Consolidated financial statements

9 Months Ended

Sep. 30, 2021

Organization, Consolidation and Presentation of Financial Statements [Abstract]

The consolidated balance sheet as of September 30, 2021, the consolidated statements of comprehensive income (loss) for the quarters and nine months ended September 30, 2021 and 2020, the consolidated statements of shareholders’ equity for the quarters and nine months ended September 30, 2021 and 2020 and the consolidated statements of cash flows for the nine months ended September 30, 2021 and 2020 are unaudited. The consolidated balance sheet as of December 31, 2020 was derived from audited consolidated financial statements, but does not include all disclosures required by U.S. generally accepted accounting principles (GAAP). 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 items 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, 2020 (the 2020 Form 10-K).

The preparation of our consolidated financial statements requires us to make certain estimates and assumptions affecting the amounts reported in the consolidated financial statements and related notes. We base our estimates on historical experience and on various other factors and assumptions that we believe are reasonable under the circumstances, including the estimated impact of extraordinary events, such as the novel coronavirus (COVID-19) pandemic, the results of which form the basis for making judgments about the carrying values of our assets, liabilities, revenues and expenses and the related disclosure of contingent assets and liabilities. Actual results may differ significantly from our estimates and assumptions, including our estimates of the severity and duration of the COVID-19 pandemic. Further information can be found in Note 17.

Revision – During the second quarter of 2021, we identified errors in the calculations of the goodwill impairment charges recorded during the third quarter of 2019 and the first quarter of 2020, resulting in an understatement of the goodwill impairment charges and net losses and an overstatement of goodwill. The errors in our calculations resulted from the erroneous application of the simultaneous equation method, which effectively grosses up the goodwill impairment charge to account for the related income tax benefit, so that the resulting carrying value does not exceed the calculated fair value.

We assessed the materiality of the errors on prior period 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 errors were not material to our prior period consolidated financial statements and therefore, amendments of previously filed consolidated financial statements are not required. In accordance with ASC 250, we have corrected the errors by revising the consolidated financial statements presented herein. Prior periods not presented herein will be revised, as applicable, in future filings.

The adjustments for the third quarter of 2019 resulted in an increase of $30,110 in the pretax asset impairment charges. Net of the related tax benefit of $6,228, this resulted in an increase in net loss of $23,882 for the third quarter of 2019 and the year ended December 31, 2019. Revised basic and diluted loss per share for the year ended December 31, 2019 increased from $4.65, as previously reported, to $5.20. The adjustments for the first quarter of 2020 resulted in an increase of $3,776 in the pretax asset impairment charges. Net of the related tax benefit of $212, this resulted in an increase in net loss of $3,564 for the first quarter of 2020 and a decrease in net income of $3,564 for the year ended December 31, 2020. Revised basic earnings per share for the year ended December 31, 2020 decreased from $0.21, as previously reported, to $0.12. Revised diluted earnings per share for the year ended December 31, 2020 decreased from $0.19, as previously reported, to $0.11. The impacts of the revisions on the periods presented herein are provided in the following tables.

The impact of the revision on the consolidated statement of comprehensive loss for the nine months ended September 30, 2020 was as follows:


(in thousands, except per share amounts)	As previously reported		Adjustments		As revised
Asset impairment charges	$	(97,973)	$	(3,776)	$	(101,749)
Operating income	7,921		(3,776)		4,145
Loss before income taxes	(1,851)		(3,776)		(5,627)
Income tax provision	(13,958)		212		(13,746)
Net loss	(15,809)		(3,564)		(19,373)
Net loss attributable to Deluxe	(15,855)		(3,564)		(19,419)
Total comprehensive loss	(20,766)		(3,564)		(24,330)
Comprehensive loss attributable to Deluxe	(20,812)		(3,564)		(24,376)
Basic loss per share	(0.38)		(0.08)		(0.46)
Diluted loss per share	(0.40)		(0.08)		(0.48)

The impact of the revision on the consolidated balance sheet as of December 31, 2020 was as follows:


(in thousands)	As previously reported		Adjustments		As revised
ASSETS
Deferred income taxes	$	5,444	$	1,198	$	6,642
Goodwill	736,844		(33,886)		702,958
Total assets	1,874,863		(32,688)		1,842,175
LIABILITIES AND SHAREHOLDERS' EQUITY
Deferred income taxes	$	10,643	$	(5,242)	$	5,401
Retained earnings	522,599		(27,446)		495,153
Total shareholders' equity	540,838		(27,446)		513,392
Total liabilities and shareholders' equity	1,874,863		(32,688)		1,842,175

The impact of the revision on the consolidated statement of cash flows for the nine months ended September 30, 2020 was as follows:


(in thousands)	As previously reported		Adjustments		As revised
Cash flows from operating activities:
Net loss	$	(15,809)	$	(3,564)	$	(19,373)
Asset impairment charges	97,973		3,776		101,749
Deferred income taxes	(9,395)		(212)		(9,607)