10-K405: Annual report [Sections 13 and 15(d), S-K Item 405]

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934. FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000.

Commission file number 1-7945.

DELUXE CORPORATION

(Exact name of registrant as specified in its charter)

Minnesota 41-0216800
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

3680 Victoria St. N., Shoreview, Minnesota 55126-2966
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (651) 483-7111.

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

Common Stock, par value $1.00 per share New York Stock Exchange
(Title of Class) (Name of each exchange on which registered)

Securities registered pursuant to Section 12(g) of the Act: None.

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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [X]

The aggregate market value of the voting stock held by non-affiliates of the
registrant is $1,685,824,790 based on the last sales price of the registrant's
common stock on the New York Stock Exchange on March 7, 2001. The number of
outstanding shares of the registrant's common stock as of March 7, 2001, was
70,644,880.



Documents Incorporated by Reference:

1. Portions of the registrant's annual report to shareholders for the fiscal
year ended December 31, 2000, are incorporated by reference in Parts I and
II.

2. The registrant's definitive proxy statement to be filed within 120 days
after the Company's fiscal year-end is incorporated by reference in Part
III.



PART I

ITEM 1. NARRATIVE DESCRIPTION OF BUSINESS

OVERVIEW
Deluxe Corporation is the largest provider of checks in the United States,
both in terms of revenue and number of checks produced. We sell checks and
related products to individuals and small businesses. In addition, we produce
computer and business forms on a small quantity order basis, including
continuous forms, deposit tickets, invoices, statements, tax forms and labels.
Our checks and business forms are compatible with nearly all of today's
off-the-shelf accounting software packages. We also sell accessories, such as
checkbook covers, deskbooks and rubber stamps. In addition, we offer products
and services to our financial institution clients and consumers, such as
protection from check order fraud. Our products and services are sold entirely
in the United States.

Our company was incorporated under the laws of the State of Minnesota in
1920. From 1920 until 1988, our company was named Deluxe Check Printers,
Incorporated. Our principal executive offices are located at 3680 Victoria
Street North, Shoreview, Minnesota 55126-2966, telephone (651) 483-7111.

DISCONTINUED OPERATIONS
Consistent with its stated intent to enhance shareholder value, our board of
directors declared a distribution of eFunds Corporation (eFunds) common stock
owned by Deluxe to all holders of our common stock as of 5:00 p.m., central
standard time, on the record date of December 11, 2000. On December 29, 2000, we
distributed our 40 million eFunds shares, representing approximately 88% of
eFunds outstanding shares, on a pro rata basis to our shareholders. Our
shareholders received .5514 share of eFunds common stock for each share of
Deluxe common stock held. Cash was issued in lieu of fractional shares. As a
result of this distribution, eFunds is now a completely independent company. Our
Consolidated Financial Statements set forth in Item 8 below contain further
information regarding eFunds as a discontinued operation.

eFunds provides transaction processing and risk management services to
financial institutions, retailers, electronic funds transfer networks,
e-commerce providers and



government agencies and also offers information technology consulting and
business process management services.

INDUSTRY BACKGROUND
Payment systems and methods have been changing in the United States in recent
years as banking and other industries have introduced alternatives to the
traditional paper check, including, among others, automatic teller machines,
credit cards, debit cards and electronic payment systems, such as electronic
bill presentment and payment. Use of these payment alternatives is negatively
affecting the number of checks written.

According to our estimates, growth in total checks written by individuals and
small businesses, the primary purchasers of checks, was flat in 2000 compared to
1999. We believe that the number of checks written by individuals and small
businesses will eventually decline due to the increasing use of alternative
payment methods. Although individual and small business check writing has not
yet begun to decline, the total number of personal, business and government
checks written in the United States has been in decline since 1997. We believe
the decline in personal, business and government checks is due to the increasing
use of the alternative payment methods, increasing use of direct deposits for
payroll and government transfer payments, and changing payment practices at
large businesses and government agencies.

The most common method by which consumers order checks is through financial
institutions. We believe such orders comprised approximately 73% of all check
sales to individuals and small businesses in 2000. Orders originating in this
manner are sourced through financial institutions such as banks, savings and
loan institutions, credit unions, brokerages and other financial institutions.
In recent years, margins on check orders obtained through financial institutions
have been pressured by competitive factors and by the consolidation in the
financial institution industry. Margin pressure arising from consolidation in
the financial institution industry is a result of merged entities seeking not
only the most favorable prices formerly offered to the predecessor institutions
but also additional discounts due to the greater volume represented by the
combined company.

The direct-to-the-consumer method of ordering checks emerged in the mid-1980s
based upon consumer desire for lower-priced alternatives to checks obtained
through financial institutions and the ability to obtain enhanced design
selections. We believe that direct sales to individuals and small businesses
have slightly increased from 1997 to 2000. Direct-to-the-consumer checks are
marketed to individuals and small businesses primarily through newspaper and
magazine inserts, direct mail advertisements, catalogs and the Internet.

DELUXE'S PRODUCTS AND SERVICES
For the past 85 years, we have provided check printing services to consumers
through financial institutions. We have developed relationships with financial
institutions where the financial institution agrees to offer checks we produce
to its customers. We provide



these checks to these customers at prices negotiated by their financial
institutions. Customers commonly submit initial check orders and reorders to
their respective financial institutions, who then forward those requests to us.
Printed checks are always shipped directly by us to the customers. Our charges
are usually paid by electronic transfer directly from the customers' accounts.
We typically produce and ship check orders within two days after the receipt of
an order. We sold checks through more than 10,000 financial institutions during
2000.

Our relationships with specific financial institutions are usually formalized
through supply contracts averaging three to five years in duration. We are
committed to our financial institution relationships and seek to strengthen and
expand them by emphasizing the breadth and value of our checks and related
products and services. While the majority of our check orders are generated
through our relationships with financial institutions, we also offer checks and
related products directly to individuals and small businesses.

We increased our direct-to-the-consumer selling in the 1980's in response to
the changes in the industry, although we have been selling products directly to
consumers since our first catalog was produced in 1918. In 1987, we expanded our
direct-to-consumer selling through an acquisition. We use a variety of direct
marketing techniques to acquire new customers in the direct-to-the-consumer
market, including free-standing inserts in newspapers, direct mail, catalogs and
referrals from other third parties, including our financial institution clients.
We also use Internet banner advertising and hyperlinks to direct traffic to our
websites. We have been emphasizing telephone and Internet contacts because they
are more effective than mail for our selling efforts.

We have three websites that sell checks and related products directly to
customers: www.checksunlimited.com, www.designerchecks.com and
www.deluxeforms.com. Currently, almost ten percent of our orders received
directly are obtained from customers via the Internet. We received over one
million Internet orders for our checks and forms in 2000.

As part of our growth strategy, we acquired Designer Checks, Inc. in February
2000. This acquisition provided us with access to additional customers, as well
as additional capacity, new product configurations such as a side tear option,
and additional background designs for our checks. As part of our growth and
e-commerce retailing strategies, we have offered many of our business partners
access to our small business website so that their customers can order online
with us. Although orders from new customers obtained in this manner are not a
significant contributor to our revenue at this time, we believe that this
additional order capture medium will allow customers to access a wider range of
products and services and will provide further convenience when placing orders.
We believe this will increase customer satisfaction and encourage repeat sales.

Due to our belief that the individual and small business segments of the
check industry will eventually decline due to the increasing use of alternative
payment methods, we have implemented measures to reduce costs of production and
other cost management




measures. In 1996, we announced a plan to close 21 of our financial institution
check printing plants over a two-year period in order to better manage our cost
structure. Four additional plant closings were announced in 1998. The plant
closings were made possible by advancements in our telecommunications, order
processing and printing technologies. By the end of 2000, all of the production
functions in these 25 plants were closed. Four of the order capture and
processing functions remain open and are expected to be closed in 2001. We have
also outsourced many non-strategic areas, such as information technology (IT)
application development, mail processing and certain data entry and accounting
functions.

Our checks offer consumers opportunities to express their personal style,
which is a key element in our customer merchandising approach. In addition to
including basic name and address information on their checks, customers may add
other details and may choose from many variations in the format and style of
their checks, including:

* selection of type fonts;

* placement of information on the check;

* approximately 200 distinct background designs, including
choice of plain safety paper designs or background designs,
including specially licensed designs from companies such as
Disney (R), Coca-Cola Company, Warner Bros. and NASCAR Inc.;

* choice of paper and ink color;

* choice of top or side tear options; and

* choice of stubs or duplicate copies.

Over the last several years, we have begun offering enhanced services, such
as customized reporting services, file management and expedited account
conversion support, to our financial institution clients in order to increase
efficiency and our revenue. We continue to offer our SecureMail(TM) service,
which we implemented in September 1999, to help protect financial institutions
and their customers from check order fraud.

The primary raw materials used in producing our products are paper, ink and
cartons. We purchase paper, ink and cartons from various sources. We believe
that supplies of our materials are sufficient to meet our planned operating
needs for the foreseeable future. We also utilize a paper printing plate
material that is available from only a limited number of sources. We believe our
source provides a reliable supply of this material and that it maintains an
inventory sufficient to avoid any production disruptions in the event of an
interruption of its supply.




OUR STRATEGY
Our strategy is to strengthen our leading position in the markets in which we
compete by leveraging our core competencies, which are personalization, direct
marketing and e-commerce, adding services and expanding product offerings to
retain and gain market share. Key elements of our strategy are to:

* LEVERAGE CORE COMPETENCIES TO DEVELOP NEW SOURCES OF REVENUE
THROUGH NEW AND EXPANDING PRODUCT OFFERINGS WITHIN OUR
EXISTING BUSINESSES.

PROVIDE ADDITIONAL SERVICES AND NEW PRODUCTS. We intend
to sell additional services and new product offerings to
our existing customers. For example, we recently
introduced a line of Disney(R) check designs. This marks
the first time that Disney(R) characters have appeared on
personal checks and related products.

PURSUE EXPANDED PRODUCT OFFERING OPPORTUNITIES. We intend
to maximize revenue per order by pursuing expanded
product offering opportunities within our existing
customer base. For example, our customers have specific
preferences and requirements. When we take reorders
directly via the Internet and our voice response unit
from financial institution customers, we have an
opportunity to directly focus on their preferences and
requirements. This allows us the opportunity to sell more
products and additional services to them. We intend to
expand our direct contact with customers by providing
them with the ability to process reorders by speaking
directly to a person via the telephone. We also pursue
cross-selling opportunities by placing advertising
inserts in the boxes of checks we ship and by placing
hyperlinks on our websites.

* FURTHER EXPAND OUR PRESENCE ON THE INTERNET. Consumers'
willingness to do business via electronic methods is
beneficial for us due to the accuracy, efficiency and
convenience of this medium. In addition, the Internet allows
us to connect directly with check writers, affording us the
opportunity to improve product mix and customer satisfaction.

* INVEST IN TECHNOLOGY AND PROCESSES THAT WILL LOWER OUR COST
STRUCTURE. We intend to continue to manage our costs carefully
and to invest in technology and processes to increase
operating efficiency in our business. In recent years we have
implemented a number of programs to control expenses and
increase efficiency, such as consolidating plants, improving
production capacity, implementing electronic customer
interfaces and outsourcing certain IT application development
and mail processing functions.




* CONSIDER ACQUISITIONS THAT LEVERAGE CORE COMPETENCIES, ARE
ACCRETIVE TO EARNINGS AND GENERATE CASH FROM OPERATING
ACTIVITIES. For example, we acquired Designer Checks, Inc. in
February 2000 which contributed positive earnings and cash
flow to our operations.

COMPETITION
The check printing industry is highly competitive. We expect that competition
will intensify as the overall check industry continues to mature and decline. We
face competition from alternative electronic payment systems such as automatic
teller machines, credit cards, debit cards and electronic payment systems, such
as electronic bill presentment and payment. We also face considerable
competition from at least six other check printers. Electronic commerce is new,
rapidly evolving and intensely competitive. As we expand our e-commerce
presence, we will face competition from check printing software vendors and from
Internet-based sellers of checks and related products to consumers, such as
iPrint or ImageX.

In the check printing industry, the principal factors on which we compete are
service, convenience, quality, product range and price. From time to time, some
of our check printing competitors have reduced the prices of their products in
an attempt to gain greater volume, and the corresponding pricing pressure placed
on us has resulted in reduced profit margins for us in the past. We have also
experienced some loss of business due to our refusal to meet competitive prices
that fell below our profitability targets. Similar pressures may result in
margin reductions in the future.

GOVERNMENT REGULATION
We will be subject to the privacy requirements of a new federal financial
modernization law known as the Gramm-Leach-Bliley Act, enforcement of which will
begin in July 2001. Regulations implementing the Act require each regulated
entity to develop and implement policies to protect the security and
confidentiality of consumers' nonpublic personal information and to disclose
those policies to consumers before a customer relationship is established and
annually thereafter.

The regulations will require us to provide a notice to our consumer customers
to allow them an opportunity to remove their nonpublic personal information from
our files before we share their information with certain third parties. The
regulations, including the above provision, may limit our ability to use our
direct consumer data in our businesses. However, the regulations allow us to
transfer consumer information to process a transaction that a consumer requests
and to protect the confidentiality of a consumer's records or to protect against
or prevent actual or potential fraud, unauthorized transactions, claims or other
liability. We are also allowed to transfer consumer information for required
institutional risk control and for resolving customer disputes or inquiries. We
may also contribute consumer information to a consumer reporting agency pursuant
to the Fair Credit Reporting Act.




We are evaluating the methods by which we will comply with the regulations
and any related contractual requirements. Further, we anticipate that our
financial institution clients will request various contractual provisions in
their agreements with us that are intended to comply with their obligations
under the Act and regulations.

We have entered into an agreement, effective until July 1, 2001, with eFunds
pursuant to which we will contribute consumer information to eFunds. eFunds has
agreed that it may only use this information for purposes that are consistent
with applicable federal, state and local laws.

Congress and many states are considering more stringent laws or regulations
that, among other things, restrict the purchase, sale or sharing of non-public
personal information about consumers. For example, legislation has been
introduced in Congress to further restrict the sharing of consumer information
by financial institutions, as well as to require that a consumer opt-in prior to
a financial institution's use of his or her data in its marketing program.

Laws and regulations may be adopted in the future with respect to the
Internet or e-commerce covering issues such as user privacy. New laws or
regulations may impede the growth of Internet business. This could decrease
traffic to our websites and the demand for our products. Moreover, the
applicability to the Internet of existing laws governing property ownership,
taxation, libel and personal privacy is uncertain and may remain uncertain for a
considerable length of time.

INTELLECTUAL PROPERTY RIGHTS
We rely on a combination of trademark and copyright laws, trade secret
protection and confidentiality and license agreements to protect our
intellectual property. Intellectual property laws afford limited protection. It
may be possible for a third party to copy our products and services or otherwise
obtain and use our proprietary information without our permission. There is no
assurance that our competitors will not independently develop products and
services that are substantially equivalent or superior to our products and
services.

EMPLOYEES
As of December 31, 2000, we had approximately 7,800 full- and part-time
employees employed within the United States. Of the total number of employees,
3,390 were engaged in production, 3,259 were engaged in customer and technical
support services, 428 were engaged in sales and marketing and 723 were engaged
in administrative and other functions. None of our employees are represented by
a labor union, and we consider our employee relations to be good.

OTHER FINANCIAL INFORMATION
The information about segments and geographic areas appearing under the
caption "Note 15. Business segment information" on pages 43 through 45 of the
Annual Report is incorporated by reference.




EXECUTIVE OFFICERS OF THE REGISTRANT
Our executive officers are elected by the board of directors each year. The
term of office of each executive officer will expire at the annual meeting of
the board of directors that will be held after the regular shareholders meeting
on May 8, 2001. The executive officers and their positions are as follows:

- ----------------------- ----------------------------------- ------ -------------
Name Position Age Officer Since
- ----------------------- ----------------------------------- ------ -------------
Lawrence J. Mosner Chairman of the Board and Chief 59 1995
Executive Officer
- ----------------------- ----------------------------------- ------ -------------
Ronald E. Eilers President and Chief Operating 53 1996
Officer
- ----------------------- ----------------------------------- ------ -------------
Stephen J. Berry Senior Vice President, President 38 2000
- Checks Unlimited/Designer Checks
- ----------------------- ----------------------------------- ------ -------------
Guy C. Feltz Senior Vice President, President 45 2000
- FI Check Printing
- ----------------------- ----------------------------------- ------ -------------
Sonia W. St. Charles Senior Vice President, Human 40 2000
Resources
- ----------------------- ----------------------------------- ------ -------------
Anthony C. Scarfone Senior Vice President, General 39 2000
Counsel and Secretary
- ----------------------- ----------------------------------- ------ -------------
Warner F. Schlais Senior Vice President and Chief 48 2000
Information Officer
- ----------------------- ----------------------------------- ------ -------------
Richard L. Schulte Senior Vice President, President 44 2000
- Deluxe Business Forms and
Supply Chain
- ----------------------- ----------------------------------- ------ -------------
Douglas J. Treff Senior Vice President and Chief 43 2000
Financial Officer
- ----------------------- ----------------------------------- ------ -------------
Gene H. Peterson Vice President, eBusiness and 56 2000
Corporate Development
- ----------------------- ----------------------------------- ------ -------------

LAWRENCE J. MOSNER has served as chairman of the board and chief executive
officer of Deluxe since the spin-off of eFunds from the Company, which was
completed on December 29, 2000. Prior to this position, Mr. Mosner served as
vice chairman, a position he assumed in August 1999. Before being named as vice
chairman, Mr. Mosner served as executive vice president of the Company. In that
position, Mr. Mosner had overall responsibility for all of the Company's
day-to-day operations from July 1997 until April 1999, at which point he was
designated to lead the Company's initiative to restructure the Company's various
businesses along business unit lines and otherwise evaluate strategic
alternatives for enhancing shareholder value. From February to July 1997, Mr.
Mosner was senior vice president of the Company and served as president of




its Paper Payment Systems business unit. From November 1995 until February 1997,
Mr. Mosner served as senior vice president of the Company and president of
Deluxe Direct, Inc., a subsidiary of the Company that included all of its
business units selling directly to individuals and small businesses.

RONALD E. EILERS has served as president and chief operating officer of the
Company since December 29, 2000. From August 1997 to December 2000, Mr. Eilers
was a senior vice president of the Company and managed its Paper Payment Systems
business. From February 1997 to August 1997, Mr. Eilers was president of Deluxe
Direct, Inc., a subsidiary of the Company, and from October 1996 was vice
president of Deluxe Direct, Inc. In 1995, Mr. Eilers became president of
PaperDirect, Inc., a subsidiary of the Company, and the manager of the Company's
business forms division.

STEPHEN J. BERRY was named a senior vice president of the Company in December
2000 and has served as president of Checks Unlimited, LLC and Designer Checks
(Direct Checks), the direct to consumer check provider subsidiary of the
Company, since May 1999. From August 1997 to April 1999, Mr. Berry was director
of marketing for Direct Checks, and from August 1996 to July 1997 was a
marketing manager for Direct Checks. Mr. Berry was its customer service and
telemarketing manager from April 1994 to July 1996.

GUY C. FELTZ was named a senior vice president of the Company in December
2000 and has served as president of the Company's financial institution check
printing business since July 2000. He was also a vice president of the Company
from July to December 2000. From August 1999 to July 2000, Mr. Feltz served as
senior vice president of sales and marketing of the Company's financial
institution check printing business. From June 1998 to July 1999, Mr. Feltz was
the president and chief executive officer of the Company's government services
business, which is part of Deluxe's former subsidiary, eFunds. From May 1996 to
May 1998, he served as president of Deluxe-HCL, an international joint venture
of the Company.

SONIA W. ST. CHARLES was named an executive officer of the Company in
December 2000 and has served as senior vice president of human resources since
May 1999. From October 1997 to April 1999, Ms. St. Charles was vice president of
human resources for the company and from July 1996 to July 1997 was vice
president of human resources for the Company's financial services group. She
joined PaperDirect, Inc., a subsidiary of the Company, in August 1994 as vice
president of human resources and held that position until June 1996.

ANTHONY C. SCARFONE joined the Company in September 2000 as senior vice
president, general counsel and secretary and became an executive officer of the
Company in December 2000. Prior to joining the Company, Mr. Scarfone served as
vice president, general counsel and secretary of Dahlberg, Inc., a worldwide
manufacturer, distributor and retailer of electronic hearing devices, a position
he held from November 1993 to November 1999.




WARNER F. SCHLAIS has served as senior vice president and chief information
officer since November 1999, and became an executive officer of the Company in
December 2000. From December 1997 to November 1999, Mr. Schlais was vice
president and chief information officer and from April 1995 to December 1997 was
the Company's vice president of applications development.

RICHARD L. SCHULTE was named a senior vice president of the Company in
December 2000 and has served as president of the Company's business forms and
supply chain areas since July 2000. From May 1999 to July 2000, Mr. Schulte was
senior vice president of supply chain and operations for the Company. From 1995
to May 1999, he was president and general manager of Current, Inc. (now Direct
Checks), the Company's direct mail check business.

DOUGLAS J. TREFF joined the Company in October 2000 as senior vice president
and chief financial officer and became an executive officer of the Company in
December 2000. From February 1993 until Mr. Treff joined the Company, he served
as vice president, finance, of Wilsons the Leather Experts, Inc. (Wilsons), a
leather specialty apparel retailer. He was also appointed chief financial
officer of Wilsons in May 1996.

GENE H. PETERSON was named an executive officer of the Company in December
2000 and has served as vice president, eBusiness and corporate development since
November 1999. From October 1997 until November 1999, Mr. Peterson was vice
president of planning and development. From February 1996 to October 1997, he
served as vice president of planning and development for the Company's financial
services division.

ITEM 2. PROPERTIES

We conduct our operations in 22 principal facilities, 18 of which are used
for production and service operations. These facilities are located in 15 states
and total approximately 2,333,000 square feet. Our headquarters occupies a
158,000-square-foot building in Shoreview, Minnesota. We believe that our
current facilities are adequate to meet our anticipated space requirements. We
believe that additional space will be available at a reasonable cost to meet our
future needs. The following table provides a description of our principal
facilities: