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, 1997.
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: (612) 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 $2,807,237,100 based on the last sales price of the registrant's
common stock on the New York Stock Exchange on March 9, 1998. The number of
outstanding shares of the registrant's common stock as of March 9, 1998, was
80,595,391.



Documents Incorporated by Reference:

1. Portions of the registrant's annual report to shareholders for the fiscal
year ended December 31, 1997 are incorporated by reference in Parts I and
II.

2. The registrant's proxy statement, dated March 31, 1998, is incorporated by
reference in Part III.


PART I

ITEM 1. DESCRIPTION OF BUSINESS

Deluxe Corporation (collectively with its subsidiaries, the "Company") is a
leading supplier of paper-based and electronic payment and information solutions
services to the financial and retail industries. The Company also provides
integrated payment protection services to the financial and retail markets. The
Company is headquartered in Shoreview, Minnesota, and has facilities in the
United States, Puerto Rico, Canada and the United Kingdom. The Company's
products and services are sold primarily in the United States.

The Company's operations are conducted by Deluxe Corporation and 25
subsidiaries. The Company has classified its operations into three business
segments: Deluxe Financial Services, Deluxe Electronic Payment Systems and
Deluxe Direct. The Company is also a party to a Joint Venture with HCL
Corporation of India.

The Company was incorporated under the laws of the State of Minnesota in
1920. From 1920 until 1988, the Company was named Deluxe Check Printers,
Incorporated. The Company's principal executive offices are located at 3680
Victoria St. N., Shoreview, Minnesota 55126-2966, telephone (612) 483-7111.

DELUXE FINANCIAL SERVICES

Deluxe Financial Services provides check printing, direct marketing,
customer database management and related services to financial institutions.
Deluxe Financial Services also provides checks directly to households and small
businesses and payment protection and collections services to financial
institutions and retailers, primarily in the United States. Deluxe Financial
Services had net sales of approximately $1.5 billion in 1997, accounting for
approximately 80.4 percent of the Company's total sales. Deluxe Financial
Services has divided its operations into three business units: Deluxe Paper
Payment Systems, Deluxe Payment Protection Systems and Deluxe Direct Response.
Each of these business units is discussed below.

Deluxe Paper Payment Systems

Deluxe Paper Payment Systems ("DPPS") prints and sells checks to financial
institutions and depositors. DPPS sold checks to more than 10,000 financial
institutions and fulfilled approximately 112 million check order units in 1997.
Depositors commonly submit initial check orders and reorders to their financial
institutions, which forward them to one of DPPS'



printing plants. Printed checks are shipped directly by DPPS to the depositors
and DPPS' charges are typically paid directly from the depositors' accounts.
DPPS, through a separate subsidiary, also provides direct mail checks to
households and small businesses. DPPS endeavors to produce and ship all check
orders within two days after receipt of the order. DPPS generated revenues of
approximately $1.3 billion in 1997.

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 check, including, among others, charge cards, credit cards, debit
cards and electronic payment systems. Sales of checks have also been subject to
increased competition and consequent pressure on prices. In addition, the direct
mail segment of the check market is growing as a lower-priced alternative to
financial institution checks and, in 1997, represented an estimated 18 percent
of the personal check industry. These developments have produced a mature market
for checks and have created pricing pressure on DPPS' check sales.

The Company believes that checks will likely remain an important part of
consumers' payment options for many years. To stabilize its check printing
operations and improve profitability, the Company has focused in recent years on
controlling expenses and increasing efficiency (see "Recent Developments"). The
Company has also focused on higher margin products and services, such as
specially designed checks and licensed check designs. At the same time, the
growing direct mail check segment has been an opportunity for DPPS' direct mail
personal check operations.

In addition, Deluxe Business Forms & Supplies, a business unit of DPPS,
produces and markets short-run computer and business forms and checks. Both
product lines are sold primarily through direct mail, telephone marketing and
new account referrals from financial institutions.

Deluxe Payment Protection Systems

The Company offers integrated payment protection services through the
subsidiaries which comprise its Deluxe Payment Protection Systems division: Chex
Systems, Inc. ("ChexSystems"); Deluxe Payment ProtectionSystems , Inc.; and NRC
Holding Corporation ("NRC") and its subsidiaries. ChexSystems is the leader in
the account verification business, providing risk management information to
approximately 74,000 financial institution offices. Through its Shared Check
Authorization Network ("SCAN"), Deluxe Payment Protection Systems, Inc. operates
one of the nation's leading check verification service with a network consisting
of thousands of retail locations that share risk-management information. NRC is
one of the five largest U.S. collections agencies, processing $4.5 billion in
placements in 1997 for approximately 30,000 credit grantors. Deluxe Payment
Protection Systems also offers employee screening services through ESP
Employment Screening Partners, Inc. Deluxe Payment Protection Systems had
revenues of $193 million in 1997.



Deluxe Direct Response

Deluxe Direct Response develops targeted direct mail marketing campaigns
for financial institutions and it also sells personalized plastic automated
teller machine (ATM) cards and credit and debit cards to financial institutions
and retailers and driver's licenses and other identification cards to government
agencies. Deluxe Direct Response provides database products from the Company's
Deluxe Data Resources, FUSION Marketing(SM) and Deluxe MarketWise businesses and
fulfillment services that include printing and mailing direct mail marketing
pieces (including letter checks offered to credit card holders) and tracking
customer response rates. Deluxe Data Resources provides financial institutions
with a comprehensive database of proprietary homeowner, consumer, and market
research information. Deluxe MarketWise offers software that enables financial
institutions to develop customer profiles from their separate databases -
including checking, savings, credit card and loans - and from Deluxe-provided
databases. FUSION Marketing(SM) provides financial institutions with normative
database information and direct mail campaign development and tracking. The
Deluxe Direct Response business unit contributed $53 million in revenues in
1997.

DELUXE ELECTRONIC PAYMENT SYSTEMS

The Deluxe Electronic Payment Systems ("DEPS") business segment is
comprised of Deluxe Electronic Payment Systems, Inc., which provides electronic
funds transfer processing and software and is the nation's largest third-party
transaction processor for regional ATM networks. DEPS also provides services in
emerging debit markets, including electronic benefit transfer ("EBT") and retail
point-of-sale ("POS") transaction processing. EBT programs use ATM and POS
terminals to deliver food stamps and welfare assistance. DEPS currently supports
EBT programs for the state governments of Louisiana, Maryland, Minnesota,
Oregon, New Jersey, Utah, Kansas and two counties in California. DEPS also
provides Medicaid verification services in New York and is part of coalitions
that are supporting or will support EBT programs in Oklahoma, Pennsylvania, the
Northeast Coalition of States, the Western States EBT Alliance and the Southern
Alliance of States. DEPS processed approximately 3.55 billion transactions in
1997 and had net sales of approximately $144 million in 1997, representing
approximately 7.5% of the Company's total sales.

In 1997, the Company formed a joint venture with HCL Corporation ("HCL") of
New Delhi, India, to help modernize India's banking industry. The joint venture
provides software and programming capabilities available to the Company and U.S.
financial institutions. The results of the joint venture did not have a material
effect on the Company's operations in 1997.



DELUXE DIRECT

Deluxe Direct markets specialty papers, and other products to small
businesses, and sells direct mail greeting cards, gift wrap and related products
to households. Deluxe Direct had net sales of approximately $233 million in 1997
(such amount includes revenues attributable to businesses that were divested in
1997, see "Recent Developments"), accounting for approximately 12.1% of the
Company's total sales. Deluxe Direct markets its products primarily through the
Social Expressions division of Current, Inc. ("Current") and PaperDirect, Inc.
("PaperDirect").

Current is a direct mail supplier of social expression products, including
greeting cards, gift wrap, small gifts and related products. Current's social
expression business is seasonal and holiday-related. Historically, more than
one-third of Current's annual sales have been made in the fourth quarter.
Current's direct mail check business is included in "Deluxe Financial Services
- -- Deluxe Paper Payment Systems". PaperDirect is a direct mail marketer of
specialty papers, presentation products and pre-designed forms for laser
printing and desktop publishing.

The Company has determined that the businesses in the Deluxe Direct segment
do not fit into the Company's long-term plans. During 1996, 1997 and the first
quarter of 1998 a number of businesses in this segment were sold and the
remaining portions of this business segment are expected to be sold in 1998.

RECENT DEVELOPMENTS

In late 1995 and early 1996, the Company announced that it had initiated a
major consolidation program, which includes the closing of 26 of the Company's
41 financial institution check printing facilities and reducing the number of
its staff and production employees. Twelve plants were closed in 1996, 10
additional plants were closed in 1997 and an additional plant was recently
converted to the production of business checks and forms. The balance of the
closings announced in 1996 are scheduled to occur during 1998 and the first half
of 1999. Some of the closings were delayed due to software problems encountered
in the development and implementation of the Company's new check order entry and
customer service system.

In 1997, the Company divested Nelco, Inc., a supplier of tax forms, tax
forms software and electronic tax filing services, its Printovation and World's
Easiest businesses and its installment loan coupon business. The Company also
divested its cheque printing business in the United Kingdom. In 1998, the
Company sold the assets of its PaperDirect (UK) Limited subsidiary to an entity
that now acts as the exclusive European distributor for PaperDirect. In 1997,
the Company also purchased the assets of Fusion Marketing Group, Inc. a
consulting firm that assists financial institutions with direct mail database
marketing campaigns. These divestitures and acquisitions did not have a material
impact on the Company's results of operations in 1997.



The Company has also entered into agreements with unrelated third parties
to create a data warehouse, or debit bureau, that will offer financial
institutions and retailers decisional support for direct debit-based products.

EMPLOYEES

The Company has approximately 18,900 full- and part-time employees. It has
a number of employee benefit plans, including a 401(k) plan, retirement and
profit sharing plans and medical and hospitalization plans. The Company has
never experienced a work stoppage or strike and considers its employee relations
to be good.

FINANCIAL INFORMATION

The information appearing under the caption "Note 13. Business Segment
Information" on pages 31-32 of the Company's Annual Report (the "Annual Report")
for the year ended December 31, 1997 is incorporated by reference.

EXECUTIVE OFFICERS OF THE COMPANY

The executive officers of the Company 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 which will be held after the regular
shareholders meeting on May 5, 1998. The principal occupation of each executive
officer is with the Company, and their positions are as follows:

Officer
Name Position Age Since
---- -------- --- -----

John A. Blanchard III Chairman of the Board, President 55 1995
and Chief Executive Officer

Lawrence J. Mosner Executive Vice President 55 1995

Thomas W. VanHimbergen Senior Vice President and Chief 49 1997
Financial Officer

Gregory J. Bjorndahl Senior Vice President, Sales and 47 1995
Marketing

Ronald E. Eilers Senior Vice President and 50 1996
General Manager, Deluxe
Paper Payment Systems

John H. LeFevre Senior Vice President, Secretary 54 1994
and General Counsel

Michael F. Reeves Vice President, Human 48 1987
Resources

Warner F. Schlais Vice President and Chief 45 1997
Information Officer



MR. BLANCHARD has served as President and Chief Executive Officer of the
Company since May 1, 1995 and as Chairman of the Board of Directors since May 6,
1996. From January 1994 to April 1995, Mr. Blanchard was executive vice
president of General Instrument Corporation, a supplier of systems and equipment
to the cable and satellite television industry. From 1991 to 1993, Mr. Blanchard
was chairman and chief executive officer of Harbridge Merchant Services, a
national credit card processing company. Previously, Mr. Blanchard was employed
by American Telephone & Telegraph Company for 25 years, most recently as senior
vice president responsible for national business sales. Mr. Blanchard also
serves as a director of Norwest Corporation and Saville Systems PLC.

MR. MOSNER has served as Executive Vice President of the Company with
overall responsibility for all of its day-to-day operations since July 1997. Mr.
Mosner served as Senior Vice President of the Company from November 1995 until
October 1996, when he became President of Deluxe Direct, Inc. ("DDI") a
subsidiary of the Company that provided management services to the companies
comprising its Deluxe Direct business unit. As a Senior Vice President of the
Company and President of DDI, Mr. Mosner served as the Principal Executive
Officer of Deluxe Direct. In February 1997, Mr. Mosner returned to the office of
Senior Vice President of the Company and he served as President of its Deluxe
Financial Services business unit until he became Executive Vice President of the
Company. . Mr. Mosner was Executive Vice President and Chief Operating Officer
of Hanover Direct, a direct marketing company, with responsibility for
non-apparel products, from 1993 until he joined the Company. Previously, he was
employed for 28 years by Sears, Roebuck and Company, where he was Vice President
of catalog merchandising from 1991 to 1993.

MR. VANHIMBERGEN became Senior Vice President and Chief Financial Officer
of the Company in May 1997. From 1996 until he joined the Company, Mr.
VanHimbergen served as senior vice president and chief financial officer of
Federal-Mogul Corporation ("Federal-Mogul") and from 1994 until 1996, Mr.
VanHimbergen served as Vice President and Chief Financial Officer of Allied
Signal Automotive, Inc. ("Allied Signal"). Prior to joining Allied Signal, Mr.
VanHimbergen was employed by Tenneco Corporation ("Tenneco") from 1988 through
1994, where he served in a variety of capacities, including vice president and
chief financial officer for Tenneco Automotive from 1993 to 1994. Tenneco,
Allied Signal and Federal Mogul are global manufacturers and distributors of
automotive parts. From 1971 through 1988, Mr. VanHimbergen served in various
financial, human resource and treasury positions for A.O. Smith Corporation, a
diversified manufacturer and distributor and a provider of electronic payment
systems and information services.

MR. BJORNDAHL joined the Company in 1995 as a Vice President, and he was
initially responsible for Sales and Marketing for Deluxe Financial Services and
DEPS. In August 1997, Mr. Bjorndahl was promoted to Senior Vice President and he
now has overall responsibility for the Company's sales and marketing efforts.
Prior to joining the Company, Mr. Bjorndahl was vice president of marketing for
Citicorp Credit Services, Inc.'s ("Citicorp"), Master Card and Visa operations
from January 1994 to July 1995. Citicorp is a credit card issuer. From 1991
until he joined Citicorp, Mr. Bjorndahl served as senior vice president, product
development, for Visa International, a credit card processing company.



MR. EILERS joined the Company in March 1988 when it purchased Current. From
1990 to 1995, Mr. Eilers served as Vice President and General Manager of
Current's direct mail check business. In 1995, Mr. Eilers became President of
PaperDirect, Inc. and the manager of the Company's business forms division. Mr.
Eilers became a Vice President of DDI in October 1996 and he succeeded Mr.
Mosner as the President of DDI in February 1997. In August 1997, Mr. Eilers
became a Senior Vice President of the Company and he now manages its Deluxe
Paper Payment Systems business.

MR. LEFEVRE has served as Senior Vice President, General Counsel and
Secretary of the Company since February 1994. From 1978 to February 1994, Mr.
LeFevre was employed by Wang Laboratories, Inc. From 1988 until February 1994,
he held various positions in Wang Laboratories' law department, including
corporate counsel, vice president, general counsel and secretary. Wang
Laboratories was in the business of manufacturing and selling computer hardware
and software and related services.

MR. REEVES has been employed by the Company since 1970 and has been a Vice
President since 1987. From 1987 to 1992, Mr. Reeves was regional manager of the
Company's Northeastern region's printing operations. From 1992 to 1994, Mr.
Reeves was the manager of the Company's financial institution forms business
unit, and since July 1994, Mr. Reeves has had principal responsibility for the
Company's human resources function.

MR. SCHLAIS became Vice President and Chief Information Officer of the
Company in December 1997. Mr. Schlais joined the Company in 1995 as vice
president of applications development supporting the Company's Deluxe Financial
Services business unit. Prior to joining the Company, Mr. Schlais was employed
by United Airlines, Inc. ("United Airlines") for 21 years, most recently as its
Director, I.T., planning and technology. United Airlines is a provider of air
transportation.


ITEM 2. PROPERTIES

The Company conducts production and service operations in 68 facilities
located in 29 states, Puerto Rico, Canada and the United Kingdom. These
facilities total approximately 4,763,000 square feet. The Company's headquarters
occupies a 160,000-square-foot building in Shoreview, Minnesota. Deluxe
Financial Services has two principal facilities in Shoreview, Minnesota,
totaling approximately 251,700 square feet. These sites are devoted to sales,
administration, and marketing. Deluxe Direct's principal office facilities are a
156,000-square-foot marketing building in Shoreview, Minnesota, and a
148,000-square-foot sales and product design building in Colorado Springs,
Colorado. Deluxe Electronic Payment System's primary administrative facility
occupies a 171,000 square foot building in Milwaukee, Wisconsin and its
principal data processing centers are located in New Berlin, Wisconsin and
Scottsdale, Arizona. All but four of the Company's production facilities are one
story buildings and most were constructed and equipped in accordance with the
Company's plans and specifications.



More than half of the Company's total production area has been constructed
during the past 20 years. The Company owns 40 of its facilities and leases the
remainder for terms expiring from 1998 to 2009. Depending upon the
circumstances, when a lease expires, the Company either renews the lease or
constructs a new facility to replace the leased facility.

In late 1995 and early 1996, the Company announced a plan to close 26 of
its financial institution check printing plants. These plant closings were made
possible by advancements in the Company's telecommunications, order processing
and printing technologies. Upon the completion of this restructuring, the
Company's 15 remaining plants will be equipped with sufficient capacity to
produce at or above current order volumes. As of December 31, 1997, 22 of the 26
plants had been closed and an additional plant was converted to the production
of business checks and forms in the first quarter of 1998. The three remaining
plants are scheduled for closing in 1998 and the first half of 1999. The Company
also moved the warehousing and administrative facilities of one of its direct
mail businesses from New Jersey to Colorado in 1997.


ITEM 3. LEGAL PROCEEDINGS

In October, 1997, the jury in the action Mellon Bank, N.A. v. Deluxe Data
Systems, Inc. and Deluxe Corporation pending in the Western District of
Pennsylvania reached a $30 million verdict against Deluxe Data Systems,
Inc.(Deluxe Electronic Payment Systems, Inc. ("DEPS")) in litigation pertaining
to DEP's participation in a contract to provide electronic benefits transfer
services to a number of southeastern states. No liability was found against
Deluxe Corporation. The Company and DEPS believe that numerous errors were made
by the court during trial and that the verdict against DEPS is excessive and
unsupported by the law or the evidence introduced at trial. The Company and DEPS
plan to pursue the remedies available to seek its reversal, although there can
be no assurances that their efforts to vacate or reduce this judgment will be
successful.

Other than the above-described action and other routine litigation
incidental to its business, there are no material pending legal proceedings to
which the Company or any of its subsidiaries is a party or to which any of the
Company's property is subject.


ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.


PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

The information appearing under the caption "Financial Highlights" on page 1,
and "Shareholder Information" on page 36 of the Annual Report is incorporated by
reference.


ITEM 6. SELECTED FINANCIAL DATA



The information appearing under the caption "Six-Year Summary" on page 19 of the
Annual Report is incorporated by reference.


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The information appearing under the caption "Management's Discussion and
Analysis" on pages 14 through 18 of the Annual Report is incorporated by
reference.


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements, notes and independent auditors' report on pages 20
through 33 of the Annual Report and the information appearing under the caption
"Summarized Quarterly Financial Data" (unaudited) on page 34 of the Annual
Report is incorporated by reference.


ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

Not applicable.

PART III

ITEMS 10, 11, 12 AND 13. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT,
EXECUTIVE COMPENSATION, SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT, AND CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS

The Company's proxy statement, filed with the Securities and Exchange Commission
on March 31, 1998, is incorporated by reference, other than Sections entitled
"Compensation Committee Report on Executive Compensation" and "Total
Shareholders Return."


PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) The following financial statements, schedules and independent auditors'
report and consent are filed with or incorporated by reference in this report: