Deluxe Corp (DLX) 2004 Q1 法說會逐字稿

Welcome to the Deluxe Corporation's first quarter 2004 earnings conference call. [OPERATOR INSTRUCTIONS]. I would now like to turn the conference over to your host, Stuart Alexander. Please go ahead, sir.

Good morning and thank you for joining us today. During our conference call today, you will hear from Larry Mosner, Chairman and Chief Executive Officer and Doug Treff, our Chief Financial Officer. As in the past, Larry and Doug will take questions from analysts at the end of their prepared comments. In accordance with Regulation FD, this conference call is open to all interested parties. A replay of the call will be available via telephone and Deluxe's Web site. I will tell you how to access the replay at the conclusion of the teleconference. Before I turn the call over to Larry, I'll make a brief cautionary statement.

Comments made today regarding earnings estimates and projections and statements regarding management's intentions and expectations regarding future performance are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. As such these comments are subject to risks and uncertainties that could cause actual future results to differ materially from those projected. Additional information about various factors that could cause actual results to differ from those presented are contained in the news release we issued this morning and in the company's Form 10-K for the year ended December 31, 2003. In addition, the financial statistical information that we will review during this call is addressed in greater detail in today's press release, which is posted on our Web site, www.deluxe.com in the Investor Relations' section and as was furnished to the SEC in the Form 8-K filed this morning. In particular, any non-GAAP financial measures mentioned during this call are reconciled to their comparable GAAP financial measures in the press release. Now, I'll turn the call over to Larry Mosner.

Thank you, Stu. I also want to thank the callers for taking time to listen in today. As we stated in our press release this morning Deluxe had a good first quarter of 2004. We reported net income of $47.7 million and earnings per share of 94 cents. In a few minutes, I will talk about some of the business contributors, highlights from our three business segments, and what the rest of the year looks like for Deluxe. At the end of the call, we will open the lines for questions. First, however, our CFO, Doug Treff will cover the financials.

Thank you, Larry. I will begin by covering the operating results for the quarter. Earnings per share exceeded the high end of our guidance for the quarter by 6 cents a share, primarily due to lower discretionary spending. We reported first quarter earnings per share or EPS of 94 cents, a net income of $48 million compared to EPS of 83 cents and net income of $50 million for the first quarter last year. The increase in EPS was due to fewer shares outstanding compared to the same period last year. The primary factor contributing to the $2 million decline in earnings was our decision to begin expensing all stock-based compensation. As we announced on the last call on January 1, we adopted the fair value method of reporting stock-based compensation as outlined in statement of financial accounting standards number 123, accounting for stock-based compensation. Beginning in 2004 all employee stock-based compensation including the unvested portion of previously issued stock option grants is being expensed over the option vesting period based on the fair value of the date the stock awards were granted. This change in accounting reduced our first quarter operating income by $2 million or 2 cents per share.

Revenue for the quarter decreased 2.6% from last year to $309 million. The decline was driven by two factors. First, 1.8% decline in unit volume due to lengthening reorder cycles and lower consumer response rate for our Direct Checks segment partially offset by new business we have gained from financial institutions. And second, a .9% decrease in revenue per unit primarily as result of continued pricing pressure in the financial services segment. The impact of this pricing pressure was partially offset by the continued strength in selling premium priced license and specialty check design and additional value-added products and services.

For the quarter, gross margin was flat at 65.4% of revenue. We continue to realize efficiency as a result of implementing lean manufacturing concepts. Productivity improvement and ongoing cost management efforts in our plants in distribution centers offset the impact of lower revenue per unit. Selling, general and administrative expense or SG&A as percentage of revenue was $38.9% compared to 38.7% in the first quarter of 2003. Although the percentage was up slightly, SG&A dollars decreased $3 million to $120 million for the quarter. Cost management efforts during the last two quarters and reduced discretionary spending were partially offset by higher advertising expense and the impact of expensing all stock-based compensation. As a result of the lower revenue, higher advertising cost and additional stock-based compensation expense ,our operating income decreased $3 million to $82 million. Our operating margin for the quarter was 26.5% of revenue compared to 26.7%, a year ago.

Interest expense increased a million dollars in the quarter due to higher debt levels. Our average debt level was $253 million, higher in the first quarter this year as a result of share repurchases. Now let's look at first quarter's results in each of the three businesses starting with Financial Services. Revenue decreased 5.9% to $167 million. The primary factor affecting revenue is lower prices on checks sold to financial institutions. As we've discussed before, Financial Services is experiencing heightened price competition as check usage declines. This competition has produced greater discounting as we have renewed or signed new contracts with financial institutions. Operating income increased 4% to $39 million. The company's cost management efforts during the last two quarters along with lower discretionary spending resulted in increased operating income in spite of the revenue decline.

Moving on, Direct Checks revenue decreased 4.6% from last year to $77 million. Both revenue and operating income declined as result of lower unit volume. The factors contributing to the lower volume were fewer checks being written as a result of growth in alternative -- longer the reorder cycles generated by promotional strategies for multi box orders and lower consumer response rate to direct mail advertisements. This lower unit volume was partially offset by revenue from premium price license and specialty check designs and value-added products and services. Operating income decreased $10 million to $22 million. Advertising cost for the quarter was $7 million higher than the previous year due to new product launches, higher customer acquisition cost and timing of promotional spending. For the full year we expect advertising expense to be flat for the remainder of the year meaning for full year advertising expense will increase primarily as a result of new product launches.

In our Business Services segment revenue increased 9.8% to $65 million and operating income increased 33% $22 million. Both improvements were due to new business and higher revenue per unit. Now to highlight a few other items from our balance sheet and cash flow statements. Net debt total debt net of cash decreased $8 million from the end of last year as we slowed the rate of share repurchase. Our total debt was $589 million at the end of the quarter. We are repurchasing shares more slowly as we near our maximum debt level of $700 million. We purchased half million shares during the first quarter at average price of $39.93 per share. As a result of our repurchase activity shareholders equity remains at a negative position. While we slowed our rate of share repurchase we believe that buying back our stock continues to be a prudent investment. The 10 million-share repurchase authorization that we currently have in place reflects our commitment to effectively put excess cash to work to maximize returns for all shareholders. A look at the cash flow statement shows that cash provided by operating activities was $49 million for the quarter compared to cash outflow of $6 million in the first quarter of last year. The increase was due to lower payments for performance-based employee compensation, lower contract acquisition payments and the 2003 changes in accounts receivable and deferred advertising. Contract acquisition payments for $4 million in the first quarter compared to $19 million in 2003. We anticipate operating cash flow to be in excess of $225 million for the full year up from $181 million in 2003. Capital expenditures for the quarter were $4 million, we anticipate spending approximately 30 million on capital projects this year. Free cash flow or cash remaining from operating activities after capital expenditures and dividend payments was $26 million for the quarter. Looking ahead we expect our second quarter EPS to be in the range of 80 to 83 cents per share with full year EPS of approximately $3.55 per share. These estimates exclude impact of any share repurchases subsequent to March 31. I look forward to taking your questions in a few minutes. First, I will turn the call back to Larry.

Thanks, Doug. As I mentioned in Doug's comments demonstrated Deluxe had a good first quarter. Particularly so in light of the changes that we face. Do the results of the first quarter mean our challenges are behind us? Unfortunately no. What our result dos show, I believe is that we are continuing to successfully manage our business given the conditions within the check-printing segment of the payment industry. I'll briefly recap these challenges for those who are less familiar with Deluxe.

First, the paper check is a mature project. Americans still write 40 billion checks a year and Deluxe prints about half of them. However, consumers are moving from checks to electronic forms of payment resulting in 3 to 4% decline in number of checks written per year. Deluxe unit volume decline is less than the rate we believe the industry is declining due to share gains. As a product matures over its lifetime tendency is for price to drop unless a company raises its prices. In the case of the check, the prices mean pressure from another source, financial institutions. As banks major and acquire one another they leverage their size in corresponding order volume against check prices. Our direct check business segment faced challenge necessary recent years. More than a year now I've been telling you about the rise in advertising cost and lower direct mail response rates, a condition impacting almost all direct response businesses. In addition, we've seen the reorder credit lengthen as result of fewer checks being written and our incentive design to increase the number of checks customers purchase for order. Another condition that continues to affect direct check system intro hopping. What I mean by this term, is that customers take advantage of low price introductory offer from one supplier and when it is time to reorder they move to a different printer in order to take advantage of that companies introductory offer. The last challenge I talk about today is the economy. The last half of 2003 did show an improvement in some economic indicators. But only recently has the employment rate improved and even that hasn't yet delivered a steady or consistent improvement. I speak to these issues because household formations and employment are two key drivers for our business.

If you are a regular listener to these calls you have also heard me talk about methods we are employing to minimize these challenges. For instance, we continue to manage our cost aggressively. Here are just a few examples. As the demand for checks declines and we reap the benefit of implementing lean manufacturing principals and converting to cellular printing environment, we are able to do more with less. Last year we announced the consolidation of three printing plants, Indianapolis, Pittsburgh and San Jose. We completed consolidation of Indianapolis in early March and on target to close the two facilities during the second quarter. All three of these printing locations served our Financial Services business segment. Earlier this month we announced we would close Anniston, Alabama facility. This is a manufacturing and call center site where employees serve customers our Designer Checks brand. Deluxe acquired Designer Checks a little more than four years ago and the Designer brand has been a tremendous asset to our Direct Checks business segment.

Closing the Anniston check printing facility will allow us to move Designer Checks orders to direct check facility in Colorado Springs. Thereby accomplishing several things. For example, one, we will maximize the manufacturing capacity of our Colorado facility and two, we will void future cost of replacing equipment in the Anniston facility. We expect to complete the transition of Anniston's work to Colorado Springs by the end of this year. The decision to close a facility any facility is always a difficult one. It comes only after considerable thought and discussion. Losing a job is never easy for anyone we try to mitigate the disruption for our employees by treating them fairly and with dignity and respect during the consolidation process and providing severance and outplacement support. Because of theses and other actions initiated last year and early this year we have reduced our employee count 6.5% since the first of January.

Let's move on to Business segments highlights. First Business Services. DBS have another strong quarter. Even though checks are responsible for the majority of business services sales volume of checks sold to small businesses has continued to remain steady even as checks overall are declining gradually. We continued to deliver strong number necessary our referral program. Our financial institution clients and partners see the benefit of having the product experts serve their small business customers. Once exposed to our product, services and flexible order channels these small businesses return to us for repeat orders. Another area within Business Services where we are seeing favorable reorder number is within business cards and stationery, a fairly new product line for us. Although we are now just approaching the typical reorder cycle of these types of products of 18 to 24 months, 10% of our customer vs already reordered.

Last quarter I shared with you that the number of small businesses formed in the United States increased in 2003. While some sources indicate those levels might not carry into '04, a document just published by the National Federation of Independent Business predicts and I quote "overall 2004 continues to look like the best economy in a very long time." And while on the general topic of small businesses I'd like to take a couple minutes to talk about this segment of customers. One that is much different from the Financial Services segment. If when you think of small businesses you picture a person working out of a bedroom or garage office selling products or services to other businesses within the immediate area you underestimate this sector. Small businesses do include sole proprietorships without employees, but small business associations' office of advocacy defines a small business as independent company with fewer than 500 employees. To get a sense of the value of small businesses to the U.S. economy consider the most recent government statistics. Small businesses represent 99.7% of all employers. They employ half of all workers in the private sector. They generate more than 44% of the total U.S. private payroll. On a net basis small businesses create ass much as 80% of the new jobs annually and they are responsible for more than 50% of the non-farm private gross domestic product.

In 2002 there were almost 23 million small businesses in the United States. 23 million businesses that needed checks, stationery, envelopes, business cards, personalized stamps, forms promotional items and myriad of other products to conduct their business. In addition to the statistics I just mentioned, small businesses also are dynamic group. For every business that closes its doors in given year and unfortunately a lot of them do another one opens in it's place. Based on these figures small business sector is self-propagating and Deluxe business services and pursuing it aggressively.

Not only is the number of potential customers considerable, but also business services has become quite adept at acquire retaining customers. Once a customer makes a second purchase we are able to retain them 90% of the time. We've had success in improving what marketing folks refer to as our Share of Wallet. Put in business services terms, we are able to convert customer that is typically purchase just checks from us into purchasers of other products. We also get an assist in retaining customers and growing customer satisfaction from technology through analytics and data decision software programs we are able to target customer specific marketing offers in order to retain their business and grow their loyalty.

Let's move on to Business Services highlights for Financial Services. I'll begin with update on Deluxe Select. Our program that puts customers of financial institution clients in touch with Deluxe sales and service agents. At end of the first quarter more than 4000 financial institutions had enrolled in the program. Deluxe Select is one of the features that differentiates Deluxe from the competition. It is the vehicle that allows us to promote the right product at the right price to the right channel, all on behalf of our financial institution clients. By choosing Deluxe Select a bank or credit union increase revenue, efficiency, accuracy and overall satisfaction with its check program. Mostly tied to the program is our new can the featuring Deluxe's 2004 line of checks and accessories. By using the Internet or industry-leading call centers, customers of financial institution client have access to largest selection of personal, business and accessory products we've ever offered. The expanded can the features 68-check designs and 12 new and premium license packages.

As I introduced on our last quarterly call, our financial services segment adopted a more focused selling approach. DFS will retain clients by targeting financial institution that want a business partner, not just a supplier. An alliance with a company that has experience and customer knowledge to enhance the check program rather than a company willing to settle for just taking the check order. Finally, DFS will focus on financial institutions that insist upon high quality and superior service for its customers, not just the cheapest checks they can find. I will set a couple of examples of clients that-is very recent. First, Synovus a large financial services holding company headquartered in Columbus, Georgia. Synovus has been our client for three years now and recently expanded the reality. Synovus representative said this about their relationship with us. "Deluxe's team dedication exemplifies Synovus pledge to offer the finest personal service and products to our customers. We look forward to more opportunity to strengthen our consumer relationship with Deluxe." The second example of a financial institution choosing Deluxe for the quality that is set us apart from the competition is New York-based Astoria Federal Savings. Astoria is the sixth largest thrift in the United States and they recently chose Deluxe for their check related product needs for a number of reasons. I'll cite just a few. Our conversion expertise, our highly sought after specialty and license image check designs and our dedication to customer service.

Now let's move on to update of our third business segment, Direct Checks. Last quarter I announced that Direct Checks introduced product line of address labels at the beginning of this year. We feature 17 available designs in our print promotional pieces and both of our brand Web sites. As orders come in for new items from this new line Direct Checks continues to test the product in terms of offers, advertising placement and the creative approach in order to maximize this product's full potential. We've also established additional Web site called --to promote this product line. A product specific tightening maximizes our exposure to customers to use search engines to find products of interest. We also promote the labels to customers as part of their online check purchase.

I also want to update Direct Checks product I mentioned briefly last quarter. ID theft card, contains four components, the first is set of guideline that provides tip on preventing identity dealing with it if it happens. The second is a free credit report. Id theft cards two other pieces are geared for theft victims. The first element provides access to a personal case manager as well as a reduced fee attorney network. The other product component of id theft card is $5000 worth of insurance coverage that reimburses victims for their losses as they focus on reestablishing their identities. Beginning in June, Direct Checks will offer enhanced of ID theft card that will include ongoing credit monitoring and e-mail alert service when something out of the ordinary is detected. We expect this service to be popular with our customers because identity theft is the nation's fastest growing crime. It is the number one concern among consumers who contact the Federal Trade Commission. According to a study done in July of 2003 by Gardner Research and Harris interactive, approximately 7 million people became victims of identity theft in the prior 12 months. Translated to a number that is easier to relate to, during the hour or so this call will take 800 more people will become victims of identity theft. Our Direct Checks identity theft related products are affordably priced.

With the business segment covered I would like to share one more piece of general business news. I am pleased to report that institutional shareholder services has once again recognized Deluxe as the leader in corporate governance, ISS is the world's leading provider of proxy and corporate government analysis to institutional investors. ISS assigned us S&P 500 index rating of 98.1 and industry ranking of 100. Meaning Deluxe outperformed 98.1% of the company's in the S&P 500 and 100% of the companies in our peer industry group. ISS rates companies and corporate governance according to criteria such as director independence word processes, shareholder rights, executive compensation, stock ownership policies and disclosure practices. Naturally weaver are extremely proud of our scores. Even more though, we believe the results of the ISS analysis provide one more independent confirmation that Deluxe is focused on the interest of our shareholders and all aspects of our business.

Before closing with the business outlook I would like to remind all shareholders and other interested parties Deluxe will hold annual meeting of shareholders next Tuesday at our headquarters in ShoreView, Minnesota. You can listen to both the business and my Chairman's address at www.deluxe.com.

Now, for that business outlook. Ass Doug mentioned, we expect second quarter diluted EPS to be between 80 and 83 cents per share and 2004 results to reach $3.55 per share excluding the impact of any share repurchases after March 31, 2004. We believe these targets are reasonable as well as attainable particularly as we continue to be relentless at managing our cost and working to increase revenue per order. Now, Doug and I will be happy to take your questions.

[OPERATOR INSTRUCTIONS]. Our first question will come from the line of Isaac Schwartz with Robady and Company(ph). Please go ahead.

Hi, good morning.

Good morning.

I was hoping that you could first talk about your thoughts on what the revenue mix will be about maybe three to five years out, if you had opinions on that? And I was hoping that you could also outline your CAPEX plans over that time. And I was also hoping that you could talk about what you thought of prudent debt level for your company is. I mean, I understand there is the $700 million maximum, but clearly you guys could prudently take on a higher debt level than that just given the way your business has been going. I was wondering if you had an opinion on what you thought was safe. And lastly, I was opening that you could talk more about ID theft and what other products are customers are using your ID theft services, what other products are they also buying?

This is Larry. Let me take a couple and I will ask Doug to comment on the debt levels. First of all, in these day and age it is pretty difficult to forecast five years out, let alone few years, let alone five years out.

Of course.

I think what you will see is continue of the trend seen in our three business units with our Business Services segment who had revenue increases and the greatest downward pressure has been on the Financial Services business and that followed secondly with our Direct Checks. So, I think we'd see those three trends moving forward continuing. We don't see anything that would cause those trends to be altered. As a more macro basis and going to your CAPEX question, as well, we have continued to say that we would invest in our business in areas that would increase revenue profitably increase revenue, as well as increase our operating efficiencies. So as it relates to that we would continue to look at new products both organic as well as potentially acquisitions that would be adjacent to our core space and leverage our core competencies. And if we were to do that, that also could alter our product mix relative to your first question. On the CAPEX, we continue to look at every expenditure of a dollar relative to the return that it will make and prioritize those. So, as Doug has commented we have seen our CAPEX this year would probably be at the $30 million level. Moving out in the five years it would be dependent on what opportunities presented themselves and the return they would generate. Before we get to ask Doug to comment on debt level on the ID theft, that is a new product level for us and one of the things we've talked about over the last couple of years is looking at new product development and that we will be looking at that relative to our other business units and each one of our three business units addresses very specific segments of the market. The opportunity is there. We will look at developing that and other products that would relate to that. So let me stop there and ask Doug to comment on debt level.

Sure. I will touch on one thing for you Isaac, additional insight into CAPEX to give you historical context. Since 2001 included through 2004 our capital expenditures spending has ranged anywhere between 22 and $41 million this year as Larry mentioned that we are looking at approximately $30 million this year and I think that is beneficial for a context and a level set. Regarding our debt level, when we established the maximum $700 million target we did significant amount of work looking at what was appropriate given our company, given it's ability to generate cash flows and strong cash flows and what that meant for our borrowings, our interest level and what we are going to use that cash for. So establishing the $700 million we took into account we would be able to maintain a strong investment rate credit rating meaning we would be able to maintain access to the A1-P-1 private commercial paper market so for example commercial paper that we borrow today we're borrowing less than 1.1%. So we have very low borrowing rate on that commercial paper. That's a major factor. We also look at the company's ability to continue to sustain cash flow longing into the future. And as Larry mentioned, we want to provide ourselves the capability to invest in projects that either take out cost in productivity or drive revenue increases.

Finally, we also spoke when we announced the financial strategy that we wanted to have cash available in some regard to consider acquisitions that were appropriate to Deluxe. Meaning that we would look at either core space or adjacent spaces to look for opportunities, to expand our product line, expand product or channel presence. So those are some of the thoughts that go into our debt level and our debt target of $700 million.

O. Thank you and congratulations on the quarter.

Thank you Isaac.

And we'll go to the line of Stuart Goldberg with PSG Capital.

Good morning, great quarter, guys. Couple of quick questions. The guidance for the year now is moving up by a nickel, yet the guidance for the - or the actual numbers for the first quarter were substantially higher than the guidance originally given. So are we kind of putting some money in our pocket here or is there something on horizon in Q2, 3 and 4 that you see that may give us a bit of a speed bump? And then the second question and also on the debt limit, the way I calculate it, if you hold to the $700 million debt limit there is roughly 2.7 million shares more that you could buy at the current levels. And I wanted to know let's say you get to the $700 million level and you are done buying back stock, what do you forecast or think would happen next?

Ok. Let me answer those questions. First of all, related to the guidance flowing through. Our intent is not to indicate in any way that we see any speed bumps out there. We do not see that, as you had anticipated. There will come spending within a quarter or within a year can be affected by timing. So we have flowed through nearly all of the upside from the first quarter through to the full year and that's our intent. Related to $700 million limit and additional shares we can repurchase. We would continue to repurchase shares as we have been when we reach that point we still continue to generate a substantial amount of operating cash flow and free cash flow meaning operating cash flow after CAPEX and dividends. So, we would continue to put that cash to work either through share repurchase, through capital investment or through another alternative form.

Has management and board looked at an LBO at this point in time? I mean if that is what you plan on doing and will limit your debt limit, your debts to $700 million and then you are going to use the cash flow as it comes in every quarter to buy back stock, at some point I mean, you either happy with the stock price or you're not and you need to do something more drastic. Has management gone through that thought process of an LBO of the company or anything along those lines?

We would not comment on that kind of a question. However, I think it is safe to say is that the company always every year on a continuing basis evaluates where we're at and what the outlook looks like and what our cash flows are and the best use of that cash to create a return for the shareholder. So, you know the fact that we have that debt level today is something that we still feel and supports the right thing. But we would evaluate all of our alternatives on a regular basis. It is just part of the work of the management as well as our Board of Directors.

Thank you, gentlemen. Congratulations.

Thank you.

Our next question comes from Brian Foote with IRD Independent. Please go ahead.

Thank you very much. Congratulations on the good results.

Thank you, Brian.

I have a few questions. Baked into our assumption about EPS for this year what could we look at in terms of your unit assumptions on the check side of the business?

Uh, I think the for us what we would say is that we see the industry running down about 3 to 4%. We think that we will be slightly lower than we were this year. We think that that's going to happen for the entire industry. And so I'd say that we'd probably see our unit decline maybe increase a little bit as we move throughout the next three quarters. But we'll still be in I think end up the year about where the industry is.

Ok. And then, another line item to consider. What kind of headcount reductions are assumed in that and in the consolidations that we're -- we have announced today in terms of the status of Pittsburgh and San Diego?

In terms of the staffing reductions, the ones that are incorporated into that plan reflect the announcement of plant closings in San Jose, Anniston and Pittsburgh. Those are the additional reductions that would be anticipated.

Ok. Great. Just drilling down on the CAPEX side. Of those numbers that were capital expenditures in prior years, what in that is the maintenance CAPEX on the facility and since you are closing facilities this year how do those facilities no longer in the mix play percentage wise for CAPEX?

Our capital spending for the year is not significantly impacted by the closing of the facilities except to the extent we need to relocate work from those closed facilities to other places. So, we are spending some money to provide some capability in those places. A significant amount of our capital spending is in a number of companies is associated with our systems area throughout the year.

Ok. From my perspective, I was asking more in terms of what kind of effect on prior capital expenditures did these facilities have vis-a-vis we should be seeing improvement over time, I would assume, if those facilities are no longer there.

Right, with facilities no longer there, you are correct. That would gradually flow through and effect capital spending. Our maintenance CAPEX we have indicated previously it is approximately $20 million. We've indicated that in our K that we filed recently. That's about our maintenance level and we still anticipate that for this year.

Great. Now, in terms of the stationary business it looks like you're seeing better than expected growth and is there a way for us to model or to look at that in terms of an attach rate to existing customers and what your planned attach rate is going to be in terms of both new customers from the existing base buying stationery and also existing customers renewing their stationery commitments?

Yeah, I think at this point it is much too early for us to provide any guidance and forecast on that and usually we do not, Brian, simply because of the competitive small number of players and the competitive nature of the industry. But I think it is in that we do have the ability to ass I said in my comments to increase share of wallet as we have an opportunity to add-on incremental products and services to the primary driver of our orders, which is the check. So, it gives us reason to be optimistic about that strategy and continuing to look for products and services that we can add to that.

Great. Well, congratulations on the good results and thanks for taking my questions.

Thank you, Brian.

[OPERATOR INSTRUCTIONS] We will go to the line of Chris Hannahan (ph) with Cigna (ph). Please go ahead.

Good morning, guys. Hi. Just a follow-up on the question about guidance. What was the impact of the share repurchase on EPS for this quarter?

Uh, compared to last year the impact was 14 cents.

Ok. Uh, so I guess that gets us to 80 cents for this quarter? Is that right if I back that out?

Correct.

Ok. Uh, you guided to 85 to 88 excluding the impact. So you really I guess taking guidance out from 3.45 to 3.55. My question is given the unit declines going forward and the consolidated revenue per unit going down how are we going to get that upside?

Chris, let me first make sure we're on the same wavelength in terms of the first question I answered. The impact of share repurchases on the quarter relative to the guidance that we provided was less than a penny. Compared first quarter this year compared to first quarter last year the impact was 14 cents.

Ok.

Terms of the guidance it didn't play a role in achieving the 94 cents compared to the guidance.

All right. So 93 cents as opposed to 94?

Uh, yes, it's less than a penny between 93 and 94 cents. Correct.

Ok.

[OPERATOR INSTRUCTIONS] We will go to the line of Andrew Jones with NorthStar Partners. Please go ahead.

Good morning, guys. Couple questions. Doug in your comments you talked about reduced discretionary spending and the positive impact that had. I was curious if you could give more color on that? Is that something the absolute level of spending has been lowered and it is sustainable or did it shift around between quarters and ends up evening out?

Uh, there is some aspect that is timing related in terms of discretionary spending. Some of that relates to marketing dollars and the timing of that spends. Some of it relates to our IT information technology projects. We have reduced some spending in that area on some Legacy systems. So some of that is will continue to be lower going forward.

Ok. Uh, the closing the Alabama facility will that generates any kind of extraordinary cost or charges or how will that play out?

It will produce some going forward charges to us. There is a small charge taken into our numbers in the first quarter. It was very minor. The severance will be reflected in the future as we accrue toward the end date why we anticipate closing at late this year in the fourth quarter.

Ok. Lastly, on the debt that you guys have out now I guess $300 million in a note that is fixed. Is everything else variable and could you talk a little bit about where you would like to see the mix of fixed versus variable going forward?

Given the interest rate environment that we have today, we have took advantage of issuing the $300 million. We wanted to in this environment move more toward a higher amount of fixed or longer term and fixed but we also like to have some floating. From an ideal standpoint, we like about where we are today with the floating rates.

Ok. Thank you.

Mr. Mosner, we have no further question necessary queue. I'll turn the conference back to you.

Thank you, Gail. Thanks to our audience for attending today's call. In closing I'd like to say that I believe the results Doug and I just covered are evidence Deluxe is successfully managing our business while dealing with a number of challenges. The decisions we're making support our commitment to improved productivity and reduced cost . I'll turn the call back to Stuart.

Couple brief announcements. Deluxe will participate in the Davidson and Company's sixth annual financial services conference to be held at the Bell Harbor International Conference Center in Seattle on May 5 and 6. Our 45-minute presentation is schedule for 10:15 on the 5th and you can listen to the audio and view slides via Web cast by following the links on the investor relation's page at www.deluxe.com.

I also want to mention that Deluxe will report second quarter earnings on July 29 and hold a conference call and Web cast at 10 o'clock central time on that date. And finally, a replay of this call will be available until May 6, 2004 by dialing 320-365-3844. When instructed provide the access code 726890. The audio presentation and accompanying slides also will be archived on Deluxe's Web site, www.deluxe.com.. Again, we'd like to thank you for joining us today.