Form: 10-K405

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

March 31, 1998

Documents

1997 ANNUAL REPORT

Published on March 31, 1998



EXHIBIT 13.1


FINANCIAL
HIGHLIGHTS




(Dollars in thousands, except per share amounts) 1997 1996
- ----------------------------------------------------------------------------------------------------------

Net sales $1,919,366 $1,979,627
Net income (1) 44,672 65,463
Return on sales 2.3% 3.3%
Per share - basic .55 .80
Per share - diluted .55 .79
Return on average shareholders' equity 6.8% 8.8%
Cash dividends per share 1.48 1.48
Shareholders' equity 610,248 712,916
Average common shares outstanding (thousands) 81,854 82,311
Number of shareholders 16,897 19,495
Number of employees 18,937 19,643
- ----------------------------------------------------------------------------------------------------------



(1) Income from continuing operations and net income include reorganization and
other special charges each year except 1992. Adjusted income from continuing
operations excludes these charges and their tax effects. See Management's
Discussion and Analysis on page 14.

[GRAPH]
NET SALES

[GRAPH]
INCOME FROM CONTINUING OPERATIONS(1)

[GRAPH]
ADJUSTED INCOME FROM CONTINUING OPERATIONS(1)

[GRAPH]
CASH FROM CONTINUING OPERATIONS



MANAGEMENT'S
DISCUSSION AND ANALYSIS

INTRODUCTION

This discussion summarizes the significant factors that affected the
consolidated operating results and financial condition of Deluxe Corporation
during the three years ended December 31, 1997. During this period, the Company
has undergone a significant transformation. It has reorganized to improve its
profitability in its core and ongoing businesses and redefined its strategy to
focus on information-based growth opportunities in the payment process. As part
of its strategy, the Company is creating and providing its financial institution
and retail customers with integrated products and services that can help them
maximize their profit opportunities and manage their risks. As a result of its
transformation, the Company has recorded significant consolidation,
restructuring, and reorganization costs as well as gains and losses on sales of
businesses, which together, have had a significant impact on the operating
results and cash position of the Company. The following discussion considers
these items separately when analyzing the Company's financial and operational
progress and is based on the organization of the Company's businesses into three
operating segments: Deluxe Financial Services, Deluxe Electronic Payment
Systems, and Deluxe Direct. Deluxe Financial Services provides check printing,
direct marketing, customer database management, and related services to
financial institutions; checks directly to households and small businesses; and
payment protection and collections services to financial institutions and the
retail market primarily in the United States. Deluxe Electronic Payment Systems
provides debit transaction processing and other electronic banking functions in
the United States and internationally. Deluxe Direct primarily sells greeting
cards, stationery, and specialty paper products through direct mail to customers
principally in the United States.

OVERALL SUMMARY

In 1997, the Company's sales decreased 3.0% due primarily to strategic
divestitures within the Deluxe Direct segment. Excluding the impact of lost
revenue due to these divestitures, sales increased 3.5% over 1996 due to growth
in the Deluxe Financial Services and Deluxe Electronic Payment Systems segments.
1997 income from continuing operations was $44.7 million, compared to $65.5
million and $94.4 million in 1996 and 1995, respectively. Basic earnings per
share from continuing operations were $.55 in 1997, compared to $.80 in 1996 and
$1.15 in 1995. Return on average assets was 3.8% for 1997, compared to 5.3% and
7.4% in 1996 and 1995, respectively. Return on average shareholders' equity was
6.8% in 1997 versus 8.8% in 1996 and 11.8% in 1995. These results included
pretax reorganization and other special charges of $180 million in 1997, $142.3
million in 1996, and $62.5 million in 1995.



REORGANIZATION AND OTHER SPECIAL CHARGES

Over the last three years, the Company has engaged in a reorganization process
involving an examination of the Company's lines of business, including each
business' product offerings, short-term and long-term profitability, and
strategic fit within the Company. This effort resulted in the consolidation of
operating and administrative facilities, the elimination of products and
businesses, and the restructuring of the Company's management and organization.
The result is improved adjusted operating profitability and expected future cost
reductions, which will be reflected primarily in the form of reduced facility,
materials, and employee expenses in the Company's operating results. Competitive
pricing pressures, other increased expenses, and other factors will offset some
of the savings expected to be achieved through these cost reduction efforts.

During 1996, the Company announced its plans to divest three businesses
within its Deluxe Direct segment. One of these businesses was sold in 1997. The
remaining two are expected to be sold in 1998. Additionally, in 1997, the
Company determined that it will divest the international unit of its Deluxe
Electronic Payment Systems segment. In 1997, the Company recorded a pretax
impairment charge of $99 million to write these businesses down to their
estimated fair values less costs to sell. Additionally, the Company recorded
pretax charges of $81 million mostly related to production consolidation, legal
proceedings, and other asset impairments. These charges are reflected throughout
the 1997 consolidated statement of income according to the nature of the charge,
with $82.9 million identified separately as goodwill impairment charge, $7.7
million in cost of sales expense, $39.6 million in selling, general, and
administrative expense, and $49.8 million in other expense. As a result of these
charges and previous consolidation charges, the December 31, 1997, consolidated
balance sheet includes a restructuring accrual of $39.5 million for employee
severance costs and $3.7 million for estimated losses on asset dispositions. The
majority of these severance costs are expected to be paid out in 1998 and early
1999 from cash generated from the Company's operations. The December 31, 1997,
consolidated balance sheet also reflects a long-term liability of $40 million
for legal proceedings. During 1997, a judgment was entered against Deluxe
Electronic Payment Systems, Inc. (DEPS), in U.S. District Court in Pittsburgh.
The case was brought against DEPS by Mellon Bank in connection with a potential
bid to provide electronic benefit transfer services for the Southern Alliance of
States. The majority of this amount is expected to be paid in 1999 if the
Company is unsuccessful in its attempt to seek reversal of this judgment.

During 1996, as a result of the initial decision to sell the three businesses
within the Deluxe Direct segment, the Company recorded a pretax goodwill
impairment charge of $111.9 million to write them down to their estimated fair
values less costs to sell at the time. Additionally, the Company recorded net
pretax charges of $30.4 million during 1996 for restructuring, gains and losses
on sales of businesses, and other reorganization costs. These charges are
reflected throughout the 1996 consolidated statement of income according to the
nature of the charge, with $39.2 million in cost of sales expense, $24.6 million
in selling, general, and administrative expense, and a $33.4 million gain in
other income.

During the fourth quarter of 1995, the Company announced that it was exiting
its Printwise ink business, which is treated as discontinued operations in the
consolidated financial statements presented in this report. Also during 1995,
the Company recorded pretax charges of $62.5 million for production
consolidation and process improvements, exiting unprofitable businesses,
eliminating certain products, and write-offs of non-performing assets. These
costs are spread throughout the 1995 consolidated statement of income. Of the
$62.5 million in charges, $16.6 million is included in cost of sales, $35.9
million in selling, general, and administrative expense, and $10 million in
other expense.

The following table displays the Company's results of operations as reported,
compared to results with the above mentioned charges excluded (dollars in
thousands).



RESULTS OF OPERATIONS - AS REPORTED AND AS ADJUSTED TO EXCLUDE REORGANIZATION
AND OTHER SPECIAL CHARGES



1997 1997 1996 1996 1995 1995
- --------------------------------------------------------------------------------------------------------------------
Reported Adjusted Reported Adjusted Reported Adjusted

Net sales $1,919,366 $1,919,366 $1,979,627 $1,979,627 $1,936,719 $1,936,719
Gross margin 1,036,179 1,043,918 996,183 1,035,357 1,001,132 1,017,748
Selling, general, and administrative 797,566 757,996 797,174 772,568 817,348 781,492
Goodwill impairment charge 82,893 111,900
Other net income (expense) (40,570) 9,201 31,656 (1,767) (14,465) (4,459)
Provision for income taxes 70,478 119,525 53,302 105,000 74,885 98,600
Income from continuing operations $ 44,672 $ 175,598 $ 65,463 $ 156,022 $ 94,434 $ 133,197
====================================================================================================================



RESULTS OF OPERATIONS

The following table sets forth, for the years indicated, the percentage
relationship to revenue of certain items in the Company's consolidated
statements of income and the percentage dollar changes of such items compared to
the prior year. This table contains the "adjusted" results of the Company to
exclude the reorganization and other special charges discussed above.




PERCENTAGE OF REVENUE PERCENTAGE OF DOLLAR INCREASE/(DECREASE)
(NOT INCLUDING REORGANIZATION AND
OTHER SPECIAL CHARGES)

1997 1996 1995 1997 VS 1996 1996 vs 1995
- ----------------------------------------------------------------------------------------------------------------

100% 100% 100% Net sales (3%) 2.2%
54.4 52.3 52.6 Gross margin .8 1.7
39.5 39.0 40.4 Selling, general, and administrative (1.9) (1.1)
.4 (.1) (.2) Other net income (expense) 620.7 60.4
6.2 5.3 5.1 Provision for income taxes 13.8 6.5
9.1 7.9 6.9 Income from continuing operations 12.5 17.1
- -------------------------------------------------------------------------------------------------------------



The segment results discussed below reflect results from continuing
operations, excluding the above mentioned reorganization and other special
charges.



NET SALES - Net sales for the Company in 1997 decreased 3.0% from 1996. Net
sales for the Deluxe Financial Services segment increased 4.7% to $1,543.3
million in 1997. The majority of the increase came from higher collection
service volume. Additionally, volume from both financial institution and direct
mail check offerings increased. These increases were partially offset by
competitive pricing pressures on financial institution check printing products.
The Deluxe Electronic Payment Systems segment experienced a sales increase of
10.5% to $143.6 million in 1997, mostly due to increased volumes in financial
institution ATM processing and electronic benefits transfer. These sales
increases at the Deluxe Electronic Payment Systems and the Deluxe Financial
Services segments were offset by a 38.1% decrease to $232.5 million at the
Deluxe Direct segment. This decrease was the result of the continuation of
actions initiated in 1996 to increase the profitability of the segment. Such
actions included sales of businesses within the segment, reduced catalog
circulation, and the elimination of unprofitable product lines. Additionally,
response rates for the direct mail businesses declined from 1996. Excluding the
impact of the lost revenues from divestitures, the Company's consolidated net
sales increased 3.5% from 1996.

In 1996, net sales for the Company increased 2.2% over 1995. Net sales for
the Deluxe Financial Services segment increased 7.3% to $1,474.2 million. The
majority of the increase came from increased sales of higher priced products in
the financial institution check printing business and increased volume from
direct mail checks. Additionally, collection service revenue increased due to
acquisitions and increased sales volume. The Deluxe Electronic Payment Systems
segment experienced a sales increase of 4.3% to $129.9 million in 1996,
primarily due to increased volume in financial institution ATM processing. These
sales increases were partially offset by a 14.2% decrease to $375.5 million for
the Deluxe Direct segment. This decrease was the result of actions taken to
increase the profitability of the segment, including sales of businesses,
reduced catalog circulation, and the elimination of unprofitable product lines.

GROSS MARGIN - Consolidated gross margin for the Company was 54.0% in 1997,
compared to 50.3% and 51.7% in 1996 and 1995, respectively. With the
reorganization and other special charges excluded, consolidated gross margin for
the Company was 54.4% in 1997, compared to 52.3% and 52.6% in 1996 and 1995,
respectively. The Deluxe Financial Services segment's gross margin increased to
58.1% in 1997 from 56.7% in 1996. The competitive pricing pressures experienced
by the financial institution check printing business were more than offset by
improved product mix and production efficiencies within this business, as well
as reduced employee benefits costs due to a revision of the employee benefits
program. Gross margin for the Deluxe Electronic Payment Systems segment
increased to 19.0% in 1997 from 15.2% in 1996, due primarily to decreased
consulting expenses and other cost containment initiatives. The Deluxe Direct
segment's gross margin increased to 51.8% from 48.0% in 1996, due to better cost
control and inventory management within the direct mail businesses and the sale
of businesses with poorer margins.

The Deluxe Financial Services segment's gross margin was flat at 56.7% in
1996 and 56.8% in 1995. The gross margin for the Deluxe Electronic Payment
Systems segment decreased to 15.2% in 1996 from 34.6% in 1995, due primarily to
higher computer equipment rent expense, costs of infrastructure upgrades and
software re-engineering, and higher telecommunication expense. Gross margin for
the Deluxe Direct segment increased to 48.0% from 44.3% in 1995, due primarily
to the sale of businesses with poorer margins, better cost containment and
inventory management, and consolidation of products within the direct mail
businesses.



SELLING, GENERAL, AND ADMINISTRATIVE - Selling, general, and administrative
(SG&A) expenses for the Company were flat in 1997 compared to 1996. With the
reorganization and other special charges discussed above excluded, SG&A expenses
decreased $14.6 million, or 1.9%, in 1997. The Deluxe Financial Services
segment's SG&A expenses increased 8.7% due primarily to financial institution
check printing SG&A, which increased due to higher customer service call center
volume and duplicate costs from maintaining an old customer service system as a
new system was implemented. Although customer service call volume increased on
an annual basis, call volume did decrease in the fourth quarter of 1997 as
compared to the fourth quarter of 1996. During this time, the Company began
charging customers for orders placed via telephone as opposed to electronic
channels. Additionally, SG&A expenses increased within the collections, direct
marketing and customer database management businesses as a result of growth. The
Deluxe Electronic Payment Systems segment's SG&A expenses increased 10.4% due to
legal expenses and human resources initiatives. The Deluxe Direct segment's SG&A
expenses decreased 34.2% mainly due to the cessation of depreciation and
amortization of the assets of the businesses held for sale, as well as reduced
catalog costs due to simplified catalog designs and lower paper costs.

In 1996, SG&A expenses for the Company decreased $20.2 million, or 2.5%. With
the reorganization and other special charges discussed above excluded, SG&A
expenses decreased $8.9 million, or 1.1%, in 1996. The Deluxe Financial Services
segment's SG&A expenses increased 5.4%, primarily in the financial institution
check printing business, due to increased customer service call center volume
and higher marketing expenditures for new products. The Deluxe Electronic
Payment Systems segment's SG&A expenses decreased 8.0% due to lower consulting
expenses. The Deluxe Direct segment's SG&A expenses decreased 14.8%, mainly due
to planned catalog circulation decreases by the segment's direct mail
businesses.

OTHER INCOME (EXPENSE) - Other expense for the Company was $40.6 million in
1997, compared to other income of $31.7 million in 1996 and other expense of
$14.5 million in 1995. These changes were primarily due to the reorganization
and other special charges discussed above. With these charges removed, other
income was $9.2 million in 1997, compared to other expense of $1.8 million and
$4.5 million in 1996 and 1995, respectively. The improvement in 1997 is due to
gains realized from the sale of check printing facilities and increased
investment earnings resulting from the investment of cash obtained through
divestitures. The decrease in expense from 1995 to 1996 is due primarily to
lower interest expense as a result of decreased borrowings.

PROVISION FOR INCOME TAXES - The Company's effective tax rate increased to 61.2%
in 1997 from 44.9% in 1996 and 44.2% in 1995, due primarily to lower pretax
income combined with an increasing base of non-deductible expenses consisting
primarily of the non-deductible goodwill impairment charge recorded by the
Company. In 1996, the effect of the goodwill impairment charge was offset by tax
benefits recognized for the sales of businesses and businesses held for sale.
With the effect of the reorganization and other special charges removed in each
year, the Company's tax rate was 40.5%, 40.2%, and 42.5% in 1997, 1996, and
1995, respectively. The decrease in the 1996 rate from 1995 is due to an
increase in adjusted pretax income, while the base of non-deductible expenses
remained constant.

NET INCOME - 1997 net income decreased to $44.7 million from $65.5 million in
1996. The primary reason for the decrease was the higher amount of
reorganization and other special charges discussed above. With the charges and
their related tax effects removed, the Company's net income was $175.6 million
and $156 million in 1997 and 1996, respectively.

1996 net income decreased to $65.5 million from $87 million in 1995. The
primary reason for the decrease was the higher amount of reorganization and
other special charges discussed above. With the charges and their related tax
effects removed, the Company had income from continuing operations of $156
million and $133.2 million in 1996 and 1995, respectively.



FINANCIAL CONDITION

LIQUIDITY - Cash provided by continuing operations was $294 million in 1997,
compared to $290.6 million in 1996 and $214.6 million in 1995. Funds provided by
operations are the Company's primary source of working capital for financing
capital expenditures and paying dividends. The increase in 1997 over 1996 and
1995 was due to better cash management and improved profitability resulting from
operating cost reductions. Working capital was $131.1 million as of December 31,
1997, compared to $108.1 million and $12.3 million on December 31, 1996 and
1995, respectively. The year-end current ratio for 1997 and 1996 was 1.3 to 1,
compared to 1 to 1 for 1995. The increase over 1995 is primarily the result of
cost savings from the Company's reorganization initiatives, cash proceeds from
divestitures and lower capital expenditures. The Company anticipates that
approximately $29.1 million of cash will be paid out in 1998 for restructuring
charges, compared to $11.2 million in 1997.

CAPITAL RESOURCES - In 1997, the Company made one business acquisition and
several divestitures from which the Company derived $1.1 million in net cash
proceeds. In 1996, the Company made numerous business acquisitions and
divestitures from which the Company derived $98.1 million in net cash proceeds.
In 1995, the Company made one acquisition at a cost of $38.8 million.

Cash purchases of capital assets were $109.5 million in 1997, compared to $92
million in 1996 and $125.1 million in 1995. The Company anticipates capital
expenditures of approximately $150 million in 1998 mainly for information
technology systems upgrades and replacement as well as for productivity
improvements.

The Company has uncommitted bank lines of credit for $170 million. The
average amount drawn on those lines during 1997 was $3.1 million at a weighted
average interest rate of 6.47%. There was no outstanding balance at December 31,
1997. At December 31, 1996, $17 million was outstanding at an interest rate of
6.5%. The Company also has in place a $150 million committed line of credit as
support for commercial paper and as a source of cash. No commercial paper was
outstanding at December 31, 1997 and 1996. Additionally, the Company has a shelf
registration in place for the issuance of up to $300 million in medium-term
notes. Such notes could be used for general corporate purposes, including
working capital, capital expenditures, acquisitions, and repayment or repurchase
of outstanding indebtedness and other securities of the Company. As of December
31, 1997 and 1996, no such notes were issued or outstanding.

Cash dividends totaled $121.3 million in 1997, compared to $122 million in
1996 and $122.1 million in 1995. Dividend payments were 271.6% of earnings in
1997, 186.3% in 1996, and 140.4% in 1995. In December 1996, the Company's board
of directors amended the Company's stock repurchase plan to permit the
repurchase of up to 10 million shares of Deluxe common stock. The board also
approved the repurchase of up to 5 million of the 10 million approved shares
under this plan. The Company repurchased 1.7 million shares in 1997.

YEAR 2000 - In 1996, the Company initiated a companywide program to prepare its
computer systems and applications for the year 2000. During 1997, the Company
identified the systems affected, determined a resolution strategy for each
affected system, and began executing these resolution strategies. The Company
expects either to modify or upgrade existing systems or replace some systems
through other development projects. The Company expects to incur expense of $17
million over the next two years, consisting of both internal staff costs and
consulting expenses, as it continues to implement its resolution strategy.

Because of the nature of the Company's business, the year 2000 issue would,
if unaddressed, pose a significant business risk for the Company. The Company
presently believes that with the planned modifications to existing systems and
the replacement of other systems, the year 2000 compliance issue will be
resolved in a timely manner and will not pose significant operational problems
for the Company. Additionally, the Company has communicated with its suppliers
and customers to determine their year 2000 readiness and the extent to which the
Company is vulnerable to any third party year 2000 issues. However, there can be
no guarantee that the systems of other companies upon which the Company's
systems rely will be converted timely, or that a failure to convert by another
company, or a conversion that is incompatible with the Company's systems, would
not have a material adverse effect on the Company.



OUTLOOK - In 1998, the Company will continue its efforts to reduce costs and
improve productivity throughout the organization. At the same time, the Company
will continue to invest in major infrastructure improvements. The Company also
expects to complete a divestiture program by selling the two remaining
non-strategic businesses in the Deluxe Direct segment and the international
operations of the Deluxe Electronic Payment Systems segment.

With the major components of its reorganization nearing completion, the
Company is now better positioned for growth. Its improved cash position, low
debt, and available financing create the opportunity for the Company to enhance
its products and services through internal developments and external alliances,
partnerships, and acquisitions that are within its strategic focus.

The Company's ongoing changes related to organizational improvements and
growth opportunities may require additional charges to earnings. These charges,
however, should lessen as the Company completes its reorganization and focuses
on its growth opportunities.


MANAGEMENT'S RESPONSIBILITY
FOR FINANCIAL REPORTING

The accompanying consolidated financial statements and related information are
the responsibility of management. They have been prepared in conformity with
generally accepted accounting principles and include amounts that are based on
our best estimates and judgments under the existing circumstances. The financial
information contained elsewhere in this annual report is consistent with that in
the consolidated financial statements.

The Company maintains internal accounting control systems that are adequate
to provide reasonable assurance that the assets are safeguarded from loss or
unauthorized use. These systems produce records adequate for preparation of
financial information. We believe the Company's systems are effective, and that
the costs of the systems do not exceed the benefits obtained.

The audit committee of the board of directors has reviewed the financial data
included in this report. The audit committee is composed entirely of outside
directors and meets periodically with the internal auditors, management, and the
Company's independent auditors on financial reporting matters. The independent
auditors have free access to meet with the audit committee, without the presence
of management, to discuss their audit results and opinions on the quality of
financial reporting.

The role of independent auditors is to render an independent, professional
opinion on management's consolidated financial statements to the extent required
by generally accepted auditing standards.

Deluxe recognizes its responsibility for conducting its affairs according to
the highest standards of personal and corporate conduct. It has distributed to
all employees a statement of its commitment to conducting all Company business
in accordance with applicable legal requirements and the highest ethical
standards.


/s/ J.A. Blanchard III /s/ Thomas W. VanHimbergen


J.A. Blanchard III Thomas W. VanHimbergen
Chairman, President, and Senior Vice President and
Chief Executive Officer Chief Financial Officer

January 26, 1998



SIX-YEAR
SUMMARY




Years ended December 31 (dollars in
thousands, except per share amounts) 1997 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------

Net sales $1,919,366 $1,979,627 $1,936,719 $1,834,024 $1,666,302 $1,617,621
Salaries and wages 572,035 586,949 551,788 519,901 491,868 456,893
Provision for income taxes 70,478 53,302 74,885 102,453 94,052 121,999
Income from continuing operations (1) 44,672 65,463 94,434 144,253 141,861 202,784
Return on sales 2.33% 3.31% 4.88% 7.87% 8.51% 12.54%
Per share - basic .55 .80 1.15 1.75 1.71 2.42
Per share - diluted .55 .79 1.15 1.75 1.71 2.41
Return on average shareholders' equity 6.75% 8.77% 11.84% 17.86% 17.40% 25.70%
Return on average assets 3.84% 5.30% 7.40% 11.50% 11.57% 17.64%
Net income (1) 44,672 65,463 87,021 140,866 141,861 202,784
Per share - basic .55 .80 1.06 1.71 1.71 2.42
Per share - diluted .55 .79 1.06 1.71 1.71 2.41
Cash dividends per share 1.48 1.48 1.48 1.46 1.42 1.34
Shareholders' equity 610,248 712,916 780,374 814,393 801,249 829,808
Purchases of capital assets 109,500 92,038 125,068 126,226 60,990 64,114
Depreciation and amortization expense 97,269 106,636 103,303 85,906 72,320 66,615
Working capital increase (decrease) 22,911 95,857 (118,116) (94,086) (162,387) 55,975
Total assets 1,148,364 1,176,440 1,295,095 1,256,272 1,251,994 1,199,556
Long-term debt 109,986 108,622 110,997 110,867 110,755 115,522
Debt to capital ratio 15.98% 14.56% 15.75% 15.68% 16.02% 14.91%
Average common shares
outstanding (thousands) 81,854 82,311 82,420 82,400 82,936 83,861
Number of employees 18,937 19,643 19,286 18,839 17,748 17,400
Number of production and service facilities 68 81 81 78 73 85
========================================================================================================================



(1) Income from continuing operations and net income include reorganization and
other special charges each year except 1992. Adjusted income from continuing
operations excludes these charges and their tax effects. See Management's
Discussion and Analysis on page 14.

[GRAPH]
WORKING CAPITAL

[GRAPH]
INCOME FROM CONTINUING OPERATIONS PER SHARE - BASIC(1)

[GRAPH]
ADJUSTED INCOME FROMM CONTINUING OPERATIONS PER SHARE - BASIC(1)


CONSOLIDATED
BALANCE SHEETS



December 31 (dollars in thousands) 1997 1996
- -----------------------------------------------------------------------------------------------

CURRENT ASSETS
Cash and cash equivalents $ 171,438 $ 142,571
Marketable securities 8,021
Trade accounts receivable 151,201 145,475
Inventories:
Raw material 22,950 20,194
Semi-finished goods 9,132 14,549
Finished goods 23,768 21,295
Supplies 11,146 11,503
Deferred advertising 15,763 14,222
Deferred income taxes 50,345 31,413
Prepaid expenses and other current assets 48,849 48,302
- -----------------------------------------------------------------------------------------------
Total current assets 512,613 449,524

LONG-TERM INVESTMENTS 52,910 59,138
PROPERTY, PLANT, AND EQUIPMENT
Land 38,832 42,563
Buildings and improvements 288,270 307,018
Machinery and equipment 562,637 553,955
Construction in progress 346 1,382
- -----------------------------------------------------------------------------------------------
Total 890,085 904,918
Less accumulated depreciation 475,077 458,060
- -----------------------------------------------------------------------------------------------
Property, plant, and equipment - net 415,008 446,858

INTANGIBLES
Cost in excess of net assets acquired - net 54,435 139,593
Internal use software - net 74,584 44,438
Other intangible assets - net 38,814 36,889
- -----------------------------------------------------------------------------------------------
Total intangibles 167,833 220,920
- -----------------------------------------------------------------------------------------------
Total assets $1,148,364 $1,176,440
===============================================================================================
CURRENT LIABILITIES
Accounts payable $ 73,516 $ 63,810
Accrued liabilities:
Wages, including vacation pay 62,513 56,471
Employee profit sharing and pension 40,517 52,879
Accrued income taxes 31,960
Accrued rebates 36,708 33,975
Other 129,263 110,625
Short-term debt 17,011
Long-term debt due within one year 7,078 6,606
- -----------------------------------------------------------------------------------------------
Total current liabilities 381,555 341,377

LONG-TERM DEBT 109,986 108,622

DEFERRED INCOME TAXES 6,040 12,837

OTHER LONG-TERM LIABILITIES 40,535 688

SHAREHOLDERS' EQUITY
Common shares $1 par value (authorized: 500,000,000 shares;
issued: 1997 - 81,325,925 shares 1996 - 82,056,203 shares) 81,326 82,056
Additional paid-in capital 4,758
Retained earnings 525,302 631,151
Unearned compensation (649) (937)
Cumulative translation adjustment (489) 646
- -----------------------------------------------------------------------------------------------
Shareholders' equity 610,248 712,916
- -----------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $1,148,364 $1,176,440
===============================================================================================



See Notes to Consolidated Financial Statements



CONSOLIDATED
STATEMENTS OF INCOME




Years ended December 31 (dollars in thousands, except per share amounts) 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------

NET SALES $ 1,919,366 $ 1,979,627 $ 1,936,719
- ---------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Cost of sales 883,187 983,444 935,587
Selling, general, and administrative 797,566 797,174 817,348
Goodwill impairment charge 82,893 111,900
- ---------------------------------------------------------------------------------------------------------------------
Total 1,763,646 1,892,518 1,752,935
- ---------------------------------------------------------------------------------------------------------------------
Income from operations 155,720 87,109 183,784

OTHER INCOME (EXPENSE)
Other income (expense) (31,748) 42,305 (1,404)
Interest expense (8,822) (10,649) (13,061)
- ---------------------------------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 115,150 118,765 169,319
- ---------------------------------------------------------------------------------------------------------------------
PROVISION FOR INCOME TAXES 70,478 53,302 74,885
- ---------------------------------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS 44,672 65,463 94,434
=====================================================================================================================
DISCONTINUED OPERATIONS
Loss from operations (net of income tax benefit of $2,146) (3,098)
Loss on disposal (net of income tax benefit of $2,985) (4,315)
- ---------------------------------------------------------------------------------------------------------------------
LOSS FROM DISCONTINUED OPERATIONS (7,413)
- ---------------------------------------------------------------------------------------------------------------------
NET INCOME $ 44,672 $ 65,463 $ 87,021
=====================================================================================================================
BASIC EARNINGS PER SHARE
Income from continuing operations $ .55 $ .80 $ 1.15
Loss from discontinued operations (.09)
=====================================================================================================================
NET INCOME PER SHARE - BASIC $ .55 $ .80 $ 1.06
=====================================================================================================================
DILUTED EARNINGS PER SHARE
Income from continuing operations $ .55 $ .79 $ 1.15
Loss from discontinued operations (.09)
=====================================================================================================================
NET INCOME PER SHARE - DILUTED $ .55 $ .79 $ 1.06
=====================================================================================================================
CASH DIVIDENDS PER COMMON SHARE $ 1.48 $ 1.48 $ 1.48
=====================================================================================================================


See Notes to Consolidated Financial Statements



CONSOLIDATED
STATEMENTS OF CASH FLOWS





Years ended December 31 (dollars in thousands) 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------

CASH FLOWS FROM OPERATING ACTIVITIES

NET INCOME $ 44,672 $ 65,463 $ 87,021
Discontinued operations 7,413
- --------------------------------------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS 44,672 65,463 94,434
Adjustments to reconcile income from continuing operations
to net cash provided by operating activities:
Depreciation 68,816 66,269 69,027
Amortization of intangibles 28,453 40,367 34,276
Goodwill impairment charge 82,893 111,900
Stock purchase discount 6,654 7,478 8,185
Net gain on sales of businesses (866) (37,007)
Deferred income taxes (25,733) (20,690) (9,201)
Changes in assets and liabilities, net of effects from acquisitions,
discontinued operations, and sales of businesses:
Trade accounts receivable (5,806) 13,082 (24,949)
Inventories 266 13,367 12,893
Accounts payable 9,678 (11,456) 6,631
Other assets and liabilities 84,979 41,870 23,346
- --------------------------------------------------------------------------------------------------------------------------
Net cash provided by continuing operations 294,006 290,643 214,642
Net cash provided by (used in) discontinued operations 1,772 60 (5,315)
- --------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 295,778 290,703 209,327
- --------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of marketable securities with maturities of more
than 3 months 6,250 28,878
Purchases of marketable securities with maturities of more than 3 months (8,000)
Net reductions of marketable securities with maturities of 3 months or less 16,000
Purchases of capital assets (109,500) (92,038) (125,068)
Payments for acquisitions, net of cash acquired (10,600) (15,098) (37,313)
Net proceeds from sales of businesses and discontinued operations,
net of cash sold 21,627 112,913
Other 17,111 11,488 (2,858)
- --------------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by investing activities (89,362) 23,515 (120,361)
- --------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net (payments on) proceeds from short-term debt (16,783) (32,428) 36,312
Payments on long-term debt (6,818) (10,934) (8,918)
Payments to retire common stock (56,281) (48,065) (34,715)
Proceeds from issuing stock under employee plans 23,654 28,088 25,027
Cash dividends paid to shareholders (121,321) (121,976) (122,143)
- --------------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (177,549) (185,315) (104,437)
- --------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 28,867 128,903 (15,471)
- --------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 142,571 13,668 29,139
- --------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 171,438 $ 142,571 $ 13,668
==========================================================================================================================
Supplementary cash flow disclosure:
Interest paid $ 10,540 $ 12,001 $ 12,519
Income taxes paid $ 63,612 $ 83,600 $ 93,023
==========================================================================================================================



See Notes to Consolidated Financial Statements



NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS

NOTE ONE
SIGNIFICANT ACCOUNTING POLICIES

CONSOLIDATION - The consolidated financial statements include the accounts of
the Company and all wholly owned subsidiaries. All significant intercompany
accounts, transactions, and profits have been eliminated.

CASH AND CASH EQUIVALENTS - The Company considers all cash on hand, money market
funds, and other highly liquid investments with original maturities of three
months or less to be cash and cash equivalents. The carrying amounts reported in
the consolidated balance sheets for cash and cash equivalents approximate fair
value.

MARKETABLE SECURITIES - Marketable securities consist of debt and equity
securities. They are classified as available for sale and carried at fair value,
with the unrealized gains and losses, net of tax, reported as a separate
component of shareholders' equity. At December 31, 1997 and 1996, there were no
unrealized gains or losses relating to the securities held on those dates.
Realized gains and losses and permanent declines in value are included in other
income. The cost of securities sold is determined using the specific
identification method.

INVENTORY - Inventory is stated at the lower of cost or market. Cost is
determined using the last-in, first-out (LIFO) method for substantially all
inventory. LIFO inventories at December 31, 1997 and 1996, were approximately
$8.5 million and $11.6 million, respectively, less than replacement cost.

PROPERTY, PLANT, AND EQUIPMENT - Property, plant, and equipment, including
leasehold and other improvements that extend an asset's useful life or
productive capabilities, are stated at historical cost. Buildings with 40-year
lives and machinery and equipment with lives of five to 11 years are generally
depreciated using accelerated methods. Leasehold and building improvements are
depreciated on a straight-line basis over the estimated useful life of the
property or the life of the lease, whichever is shorter.

INTANGIBLES - Intangibles are presented in the consolidated balance sheets net
of accumulated amortization. Amortization expense is determined on the
straight-line basis over periods of five to 30 years for cost in excess of net
assets acquired (goodwill), and three to 10 years for internal use software and
other intangibles. Other intangibles consist primarily of software to be
licensed. Total intangibles at December 31 were as follows (dollars in
thousands):



1997 1996
- ---------------------------------------------------------------------------------------------------

Cost in excess of net assets acquired $ 318,579 $ 317,315
Internal use software 94,826 57,358
Other intangible assets 103,682 89,223
Total $ 517,087 $ 463,896
Less goodwill impairment charge
(see note 4) (194,793) (111,900)
Less other accumulated amortization (154,461) (131,076)
Intangibles - net $ 167,833 $ 220,920
- ---------------------------------------------------------------------------------------------------





LONG-TERM INVESTMENTS - Long-term investments consist principally of cash
surrender values of insurance contracts, investments with maturities in excess
of one year, and notes receivable. Such investments are carried at cost or
amortized cost which approximates their fair values.

IMPAIRMENT OF LONG-LIVED ASSETS - The Company evaluates the recoverability of
long-lived assets not held for sale by measuring the carrying amount of the
assets against the estimated undiscounted future cash flows associated with
them. At the time such evaluations indicate that the future undiscounted cash
flows of certain long-lived assets are not sufficient to recover the carrying
value of such assets, the assets are adjusted to their fair values. There were
no material adjustments in 1997, 1996, or 1995 to the carrying value of
long-lived assets to be held and used.

The Company evaluates the recoverability of long-lived assets held for
disposal by comparing the asset's carrying amount with its fair value less cost
to sell. In keeping with this policy, the Company recorded a charge of $99
million in 1997 and $111.9 million in 1996 to write down businesses held for
sale within its Deluxe Direct and Deluxe Electronic Payment Systems segments
(see note 4).

INCOME TAXES - Deferred income taxes result from temporary differences between
the financial reporting basis of assets and liabilities and their respective tax
reporting bases. Future tax benefits are recognized to the extent that
realization of such benefits is more likely than not.

ACCRUED REBATES - On occasion, the Company enters into contractual agreements
with its customers for rebates on certain products it sells. The Company records
these amounts as reductions to sales and accrues them on the consolidated
balance sheets as incurred.

DEFERRED ADVERTISING - These costs consist of materials, production, postage,
and design expenditures required to produce catalogs for the Company's direct
mail businesses. Such costs are amortized over periods (generally less than 12
months) that correspond to the estimated revenue streams of the individual
catalogs. The actual timing of these revenue streams may differ from these
estimates. The total amount of deferred advertising amortization for 1997, 1996,
and 1995 was $101.3 million, $107.4 million, and $126.3 million, respectively.

TRANSLATION ADJUSTMENT - The financial position and results of operations of the
Company's international subsidiaries are measured using local currencies as the
functional currencies. Assets and liabilities of these operations were
translated at the exchange rate in effect at the balance sheet date. Income
statement accounts were translated at the average exchange rate during the year.
Translation adjustments arising from the use of differing exchange rates from
period to period are included in the cumulative translation adjustment line in
the shareholders' equity section of the consolidated balance sheets. Gains and
losses that result from foreign currency transactions are included in earnings.

EMPLOYEE STOCK-BASED COMPENSATION - As permitted by Statement of Financial
Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation,"
the Company continues to account for its employee stock-based compensation in
accordance with Accounting Principles Board (APB) Opinion No. 25, "Accounting
for Stock Issued to Employees." Accordingly, no compensation cost has been
recognized for fixed stock options issued under the Company's stock incentive
plan. The Company has adopted the disclosure-only provisions of SFAS No. 123
(see note 8).



RECLASSIFICATIONS - Effective October 1, 1997, the Company elected to reclassify
certain expenses in its consolidated statements of income. As a result, net
sales, cost of sales, and selling, general, and administrative expense have been
restated for all prior periods to reflect these new classifications. The Company
now reflects postage expense incurred by its financial institution check
printing operations as cost of sales. Previously, this expense was included in
net sales. The effect of this reclassification was to increase net sales and
cost of sales expense by $92.9 million, $84 million, and $79.5 million for the
years ended December 31, 1997, 1996, and 1995, respectively. The Company
reclassified all of its employee profit sharing and pension expense and its
employee bonus and stock purchase discount expense to cost of sales and selling,
general, and administrative expense. The effect of this reclassification was to
increase cost of sales by $26 million, $37.2 million, and $34.3 million and to
increase selling, general, and administrative expense by $31.8 million, $34.8
million, and $45.2 million for the years ended December 31, 1997, 1996, and
1995, respectively. Additionally, certain other costs of the financial
institution check printing operations have been reclassified. Costs of the order
entry function and certain accounting and information services have been
reclassified from cost of sales to selling, general, and administrative expense,
and costs related to reprinting check orders have been reclassified from
selling, general, and administrative expense to cost of sales. These
reclassifications resulted in a decrease to cost of sales and an increase to
selling, general, and administrative expense of $31.8 million, $31.5 million,
and $36.2 million for the years ended December 31, 1997, 1996 and 1995,
respectively. Finally, certain minor amounts reported in 1996 and 1995 have been
reclassified to conform with the 1997 presentation. These changes had no
significant impact on previously reported results of operations or shareholders'
equity.

USE OF ESTIMATES - The Company has prepared the accompanying consolidated
financial statements in conformity with generally accepted accounting
principles. In this process, it is necessary for management to make certain
assumptions and related estimates affecting the amounts reported in the
consolidated financial statements and attached notes. These estimates and
assumptions are developed based upon all information available using
management's best efforts. However, actual results can differ from assumed and
estimated amounts.

NEW ACCOUNTING PRONOUNCEMENTS - In June 1997, the Financial Accounting Standards
Board (FASB) issued SFAS No. 130, "Reporting Comprehensive Income," which
requires businesses to disclose comprehensive income and its components in their
general purpose financial statements. This statement is effective for the
Company on January 1, 1998. Also in June 1997, the FASB issued SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information," which
redefines how operating segments are determined and requires the disclosure of
certain financial and descriptive information about these segments. This
statement is effective for the Company on January 1, 1998. In February, 1998,
the FASB issued SFAS No. 132, "Employers' Disclosures About Pensions and Other
Postretirement Benefits," which revises the disclosure requirements for pensions
and other postretirement benefits. This statement is effective for the Company
on January 1, 1998. In March 1998, the Accounting Standards Executive Committee
(AcSEC) of the American Institute of CPA's issued Statement of Position (SOP)
98-1, "Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use," which provides guidance on accounting for the costs of
internal-use computer software. This statement is effective for the Company on
January 1, 1999. The Company anticipates that the effect of these pronouncements
will not have a material impact on reported operating results.



NOTE TWO
EARNINGS PER SHARE

Effective December 1997, the Company adopted SFAS No. 128, "Earnings per Share."
Earnings per share amounts presented for 1996 and 1995 have been restated to
reflect this adoption. The following table reflects the calculation of basic and
diluted earnings per share (dollars and shares outstanding in thousands, except
per share amounts).



1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------

Income from continuing operations per share - basic:
Income from continuing operations $44,672 $65,463 $94,434
Weighted average shares outstanding 81,854 82,311 82,420
Income from continuing operations per share - basic $ .55 $ .80 $ 1.15
=====================================================================================================================
Income from continuing operations per share - diluted:
Income from continuing operations $44,672 $65,463 $94,434
- ---------------------------------------------------------------------------------------------------------------------
Weighted average shares outstanding 81,854 82,311 82,420
Dilutive impact of options 92 121 40
Shares contingently issuable 11 1 2
- ---------------------------------------------------------------------------------------------------------------------
Weighted average shares and potential dilutive shares outstanding 81,957 82,433 82,462
- ---------------------------------------------------------------------------------------------------------------------
Income from continuing operations per share - diluted $ .55 $ .79 $ 1.15
=====================================================================================================================



During 1997, 1996, and 1995, respectively, options to purchase .7 million, .9
million, and 1.4 million shares of common stock were outstanding but were not
included in the computation of diluted earnings per share. These options'
exercise prices were greater than the average market price of the common shares
during the respective periods.

In January 1998, the Company awarded options to substantially all employees
(excluding foreign employees and employees of businesses held for sale),
allowing them to purchase 100 shares of common stock at an exercise price of $33
per share. Total options for the purchase of 1.7 million shares of common stock
were issued under this program. Had these options been issued in previous years,
the dilutive impact of options presented above may have differed.


NOTE THREE
RESTRUCTURING CHARGE

In the first quarter of 1996, the Company announced a plan to close 21 of its
financial institution check printing plants over a two-year period. The 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. Also, during
the first quarter of 1996, the Company announced a plan to move the operating
and administrative facilities of one of its direct mail businesses from New
Jersey to Colorado. In conjunction with these plans, the Company recorded a
pretax restructuring charge of $45.4 million in 1996. The charge consisted of
estimated costs for asset dispositions ($9 million) and employee severance
($36.4 million). This charge is reflected in cost of sales ($35.2 million) and
selling, general, and administrative expense ($10.2 million) in the 1996
consolidated statement of income. As of December 31, 1997, 18 of the 21 plants
had been fully or partially closed. The remaining plants will be closed during
1998 and the first half of 1999.



During the third quarter of 1997, the Company recorded pretax restructuring
charges of $24.5 million. The restructuring charges include additional costs for
closing the 21 plants discussed above and costs associated with the continued
consolidation of the Company's core businesses. The additional charge for plant
closing costs represents amounts which could not be recorded in 1996 because
they did not meet the requirements for accrual in that year due to the timeframe
over which the plant closing plan was expected to be completed. The
restructuring charges consisted of employee severance costs of $21.6 million and
$2.9 million for expected losses on the disposition of assets. Expenses of $7.7
million were included in cost of sales; $13.9 million was included in selling,
general, and administrative expense, and $2.9 million was included in other
expense in the 1997 consolidated statement of income.

The Company's consolidated balance sheets reflect restructuring accruals of
$39.5 million and $29.1 million as of December 31, 1997 and 1996, respectively,
for employee severance costs, and $3.7 million and $3.8 million as of December
31, 1997 and 1996, respectively, for estimated losses on asset dispositions. The
majority of the severance costs are expected to be paid in 1998 and early 1999
with cash generated from the Company's operations.


NOTE FOUR
IMPAIRMENT LOSSES

During December 1996, the Company announced its plans to divest three of the
businesses in the Deluxe Direct segment - Nelco, Inc., PaperDirect, Inc., and
the Social Expressions unit of Current, Inc. Based on fair market value
estimates at that time, the Company recorded a $111.9 million charge to write
down the carrying amounts of these businesses to estimated fair value less cost
to sell. Additionally, in September 1997, the Company determined that it would
dispose of the international operations of the Deluxe Electronic Payment Systems
segment. Based on fair market value estimates of these international operations
and changes in the fair market value of the PaperDirect and Social Expressions
businesses, the Company recorded an additional charge of $99 million in 1997 to
write down the carrying amounts of these businesses to estimated fair value less
cost to sell. The 1997 charge is included in the 1997 consolidated statement of
income in goodwill impairment charge ($82.9 million) and selling, general, and
administrative expense ($16.1 million). The 1996 charge is reflected in goodwill
impairment charge. The Company will not depreciate or amortize any of the
long-term assets of these businesses while they are held for disposal. The
Company anticipates completing these disposal efforts in 1998. At December 31,
1997 and 1996, the aggregate remaining carrying amount of businesses held for
sale was $83 million and $158.5 million, respectively. Together, these
businesses recorded sales of $243.2 million, $275.3 million, and $323.9 million
and contributed a net loss of $4.2 million, $17.4 million, and $35.3 million in
1997, 1996, and 1995, respectively, excluding the impairment charges in 1997 and
1996.


NOTE FIVE
BUSINESS COMBINATIONS

1997 DIVESTITURES - During 1997, the Company sold substantially all of the
assets of Nelco, Inc., the U.K. checks business, and a product line within the
Company's Financial Services segment. The aggregate sales price for these
businesses was $17.4 million, consisting of cash proceeds of $11.7 million and
notes receivable of $5.7 million. The consolidated financial statements of the
Company include the results of these businesses through their individual sale
dates. In aggregate, the effect of these divestitures did not have a material
impact on the operations of the Company.

1997 ACQUISITIONS - During 1997, the Company acquired substantially all of the
assets of Fusion Marketing Group, Inc., for $10.6 million. Fusion provides
customized database marketing services to financial institutions. Under the
purchase agreement, the Company may have to pay additional amounts through the
year 2000, contingent on the future earnings of the Fusion business. The
acquisition was accounted for under the purchase method. Accordingly, the
consolidated financial statements of the Company include the results of this
business subsequent to its acquisition date. The purchase price was allocated to
the assets acquired and liabilities assumed based on their fair values on the
date of purchase. The total cost in excess of net assets acquired of $9.6
million was recorded as goodwill and is being amortized over 15 years. The
effect of this acquisition was not material to the Company's operations.



1996 DIVESTITURES - During 1996, the Company sold its Health Care Forms, T/Maker
Company, Financial Alliance Processing Services, Inc., U.K. forms, and internal
bank forms businesses. The aggregate sales price for these businesses was $133.3
million consisting of cash proceeds of $116.7 million and notes receivable of
$16.6 million. The resultant aggregate net gain on these sales was $37 million.
The consolidated financial statements of the Company include the results of
these businesses through their individual sale dates. In aggregate, the
financial statements of the Company include revenues from these businesses of
$118.1 million and $133.2 million in 1996 and 1995, respectively. Also, they
contributed net income of $2.6 million in 1996 and net losses of $9.3 million in
1995.

1996 ACQUISITIONS - During 1996, the Company purchased a number of businesses in
the payment protection and database marketing fields. The aggregate amount paid
for these acquisitions was $18.6 million. Additionally, under the purchase
agreements, the Company may have to pay additional amounts up to $14.3 million
contingent on the future net earnings of some of the acquired businesses.

Each acquisition was accounted for using the purchase method. Accordingly,
the consolidated financial statements of the Company include the results of
these businesses subsequent to their purchase dates. The purchase price for each
acquisition was allocated to the assets acquired and liabilities assumed based
on their fair values at the time of purchase. The aggregate cost in excess of
net assets acquired for these acquisitions was $16.5 million, which was recorded
as goodwill and is being amortized over periods ranging from five to 25 years.
The combined effect of these acquisitions did not have a material pro forma
impact on the operations of the Company.

1996 JOINT VENTURE - During 1997, the Company completed its 1996 agreement to
form a joint venture with HCL Corporation of India. This venture provides
software development and other services to financial institutions in the United
States and in certain foreign countries. The joint venture commenced operations
in September 1997. The results of the joint venture did not have a material
effect on the Company's operations in 1997.

1995 ACQUISITIONS - On January 10, 1995, the Company acquired all of the
outstanding stock of Financial Alliance Processing Services, Inc., a provider of
merchant credit card processing, for $38.8 million. The acquisition was
accounted for under the purchase method. Accordingly, the purchase price was
allocated to the net assets acquired based on their fair values on the date of
purchase. The total cost in excess of the fair value of the net assets acquired
of $36.6 million was recorded as goodwill and was being amortized over a 10-year
period. In December 1996, the Company sold all of its capital interest in
Financial Alliance Processing Services, Inc. The effect of this acquisition and
subsequent divestiture did not have a material pro forma impact on the Company's
operations.


NOTE SIX
MARKETABLE SECURITIES

On December 31, 1997, the Company held marketable securities of $8 million. In
aggregate, the fair market value of these securities approximated cost. Debt
securities (included in cash and cash equivalents) held on December 31, 1997 and
1996, of $129.7 million and $73.3 million, respectively, were highly liquid and
had experienced no material aggregate unrealized holding gains or losses as of
these dates.

There were no sales of marketable securities in 1997. Proceeds from sales of
marketable securities available for sale were $6.3 million and $54.6 million in
1996 and 1995, respectively. The Company realized net losses of $36,000 and $1.1
million in 1996 and 1995, respectively, on these sales.



NOTE SEVEN
PROVISION FOR INCOME TAXES

The components of the provision for income taxes from continuing operations are
as follows (dollars in thousands):



1997 1996 1995
- ----------------------------------------------------------------------------------------

Current tax provision:
Federal $ 84,392 $ 67,749 $71,884
State 14,062 11,794 17,845
- ----------------------------------------------------------------------------------------
Total 98,454 79,543 89,729
Deferred tax (benefit) provision:
Federal (23,876) (29,581) (10,587)
State (4,100) 3,340 (4,257)
- ----------------------------------------------------------------------------------------
Total $ 70,478 $ 53,302 $74,885
========================================================================================



The Company's effective tax rate on pretax income from continuing operations
differs from the U.S. Federal statutory tax rate of 35% as follows (dollars in
thousands):



1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------

Income tax at Federal statutory rate $40,303 $ 41,568 $59,262
State income taxes net of Federal income tax benefit 6,442 9,837 8,832
Amortization and write-down of non-deductible intangibles 32,116 44,170 5,978
Recognition of excess of tax basis over book investment
in subsidiaries sold and held for disposal (3,786) (45,430)
Change in valuation allowance 1,024 7,496 4,355
Other (5,621) (4,339) (3,542)
- ----------------------------------------------------------------------------------------------------------------------
Provision for income taxes $70,478 $ 53,302 $74,885
======================================================================================================================



Tax effected temporary differences which give rise to a significant portion
of deferred tax assets and liabilities at December 31, 1997 and 1996, are as
follows (dollars in thousands):



1997 1996
- ----------------------------------------------------------------------------------------------------------------------
Deferred Deferred Deferred Deferred
tax tax tax tax
assets liabilities assets liabilities

Property, plant, and equipment $ 21,412 $26,879
Deferred advertising 2,994 5,129
Employee benefit plans $ 12,599 $ 11,270
Inventory 1,755 3,077
Intangibles 19,280 9,284
Foreign net operating loss carry forwards 10,447 8,059
Excess of tax basis over book investment in
subsidiaries held for disposal 34,203 30,417
Restructuring accrual 18,419 12,898
Reserve for legal proceedings 13,991
Miscellaneous reserves and accruals 7,213 8,868
All other 13,638 7,111 8,490 7,017
- ----------------------------------------------------------------------------------------------------------------------
Subtotal 112,265 50,797 83,079 48,309
Valuation allowance (17,163) (16,194)
- ----------------------------------------------------------------------------------------------------------------------
Total deferred taxes $ 95,102 $50,797 $ 66,885 $48,309
======================================================================================================================





In accordance with SFAS No. 109, "Accounting for Income Taxes," the Company does
not recognize deferred tax assets for the excess of tax basis over the basis for
financial reporting of investments in subsidiaries until it becomes apparent
that these temporary differences will reverse in the foreseeable future. The tax
benefit arising from the difference in tax and financial reporting bases in
subsidiaries was recognized in 1996 for those subsidiaries sold during the year
(see note 5). Additionally, in December 1996, the Company announced its
intention to sell certain businesses within its Deluxe Direct segment. The
deferred tax assets relating to the investments in these subsidiaries were
reflected in the Company's consolidated financial statements at December 31,
1997 and 1996, to the extent that realization of such benefits was more likely
than not. The remainder of the valuation allowance at December 31, 1997 and
1996, relates to the uncertainty of realizing foreign deferred tax assets.

NOTE EIGHT
EMPLOYEE BENEFIT AND STOCK-BASED COMPENSATION PLANS

STOCK PURCHASE PLAN - The Company has an employee stock purchase plan that
enables eligible employees to purchase the Company's common stock at 75% of its
fair market value on the first business day following each three-month purchase
period. Compensation expense recognized for the difference between the
employees' purchase price and the fair value of the stock was $6.7 million, $7.5
million, and $8.2 million in 1997, 1996, and 1995, respectively. Under the plan,
840,143, 907,424, and 1,121,153 shares were issued at prices ranging from $22.88
to $24.75, $22.41 to $28.04, and $20.07 to $24.00 in 1997, 1996, and 1995,
respectively.

STOCK INCENTIVE PLAN - Under the stock incentive plan, stock-based awards may be
issued to employees via a broad range of methods, including non-qualified or
incentive stock options, restricted stock and restricted stock units, stock
appreciation rights, and other awards based on the value of the Company's common
stock. The plan was amended in 1996 to reserve an aggregate of 7 million shares
of common stock for issuance under the plan. Through 1997, the Company has
issued restricted shares and restricted stock units, and non-qualified and
incentive stock options. At December 31, 1997, options for 4.9 million shares
remain available for issuance under the plan.

All options allow for the purchase of shares of common stock at prices equal
to their market value at the date of grant. Options become exercisable in
varying amounts beginning generally one year after the date of grant.
Information regarding the options issued under the current plan, which was
adopted in 1994, and the remaining options outstanding under the former plan
adopted in 1984, is as follows:



Weighted Average
Number of Shares Exercise Price
- --------------------------------------------------------------------------------------

Outstanding at January 1, 1995 2,212,149 $35.04
Granted 204,899 30.33
Exercised (44,566) 28.43
Canceled (224,909) 34.85
- --------------------------------------------------------------------------------------
Outstanding at December 31, 1995 2,147,573 $34.81
Granted 631,250 30.63
Exercised (144,039) 30.71
Canceled (496,225) 34.54
- --------------------------------------------------------------------------------------
Outstanding at December 31, 1996 2,138,559 $33.92
Granted 808,400 30.92
Exercised (126,100) 29.25
Canceled (317,507) 35.07
- --------------------------------------------------------------------------------------
Outstanding at December 31, 1997 2,503,352 $33.04
======================================================================================






For options outstanding and exercisable at December 31, 1997, the exercise price
ranges and average remaining lives were as follows:



Options Outstanding Options Exercisable
---------------------------------------------------- -------------------------------
Range of Number Weighted-Average Weighted-Average Number Weighted-Average
Exercise Prices Outstanding Remaining Life Exercise Price Exercisable Exercise Price
- -------------------------------------------------------------------------------------------------------------------------

$24.25 to $35.125 1,869,297 7.5 years $30.26 943,861 $29.82

$35.50 to $45.875 634,055 5.0 years $41.23 614,055 $41.30

2,503,352 6.8 years $33.04 1,557,916 $34.34
=========================================================================================================================



The Company issued 72,581, 19,752, and 66,399 restricted shares and
restricted stock units at weighted average fair values of $31.52, $35.25, and
$30.22 during 1997, 1996, and 1995, respectively. These awards generally vest
over periods ranging from one to five years.

Pro forma information regarding net income and income per share has been
determined as if the Company had accounted for its employee stock options under
the fair value method of SFAS No. 123. The fair value of these options was
estimated at the date of grant using a Black-Scholes option pricing model with
the following weighted-average assumptions: risk-free interest rate of about 6%,
dividend yield of approximately 4%, and expected volatility of 23%. The
weighted-average expected option life was 7.17 years, 6.90 years, and 7.12 years
for 1997, 1996, and 1995, respectively. The weighted-average fair value of
options granted in 1997, 1996, and 1995 was $7.49, $6.86, and $6.99 per share,
respectively. For purposes of pro forma disclosures, the estimated fair value of
the options was recognized as expense over the options' vesting periods. The
Company's pro forma net income and income per share were as follows (dollars in
thousands, except per share amounts):

1997 1996 1995
- ------------------------------------------------------------------
Net income:
As reported $44,672 $65,463 $87,021
Pro forma 44,536 63,353 86,801
Basic net income per share:
As reported $ .55 $ .80 $ 1.06
Pro forma .54 .77 1.05
Diluted net income per share:
As reported $ .55 $ .79 $ 1.06
Pro forma .54 .77 1.05
==================================================================

These pro forma calculations only include the effects of grants made
subsequent to January 1, 1995. As such, these impacts are not necessarily
indicative of the effects on reported net income of future years.

PROFIT SHARING, DEFINED CONTRIBUTION AND 401(k) PLANS - The Company maintains
profit sharing plans, a defined contribution pension plan, and plans established
under section 401(k) of the Internal Revenue Code to provide retirement for
certain of its employees. The plans cover substantially all full-time employees
with at least 15 months of service. Contributions to the profit sharing and
defined contribution plans are made solely by the Company. Employees may
contribute up to 5% of their wages to the 401(k) plan. The Company will match
100% of amounts up to 1% of wages contributed and 50% of the remaining funds
contributed. All contributions are remitted to the plans' respective trustees,
and benefits provided by the plans are paid from accumulated funds by the
trustees.

Contributions to the defined contribution plan equaled 6% of eligible
compensation in 1997, 1996, and 1995. Related expense for these years was $18.6
million, $19.9 million, and $20.8 million, respectively. Contributions to the
profit sharing plans vary based on the Company's performance. Expense for these
plans was $25.6 million, $44.5 million, and $50.6 million in 1997, 1996, and
1995, respectively. The 401(k) plan was established on January 1, 1997. Company
contributions to the 401(k) plan were $7 million in 1997.



NOTE NINE
POSTRETIREMENT BENEFITS

The Company provides certain health care benefits for a large number of its
retired employees. Employees included in the plan may become eligible for such
benefits if they attain the appropriate years of service and age while working
for the Company. Certain retirees' medical insurance premiums are based on the
amounts paid by active employees. Effective January 1, 1998, active employees'
premiums were reduced, thus reducing the medical premiums required to be paid by
these retirees. Additionally, for retirees who participate in the active
employees' indemnity plans, their copayment amount was increased 5%. The plan
was also amended to provide employees who are involuntarily terminated and who
are qualified retirees at the time of termination with a bridge for retiree
medical benefits if they are terminated prior to age 53.

The following table summarizes the funded status of the plan at December 31
(dollars in thousands):



1997 1996
- ----------------------------------------------------------------------------------

Accumulated postretirement benefit obligation:
Retirees $49,347 $46,645
Fully eligible plan participants 64 38
Other active participants 16,772 12,462
- ----------------------------------------------------------------------------------
Total 66,183 59,145

Less:
Fair value of plan assets (debt and equity securities) 60,203 51,828
Unrecognized prior service cost 1,621 1,891
Unrecognized net gain (2,364) (3,309)
Unrecognized transition obligation 10,192 10,872
- ----------------------------------------------------------------------------------
Prepaid postretirement asset recognized in the
consolidated balance sheets $ (3,469) $ (2,137)
==================================================================================



Net postretirement benefit cost for the year ended December 31 consisted of
the following components (dollars in thousands):



1997 1996 1995
- --------------------------------------------------------------------------------------------------------------

Service cost - benefits earned during the year $ 877 $ 899 $ 474
Interest cost on the accumulated postretirement
benefit obligation 4,163 4,416 4,392
Actual return on plan assets (11,133) (7,126) (9,897)
Amortization of transition obligation 680 1,025 1,140
Net amortization and deferral of gains and losses 6,345 3,194 6,604
- --------------------------------------------------------------------------------------------------------------
Net postretirement benefit cost 932 2,408 2,713
Curtailment loss 3,019
==============================================================================================================
Total postretirement benefit cost $ 932 $ 5,427 $ 2,713
==============================================================================================================



As a result of the 1996 plan to close 21 financial institution check printing
plants (see note 3) and the sale of the Company's Health Care Forms and internal
bank forms businesses in 1996 (see note 5), the Company recognized a
postretirement benefit curtailment loss of $3 million in 1996.

In measuring the accumulated postretirement benefit obligation as of December
31, 1997, the Company's health care inflation rate for 1998 was assumed to be
7%. Inflation rates are assumed to trend downward gradually over the next three
years to 5% for the years 2000 and beyond. A one percentage point increase in
the health care inflation rate for each year would increase the accumulated
postretirement benefit obligation by approximately $9.7 million, and the service
and interest cost components of the net postretirement benefit cost by
approximately $.8 million. The discount rate used in determining the accumulated
postretirement benefit obligation as of December 31, 1997 and 1996, was 7.25%.
The expected long-term rate of return on plan assets used to determine the net
periodic postretirement benefit cost was 9.5% in 1997 and 1996.



NOTE TEN
LEASE AND DEBT COMMITMENTS

Long-term debt was as follows at December 31 (dollars in thousands):



1997 1996
- ----------------------------------------------------------------------------------------------

8.55% unsecured and unsubordinated notes
due February 15, 2001 $100,000 $100,000
Other 17,064 15,228
- ----------------------------------------------------------------------------------------------
Total long-term debt 117,064 115,228
Less amount due within one year 7,078 6,606
- ----------------------------------------------------------------------------------------------
Total $109,986 $108,622
==============================================================================================



In February 1991, the Company issued $100 million of 8.55% unsecured and
unsubordinated notes due February 15, 2001. The notes are not redeemable prior
to maturity. The fair values of these notes were estimated to be $106.7 million
and $107 million at December 31, 1997 and 1996, respectively, based on quoted
market prices.

Other long-term debt consists principally of capital leases on equipment and
payments due under non-compete agreements. The capital lease obligations bear
interest rates of 4% to 21% and are due through the year 2012. Carrying value
materially approximates fair value for these obligations.

Maturities of long-term debt for the five years ending December 31, 2002, are
$7.1 million, $7 million, $.9 million, $100.8 million, and $.7 million, and $.6
million thereafter.

The Company has uncommitted bank lines of credit for $170 million. The
average amount drawn on those lines during 1997 was $3.1 million at a weighted
average interest rate of 6.47%. There was no outstanding balance at December 31,
1997. At December 31, 1996, $17 million was outstanding at an interest rate of
6.5%. The Company also has in place a $150 million committed line of credit as
support for commercial paper and as a source of cash. No commercial paper was
outstanding at December 31, 1997 and 1996. Additionally, the Company has a shelf
registration in place for the issuance of up to $300 million in medium-term
notes. Such notes could be used for general corporate purposes, including
working capital, capital expenditures, possible acquisitions, and repayment or
repurchase of outstanding indebtedness and other securities of the Company. As
of December 31, 1997 and 1996, no such notes were issued or outstanding.

Minimum future rental payments for leased facilities and equipment for the
five years ending December 31, 2002, are $32.5 million, $26.1 million, $17.2
million, $8.8 million, and $4.9 million, and $4.4 million thereafter. Rental
expense was $40.9 million, $40.4 million, and $44.3 million for 1997, 1996, and
1995, respectively.


NOTE ELEVEN
COMMON STOCK PURCHASE RIGHTS

On February 5, 1988, the Company declared a distribution to shareholders of
record on February 22, 1988, of one common stock purchase right for each
outstanding share of common stock. These rights were governed by the terms and
conditions of a rights agreement entered into by the Company as of February 12,
1988. That agreement was amended and restated as of January 31, 1997 (Restated
Agreement).

Pursuant to the Restated Agreement, upon the occurrence of certain events,
each right will entitle the holder to purchase one share of common stock at an
exercise price of $150. In certain circumstances described in the Restated
Agreement, if (i) any person becomes the beneficial owner of 15% or more of the
Company's common stock, (ii) the Company is acquired in a merger or other
business combination or (iii) upon the occurrence of other events, each right
will entitle its holder to purchase a number of shares of common stock of the
Company, or the acquirer or the surviving entity if the Company is not the
surviving corporation in such a transaction. The number of shares purchasable
will be equal to the exercise price of the right divided by 50% of the
then-current market price of one share of common stock of the Company, or other
surviving entity (i.e., at a 50% discount), subject to adjustments provided in
the Restated Agreement. The rights expire January 31, 2007, and may be redeemed
by the Company at a price of $.01 per right at any time prior to the occurrence
of the circumstances described above.



NOTE TWELVE
SHAREHOLDERS' EQUITY



Unrealized
Additional gain (loss) on Cumulative
Common paid-in Retained Unearned marketable translation
(Dollars in thousands) shares capital earnings compensation securities adjustment
- -------------------------------------------------------------------------------------------------------------------------

Balance, December 31, 1994 $82,375 $ 1,694 $ 732,158 $ (149) $ (2,054) $ 369
Net income 87,021
Cash dividends (122,143)
Common stock issued 1,180 33,285
Common stock retired (1,191) (33,524)
Unearned compensation (590)
Unrealized fair value adjustments,
net of taxes of $977 1,812
Translation adjustment 131
- -------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 82,364 1,455 697,036 (739) (242) 500
Net income 65,463
Cash dividends (121,976)
Common stock issued 1,106 35,824
Common stock retired (1,414) (37,279) (9,372)
Unearned compensation (198)
Unrealized fair value adjustments,
net of taxes of $130 242
Translation adjustment 146
- -------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 82,056 0 631,151 (937) 0 646
Net income 44,672
Cash dividends (121,321)
Common stock issued 985 30,124
Common stock retired (1,715) (25,366) (29,200)
Unearned compensation 288
Translation adjustment (1,135)
- -------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 $81,326 $ 4,758 $ 525,302 $ (649) $ 0 $ (489)
=========================================================================================================================





NOTE THIRTEEN
BUSINESS SEGMENT INFORMATION

The Company has classified its operations into three business segments: Deluxe
Financial Services, Deluxe Electronic Payment Systems, and Deluxe Direct. Deluxe
Financial Services provides check printing, direct marketing, customer database
management, and related services to financial institutions; checks directly to
households and small businesses; and payment protection and collections services
to financial institutions and the retail market primarily in the United States.
Deluxe Electronic Payment Systems provides debit transaction processing and
other electronic banking functions in the United States and internationally.
Deluxe Direct primarily sells greeting cards, stationery, and specialty paper
products through direct mail to customers principally in the United States. As a
result of the Company's reorganization process, the Company determined that the
businesses in the Deluxe Direct segment do not fit into the Company's long-term
plans. During 1996 and 1997, a number of these businesses were sold and the
remaining portions of this business segment are expected to be sold in 1998.

For the three years ended December 31, 1997, the Company's segment
information is as follows. The costs of the Company's corporate operations have
been allocated to each segment based on the services provided to them. The
restructuring charges (see note 3) and impairment losses (see note 4) recorded
by the Company are reflected in the segment generating such charges.



Deluxe Financial Deluxe Electronic
1997 (dollars in thousands) Services Payment Systems Deluxe Direct Total
- ----------------------------------------------------------------------------------------------------------

Net sales $1,543,263 $143,561 $232,542 $1,919,366
Income (loss) from operations 275,918 (27,863) (92,335) 155,720
Identifiable assets 830,872 170,126 147,366 1,148,364
Depreciation and amortization 61,570 21,871 13,828 97,269
Capital expenditures 85,827 16,194 7,479 109,500
- ----------------------------------------------------------------------------------------------------------
1996
Net sales $1,474,222 $129,920 $ 375,485 $1,979,627
Income (loss) from operations 251,621 (25,154) (139,358) 87,109
Identifiable assets 781,996 160,716 233,728 1,176,440
Depreciation and amortization 56,860 21,638 28,138 106,636
Capital expenditures 76,815 5,576 9,647 92,038
- ----------------------------------------------------------------------------------------------------------
1995
Net sales $1,374,435 $124,509 $ 437,775 $1,936,719
Income (loss) from operations 257,330 1,778 (75,324) 183,784
Identifiable assets 628,773 135,851 530,471 1,295,095
Depreciation and amortization 53,606 18,291 31,406 103,303
Capital expenditures 75,662 19,330 30,076 125,068
- ----------------------------------------------------------------------------------------------------------





NOTE FOURTEEN
DISCONTINUED OPERATIONS

On November 29, 1995, the Company adopted a plan to exit the Printwise ink
business. Accordingly, Printwise is reported as a discontinued operation for the
year ended December 31, 1995. Net assets of the discontinued operation at
December 31, 1995, consisted primarily of property, plant, and equipment. The
Company disposed of substantially all the assets of the business in 1996. The
loss on the disposal of Printwise did not differ significantly from the
estimated loss as of December 31, 1995. Summarized results of Printwise for the
year ended December 31, 1995, are as follows:


Year ended December 31 (dollars in thousands) 1995
- --------------------------------------------------------------
Net sales $ 1,124
- --------------------------------------------------------------
Loss from operations before income tax benefit (5,244)
Income tax benefit 2,146
- --------------------------------------------------------------
Loss from operations (3,098)
- --------------------------------------------------------------
Loss on disposal before income tax benefit (7,300)
Income tax benefit 2,985
- --------------------------------------------------------------
Loss on disposal (4,315)
- --------------------------------------------------------------
Total loss on discontinued operations $(7,413)
==============================================================


NOTE FIFTEEN
LEGAL PROCEEDINGS

During 1997, a judgment was entered against Deluxe Electronic Payment Systems,
Inc. (DEPS), in U.S. District Court in Pittsburgh. The case was brought against
DEPS by Mellon Bank in connection with a potential bid to provide electronic
benefits transfer services for the Southern Alliance of States. In September
1997, the Company recorded a pretax charge of $40 million to reserve for this
judgment and other related costs. The Company has filed a notice of appeal from
this judgment and has thus classified this obligation as other long-term
liabilities in the December 31, 1997, consolidated balance sheet.



INDEPENDENT
AUDITORS' REPORT

To the Shareholders of Deluxe Corporation:

We have audited the accompanying consolidated balance sheets of Deluxe
Corporation and its subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of income and cash flows for each of the three
years in the period ended December 31, 1997. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Deluxe Corporation and its
subsidiaries at December 31, 1997 and 1996, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1997, in conformity with generally accepted accounting principles.

/s/ Deloitte & Touche LLP

Deloitte & Touche LLP
Minneapolis, Minnesota
January 26, 1998



SUMMARIZED QUARTERLY
FINANCIAL DATA (UNAUDITED)

The following net sales and cost of sales data differs from that reported in the
Company's quarterly financial statements as reported on Form 10-Q due to the
financial statement reclassifications outlined in note 1. The following per
share net income data differs from that reported in the Company's quarterly
financial statements as reported on Form 10-Q due to the application of
Statement of Financial Accounting Standards No. 128, "Earnings per Share."




1997 Quarter Ended MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
- ---------------------------------------------------------------------------------------------------------

Net sales $490,104 $463,750 $466,908 $498,604
Cost of sales 227,195 214,854 222,516 218,622
Net income (loss) 41,425 37,457 (67,515)(1) 33,305
Per share of common stock
Net income (loss) - basic .50 .46 (.82) .41
Net income (loss) - diluted .50 .46 (.82) .41
Cash dividends .37 .37 .37 .37
- ---------------------------------------------------------------------------------------------------------

1996 Quarter Ended March 31 June 30 September 30 December 31
- ---------------------------------------------------------------------------------------------------------
Net sales $508,289 $486,734 $482,199 $502,405
Cost of sales 270,885 234,320 232,829 245,410
Net income (loss) 18,921(2) 38,056 33,524 (25,038)(2)
Per share of common stock
Net income (loss) - basic .23 .46 .41 (.30)
Net income (loss) - diluted .23 .46 .41 (.30)
Cash dividends .37 .37 .37 .37
- ---------------------------------------------------------------------------------------------------------



(1) 1997 third quarter results include a pretax charge of $180 million, related
primarily to impaired assets (see note 4), production consolidation (see note
3), legal proceedings (see note 15), and other balance sheet adjustments.

(2) 1996 first and fourth quarter results include net pretax charges of $34.8
million and $107.5 million, respectively, related to production consolidation
(see note 3), goodwill impairment (see note 4), gains and losses on sales of
businesses (see note 5), postretirement benefit curtailment loss (see note 9),
and write-offs of non-performing assets.



SHAREHOLDER
INFORMATION

QUARTERLY STOCK DATA

The charts below show the per-share price range of the Company's common stock
for the past two fiscal years as quoted on the New York Stock Exchange.

[GRAPH]

1997 QUARTER HIGH LOW CLOSE
- ----------------------------------------------------------------
1st 33 5/8 29 3/4 32 1/4

2nd 34 9/16 29 3/4 34 1/8

3rd 35 7/8 32 5/16 33 9/16

4th 37 31 1/4 34 1/2
- ----------------------------------------------------------------

1996 QUARTER HIGH LOW CLOSE
- ----------------------------------------------------------------

1st 33 5/8 27 31 3/8

2nd 37 7/8 30 1/4 35 1/2

3rd 39 3/4 33 37 3/4

4th 39 3/8 29 3/4 32 3/4
- ----------------------------------------------------------------

STOCK EXCHANGE

Deluxe Corporation common stock is traded on the New York Stock Exchange under
the symbol DLX.

ANNUAL MEETING

The annual meeting of the shareholders of Deluxe Corporation will be held
Tuesday, May 5, 1998, at The Donald E. Benson Great Hall, Bethel College, 3900
Bethel Drive, St. Paul, Minnesota at 5 p.m.

FORM 10-K AVAILABLE

A copy of the Company's Annual Report on Form 10-K, as filed with the Securities
and Exchange Commission by the Company, may be obtained without charge by
calling 1-888-359-6397 (1-888-DLX-NEWS) or by sending a written request to
Stuart Alexander, Deluxe Corporation, P.O. Box 64235, St. Paul, Minnesota
55164-0235.

SHAREHOLDER INQUIRIES

Requests for additional information should be sent to corporate headquarters to
the attention of:
Stuart Alexander, Vice President
(612) 483-7358

STOCK OWNERSHIP AND RECORD KEEPING

Norwest Bank Minnesota N.A.
Stock Transfer Department
161 N. Concord Exchange
P.O. Box 64854
St. Paul, Minnesota 55164-0854
(800) 468-9716
(612) 450-4064
E-mail: shareowner@aol.com



EXECUTIVE OFFICES

STREET ADDRESS:
3680 Victoria St. N.
Shoreview, Minnesota 55126-2966

MAILING ADDRESS:
P.O. Box 64235
St. Paul, Minnesota 55164-0235
(612) 483-7111

TOLL-FREE SHAREHOLDER INFORMATION LINE

You may dial 1-888-359-6397 (1-888-DLX-NEWS) to listen to the latest financial
results, dividend news, and other information about Deluxe or to request copies
of our annual report, 10-K, 10-Q, proxy statement, news releases, and financial
presentation information.

PLANNED RELEASE DATES

Quarterly results: Thursday, April 23, July 23, October 22, Wednesday, January
27, 1999.

Dividends are announced the second week of February, May, August, and November.

WEB SITE

Visit our home page at www.deluxe.com

FORWARD-LOOKING STATEMENTS

We use "forward-looking statements," as defined in the Private Securities Reform
Act of 1995, in this year's annual report. These statements typically address
management's present expectations about future performance and typically include
wording such as "should result," "expect," "anticipate," "estimate," or similar
expressions. Because of the unavoidable risks and uncertainties of predicting
the future, Deluxe's actual results may vary from management's current
expectations. These variations may be significant and may not always be
positive. Additional information about factors that may affect our current
estimates appears in our Form 10-K filed with the Securities and Exchange
Commission on March 31, 1998. To obtain a copy, we encourage investors to call
our shareholder information line (1-888-359-6397).