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

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

[ x ] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.

For the fiscal year ended December 31, 1994.
Commission file number 1-7945.

DELUXE CORPORATION
(Exact name of registrant as specified in its charter)

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

1080 West County Road F, Saint Paul, Minnesota 55126-8201
(Address of principal executive offices) (ZIP Code)

Registrant's telephone number: (612) 483-7111.

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

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

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

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

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

The aggregate market value of the voting stock held by non-affiliates of the
registrant is $2,255,102,157 based on the average bid and asked prices of the
stock on the New York Stock Exchange on March 13, 1995. The number of
outstanding shares of the registrant's common stock as of March 13, 1995, is
82,568,415.


Documents Incorporated by Reference:

1. Portions of the registrant's Annual Report to Shareholders for the fiscal
year ended December 31, 1994 (Annual Report) are incorporated by reference
in Parts I, II and IV.

2. Portions of the registrant's proxy statement dated March 27, 1995 (Proxy
Statement) are incorporated by reference in Part III.

DELUXE CORPORATION

PART I

Item 1. Description of Business

General

Deluxe Corporation was incorporated under the laws of the State of
Minnesota in 1920 as the successor to a business founded in 1915. Unless the
context otherwise requires, the term "Company," as used herein, refers to Deluxe
Corporation or one or more of its wholly owned subsidiaries.

The Company has four business divisions, which are composed of the
following corporate entities:

(1) Payment Systems, which consists of Deluxe Corporation's check and
financial form printing and plastic transaction card production units; Deluxe
Data Systems, Inc., (including Deluxe Data International Limited), a supplier of
software and processing services for automated teller machines, point-of-sale
systems, automated clearing houses and government benefit transfers; Chex
Systems, Inc., a checking account verification business providing services to
financial institutions; Electronic Transaction Corporation, a database
management business providing check authorization information to retailers;
National Revenue Corporation, a provider of collection and other accounts
receivable services to retail, financial and medical credit grantors; and
Financial Alliance Processing Services, Inc., a processor of electronic credit
and debit transactions;

(2) Business Systems, which consists of Deluxe Corporation's general
business and health care forms printing unit; Deluxe UK Limited and Deluxe
Canada, Inc.; PaperDirect, Inc., a direct mail marketer of specialty and
decorated papers for use by desktop publishers; Nelco, Inc., a supplier of tax
forms, tax forms software, and electronic tax filing services; and T/Maker
Company, a publisher of image content software, including clip art;

(3) Consumer Specialty Products, which consists of Current, Inc., a direct
mail marketer of greeting cards, stationery, bank checks and related specialty
products for consumer and household use; and

(4) Ink, which consists of Deluxe Corporation's ink division, which is
engaged in the manufacture and sale of water-washable lithographic ink and
solvent free press wash.

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Except for a small but growing volume of business form and decorated paper
sales in the United Kingdom and Canada and licenses of electronic funds transfer
software in selected countries in Europe and Asia, most of the Company's
products and services are sold in the United States.

Business Segments

Reference is made to the information contained in Note 11, Business Segment
Information, in the Notes to Consolidated Financial Statements on page 38 in the
Company's Annual Report.

The material aspects of the operations of each of the Company's business
divisions are described below:

Payment Systems

The Company's largest division, Payment Systems is composed of the paper-
based payments unit and the electronic payments unit. The paper-based payments
unit prints and sells to financial institutions and depositors a variety of
checks and related banking forms. It directs its efforts to the production and
marketing of checks and deposit tickets for personal and business accounts.
Several check styles are offered; some are designed for desk or office use and
others are designed to be carried in a pocket or purse.

Substantially all of the Company's checks and related banking forms are
imprinted with magnetic ink to conform with the specifications of the magnetic
ink character recognition (MICR) program currently utilized by the U.S. banking
system.

For several years the banking industry and others have been seeking ways to
improve the payment system, and a variety of alternatives to the bank check have
been introduced, including charge cards, credit cards, debit cards, telephone
bill payment, etc., and in addition, a number of printers have begun to market
checks through channels other than financial institutions. Although such
alternative means of settling financial transactions and alternative marketing
channels may reduce the demand for checks and checks obtained through financial
institutions, the Company is unable to predict the effect of these alternative
means of payment and channels of distribution on its future operations.

Depositors commonly submit initial check orders and reorders to their
financial institutions which forward them to one of the Company's printing
plants. Printed checks are sent directly by the Company to the depositors,
typically on the business day after receipt of the order. The Company's charges
are paid by the financial institutions, which in turn usually deduct the charges
from the depositors' accounts.

Skeleton check forms are lithographed in three of the Company's regional
warehouse and distribution centers, principally on high-speed roll-fed presses.
From these centers, the forms are distributed to the Company's 46 check
production plants, where names, addresses, financial institution name and other
information are printed on the documents. The Company's facilities are located
in major metropolitan areas throughout the United States.

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The Company has no material backlog of orders. Approximately 96 percent of
all financial institution check orders received by the Company in 1994 were
completed and shipped no later than the first working day after receipt of the
order. The approximate number of financial institutions (not including branches
as separate entities) to which the Company made gross sales of checks and
related banking forms in excess of $100,000 during the year was 1,925.

The Company's principal raw materials are safety paper and special MICR
bond papers. The Company purchases substantially all of its safety paper from
Simpson Paper Company, which finishes and warehouses the paper in its plants in
Warwick, New York, and Burlington, Iowa. Most of the Company's special MICR bond
papers are obtained from Georgia Pacific Corporation, primarily from its
facility in Port Edwards, Wisconsin. The Company has no long-term contract with
any of its suppliers and has never experienced a shortage of either safety paper
or MICR bond papers. In order to assure adequate sources of supply, the Company
is continually experimenting with the use of special MICR bond papers from other
suppliers. Other raw materials used by the Company are of standard composition
and are purchased from a number of sources at competitive prices.

The Company's primary competitors in the sale of bank checks and related
banking forms to financial institutions are two other large national printers
who specialize in check printing. However, any printer which complies with the
American Bankers Association's specifications for MICR printing is a potential
competitor. The Company is the largest firm engaged in check printing.

The electronic payments unit is a major supplier of electronic funds
transfer software and processing services, particularly software and services
for automated teller machines, processing of ATM interchange transactions within
and between regional shared networks, and electronic benefit transactions. The
Company provides ATM transaction processing technology and services to six of
the 10 largest ATM networks in the United States. The Company provides
electronic benefit transaction services for the automated payment of aid to
dependent children and food stamp benefits in Maryland and New Jersey.

Competition for the Company's electronic funds transfer software and
processing services comes from several large financial institutions and
communications companies.

Division Acquisitions in 1994

The Company expanded the business of the electronic payments unit in 1994
with the following acquisitions:

On April 15, 1994, the Company acquired N.R.C. Holding Corporation and its
principal subsidiary, National Revenue Corporation (NRC), a collection services
company headquartered in Columbus, Ohio. Founded in 1973, NRC provides accounts
receivable management and collection services for approximately 25,000 retail,
commercial, medical, and financial credit grantors located throughout the United
States. NRC has sales offices in 30 major metropolitan areas, a national
operations center in Columbus, and regional operations centers in Atlanta,
Philadelphia, and Anaheim, California. NRC's revenues were approximately $28
million in 1994. With its proprietary technology, the Company believes

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NRC is well positioned to take advantage of future consolidation in the accounts
receivable management and collections markets.

On July 14, 1994, the Company acquired The Software Partnership Limited of
Runcorn, England. The Software Partnership Limited is a major provider of open
systems software architecture for large financial institutions. The Software
Partnership's sp/ARCHITECT is an electronic delivery framework which assists
third-party software developers and in-house data processing departments with
applications development. sp/ARCHITECT accommodates a wide variety of access
devices, including smart phones, smart cards, PCs, and UNIX workstations. The
Software Partnership had revenues of L6 million in 1994. Combined with certain
Deluxe Data Systems, Inc., units, The Software Partnership has been renamed
Deluxe Data International Limited. sp/ARCHITECT is well designed to serve large
financial institutions, and the addition of open systems architecture to its
software products enhances the Company's position in electronic banking.

In accordance with a purchase agreement entered into before year end, on
January 10, 1995, the Company acquired Financial Alliance Processing Services,
Inc., of Louisville, Kentucky. Financial Alliance provides a variety of credit
and debit processing services to 150 financial institutions, 40,000 retailers,
and more than 30 independent sales organizations. Founded in 1991, Financial
Alliance is one of the fastest-growing merchant credit card processors in the
United States and had net revenues of approximately $21 million in 1994.
Financial Alliance's services are marketed through financial institutions,
independent sales organizations, and its own representatives, offering fully
integrated card payment processing services that enable retailers to accept all
nationally recognized credit cards.

Business Systems

The second largest of the Company's divisions, Business Systems directs its
efforts to the production and marketing of short-run computer and business forms
and record-keeping systems for small businesses and professional practices. In
addition, it is a direct mail marketer of decorated and other specialty papers
to users of laser printers and office copiers. Other products and services
marketed by the division include tax forms, tax forms software, one-write
accounting systems, and electronic tax filing services.

The division has no material backlog of orders and does not carry
significant inventory. Approximately 94 percent of all personalized standard
forms orders were completed and shipped no later than the third working day
after receipt, and all custom forms were completed and shipped no later than the
fifth day after receipt. Orders for specialty papers were typically filled no
later than the first day after receipt.

Business Systems' products are sold primarily through direct mail and check
package advertisements. Business Systems' computer and business forms are
produced or inventoried in nine of the Company's plants, and its specialty
papers are inventoried and shipped from a PaperDirect facility in Secaucus, New
Jersey. Business Systems' principal competition consists of a large number of
national and local business forms and office products suppliers.

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Division Acquisitions in 1994

On June 28, 1994, the Company acquired T/Maker Company of Mountain View,
California. T/Maker Company produces image content and multimedia software for
consumer and business markets. According to software industry analysts,
T/Maker's ClickArt [REGISTERED TRADEMARK] image content software is the nation's
leading supplier of electronic clip art. Image content is one of the fastest-
growing categories of computer software, due to the growing popularity of
graphical computer systems. T/Maker is also the producer of the VroomBooks-TM-
series of children's multimedia software. T/Maker's revenues were approximately
$12 million in 1994.

In July 1994, through PaperDirect, the Company entered into a joint venture
to market decorated and other specialty papers in Australia and New Zealand.
Based in Sydney, Australia, the joint venture operates under the name
PaperDirect Pacific.

On August 15, 1994, the Company acquired Pacific Medsoft, a small software
development company located in Tahoe City, California, providing software to
medical professionals. Pacific Medsoft's Physician Office Management
Information System is designed for sole and small group physician practices.

Consumer Specialty Products

This division produces and markets greeting cards, gift wrap, bank checks,
and miscellaneous stationery products. In addition, it markets a variety of
novelty items for household use, many of which have been created by the division
and are sold under its proprietary trademarks. All such products are sold to
consumers by means of catalogs and other direct mail advertisements. Many of the
division's promotions are based on holidays, and due to the significance of the
year-end holiday season, approximately 35 percent of the division's sales occur
in the fourth quarter.

Consumer Specialty Products are produced in two of the Company's plants.
The division's competitors are primarily the national greeting card and
stationery printers that market their products through owned and franchised card
and gift shops, and the printers that solicit orders for bank checks by direct
mail.

Ink

In June 1994, the Company formed the Ink Division to produce and market its
water-washable lithographic ink and solvent-free press wash system. The
Company's innovative ink meets or exceeds the performance standards of
conventional lithographic inks, requires no press modifications and is based
entirely on renewable vegetable oils. The ink system eliminates the need for
organic- or petroleum-based cleaning solvents which are a major source of
pollution. On November 21, 1994, the Company entered into an agreement with
Coates Lorilleux S.A. under which it licensed Coates to manufacture and
distribute the ink and solvent-free press wash system in Europe and in certain
other markets.

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Employees

Including its subsidiaries, the Company has approximately 18,000 full- and
part-time employees. It has a number of employee benefit plans, including
retirement, medical and hospitalization plans. The Company has never experienced
a work stoppage or strike and considers its employee relations to be good.

Executive Officers of the Company

The executive officers of the Company are elected by the board of directors
each year. The term of office of each executive officer will expire at the
annual meeting of the board after the annual shareholders' meeting on May 8,
1995. The principal occupation of each of the executive officers listed below is
with the Company.