on our consolidated statement of cash flows for the quarter ended March 31, 2018 was as follows:



(in thousands)	Previously reported			Adjustment			Revised
Purchases of customer funds marketable securities	$	—		$	(46	)	$	(46	)
Proceeds from customer funds marketable securities	—			46			46
Net cash used by investing activities	(66,853		)	—			(66,853		)
Net change in customer funds obligations	—			10,293			10,293
Net cash (used) provided by financing activities	(4,557		)	10,293			5,736
Effect of exchange rate change on cash, cash equivalents, restricted cash and restricted cash equivalents	(890		)	(1,121		)	(2,011		)
Net change in cash, cash equivalents, restricted cash and restricted cash equivalents	8,488			9,172			17,660
Cash, cash equivalents, restricted cash and restricted cash equivalents, beginning of year	59,240			69,579			128,819
Cash, cash equivalents, restricted cash and restricted cash equivalents, end of period	$	67,728		$	78,751		$	146,479

DELUXE CORPORATION

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share amounts)

Note 2: New accounting pronouncements

ASU No. 2016-02 – In February 2016, the FASB issued ASU No. 2016-02, Leasing. This standard is intended to increase transparency and comparability among organizations by requiring the recognition of lease right-of-use assets and lease liabilities for virtually all leases and by requiring the disclosure of key information about leasing arrangements. In July 2018, the FASB issued two amendments to ASU No. 2016-02: ASU No. 2018-10, Codification Improvements to Topic 842, Leases, which amends narrow aspects of the guidance in ASU No. 2016-02, and ASU No. 2018-11, Targeted Improvements, which provides an optional transition method under which comparative periods presented in financial statements in the period of adoption would not be restated. In March 2019, the FASB issued ASU No. 2019-01, Codification Improvements. This standard addresses areas identified as companies prepared to implement ASU No. 2016-02. We adopted all of these standards on January 1, 2019, using a modified retrospective approach and the optional transition method under ASU No. 2018-11. As such, prior periods have not been restated to reflect the new guidance.

We elected the practical expedient package outlined in ASU No. 2016-02 under which we did not have to reassess whether an arrangement contains a lease, we carried forward our previous classification of leases as either operating or capital leases, and we did not have to reassess previously recorded initial direct costs. Additionally, we made the following policy elections:


•	We excluded leases with original terms of 12 months or less from lease assets and lease liabilities;


•	We separated nonlease components, such as common area maintenance charges and utilities, from the associated lease component for real estate leases, based on their estimated fair values; and


•	We used the accounting lease term when determining the incremental borrowing rate for leases with renewal

options.

Adoption of the standards had a material impact on our consolidated balance sheet, but did not have a significant impact on our consolidated statement of income or our consolidated statement of cash flows. The most significant impact was the recognition of operating lease assets of $50,803, current operating lease liabilities of $13,611 and non-current operating lease liabilities of $37,440 as of January 1, 2019. Our accounting for finance leases remained substantially unchanged.

We determine if an arrangement is a lease at inception by considering whether a contract explicitly or implicitly identifies assets deployed in the arrangement and whether we have obtained substantially all of the economic benefits from the use of the underlying assets and direct how and for what purpose the assets are used during the term of the contract. Operating leases are included in operating lease assets, accrued liabilities and operating lease liabilities in our consolidated balance sheet. Finance leases are included in property, plant and equipment, accrued liabilities and other non-current liabilities in our consolidated balance sheet.

Lease assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. As our lease agreements typically do not provide an implicit rate, we use our incremental borrowing rate based on information available at the lease commencement date in determining the present value of lease payments. Certain of our lease agreements include options to extend or terminate the lease. The lease term takes into account these options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense is included in total cost of revenue and in selling, general and administrative (SG&A) expense on the consolidated statement of comprehensive income, and interest on finance leases is included in interest expense on the consolidated statement of comprehensive income. Operating lease expense is recognized on the straight-line basis over the lease term. Information regarding our leases can be found in Note 13.

ASU No. 2016-13 – In June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments. This standard introduces new guidance for the accounting for credit losses on instruments within its scope, including trade and loans receivable and available-for-sale debt securities. In November 2018, the FASB issued ASU No. 2018-19, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, which clarifies that receivables arising from operating leases are not within the scope of ASU No. 2016-13. These standards are effective for us on January 1, 2020 and require adoption using a modified retrospective approach. We do not expect the application of these standards to have a significant impact on our results of operations or financial position.

DELUXE CORPORATION

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share amounts)

ASU No. 2018-15 – In August 2018, the FASB issued ASU No. 2018-15, Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. This standard aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The accounting for the service element of a hosting arrangement that is a service contract is not affected by the new standard. The guidance is effective for us on January 1, 2020 and may be adopted retrospectively or prospectively to eligible costs incurred on or after the date the guidance is first applied. This new guidance will impact our results of operations and financial position as we currently expense these implementation costs as incurred. As we have not historically tracked these costs separately, we are not able to quantify the expected impact on our consolidated financial statements. We plan to adopt the standard prospectively.

Note 3: Supplemental balance sheet and cash flow information

Allowance for uncollectible accounts – Changes in the allowance for uncollectible accounts for the quarters ended March 31, 2019 and 2018 were as follows:



	Quarter Ended March 31,
(in thousands)	2019			2018
Balance, beginning of year	$	3,639		$	2,884
Bad debt expense	1,248			875
Write-offs, net of recoveries	(423		)	(905		)
Balance, end of period	$	4,464		$	2,854

Inventories and supplies – Inventories and supplies were comprised of the following:



(in thousands)	March 31, 2019		December 31, 2018
Raw materials	$	7,818	$	7,543
Semi-finished goods	7,496		7,273
Finished goods	25,767		27,608
Supplies	3,971		4,017
Inventories and supplies	$	45,052	$	46,441

Available-for-sale debt securities – Available-for-sale debt securities included within funds held for customers were comprised of the following:



	March 31, 2019
(in thousands)	Cost		Gross unrealized gains		Gross unrealized losses			Fair value
Funds held for customers:⁽¹⁾
Domestic money market fund	$	16,000	$	—	$	—		$	16,000
Canadian and provincial government securities	8,711		—		(219		)	8,492
Canadian guaranteed investment certificates	7,491		—		—			7,491
Available-for-sale debt securities	$	32,202	$	—	$	(219	)	$	31,983

⁽¹⁾Funds held for customers, as reported on the consolidated balance sheet as of March 31, 2019, also included cash of $60,971.

DELUXE CORPORATION

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share amounts)



	December 31, 2018
(in thousands)	Cost		Gross unrealized gains		Gross unrealized losses			Fair value
Funds held for customers:⁽¹⁾
Domestic money market fund	$	16,000	$	—	$	—		$	16,000
Canadian and provincial government securities	8,485		—		(355		)	8,130
Canadian guaranteed investment certificates	7,333		—		—			7,333
Available-for-sale debt securities	$	31,818	$	—	$	(355	)	$	31,463

⁽¹⁾Funds held for customers, as reported on the consolidated balance sheet as of December 31, 2018, also included cash of $69,519.

Expected maturities of available-for-sale debt securities as of March 31, 2019 were as follows:



(in thousands)	Fair value
Due in one year or less	$	25,614
Due in two to five years	4,102
Due in six to ten years	2,267
Available-for-sale debt securities	$	31,983

Further information regarding the fair value of available-for-sale debt securities can be found in Note 7.

Revenue in excess of billings – Revenue in excess of billings was comprised of the following:



(in thousands)	March 31, 2019		December 31, 2018
Conditional right to receive consideration	$	20,364	$	19,705
Unconditional right to receive consideration	13,547		10,753
Revenue in excess of billings	$	33,911	$	30,458

Assets held for sale – During the quarter ended March 31, 2018, we sold the assets of 2 small business distributors. We determined that these businesses would be better positioned for long-term growth if they were managed by independent distributors. Subsequent to the sales, the businesses are owned by independent distributors that are part of our Safeguard^® distributor network. As such, our revenue was not impacted by these sales and the impact to our costs was not significant. These sales resulted in aggregate net gains within SG&A expense of $7,228 for the quarter ended March 31, 2018.

Assets held for sale as of March 31, 2019 and December 31, 2018 consisted of 1 small business customer list with a carrying value of $1,350. We are actively marketing this asset, and we expect the selling price will equal or exceed its current carrying value.

DELUXE CORPORATION

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share amounts)

Intangibles – Intangibles were comprised of the following:



	March 31, 2019							December 31, 2018
(in thousands)	Gross carrying amount		Accumulated amortization			Net carrying amount		Gross carrying amount		Accumulated amortization			Net carrying amount
Amortizable intangibles:
Internal-use software	$	397,667	$	(318,273	)	$	79,394	$	388,477	$	(308,313	)	$	80,164
Customer lists/relationships	377,877		(184,144		)	193,733		379,570		(170,973		)	208,597
Trade names	50,706		(27,923		)	22,783		50,645		(26,204		)	24,441
Technology-based intangibles	39,300		(15,984		)	23,316		39,300		(14,007		)	25,293
Software to be sold	36,900		(16,487		)	20,413		36,900		(15,430		)	21,470
Other	700		(700		)	—		700		(700		)	—
Intangibles	$	903,150	$	(563,511	)	$	339,639	$	895,592	$	(535,627	)	$	359,965

During the quarter ended March 31, 2019, we purchased internal-use software of $9,018, with a weighted-average amortization period of 3 years. Amortization of intangibles was $28,174 for the quarter ended March 31, 2019 and $27,466 for the quarter ended March 31, 2018. Based on the intangibles in service as of March 31, 2019, estimated future amortization expense is as follows:



(in thousands)	Estimated amortization expense
Remainder of 2019	$	64,770
2020	73,171
2021	56,320
2022	40,094
2023	29,628

Goodwill – Changes in goodwill during the quarter ended March 31, 2019 were as follows:



(in thousands)	Small Business Services			Financial Services		Direct Checks		Total
Balance, December 31, 2018:
Goodwill, gross	$	765,266		$	373,421	$	148,506	$	1,287,193
Accumulated impairment charges	(126,567		)	—		—		(126,567		)
Goodwill, net of accumulated impairment charges	638,699			373,421		148,506		1,160,626
Currency translation adjustment	195			—		—		195
Balance, March 31, 2019:
Goodwill, gross	765,461			373,421		148,506		1,287,388
Accumulated impairment charges	(126,567		)	—		—		(126,567		)
Goodwill, net of accumulated impairment charges	$	638,894		$	373,421	$	148,506	$	1,160,821

DELUXE CORPORATION

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share amounts)

Other non-current assets – Other non-current assets were comprised of the following:



(in thousands)	March 31, 2019		December 31, 2018
Loans and notes receivable from Safeguard distributors	$	79,191	$	78,693
Prepaid product discounts	58,237		54,642
Postretirement benefit plan asset	43,165		41,259
Deferred sales commissions⁽¹⁾	7,454		6,482
Deferred advertising costs	5,009		5,746
Other	9,453		9,286
Other non-current assets	$	202,509	$	196,108

⁽¹⁾Amortization of deferred sales commissions was $697 for the quarter ended March 31, 2019 and $694 for the quarter ended March 31, 2018.

Changes in prepaid product discounts during the quarters ended March 31, 2019 and 2018 were as follows:



	Quarter Ended March 31,
(in thousands)	2019			2018
Balance, beginning of year	$	54,642		$	63,895
Additions⁽¹⁾	9,553			7,492
Amortization	(5,757		)	(5,408		)
Other	(201		)	(25		)
Balance, end of period	$	58,237		$	65,954

⁽¹⁾Prepaid product discounts are generally accrued upon contract execution. Cash payments for prepaid product discounts were $9,189 for the quarter ended March 31, 2019 and $5,364 for the quarter ended March 31, 2018.

Accrued liabilities – Accrued liabilities were comprised of the following:



(in thousands)	March 31, 2019		December 31, 2018
Funds held for customers	$	91,552	$	99,818
Deferred revenue⁽¹⁾	49,428		54,313
Employee profit sharing/cash bonus	14,442		31,286
Operating lease liabilities	13,008		—
Prepaid product discounts due within one year	12,244		10,926
Customer rebates	8,725		9,555
Restructuring and integration (Note 8)	3,687		3,320
Other	71,582		75,063
Accrued liabilities	$	264,668	$	284,281

⁽¹⁾$23,225 of the December 31, 2018 amount was recognized as revenue during the quarter ended March 31, 2019.

Other non-current liabilities – Other non-current liabilities were comprised of the following:



(in thousands)	March 31, 2019		December 31, 2018
Prepaid product discounts	$	11,358	$	12,513
Other	25,387		27,367
Other non-current liabilities	$	36,745	$	39,880

DELUXE CORPORATION

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share amounts)

Supplemental cash flow information – The reconciliation of cash, cash equivalents, restricted cash and restricted cash equivalents to the consolidated balance sheets was as follows:



(in thousands)	March 31, 2019		March 31, 2018
Cash and cash equivalents	$	61,529	$	67,728
Restricted cash and restricted cash equivalents included in funds held for customers	76,971		78,751
Total cash, cash equivalents, restricted cash and restricted cash equivalents	$	138,500	$	146,479

Note 4: Earnings per share

The following table reflects the calculation of basic and diluted earnings per share. During each period, certain stock options, as noted below, were excluded from the calculation of diluted earnings per share because their effect would have been antidilutive.



	Quarter Ended March 31,
(in thousands, except per share amounts)	2019			2018
Earnings per share – basic:
Net income	$	41,190		$	63,336
Income allocated to participating securities	(110		)	(286		)
Income available to common shareholders	$	41,080		$	63,050
Weighted-average shares outstanding	43,965			47,755
Earnings per share – basic	$	0.93		$	1.32

Earnings per share – diluted:
Net income	$	41,190		$	63,336
Income allocated to participating securities	(65		)	(285		)
Re-measurement of share-based awards classified as liabilities	—			(85		)
Income available to common shareholders	$	41,125		$	62,966
Weighted-average shares outstanding	43,965			47,755
Dilutive impact of potential common shares	100			262
Weighted-average shares and potential common shares outstanding	44,065			48,017
Earnings per share – diluted	$	0.93		$	1.31
Antidilutive options excluded from calculation	1,097			521

DELUXE CORPORATION

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share amounts)

Note 5: Other comprehensive income

Reclassification adjustments – Information regarding amounts reclassified from accumulated other comprehensive loss to net income was as follows:



Accumulated other comprehensive loss components	Amounts reclassified from accumulated other comprehensive loss				Affected line item in consolidated statements of comprehensive income
	Quarter Ended March 31,
(in thousands)	2019		2018
Amortization of postretirement benefit plan items:
Prior service credit	$	355	$	355

Form: 10-Q

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