10-K/A: Annual report pursuant to Section 13 and 15(d)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K/A
AMENDMENT NO. 1 TO

[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934. FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998.
Commission file number 1-7945.

DELUXE CORPORATION

(Exact name of registrant as specified in its charter)

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

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

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

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

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

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

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. _x_ Yes __ No

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

The aggregate market value of the voting stock held by non-affiliates of the
registrant is $2,671,087,198 based on the last sales price of the registrant's
common stock on the New York Stock Exchange on March 8, 1999. The number of
outstanding shares of the registrant's common stock as of March 8, 1999, was
79,405,544.



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Documents Incorporated by Reference:

1. Portions of the registrant's annual report to shareholders for the fiscal
year ended December 31, 1998, as amended hereby (the "Amended Annual
Report"), are incorporated by reference in Parts I and II.

PART I

ITEM 1. NARRATIVE DESCRIPTION OF BUSINESS

FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS

The information appearing under the caption "Note 14. Business Segment
Information" on pages 32-34 of the Amended Annual Report is incorporated by
reference.

FINANCIAL INFORMATION ABOUT DOMESTIC OPERATIONS AND EXPORT SALES

The information appearing under the caption "Note 14. Business Segment
Information" on page 34 of the Amended Annual Report is incorporated by
reference.

PART II

ITEM 6. SELECTED FINANCIAL DATA

The information appearing under the caption "Five-year Summary" on page 12
of the Amended Annual Report is incorporated by reference.

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

The information appearing under the caption "Management's Discussion and
Analysis" on pages 1 through 10 of the Amended Annual Report is incorporated by
reference.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements, notes and independent auditors' report on pages 13
through 36 of the Amended Annual Report and the information appearing under the
caption "Summarized Quarterly Financial Data" (unaudited) on page 37 of the
Amended Annual Report is incorporated by reference.

On December 31, 1998, the registrant received a number of questions and
comments from the Securities and Exchange Commission's Division of Corporate
Finance (the "Division") with respect to the registrant's Annual Report on Form
10-K for the year ended December 31, 1997 and its quarterly Report on Form 10-Q
for the Quarter ended September 30, 1998. From January through September of
1999, representatives of the registrant and the Division engaged in an extensive
dialog concerning the comments raised by the Division. The principal focus of
these discussions related to the $36.4 million accrual



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recorded by the registrant in the third quarter of 1998 to reserve for expected
future losses on the existing long-term contracts and relationships of its
Deluxe Government Services segment.

In the first quarter of 1999, the registrant determined that one
relationship included in the 1998 loss accrual should no longer be included
because the definitive agreement between the registrant and the prime contractor
remains subject to negotiation. By not considering this relationship in the
charge for expected future losses, $4.3 million of assets dedicated to this
relationship were exposed to impairment. The resulting reclassification between
accrued contract/relationship losses and the write-off of the long-lived assets
dedicated to this relationship was recorded in the first quarter of 1999.


As a result of extended discussions with the Division, the registrant
concluded its method of calculating a contract's costs should exclude the
depreciation and amortization associated with any assets related to that
contract which are determined to be impaired pursuant to the registrant's policy
on impairment of long-lived assets. The principal impact of this revised
methodology is to record an asset impairment charge of $26.3 million at
September 30, 1998. In calculating the impairment charge, the Company determined
that the assets utilized by this business have no fair market value. Thus, the
long-lived assets of this business were reduced to a carrying value of $0. In
addition, the Company revised the amount of the reserve recorded for expected
future losses on long-term service contracts and relationships and reversed
$21.7 million of the original loss reserve at September 30, 1998. In effect,
this revised approach results in the immediate recognition by the registrant of
the impairment of the assets employed on its loss contracts, as opposed to
depreciating those assets over time and including the amount of such
depreciation in the estimated amount of the future losses from these long-term
service contracts.


As a collorary to the revised methodology, however, the assets associated
with the profitable long-term service contracts of the registrant's Deluxe
Government Services segment must also be written-off. Originally, these assets
were not encompassed within the loss contract accrual because the related
contracts were profitable. Incorporating the assets employed on the profitable
contracts into the impairment analysis increases the impaired asset write-down
by an additional $4.6 million as of September 30, 1998 and increases the amount
of the registrant's third quarter charge by an equivalent amount. This
additional write-down, in conjunction with the related reduction in the amount
of depreciation expense in the fourth quarter of 1998, reduced the Company's
after-tax reported earnings by $2.9 million, or $.04 per share, for the quarter
ended September 30, 1998 and by $2.3 million, or $.03 per share for the year
ended December 31, 1998. The other primary effects of the revised methodology
are presented in the revised financial statements included in the Amended Annual
Report.

The registrant has recently been notified that the prime contractor for a
number of states and state coalitions for which the registrant's Deluxe
Government Services business provides switching services does not intend to
renew its switching agreement with the registrant. The registrant's Deluxe
Government Services business is currently negotiating with the contractor
regarding the timing and cost of this transition and the subsequent conversion
of the



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switching services to a third party. The registrant will adjust the charge
described above when the results of these negotiations are reasonably estimable.
It is possible that the loss of this contract and revenue stream will require
the registrant to record an additional accrual.

For purposes of this 10-K/A, and in accordance with Rule 12b-15 under the
Securities Exchange Act of 1934, as amended, the registrant has amended and
restated in its entirety each item of its Annual Report on Form 10-K which has
been affected by the financial statement restatement. In order to preserve the
nature and character of the disclosures set forth in such items as of the
original filing date of such Report, this Form 10-K/A does not otherwise modify
the disclosures in that report which were not affected by the restatement.

PART IV

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

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