Form: 10-K405

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

April 1, 1996

Documents

EX 13 DOCUMENT INCORPORATED BY REF 1995 AR TO SHAR

Published on April 1, 1996



FINANCIAL HIGHLIGHTS





(Dollars in Thousands Except per Share Amounts) 1995 1994 Change
- ---------------------------------------------------------------------------------------------------------

Net sales $1,857,981 $1,747,644 6.3%
Income from continuing operations 94,434 144,253 (34.5%)
Return on sales 5.1% 8.3%
Per share 1.15 1.75 (34.3%)
Return on average shareholders equity 11.8% 17.9%
Net income 87,021 140,866 (38.2%)
Per share 1.06 1.71 (38.0%)
Cash dividends paid 122,143 120,503 1.4%
Per share 1.48 1.46 1.4%
Shareholders' equity 780,374 814,393 (4.2%)
Book value per share 9.47 9.89 (4.2%)
Average common shares outstanding (thousands) 82,420 82,400
Number of shareholders 20,843 22,436
Number of employees 19,286 18,839 2.4%




MANAGEMENT'S DISCUSSION AND ANALYSIS

INTRODUCTION

This discussion summarizes significant factors that affected the consolidated
operating results and financial condition of Deluxe Corporation for the three
years ended December 31, 1995. The discussion in this section is based on
segmentation of the business as described in Note 11 to Consolidated
Financial Statements. During the fourth quarter of 1995, the Company
announced that it is terminating its Printwise ink business, which is treated
as discontinued operations in the financial statements presented in this
report. Also during 1995, the Company recorded non-recurring pretax charges
of $62.5 million for production consolidation and process improvements,
exiting unprofitable businesses and products, and write-offs of
non-performing assets. These costs are spread throughout the consolidated
statements of income according to the nature of the charge. 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
non-operating expense. Except for the paragraph entitled "Net income",
material in this section reflects results from continuing operations,
including the above mentioned charges.

OVERALL SUMMARY

1995 was the 57th consecutive year of increased sales for Deluxe. The sales
increase of 6.3% was attributable to the Company's Electronic Payments and
Business Systems divisions, offset partially by a slight decline in financial
institution check printing and social expression revenue. 1995 income from
continuing operations was $94.4 million, compared to $144.3 million in 1994.
1995 results include non-recurring pretax charges of $62.5 million. The results
for 1994 included a $10 million credit to a 1993 restructuring charge. Earnings
per share from continuing operations were $1.15 in 1995 and $1.75 in 1994.
Return on average assets for 1995 was 7.4%, compared to 11.5% for 1994. Return
on average shareholders equity was 11.8% in 1995 versus 17.9% in 1994.





PERCENTAGE OF REVENUE PERCENTAGE OF DOLLAR INCREASE/(DECREASE)
- ----------------------------------------------------------------------------------------------
1995 1994 1993 1995 VS 1994 1994 vs 1993

100% 100% 100% Net sales 6.3% 10.5%
53.7 55.1 53.8 Gross margin 3.6 13.1
39.6 36.7 30.9 Selling, general, and administrative 14.5 31.2
4.3 4.7 5.1 Employee sharing (3.3) 0.4
(0.8) (0.2) 0.3 Other expense/income (net) (362.8) (176.5)
4.0 5.9 6.0 Provision for income taxes (26.9) 8.9
5.1 8.3 9.0 Income from continuing operations (34.5) 1.7
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------


RESULTS OF OPERATIONS

The table below sets forth, for the years indicated, the percentage relationship
to revenue of certain items in the Company's consolidated statements of
operations and the percentage changes of such items in comparison to the prior
year.

NET SALES - Net sales for the Payment Systems segment increased 7.6% to $1,179.4
million in 1995 from $1,096.3 million in 1994. Order counts for financial
institution check printing remained flat; however, continued competitive
discounting resulted in a reduction in revenues of 1.5%. The decline was more
than offset by a 45.5% increase in the Electronic Payments division, where all
units posted double-digit growth, due primarily to volume growth in sales of
previously existing products and services. Included in the growth of the
Electronic Payments division was $39.7 million due to acquisitions. The Business
Systems segment recorded revenue of $361.5 million, an increase of 12.4% over
1994 revenue of $321.6 million. The revenue growth was generated primarily by
increased volume in the forms businesses and new products and increased volume
in international operations. The Consumer Specialty segment experienced a
revenue decrease of 3.9% to $317 million in 1995. The decrease is attributable
to lower catalog response rates for the segment's social expression products,
offset partially by 2.5% revenue growth in direct mail checks.
In 1994, net sales for the Payment Systems segment increased 0.9% to
$1,096.3 million from $1,087 million in 1993. Order counts for financial
institution check printing increased slightly over 1993; however, continued
competitive discounting resulted in a reduction in revenues of 5.8%.
The decline was more than offset by the 35% growth of the Electronic Payments
division. A portion of the growth was attributable to the acquisitions of
National Revenue Corporation (April 1994) and The Software Partnership Ltd.
(August 1994). The Business Systems segment recorded revenue of $321.6 million,
an increase of 46.3% in 1994. The majority of this growth was the result of
PaperDirect, Inc., which the Company acquired late in the third quarter of 1993,
and the growth of the United Kingdom and Canadian operations. The Consumer
Specialty segment's revenue increased 20% to $329.8 million in 1994. A large
portion of this increase was due to the continued growth in the direct mail
check printing business.

GROSS MARGIN - Consolidated gross margins decreased to 53.7% in 1995 from
55.1% in 1994. Without the 1995 non-recurring charges, gross margins would
have been 54.6%. Payment Systems gross margins decreased to 55.6% in 1995
from 56.2% in 1994. Margin improvement from financial institution check
printing was offset by declines in the Electronic Payments division, due
primarily to lower margins from Financial Alliance Processing Services, Inc.,
which the Company acquired in January 1995. Margins for the Business Systems
segment


decreased to 49.7% in 1995 from 53.3% in 1994, due primarily to 1995
non-recurring adjustments and to higher postage and paper costs. Margins for
the Consumer Specialty segment declined to 51.3% from 53.4%, due primarily to
a non-recurring inventory write-off of $12 million, offset partially by
pricing improvements in social expression products and manufacturing
efficiencies in check production.
In 1994, Payment Systems gross margins increased to 56.2%, compared to
54.8% in 1993. This improvement was the result of the Company's 1993 plant
closings, and occurred despite continued competitive discounting in the
financial institution check printing business. Margin percentages for the
Business Systems division decreased slightly in 1994, due primarily to the
lower economies of scale for the start-up businesses in the United Kingdom
and Canada. Margins for the Consumer Specialty segment improved to 53.4% in
1994 from 51.5% in 1993, due to increased sales of higher margin products.

SELLING, GENERAL, AND ADMINISTRATIVE (SG&A) - Selling, general, and
administrative expenses increased $93.2 million, or 14.5%, in 1995. SG&A
expenses in the Payment Systems segment increased $59.8 million, due primarily
to the acquisitions of The Software Partnership Ltd. (August 1994) and Financial
Alliance Processing Services, Inc. (January 1995), and 1995 non-recurring
charges of $15.9 million. The Business Systems segment's SG&A expenses increased
approximately $36.6 million, due to an increase in catalog costs attributable
primarily to rising paper and postage prices, costs associated with new product
introduction, and 1995 non-recurring charges of $17.3 million.
In 1994, SG&A expenses increased $152.5 million, or 31.2% over 1993. The
Business Systems segment's SG&A expenses increased approximately $76.5 million
in 1994, primarily due to the acquisition of PaperDirect, Inc. The Consumer
Specialty segment increased its selling expense by approximately $32.2 million,
primarily due to increased advertising. The remaining increase is primarily
related to increased costs associated with acquisitions, international
operations, and re-engineering projects.

EMPLOYEE SHARING - A portion of employee sharing includes benefits paid to
employees that are based on the Company's profitability. Other components
fluctuate with the number of Company employees. The decrease to $79 million in
1995 from $81.7 million in 1994 resulted from a decrease in Company profit.

OTHER EXPENSE/INCOME (NET) - Other expense was $14.5 million in 1995, compared
to $3.1 million in 1994. The increase is due primarily to 1995 non-recurring
charges of $10 million, decreases in interest income and higher interest expense
from increased borrowings occurring in 1995. Partially offsetting these items
was a $5 million gain recorded in 1995 for insurance payments relating to 1994
earthquake damages.
In 1994, other expense was $3.1 million, compared to other income of $4.1
million in 1993. The decline is due primarily to an increase in interest expense
and a decrease in investment and other income. Interest expense increased as the
Company incurred short-term borrowing during the second half of 1994. Investment
and other income decreased due to the liquidation of many of the Company's
short-term investments and the absence of insurance gains that were realized in
1993. The short-term borrowing and the marketable security liquidation financed
the Company's 1994 acquisitions.

PROVISION FOR INCOME TAXES - The Company's effective tax rate increased to 44.2%
in 1995, due primarily to lower pretax income combined with an increasing base
of non-deductible expenses consisting primarily of intangible amortization.
In 1994, the Company's effective tax rate increased to 41.5%, due primarily
to an increase in non-deductible amortization of intangibles resulting from
acquisitions and foreign losses for which no tax benefit was available.

RESTRUCTURING - During the second quarter of 1993, the Company announced a
formal restructuring plan to close 16 of its check printing plants. The closings
resulted from the absence of growth in the financial institution check business
and production efficiencies gained from the Company's improved check printing
technology. As part of the restructuring, the Company recorded a one-time charge
of $49 million. By the end of 1994, the Company had substantially completed the
plant closings. During the third quarter of 1994, the Company reduced the
restructuring accrual by $10 million, as several costs included in the 1993
charge were not incurred. The production efficiencies gained by the
restructuring have positively affected the gross margins of the Company's Paper
Payments division. During the first quarter of 1996, the Company announced a
restructuring plan to close 21 of its check printing plants, which was made
possible by further advancements in telecommunications, order processing, and
printing technology. The Company will record a $30 to $35 million charge for
these plant closings and other consolidations.

NET INCOME - 1995 net income decreased to $87 million from $140.9 million in
1994, resulting primarily from the non-recurring pretax charges of $62.5
million. In addition, selling, general, and administrative expenses increased
disproportionally to sales as a result of expenses related to acquisitions,
recent start-up businesses, and re-engineering project costs. During 1995, the
Company discontinued its Printwise ink business. Losses from discontinued
operations in 1995 net of taxes were $7.4 million, compared to losses of $3.4
million in 1994. Discontinued operations in 1995 include a $7.3 million pretax
charge for employee severance, asset disposition, and estimated losses during
the phase-out period.

FINANCIAL CONDITION

LIQUIDITY - Cash provided by continuing operations was $214.6 million in 1995,
compared to $199 million in 1994 and $223.7 million in 1993. This represents the
Company's primary source of working capital for financing capital expenditures
and paying cash dividends. 1994 cash provided by operations was lower than 1995
and 1993, due primarily to cash expenditures related to the check printing
restructuring. Working capital was $12.3 million as of December 31, 1995,
compared to $130.4 million and $224.5 million on that date in 1994 and 1993,
respectively. The year-end current ratio for 1995 was 1 to 1, compared to 1.4 to
1 and 1.8 to 1 for 1994 and 1993, respectively. The declines in working capital
and current ratio resulted primarily from acquisitions, increased capital
expenditures, and lower profits.


CAPITAL RESOURCES - In 1995, the Company acquired Financial Alliance Processing
Services, Inc., a merchant processing company included in the Electronic
Payments division, at a cost of $38.8 million.
In 1994, the Company made several acquisitions at an aggregate cost of
$53.8 million. The companies acquired were small- and medium-sized companies in
the Business Systems and Electronic Payments divisions.
Purchases of property, plant, and equipment required cash outlays of $125.1
million in 1995, compared to $126.2 million in 1994 and $61 million in 1993. The
Company anticipates capital expenditures of $80 to $90 million in 1996 for
technologies to streamline production and customer fulfillment
functions in the printing businesses and further investment in its electronic
payment technologies.
The Company has uncommitted bank lines of credit for $189.3 million. At
December 31, 1995, $14.2 million was outstanding at an interest rate of 6.6%.
The maximum daily short-term borrowing was $102 million in 1995, compared to $35
million in 1994. Also, the Company has in place a $150 million committed line of
credit, which is available for borrowing and as support for commercial paper. As
of December 31, 1995, $34.7 million of commercial paper was issued and
outstanding at a weighted average interest rate of 6.09%. The maximum daily
borrowing was $115 million. No such commercial paper was issued or outstanding
in 1994. During the third quarter of 1995, the Company filed a shelf
registration for a $300 million medium-term note program to be used for general
corporate purposes, including working capital, repayment or repurchase of
outstanding indebtedness and other securities of the Company, capital
expenditures, and possible acquisitions. As of December 31, 1995, no such notes
were issued or outstanding.
Cash dividends totaled $122.1 million in 1995, compared to $120.5 million
in 1994 and $117.9 million in 1993. The payout of earnings was 140.4% in 1995,
85.5% in 1994, and 83.1% in 1993. In December 1995, the Company's board of
directors amended a 1989 stock repurchase program, permitting the repurchase of
up to 10 million shares of Deluxe common stock. The board authorized the
repurchase of up to 3 million shares under that plan.

OUTLOOK - The Company's declining profits over the past three years require that
management re-evaluate all aspects of the
Company's business. Significant actions are in process that are intended to
position the Company for profitable growth. These actions include: realigning
the many independent business units and divisions into two market-serving units
to focus resources more effectively on the Company's greatest growth and profit
opportunities; discontinuing or disposing of certain ventures, projects,
products, and business units that do not fit with the strategic plans of the
Company; and restructuring other businesses to reduce costs and improve
profitability. These changes have and will require charges to earnings as
evidenced by the 1995 $62.5 million pretax charge to continuing operations, the
discontinuation of the Printwise ink segment, and the $30 to $35 million pretax
restructuring charge to be taken in the first quarter of 1996 to close 21 check
printing plants over a two-year period.



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 the
cost of the systems does not exceed the benefits obtained.
The audit committee has reviewed all 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 independent public
accountants on financial reporting matters. The independent public accountants
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 public accountants 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 the highest ethical standards.



J.A. Blanchard III
President and
Chief Executive Officer



Charles M. Osborne
Senior Vice President and
Chief Financial Officer

February 9, 1996




ELEVEN-YEAR SUMMARY

(Dollars in Thousands Except per Share Amounts) 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------

Net sales $1,857,981 $1,747,644 $1,581,767 $1,534,351
Salaries and wages 551,788 519,901 491,868 456,893
Employee profit sharing and pension plan expense 57,958 59,370 61,162 60,307
Employee bonus and stock purchase discount expense 21,087 22,331 20,215 25,494
Provision for income taxes 74,885 102,453 94,052 121,999
Income from continuing operations 94,434 144,253 141,861 202,784
Return on sales 5.08% 8.25% 8.97% 13.22%
Per share 1.15 1.75 1.71 2.42
Return on average shareholders' equity 11.84% 17.86% 17.40% 25.70%
Return on average assets 7.40% 11.50% 11.57% 17.64%
Net income 87,021 140,866 141,861 202,784
Per share 1.06 1.71 1.71 2.42
Cash dividends paid 122,143 120,503 117,945 112,483
Per share 1.48 1.46 1.42 1.34
Shareholders' equity 780,374 814,393 801,249 829,808
Book value per share 9.47 9.89 9.66 9.90
Additions to machinery and equipment 86,366 86,411 45,675 52,598
Additions to realty and leaseholds 38,702 39,815 16,435 19,013
Depreciation and amortization expense 103,303 85,906 72,320 66,615
Working capital (decrease) increase (118,116) (94,086) (162,387) 55,975
Total assets 1,295,095 1,256,272 1,251,994 1,199,556
Long-term debt 110,997 110,867 110,755 115,522
Average common shares outstanding (thousands) 82,420 82,400 82,936 83,861
Number of employees 19,286 18,839 17,748 17,400
Number of production and service facilities 81 78 73 85
Facility area - square feet (thousands) 5,084 4,830 4,623 5,454


1991 1990 1989 1988
- -----------------------------------------------------------------------------------------------------------------------

Net sales $1,474,482 $1,413,553 $1,315,828 $1,195,971
Salaries and wages 444,987 417,193 393,339 367,302
Employee profit sharing and pension plan expense 55,410 52,314 48,423 44,398
Employee bonus and stock purchase discount expense 22,417 20,598 17,876 13,698
Provision for income taxes 112,591 110,345 93,691 83,288
Income from continuing operations 182,902 172,161 152,631 143,354
Return on sales 12.40% 12.18% 11.60% 11.99%
Per share 2.18 2.03 1.79 1.68
Return on average shareholders' equity 25.69% 26.36% 25.47% 27.08%
Return on average assets 18.08% 19.44% 18.69% 17.35%
Net income 182,902 172,161 152,631 143,354
Per share 2.18 2.03 1.79 1.68
Cash dividends paid 102,512 93,109 83,679 73,392
Per share 1.22 1.10 .98 .86
Shareholders' equity 747,976 675,792 630,643 567,731
Book value per share 8.91 8.04 7.40 6.65
Additions to machinery and equipment 48,605 49,233 55,658 59,252
Additions to realty and leaseholds 23,896 14,722 32,764 19,634
Depreciation and amortization expense 75,976 74,050 67,340 59,846
Working capital (decrease) increase 185,879 50,176 42,063 30,601
Total assets 1,099,059 923,902 847,002 786,110
Long-term debt 110,575 11,911 10,169 10,933
Average common shares outstanding (thousands) 84,005 84,638 85,346 85,255
Number of employees 17,563 17,174 16,948 16,628
Number of production and service facilities 82 81 79 77
Facility area - square feet (thousands) 5,238 5,060 4,980 4,650


1987 1986 1985
- --------------------------------------------------------------------------------------------------------

Net sales $948,010 $866,829 $764,421
Salaries and wages 300,225 272,526 246,735
Employee profit sharing and pension plan expense 39,567 36,630 33,369
Employee bonus and stock purchase discount expense 13,686 12,702 10,802
Provision for income taxes 88,137 101,891 87,692
Income from continuing operations 148,512 121,109 104,215
Return on sales 15.67% 13.97% 13.63%
Per share 1.74 1.42 1.22
Return on average shareholders' equity 32.86% 31.57% 31.91%
Return on average assets 19.45% 20.50% 21.73%
Net income 148,512 121,109 104,215
Per share 1.74 1.42 1.22
Cash dividends paid 64,849 49,630 42,055
Per share .76 .58 .49
Shareholders' equity 490,820 413,132 354,083
Book value per share 5.77 4.85 4.14
Additions to machinery and equipment 45,868 27,733 34,285
Additions to realty and leaseholds 15,841 9,529 3,759
Depreciation and amortization expense 45,462 32,079 25,953
Working capital (decrease) increase (121,582) (23,066) 25,556
Total assets 866,270 660,969 520,740
Long-term debt 12,886 14,152 13,036
Average common shares outstanding (thousands) 85,242 85,487 85,769
Number of employees 15,346 13,502 12,669
Number of production and service facilities 74 70 68
Facility area - square feet (thousands) 4,180 3,450 3,216



CONSOLIDATED BALANCE SHEETS





ASSETS

December 31 (Dollars in Thousands) 1995 1994
- ---------------------------------------------------------------------

CURRENT ASSETS
Cash and cash equivalents $13,668 $29,139
Marketable securities 6,270 49,109
Trade accounts receivable 169,310 142,087
Inventories:
Raw material 22,475 25,198
Semi-finished goods 24,861 26,046
Finished goods 28,566 36,976
Supplies 11,139 15,749
Deferred advertising 20,017 27,770
Deferred income taxes 35,926 25,647
Prepaid expenses and other current assets 48,866 43,145
- ---------------------------------------------------------------------
Total current assets 381,098 420,866

LONG-TERM INVESTMENTS 48,147 45,091
PROPERTY, PLANT, AND EQUIPMENT
Land 43,632 38,286
Buildings and improvements 299,954 284,131
Machinery and equipment 578,922 544,092
Construction in progress 18,315 3,225
- ---------------------------------------------------------------------
Total 940,823 869,734
Less accumulated depreciation 446,665 407,916
- ---------------------------------------------------------------------
Property, plant, and equipment - net 494,158 461,818
INTANGIBLES
Cost in excess of net assets acquired - net 301,289 284,420
Other intangible assets - net 70,403 44,077
- ---------------------------------------------------------------------
Total intangibles 371,692 328,497
- ---------------------------------------------------------------------
Total assets $1,295,095 $1,256,272
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------




See Notes to Consolidated Financial Statements




LIABILITIES AND SHAREHOLDERS' EQUITY

December 31 (Dollars in Thousands) 1995 1994
- ----------------------------------------------------------------------------------------------------

CURRENT LIABILITIES
Accounts payable $ 75,644 $ 65,033
Accrued liabilities:
Wages, including vacation pay 51,549 50,366
Employee profit sharing and pension 56,906 57,915
Accrued rebates 31,373 28,741
Other 95,675 72,707
Short-term debt 48,962 11,219
Long-term debt due within one year 8,699 4,479
- ----------------------------------------------------------------------------------------------------
Total current liabilities 368,808 290,460


LONG-TERM DEBT 110,997 110,867


DEFERRED INCOME TAXES 34,916 40,552


SHAREHOLDERS' EQUITY
Common shares $1 par value (authorized: 500,000,000 shares;
issued: 1995 - 82,364,378 shares 1994 - 82,374,771 shares) 82,364 82,375
Additional paid-in capital 1,455 1,694
Retained earnings 697,036 732,158
Unearned compensation (739) (149)
Net unrealized loss - marketable securities (242) (2,054)
Cumulative translation adjustment 500 369
- ----------------------------------------------------------------------------------------------------
Shareholders' equity 780,374 814,393
- ----------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $1,295,095 $1,256,272
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------






CONSOLIDATED STATEMENTS OF INCOME

Years Ended December 31 (Dollars in Thousands Except per Share Amounts) 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------

NET SALES $1,857,981 $1,747,644 $1,581,767
- --------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Cost of sales 860,266 784,452 730,436
Selling, general, and administrative 734,886 641,660 489,127
Employee profit sharing and pension 57,958 59,370 61,162
Employee bonus and stock purchase discount 21,087 22,331 20,215
Restructuring (credit) charge (10,000) 49,000
- -------------------------------------------------------------------------------------------------------------------
Total 1,674,197 1,497,813 1,349,940
- -------------------------------------------------------------------------------------------------------------------
Income from operations 183,784 249,831 231,827
OTHER INCOME (EXPENSE)
Other (expense) income (1,366) 6,608 14,362
Interest expense (13,099) (9,733) (10,276)
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 169,319 246,706 235,913
- --------------------------------------------------------------------------------------------------------------------
PROVISION FOR INCOME TAXES 74,885 102,453 94,052
- --------------------------------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS 94,434 144,253 141,861
- --------------------------------------------------------------------------------------------------------------------
DISCONTINUED OPERATIONS
Loss from operations (net of income tax benefit of $2,146 in
1995 and $2,432 in 1994) (3,098) (3,387)
Loss on disposal (net of income tax benefit of $2,985) (4,315)
- --------------------------------------------------------------------------------------------------------------------
LOSS FROM DISCONTINUED OPERATIONS (7,413) (3,387)
- --------------------------------------------------------------------------------------------------------------------
NET INCOME $ 87,021 $ 140,866 $ 141,861
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE - Based on average shares outstanding
Income from continuing operation $ 1.15 $ 1.75 $ 1.71
Loss from discontinued operations $ (.09) $ (.04)
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
NET INCOME PER SHARE $ 1.06 $ 1.71 $ 1.71
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
CASH DIVIDENDS PER COMMON SHARE $ 1.48 $ 1.46 $ 1.42
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------


See Notes to Consolidated Financial Statements



CONSOLIDATED STATEMENTS OF CASH FLOWS




Years Ended December 31 (Dollars in Thousands) 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------------

CASH FLOWS FROM OPERATING ACTIVITIES

NET INCOME $ 87,021 $ 140,866 $ 141,861
Discontinued operations 7,413 3,387
- --------------------------------------------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS 94,434 144,253 141,861
Adjustments to reconcile income from continuing operations to net cash
provided by operating activities:
Depreciation 69,027 59,367 55,145
Amortization of intangibles 34,276 26,539 17,175
Stock purchase discount 8,185 8,369 8,537
Deferred income taxes (9,201) 4,645 (16,111)
Changes in assets and liabilities, net of effects from acquisitions
and discontinued operations:
Trade accounts receivable (24,949) (13,430) (160)
Inventories 12,893 (17,226) (11,696)
Accounts payable 6,631 12,096 (6,885)
Other assets and liabilities 23,346 (25,589) 35,816
- --------------------------------------------------------------------------------------------------------------------------------
Net cash provided by continuing operations 214,642 199,024 223,682
Net cash used by discontinued operations (5,315) (5,206)
- --------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 209,327 193,818 223,682
- --------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of marketable securities with maturities of more than 3 months (13,115) (119,339)
Proceeds from sales of marketable securities with maturities of more than 3 months 28,878 49,326 149,805
Net reductions of (additions to) marketable securities with maturities of 3 months
or less 16,000 20,000 (32,100)
Purchases of long-term investments (5,000) (14,060)
Purchases of property, plant, and equipment (125,068) (126,226) (60,990)
Payments for acquisitions, net of cash acquired (37,313) (53,796) (110,136)
Other (2,858) (17,933) (9,044)
- --------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (120,361) (146,744) (195,864)
- --------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from short-term debt 36,312 11,219
Payments on long-term debt (8,918) (8,230) (10,260)
Payments to retire common stock (34,715) (39,638) (89,172)
Proceeds from issuing stock under employee plans 25,027 25,114 28,490
Cash dividends paid to shareholders (122,143) (120,503) (117,945)
- --------------------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (104,437) (132,038) (188,887)
- --------------------------------------------------------------------------------------------------------------------------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (15,471) (84,964) (161,069)
- --------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR $29,139 $114,103 $275,172
- --------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $13,668 $29,139 $114,103
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Supplementary cash flow disclosure:
Interest paid $12,519 $10,446 $11,772
Income taxes paid 93,023 94,395 119,859
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
See notes to Consolidated Financial Statements




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial statements include the accounts of the Company and
all wholly owned subsidiaries.

MARKETABLE SECURITIES - Marketable securities consist of debt and equity
securities. All securities are classified as available for sale and are carried
at fair value, with the unrealized gains and losses, net of tax, reported as a
separate component of shareholders' equity. Realized gains and losses and
permanent declines in value are included in investment income. The cost of
securities sold is determined using the specific identification method.

INVENTORY - Substantially all inventory is included at the lower of cost, on the
last-in, first-out (LIFO) method, or market. LIFO inventories at December 31,
1995 and 1994, were approximately $18,411,000 and $8,923,000, respectively, less
than replacement cost.

PROPERTY, PLANT, AND EQUIPMENT - Property, plant, and equipment are stated at
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 shown in the balance sheet net of amortization
determined on the straight-line basis. Amortization periods range from five to
30 years for cost in excess of net assets acquired, and three to 16 years for
other intangibles. Other intangibles consist primarily of purchased software,
internally developed software, and professional name files. Total
intangibles are as follows at December 31 (dollars in thousands):



1995 1994
- ---------------------------------------------------------------------

Cost in excess of net assets acquired $363,756 $329,512
Other intangible assets 126,636 86,821
- ---------------------------------------------------------------------
Total $490,392 $416,333
Less accumulated amortization (118,700) (87,836)
- ---------------------------------------------------------------------
Intangibles - net $371,692 $328,497
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------


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 approximate their fair value. Fair values are estimated
using discounted cash flow analyses based on current market interest rates for
similar types of investments.

IMPAIRMENT OF LONG-LIVED ASSETS - Effective December 31, 1995, the Company
adopted the Statement of Financial Standards (SFAS) No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
Under the provisions of this statement, the Company has evaluated its long-lived
assets (including certain property, plant and equipment, intangibles and other
long-term investments) for impairment and will continue to evaluate its
long-lived assets if events or changes in circumstances indicate that the
carrying amount of such assets may not be recoverable. The Company evaluates the
recoverability of long-lived assets by measuring the unamortized balance of the
long-lived assets against estimated future cash flows. If such evaluations
indicate that undiscounted estimated future 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 value. Based on current evaluations, there
were no adjustments to the carrying value of long-lived assets in 1995.

INCOME TAXES - Deferred income taxes result from temporary differences between
the bases of assets and liabilities recognized for financial reporting purposes
and such bases recognized for tax purposes.

ACCRUED REBATES - The Company enters into contractual agreements for rebates on
certain products with its customers. Such amounts are recorded as a reduction to
arrive at net sales, and accrued on the balance sheet as incurred.

DEFERRED ADVERTISING - The Company estimates and defers certain costs related to
direct-response advertising of its products. These costs consist of materials,
production, postage and design costs 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 stream
of the individual catalogs. Actual results could differ from the estimates noted
above. The total amount of deferred advertising costs charged to expense for
1995, 1994, and 1993 was $126,257,000, $130,512,000, and $74,882,000,
respectively.

TRANSLATION ADJUSTMENT - Financial position and results of operations of the
Company's international subsidiaries are measured using local currencies as the
functional currency. 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 balance sheet. Gains and losses that
result from foreign currency transactions are included in earnings.

CONSOLIDATED STATEMENTS OF CASH FLOWS - The Company considers all highly liquid
investments purchased with an original maturity of three months or less


to be cash equivalents. The carrying amount reported in the balance sheet for
cash and cash equivalents approximates fair value.

RECLASSIFICATIONS - Certain prior years' amounts have been reclassified to
conform to the 1995 presentation.

STOCK-BASED COMPENSATION - In October 1995, the Financial Accounting Standards
board issued Statement of Financial Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation" effective for the Company beginning January 1, 1996.
SFAS No. 123 requires expanded disclosure of stock-based compensation
arrangements with employees and encourages (but does not require) compensation
cost to be measured based on the fair value of the equity instruments awarded.
The Company has not yet determined if it will elect to change to the fair
value method, nor has it determined the effect the new standard will have on net
income and earnings per share should it elect to make such a change. Adoption of
the new standard will have no effect on the Company's cash flows.

ESTIMATES - The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.


2. RESTRUCTURING CHARGE

In June 1993, the Company announced its plans to consolidate its financial
institution check printing operations by closing 16 underutilized check printing
plants. These closings resulted from the absence of growth in the financial
institution check market and production efficiencies gained from the Company's
improved check printing technology. In conjunction with the consolidation, the
Company recorded a one-time pretax restructuring charge of $49 million in 1993.
The majority of the charge consisted of estimated costs for employee severance
and relocation ($36.3 million), and the disposition of assets affected by the
consolidation ($9.1 million).
During 1994, the Company substantially completed its restructuring plan
without incurring certain costs that were included in the 1993 charge. As a
result, the Company recorded a $10 million credit in 1994 to reduce its
restructuring accrual.

SUBSEQUENT EVENT - On January 31, 1996, the Company announced a plan to close 21
of its financial institution check printing plants over a two-year period. The
Company will record a $30 to $35 million restructuring charge for estimated
employee severance costs and asset dispositions for these plant closings and
other consolidations.
The plant closings were made possible by advancements in
telecommunications, order processing, and printing technology. The Company's 15
remaining plants will be equipped with capacity to produce at or above current
order quantities.


3. ACQUISITIONS

On January 10, 1995, the Company acquired all of the outstanding stock of
Financial Alliance Processing Services, Inc., a merchant credit card processing
service. The total paid for the acquisition was $38.8 million and was accounted
for using the purchase method. Accordingly, the purchase price was allocated to
assets acquired based on their fair values. The total cost in excess of net
assets acquired of $36.6 million is being amortized over a 10-year period. The
effect of this acquisition did not have a material pro forma impact on
operations.
During 1994, the Company acquired all of the outstanding stock of National
Revenue Corporation, a collection services company; T/Maker Company, a
developer and publisher of image content software; The Software Partnership
Ltd., a United Kingdom-based developer of open systems architecture for large
financial institutions; and the assets of Pacific Medsoft, a developer of
software for medical professionals. The total paid for all of these
acquisitions was $53.8 million. Each acquisition was accounted for using the
purchase method. Accordingly, the purchase price was allocated to assets
acquired based on their fair values. The total cost in excess of net assets
acquired for all of these acquisitions of $48.6 million is being amortized
over periods ranging from 10 to 25 years. The combined effect of these
acquisitions did not have a material pro forma impact on operations.
On September 24, 1993, the Company acquired all of the outstanding capital
stock of PaperDirect, Inc., a direct mail marketer of specialty papers and
related products to the desktop publishing industry, for $90 million in cash. In
addition, the Company agreed to pay $9 million over three years for a covenant
not to compete. The Company may be required to make additional payments of up to
$16 million per year over a period ending December 31, 1996, contingent upon the
results of PaperDirect's operations over the course of that period.
Based on PaperDirect's 1993 operating results, the Company paid $16 million to
PaperDirect's former shareholders in 1994. No additional payments were made or
accrued based on PaperDirect's 1994 and 1995 operating results. The acquisition
was accounted for using the purchase method. Accordingly, the purchase price was
allocated to assets acquired based on their estimated fair values. This
treatment resulted in approximately $100 million of cost in excess of net assets
acquired. Such excess (which will increase for any future contingent cash
payment) is being amortized on a straight-line


basis over 30 years. 1993 consolidated results include PaperDirect's results of
operations from the date of acquisition through the end of the year.
The following summarized, unaudited pro forma results of operations for the
year ended December 31, 1993, assumes the acquisition occurred as of the
beginning of the year (dollars in thousands except per share amounts):



1993
- -----------------------------------------

Net sales $1,624,868
Net income 141,193
Net income per common share $1.70
- -----------------------------------------


On September 30, 1993, the Company completed its acquisition of Stockforms
Ltd., a supplier of accounting software forms based in the United Kingdom, by
purchasing the remaining 75% of its assets for approximately $11.7 million. (The
Company had purchased the initial 25% during 1992 for approximately $3 million.)
The acquisition was accounted for using the purchase method. Accordingly, the
purchase price was allocated to assets acquired based on their fair values. The
total cost in excess of net assets acquired of $13.9 million is being amortized
on a straight-line basis over 20 years. The effect of this acquisition did not
have a material pro forma impact on operations.


4. MARKETABLE SECURITIES

On December 31, 1995 and 1994, marketable securities available for sale consist
of the following (dollars in thousands):



1995 1994
- -----------------------------------------------------------------------------------------------------------------------------------
UNREALIZED Unrealized
COST HOLDING LOSS FAIR VALUE Cost Holding Loss Fair Value
- -----------------------------------------------------------------------------------------------------------------------------------

Debt securities issued by the U.S. Treasury and other
government agencies $ 5,059 $ 39 $ 5,020 $30,560 $1,859 $28,701
Debt securities issued by states of the U.S. and
political subdivisions of the states 1,250 0 1,250 20,638 230 20,408
- -----------------------------------------------------------------------------------------------------------------------------------
Total marketable securities 6,309 39 6,270 51,198 2,089 49,109
Other debt securities (included in cash equivalents) 15,000 333 14,667 25,795 1,072 24,723
- -----------------------------------------------------------------------------------------------------------------------------------
Total $ 21,309 $372 $20,937 $76,993 $3,161 $73,832
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------


As of December 31, 1995, debt securities with a cost of $6,286,000 and a
December 31, 1995, market value of $6,247,000 mature in 1996. All other
securities with a total cost of $15,023,000 and a December 31, 1995, market
value of $14,690,000 mature by 2000.
Proceeds from sales of securities available for sale were $54,565,000 and
$73,326,000 during 1995 and 1994, respectively. The Company realized losses of
$1,119,000 and $502,000 on these sales in 1995 and 1994, respectively.


5. PROVISION FOR INCOME TAXES

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



1995 1994 1993
- ----------------------------------------------------------------------------

Current tax provision:
Federal $71,884 $82,295 $89,650
State 17,845 13,842 17,477
- ----------------------------------------------------------------------------
Total 89,729 96,137 107,127
Deferred tax (benefit) provision:
Federal (10,587) 5,428 (11,092)
State (4,257) 888 (1,983)
- ----------------------------------------------------------------------------
Total $74,885 $102,453 $94,052
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------


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



1995 1994 1993
- ----------------------------------------------------------------------------

Income tax at Federal statutory
rate $59,262 $86,346 $82,570
State income taxes net of
Federal income tax benefit 8,832 9,574 10,207
Amortization of non-deductible
intangibles 5,260 3,666 2,379
Foreign losses for which no
current tax benefit is available 2,406 4,346 1,115


Other (875) (1,479) (2,219)
- ----------------------------------------------------------------------------
Provision for income taxes $74,885 $102,453 $94,052
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------


Tax effected temporary differences which give rise to a significant
portion of deferred tax assets and liabilities at December 31, 1995 and 1994,
are as follows (dollars in thousands):



1995 1994
- -----------------------------------------------------------------------------------------
DEFERRED DEFERRED Deferred Deferred
TAX TAX Tax Tax
ASSETS LIABILITIES Assets Liabilities
- -----------------------------------------------------------------------------------------

Property, plant, and equipment $33,889 $32,889
Deferred advertising 6,188 7,932
Employee benefit plans $14,154 $16,097
Inventory 9,278 5,414
Intangibles 3,758 5,845
Foreign net operating loss
carry forwards 6,033 4,605
Miscellaneous reserves and
accruals 17,064 10,017
All other 12,003 4,420 7,818 7,275
- -----------------------------------------------------------------------------------------
Subtotal 58,532 48,255 43,951 53,941
- -----------------------------------------------------------------------------------------
Valuation allowance (9,267) (4,915)
- -----------------------------------------------------------------------------------------
Total deferred taxes $49,265 $48,255 $39,036 $53,941
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------


The major component of the valuation allowance relates to the uncertainty
of realizing foreign deferred tax assets that existed at December 31, 1995 and
1994.


6. EMPLOYEE BENEFIT PLANS

PROFIT SHARING AND PENSION PLANS - The Company has profit sharing plans and a
defined contribution pension plan to provide retirement income to certain of its
employees. The plans cover substantially all full-time employees with at least
15 months of service. Contributions are made solely by the Company to trustees,
and benefits provided by the plans are paid from accumulated funds by the
trustees. Contributions to the pension plan equal 6% of eligible compensation.
Contributions to the profit sharing plans vary but are generally limited to 15%
of eligible compensation less the amount contributed to the pension plan.
Pension expense for 1995, 1994, and 1993 was $20,798,000, $21,126,000, and
$21,802,000, respectively.

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 employees'
purchase price and fair value was $8,185,000, $8,369,000, and $8,537,000 in
1995, 1994, and 1993, respectively. Under the plan, 1,121,153, 1,152,687, and
855,242 shares were issued at prices ranging from $20.07 to $24.00, $19.60 to
$26.35, and $26.92 to $33.67 in 1995, 1994, and 1993, respectively.

STOCK OPTION PLAN - In 1994, the shareholders adopted a stock option plan to
replace the plan adopted by the shareholders in 1984. Under the 1994 plan, the
Company may grant either non-qualified or incentive stock options to purchase up
to 3,000,000 shares of common stock. All options allow for the purchase of
common stock at prices equal to market value at the date of grant. Options
become exercisable in varying amounts beginning generally one year after grant.
Information regarding this option plan and the remaining options outstanding
under the former plan adopted in 1984 is as follows:



1995 1994 1993
- ----------------------------------------------------------------------------

Outstanding, January 1 2,212,149 1,567,140 1,285,328
Granted 204,899 716,369 396,900
Exercised (44,566) (7,865) (93,661)
Canceled (224,909) (63,495) (21,427)
- ----------------------------------------------------------------------------
Outstanding, December 31 2,147,573 2,212,149 1,567,140
- ----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Exercisable, December 31 1,521,524 1,256,885 969,690
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------


Options were granted at prices ranging from $27.375 to $30.750 per share in
1995, $27.125 to $37.25 per share in 1994, and $34.625 to $44.75 per share in
1993. Options were exercised in 1995, 1994, and 1993 at average prices per share
of $28.43, $21.39, and $30.07, respectively. Options



were outstanding at December 31, 1995, 1994, 1993, at average prices per share
of $34.81, $35.04, and $37.34, respectively. At December 31, 1995, options for
2,187,800 shares remain available for issuance under the 1994 plan.

7. POSTEMPLOYMENT BENEFITS

In addition to providing retirement income 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
reach normal retirement age while working for the Company. Effective January 1,
1994, cost sharing provisions of the plan were amended to require retirees to
pay a larger portion of their medical insurance premiums.
The following table summarizes the funded status of the plan at December 31
(dollars in thousands):




1995 1994
- --------------------------------------------------------------------------

Accumulated postretirement benefit obligation:
Retirees $49,084 $50,784
Fully eligible plan participants 88 2,373
Other active participants 14,720 3,470
- --------------------------------------------------------------------------
Total 63,892 56,627
Less:
Fair value of plan assets (debt and
equity securities) 44,702 33,092
Unrecognized prior service cost 3,718
Unrecognized net loss 3 4,034
Unrecognized transition obligation 19,386 20,526
- --------------------------------------------------------------------------
Portion of transition obligation accrued in
the balance sheet $(3,917) $(1,025)
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------


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



1995 1994 1993
- ---------------------------------------------------------------------------

Service cost--benefits earned
during the year $ 474 $ 785 $ 978
Interest cost on the accumulated
postretirement benefit obligation 4,392 4,219 4,525
Actual loss (return) on plan assets (9,897) 402 (2,568)
Amortization of transition obligation 1,140 1,140 1,218
Net amortization and deferral of
gains and losses 6,604 (3,559)
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
Total $2,713 $2,987 $4,153
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------


In measuring the accumulated postretirement benefit obligation as of
December 31, 1995, the Company's health care inflation rate for 1996 was assumed
to be 10.5% for employees enrolled in an indemnity plan and 8.5% for employees
enrolled in health maintenance organizations. Inflation rates for both plans
are assumed to trend downward gradually over a nine-year period to 5% for the
years 2004 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 $9,200,000, and the service and interest
cost components of the net postretirement benefit cost by approximately
$970,000. The discount rates used in determining the accumulated
postretirement benefit obligation as of December 31, 1995 and 1994, were
7.25% and 8%, respectively. The expected long-term rate of return on plan
assets used to determine the net periodic postretirement benefit costs was
9.5% in 1995 and 1994, and 8.6% in 1993.


8. LEASE AND DEBT COMMITMENTS

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



1995 1994
- ---------------------------------------------------------------------------

8.55% unsecured and unsubordinated notes
due February 15, 2001 $100,000 $100,000
Other 19,696 15,346
- ---------------------------------------------------------------------------
Total long-term debt 119,696 115,346
Less amount due within one year 8,699 4,479
- ---------------------------------------------------------------------------
Total $110,997 $110,867
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------



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 $112 million
and $101 million at December 31, 1995 and 1994, respectively, based on quoted
market prices for similar issuances.
Other long-term debt consists principally of equipment notes and payments
due under non-compete agreements. The obligations bear interest rates of 5% to
13% and are due through the year 2011. Carrying value approximates fair value
for these obligations based on estimates using current market interest rates and
discounted cash flow analyses.
Maturities of long-term debt for the five years ending December 31, 2000,
are $8,699,000, $7,747,000, $2,112,000, $360,000, and $96,000 and $100,682,000
thereafter.
The Company has uncommitted lines of credit for $189,300,000. At December
31, 1995 and 1994, $14,219,000 and $11,219,000 was outstanding, respectively, at
interest rates of 6.6% and 6.2%, respectively. The Company also has in place
a $150 million committed line of credit, which is available for borrowing and as
support for commercial paper. As of December 31, 1995, $34,743,000 of commercial
paper was issued and outstanding at a weighted average interest rate of 6.09%.
No commercial paper was outstanding at December 31, 1994. During the third
quarter of 1995, the Company filed a shelf registration for a $300 million
medium-term note program to be used for general corporate purposes. As of
December 31, 1995, no such notes were issued or outstanding.
Minimum future rental payments for leased facilities and equipment for the
five years ending December 31, 2000, are $28,215,000, $21,018,000, $14,385,000,
$6,735,000, and $3,320,000, and $3,757,000 thereafter. Rental expense was
$44,283,259, $40,662,523, and $39,778,000 for 1995, 1994, and 1993,
respectively.

9. 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. Upon the occurrence of certain events, each
right will entitle the holder to purchase one share of common stock at an
exercise price of $100. The rights become exercisable if a person acquires 20%
or more of the Company's common stock or announces a tender offer for 30% or
more of the Company's common stock. The rights, which expire in February 1998,
may be redeemed by the Company at a price of $.01 per right at any time prior to
the 30th day after a 20% position has been acquired.
If the Company is acquired in a merger or other business combination, each
right will entitle its holder to purchase common shares of the acquiring company
having a market value of twice the exercise price of each right (i.e., at a 50%
discount). If an acquirer purchases 35% of the Company's common stock or obtains
working control of the Company and engages in certain self-dealing transactions,
each right will entitle its holder to purchase a number of the Company's common
shares having a market value of twice the right's exercise price. Each right
will also entitle its holder to purchase the Company's common stock at a similar
50% discount in the event an acquirer merges into the Company and leaves the
Company's stock unchanged.


10. SHAREHOLDERS' EQUITY




Unrealized
Additional Loss Cumulative
Common Paid-in Retained Marketable Unearned Translation
(Dollars in Thousands) Shares Capital Earnings Securities Compensation Adjustment
- ----------------------------------------------------------------------------------------------------------------------------------

Balance, December 31, 1992 $83,797 $ 1,208 $ 744,803
Net income 141,861
Cash dividends (117,945)
Common stock issued 949 36,435
Common stock retired (2,197) (37,302) (49,673)
Translation adjustment $(687)
- ----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1993 82,549 341 719,046 (687)
Net income 140,866
Cash dividends (120,503)
Common stock issued 1,167 32,399
Common stock retired (1,341) (31,046) (7,251)
Unearned compensation $(149)
Unrealized fair value adjustments,
net of taxes of $1,107 $(2,054)
Translation adjustment 1,056
- ----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 82,375 1,694 732,158 (2,054) (149) 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 $ (242) $(739) $ 500
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------



11. BUSINESS SEGMENT INFORMATION

The Company consists of three business segments: Payment Systems, Business
Systems, and Consumer Specialty. The Payment Systems segment manufactures checks
for financial institutions and provides electronic processing and database
services to financial institutions and retailers located primarily in the United
States. Check printing and other services to financial institutions generate the
majority of the Company's operating income. Business Systems manufactures
business, health care, and tax forms and decorated paper for small businesses.
Consumer Specialty manufactures greeting cards, stationery, checks, and other
products for households. Business Systems and Consumer Specialty products are
distributed through direct mail to customers located primarily in the United
States.
For the three years ended December 31, 1995, the Company's segment
information is as follows (dollars in thousands):




Consumer
Payment Business Specialty
1995 Systems Systems Products Total
- ----------------------------------------------------------------------------------------------------------------------------------

Net sales $1,179,438 $361,543 $317,000 $1,857,981
Income from operations 208,498 (39,108) 14,394 183,784
Identifiable assets 669,784 305,811 319,500 1,295,095
Depreciation and amortization 73,830 16,769 12,704 103,303
Capital expenditures 83,525 33,161 8,382 125,068
- ----------------------------------------------------------------------------------------------------------------------------------

1994
- ----------------------------------------------------------------------------------------------------------------------------------
Net sales $1,096,277 $321,561 $329,806 $1,747,644
Income from operations 235,528 (10,182) 24,485 249,831
Identifiable assets 691,097 256,774 308,401 1,256,272
Depreciation and amortization 57,301 16,440 12,165 85,906
Capital expenditures 64,853 29,357 32,016 126,226
- ----------------------------------------------------------------------------------------------------------------------------------

1993
- ----------------------------------------------------------------------------------------------------------------------------------
Net sales $1,087,015 $219,800 $274,952 $1,581,767
Income from operations 194,822 12,176 24,829 231,827
Identifiable assets 725,968 232,389 293,637 1,251,994
Depreciation and amortization 53,203 7,351 11,766 72,320
Capital expenditures 46,313 7,261 8,536 62,110
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------



Certain corporate related assets (principally cash, cash equivalents, and
marketable securities) are reported in the Payment Systems identifiable assets.
Likewise, corporate costs are reflected in Payment Systems income from
operations. Payment Systems income from operations for 1993 includes the impact
of the $49 million restructuring charge and a $10 million 1994 credit related to
the restructuring.
In 1995, the Company acquired Financial Alliance Processing Services, Inc.
This acquisition is included in the Payment Systems segment.
In 1994, the Company acquired National Revenue Corporation and The Software
Partnership Ltd. (Payment Systems),
and T/Maker Company and Pacific Medsoft (Business Systems).
During 1993, the Company acquired PaperDirect, Inc., and Stockforms Ltd.
Both acquisitions were added to the Business Systems segment.
Certain prior year segment amounts have been reclassified to conform with
the 1995 presentation. The reclassification resulted from movement of certain
product lines between the Payment Systems and Business Systems segments.

12. DISCONTINUED OPERATIONS

On November 29, 1995, the Company adopted a plan to discontinue the Printwise
ink business. The Company anticipates that the business will be disposed of by
July 1996. Accordingly, Printwise is reported as a discontinued operation for
the years ended December 31, 1995 and 1994. Net assets of the discontinued
operation at December 31, 1995, consist primarily of property, plant, and
equipment.
The estimated loss on the disposal of Printwise is $4,315,000 (net of taxes
of $2,985,000), consisting of an estimated loss on disposal of the business of
$3,428,000 and a provision of $887,000 for anticipated operating losses until
disposal. Summarized results of Printwise since inception are as follows
(dollars in thousands):




1995 1994
- ----------------------------------------------------------------------------

Net sales $ 1,124 $ 276
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
Loss from operations before income tax benefit $(5,244) $(5,819)
Income tax benefit 2,146 2,432
- ----------------------------------------------------------------------------

Loss from operations (3,098) (3,387)
- ----------------------------------------------------------------------------
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) $(3,387)
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------




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, 1995 and 1994, and the
related consolidated statements of income and cash flows for each of the three
years in the period ended December 31, 1995. These financial statements are the
responsibility of the Corporation's management. Our responsibility is to express
an opinion on these 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 financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Deluxe Corporation and its subsidiaries at
December 31, 1995 and 1994, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles.


Deloitte & Touche LLP
Minneapolis, Minnesota

February 9, 1996

SUMMARIZED QUARTERLY FINANCIAL DATA (UNAUDITED)




1995 Quarter Ended (Dollars in Thousands Except
per Share Amounts) March 31 June 30 September 30 December 31
- ----------------------------------------------------------------------------------------------------------------------------------

Net sales $465,388 $442,266 $449,203 $501,124
Cost of sales 210,234 201,429 202,603 246,000
Income (loss) from continuing operations 34,552 30,742 30,258 (1,118)(2)
Per share of common stock
Continuing operations .42 .37 .37 (.01)
Net income (loss) .41 .36 .36 (.07)
Cash dividends .37 .37 .37 .37
- ----------------------------------------------------------------------------------------------------------------------------------


1994 Quarter Ended March 31 June 30 September 30 December 31
- ----------------------------------------------------------------------------------------------------------------------------------
Net sales $429,958 $412,350 $426,553 $478,783
Cost of sales 192,044 184,811 191,985 215,612
Income from continuing operations 38,647 30,494 34,295(1) 40,817
Per share of common stock
Continuing operations .47 .37 .41 .50
Net income .46 .36 .40 .49
Cash dividends .36 .36 .37 .37
- ----------------------------------------------------------------------------------------------------------------------------------



(1) In September 1994, a $10 million credit was recorded to reduce a 1993
restructuring charge for check printing plant consolidation. See Note 2 to
consolidated financial statements.

(2) 1995 fourth quarter results include non-recurring pretax charges of $62.5
million, related to costs associated with production consolidation and process
improvements, the elimination of businesses and product lines that were
unprofitable or did not fit with the Company's long-term strategy, and
write-offs of non-performing assets.


SHAREHOLDER INFORMATION

QUARTERLY STOCK DATA
The chart below shows 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.




1995 QUARTER HIGH LOW CLOSE
- --------------------------------------------------------

1ST 29 1/8 26 1/8 28 1/2
2ND 33 5/8 28 7/8 33 1/8
3RD 33 7/8 30 1/4 33 1/8
4TH 33 3/8 26 5/8 29

1994 Quarter High Low Close
- --------------------------------------------------------
1st 38 30 3/8 30 7/8
2nd 31 26 1/8 26 3/8
3rd 31 3/8 25 3/4 29 3/8
4th 30 3/8 26 26 1/2



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
Monday, May 6, 1996, 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 Form 10-K (Annual Report) 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 the following:

General Information:
Stuart Alexander (612) 483-7358
Vice President, Corporate Communications

Financial Information:
Charles M. Osborne (612) 483-7355
Senior Vice President and Chief Financial Officer

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: Monday, April 22, July 22, October 21. Tuesday, January 21,
1997

Dividends: The Deluxe Board of Directors usually meets during the second week in
February, May, August, and November.