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The Company’s overall business story remains steady and relatively unchanged since the last time we were here in February. We’ve had a good first half for 2001 and we feel confident that we can hit our targets for the remainder of the year. We recently raised our Earnings Per Share target from $2.45, to $2.53 to $2.56 and indicated that any share repurchases made during the second half of the year would be incremental to this new target. We also indicated that our revenues would reverse from the slightly down we experienced in the first half of the year, to up slightly during the second half of the year.

Our intent today is to update you on our strategy and progress since our meeting earlier this year. Before we get started with that, there are a couple of recent news items that I would like to mention.

First, we’ve made some minor name changes to two of our business units. The changes were communicated via a news release earlier this morning.

The unit that most recently we’ve been calling Business Forms will now be called Business Services. We believe this name change, albeit slight, will recognize the fact that this business is and will be more than forms. We plan to expand this unit’s product offerings and also provide more services. We’ll talk about some of these in a few minutes.

The other change is to call our Financial Institution Checks business Financial Services. In this unit as well, we are more than a single product. Marketing programs, security options and conversion services take us beyond checks. We’ll give some examples of these later on as well.

The name "Deluxe" will be attached to both of these business segments, but may not always proceed the more descriptive terms, simply for purposes of brevity.

Our third unit will continue to be known as Direct Checks, and consists of both the Checks Unlimited and Designer Checks brands.

The other piece of news is that we have a new board member—Martyn Redgrave. Martyn comes to us with strong financial and strategic planning and development experience from both public and private companies. Currently he is executive vice president-finance and chief financial officer of Carlson Companies in Minneapolis. Martyn also has held positions with PepsiCo and Arthur Andersen.

With the recent news covered, let’s look at the topics on today’s agenda. Our first speaker is Ron Eilers, Deluxe’s president and chief operating officer. Ron will present Deluxe’s story from an operations perspective—how our business model is steering us into the future, how things are going in each of our three business units, and even a brief glimpse into the near future.

Then, Doug Treff, our chief financial officer, will update you on the financials. I think that, by now, most of you have met Doug, or at least heard him on our quarterly conference calls.

Also with us today, but not presenting, is Tony Scarfone, our general counsel.

And of course, after our prepared comments, we will be glad to take your questions. First, Ron Eilers.

Ron Eilers
Thanks, Larry.

I was watching a Twin Cities television station the other evening when they were showing some highlights of the 1987 World Series in which the Minnesota Twins defeated the St. Louis Cardinals in seven games. As the camera panned the crowd, it stopped on a sign that a fan was holding. The sign read, "The Metrodome. We like it here."

Now, I’ve been told that most New Yorkers don’t pay much attention to baseball if the team isn’t owned by George Steinbrenner or played at Shea Stadium, so let me explain. During the ‘87 World Series, Twins fans took a lot of grief because of their aesthetically-challenged indoor stadium. However, the stadium was good to them. While the Twins’ record on the road was a pathetic 29 and 52, their record at home was 56 and 25! Hence the sign: "We like it here." The Metrodome is no architectural marvel, but it sure worked for the Twins in 1987.

This seemed like a fitting analogy to Deluxe’s position within the check printing industry. The market is mature. Checks are not hot like the dot.coms of a couple years ago. Check printing certainly isn’t a controversial industry like biotechnology. And it isn’t cutting edge like nanotechnology. In fact, most people see check printing as rather boring.

But like that sign said, "we like it here."

We’ve been printing checks for more than 85 years, and we’re good at it -- the industry leader. Good enough, even, to be doing well in the face of a mature-to-declining market in a less-than-robust economy.

Driving us to thrive during such conditions is what we call our Business Alignment Model. When Larry and Doug met with you in February, Larry introduced you to the model, but I’d like to give you a closer look.

At the top of the model are Deluxe’s six shared values. Openness, Trust and Integrity; Innovation; Partnering for the Common Goal; Recognition and Celebration; Respect and Dignity For All; and Quality. These values drive everything we do across the entire company—how we interact with our clients and customers, our shareholders, the public and each other.

Underneath the shared values is our Vision: Grow Deluxe by leveraging our personalization, direct marketing and e-commerce competencies. This vision is firmly rooted in all three of the business units.

Supporting our vision and shared values are five primary objectives—Revenue Growth; Growing Client and Customer Loyalty; People; Cost Management; and Transformation. These five objectives are stable over time; they ground us; they allow us to stay focused on what it is we want to accomplish. And they are the best vehicle with which to update you on the status of the Company.

First, revenue growth. Yes, the market is mature. Yes, our revenues are flat to down slightly, although we think we can reverse that. Yes, we are selling fewer units. And yes, we continue to experience pricing pressures as financial institutions merge into gargantuan organizations.

However, through the other four objectives from our business alignment model, we are finding ways that we believe will move revenue in a positive direction.

First, we are making new services and programs a priority. Just one example is our Business Referral Program. Through BRP, banks refer their small business customers to us for their checks and related office products. This program is based in our Business Services segment, but is sold to our financial institution clients via our Financial Services sales force.

Another way we will turn the revenue curve around is through a technology called Deluxeport^TM. Deluxeport is a Web-enabled check ordering application that allows our financial institution clients to order Deluxe products using the Internet. We piloted DeluxePort with Chase Manhattan Bank beginning in May, and when the pilot was successfully completed at the end of June, Chase began a gradual rollout of DeluxePort throughout their entire network of banks and contact centers. While this new capability is intended to increase revenue, it also supports the other business objectives that I’ll be talking about in a few minutes.

Another way we’re improving our revenue per unit is through a better product mix. For instance, a check with a popular licensed design on it makes more money for our financial institution clients and for Deluxe than does a plain paper check. So, by improving our product mix with licenses such as the recently-introduced Disney line, and the ever-popular Winnie the Pooh, we improve our revenue. And, end-user customers greatly prefer them.

And the fourth way in which we intend to grow revenue is to focus on selling on behalf of our financial institution, or FI, clients. Deluxe could have the most profitable product mix ever created, but if check writers don’t know about the various styles and options available, the product line will not be able to do its job. As Larry mentioned in his presentation last February, the people who are in the best position to help our FI clients sell the most profitable products are Deluxe employees. Therefore, there is tremendous value in occupying the strategic position between the financial institution and the check writer—always, of course, on behalf of our FI clients. This position comes with a bonus: Selling directly to the end consumer on behalf of our clients benefits everyone involved.

Financial institutions benefit because:

Another beneficiary of the program are the people who buy checks from their financial institutions. As I mentioned, they get the product they prefer—one that is an extension of their personalities, interests or hobbies.

The third party in this win-win-win scenario is Deluxe, for all the reasons just mentioned.

One final strategy within our revenue growth objective involves marketing alliances. Within Financial Services, Deluxe has a number of alliance partners including Harley Davidson, Disney, NASCAR, Warner Brothers and Coca-Cola. And within our Business Services segment, we partner with Software Technology, Yardi Systems, Open Systems, Juris and Deltek, to name just a few.

Let’s move on to the second objective on our business model—growing client (FIs) and customer loyalty, which by the way, is tied closely to the first objective, revenue growth. These two objectives have a symbiotic relationship. The best way to grow revenue is through loyal customers and clients, and without loyal customers, revenue will have a tough time growing.

A number of rather large financial institutions have demonstrated their loyalty by signing contracts over the last several months—for instance, Synovus, Wells Fargo, Boeing, and First Union. In addition, we expect to be making an announcement regarding an expanded relationship with another major financial institution very soon. The Business Referral Program I mentioned earlier was a major plus in a number of these recent competitive situations. Our ability to retain the FI’s business check customers for them through BRP and our retention marketing competencies, is unmatched by any of our competitors.

We’re also proud of the dozens of other wins with smaller banks across the country. I won’t read all the success on this slide because the length of the two lists speaks for itself.

To what do we owe these recent successes in Financial Services? Our technology capabilities, for one. And second—what we’re probably known for most—value-added quality and service.

As our first objective of growing revenue is tied to growing customer and client loyalty, the latter objective is tied to the third—people. Behind every one of the client acquisitions and retentions I just mentioned are Deluxe employees. Our account managers take great satisfaction in bringing in new business, of course. However, all employees are proud (when news gets around) that the company has landed new business or extended existing business. And company pride is one of the best ways to create an atmosphere where employees are active and engaged, criteria we believe are critical to a successful business.

Here are some of the things we’re doing to engage employees: For the second consecutive year, we have polled our workforce to determine their level of engagement. These surveys have told us in which areas we are doing a good job of engaging employees, as well as those areas in which there’s still room for improvement.

The engagement survey helps us answer the following three questions:

It’s the SAY-STAY-SERVE approach.

By grouping questions and their corresponding answers into these three categories, we come up with an "engagement score." We are extremely pleased with this year’s score which showed substantial improvement over last year.

In general, the survey told us that employees are positive about many engagement factors including culture and core values, communication, manager/supervisor relationships, and quality of their work life.

I believe we’ve brought the concept of quality of work life to the forefront and made it personal through executive site visits, which we started last year.

Larry and I get to each of our facilities at least once a year, and the rest of the leadership team makes site visits a priority too. Employees get to meet us face-to-face, shake our hands, ask questions, and offer their ideas.

Another way we create engagement opportunities for our employees is by developing our leaders. Once a year, we bring our sales and business leadership teams together to review our strategies, objectives and tactics and ensure that everyone’s efforts are aligned to our business model. Another reason these meetings are important is because it brings together a salesforce that lives all across the country. We see value in creating a place where people can all hear the same message and have the opportunity to network and share ideas.

There’s another leadership development initiative that we’re rolling out this fall across the entire corporation. The first employees to go through the program will be those who report directly to the executive leadership team. Content will focus on the skills and knowledge needed to be a strong leader.

This development course will make us a stronger company by preparing our future leaders. Using the tools that they learn, people can prepare for more challenging assignments and greater responsibility within Deluxe.

Investing in our employees ties directly to the shared values within our business alignment model. After all, people are the primary means for a company to differentiate itself in the marketplace.

Our fourth objective within the business alignment model is cost management. If you’ve been following Deluxe for any time at all, you know that we’ve been taking cost out of the business for years. Over the past five years, we’ve reduced the number of printing facilities from 31 to 13. We’ve consolidated call centers from 31 to 7. We’ve reduced our census from 12,685 in 1996 to 7,250 as of the second quarter of this year.

However, there comes a point when take-outs jeopardize a company’s ability to serve the customer. That means we have to be a bit more creative in looking for ways to save money, but that’s okay because Deluxe always has been strong in the area of creativity and innovation.

In exercising our creativity, we looked at outsourcing as a potential cost savings. We selected nine rather significant but non-strategic functions to take outside the company—IT development, order capture, transaction processing, telecommunications, computer support, HR benefits, mailroom, IT contractor management and the data center. We’ve established alliances with companies such as AT&T, Comdisco, Axciom, Sageo and eFunds.

The fifth and last objective from our business alignment model is transformation. Let me first allay any concern you might have with the word "transformation." Although we’re not talking about transforming an 85-year-old check printer with a stellar reputation into a company that clones sheep, we will transform our systems…our approaches…and our product and service offerings to ensure our industry leadership in the new millennium. Be assured, however, that while transforming, we will leverage our core competencies of personalization, direct marketing and e-commerce.

Here’s an example: We have initiated a cellular manufacturing program within our production process. Don’t panic—I’m not talking about going down the path of stem cell research; I’m talking about work cells, or small, self-contained teams focused on operating several different machines or processes. The advantage of the cellular approach is that you have an empowered work force of multi-skilled employees operating as a team. Product travels less distance and is handled less frequently, thereby transforming processes and reducing costs. A cellular system also reduces bottlenecks that can sometimes occur in a traditional assembly line production environment.

We recently completed a pilot of cellular manufacturing in our San Jose and Chicago facilities, and the results were so impressive that we will be converting nearly all of our check printing facilities over the next 12 to 24 months. Cellular manufacturing will move us from a linear process to one of small, self-contained, highly efficient work units that are responsible for a major production sequence.

Also included under the transformation objective are some of the initiatives I’ve already mentioned such as Deluxeport and the Business Referral Program.

And I couldn’t talk about transformation without showing you these graphs of Internet order volume. You’ll see that the line continues to move upward across all three of our business segments.

There’s also transformation taking place in our Customer Care (Call Center) organization where we’re moving from a cost center to a revenue contributor. In the past, the financial institution new accounts person would call Deluxe and order checks on behalf of the new customer. Typically, the conversation was pretty short. Name, address, phone number—the basics; and the transaction usually concluded in an order for a basic check—in other words, a plain paper check at the lowest price point.

We’re moving to an environment where the conversation is followed up with a question from the Deluxe sales associate. "Your customer can have her checks in only two days. Would you like me to add expedited delivery for just $8.00?" Frequently, the new accounts person says "Yes" on behalf of the customer. That simple question just increased Deluxe’s revenue.

Although 99.9% of such calls are between the bank and Deluxe, occasionally it’s obvious to the Deluxe sales associates that the end consumer is sitting there. The Deluxe employee asks to speak with the end consumer directly, and almost always the new accounts person is happy to be relieved from being caught in the middle. This connection allows the Deluxe employee to sell the end user the products he or she would prefer to use.

Transformation is also taking place in the area of customer support. Our sales organization continues to sell the benefits of electronic ordering connections. Currently 78% of our orders are coming in through electronic connections.

I have one more item related to transformation: Because I’m often asked about our use of digital technology, let me anticipate potential inquiries and say that Deluxe has been using digitally-driven offset printing for many years. We also use Xerox digital printing technology within our Financial Services group for printing some specialized products, as well as within the Direct Checks unit for printing side-tear checks.

Will we convert the rest of our business to digital in the future? That’s hard to say, but be assured that we will keep our eyes on the field. For now, making sweeping changes to our printing operations does not make sense given that our printing technology is already highly efficient and allows us to own the number one position as low-cost producer.

Check printing. It’s not sexy. It’s not considered high-tech, although Deluxe has made technology a key means of service differentiation. It certainly isn’t controversial. But it’s an industry in which we’ve been the market leader for all of our 85½ years.

By utilizing that experience in conjunction with forward thinking, we have created a blueprint for the future. That blueprint is our business alignment model.

We know how to manage our costs.

We have the creativity to grow our revenue in new ways.

We have exceptionally knowledgeable employees who take immense pride in serving our loyal clients and customers.

All these qualities, combined with our investment in technology put us in a solid position as we move forward.

Check printing. "We like it here."

Now I’ll turn things over to our CFO, Doug Treff.

Doug Treff
Thanks, Ron. If you have children, you’ve probably had the "money talk" with them. You know—that’s where you try to convince them that they should want to put half of their allowance in the piggy bank rather than spend it on something more important like candy or stuff from the dollar store.

I had such a talk not too long ago with my son, Joshua. Josh is 8. He was struggling with the concept of having to save for the future, which in his eyes, I’m sure, seems like it will never come. I thought I would impress him when I told him that one of the most enjoyable parts of my job is helping Deluxe put cash to work for the long-term benefit of the company’s shareholders. I explained that the money he saved would work for him over the long-term. From there we moved on to talk about interest compounding. I might even have said a few things about the rule of 72, retained earnings and return on capital investment. I thought he was a bit young to get into weighted average cost of capital.

I didn’t quite understand why suddenly, he jumped up from the table and rushed off, shouting, "Catch you later, dad. I’ve got homework to do." It was a moment before I remembered it was summer vacation.

Okay, I admit it. I get a little excited about cash and planning the best way to make it work to achieve the maximum long-term benefit. That’s where I’d like to begin my remarks this afternoon. And I promise that I won’t keep you as long as I did my son the other night.

Putting cash to work for the long-term benefit is how we’re increasing shareholder value. Specifically, how will we do that? First, through capital investments that create growth opportunities and/or operating efficiencies. Here’s an example of each. In the area of creating growth opportunities, I’ll refer back to DeluxePort, the technology that Ron talked about. DeluxePort is allowing our FI clients to connect to us via the Internet.

And in the area of creating operating efficiencies, I’ll refer you to another topic Ron mentioned—cellular manufacturing. By investing in a production environment of work cells, we get the product out more efficiently and accurately, thereby saving money.

Not only will our capital investments allow us to grow revenue, increase productivity and operate more efficiently, but they also will allow us to continue to hold the coveted position of low-cost producer.

We have invested $17 million on capital expenditures half way through the year. We anticipate spending 40-45 million dollars this year on these initiatives which is consistent with what we have previously said.

The second way we’re making cash work for us in the long-term is by reducing our weighted average cost of capital. Currently, shareholder equity is costing us about 12 percent. We can borrow that same money for somewhere between 4 and 7 percent, depending on whether it is commercial paper or long term debt. So we can more effectively utilize our shareholder investment by increasing our debt, thereby moving us toward our optimal capital structure.

The third way cash is working for us is our ongoing share repurchase plan. This program is an excellent use of cash and it enhances shareholder value. As we’ve told you before, we are financing the repurchase through the combination of cash and debt. We will continue to evaluate future investments against the returns available from share repurchase. Since we announced our share repurchase program on January 31 of this year, we’ve bought back approximately 6.8 million of the 14 million shares authorized by our board.

I should probably mention here that with the recent spin-off of eFunds, the share repurchase program could move us to a point of negative shareholders’ equity. For many companies, such a position can be a sign of trouble. However, if you judge a company by its shareholders’ equity alone, you won’t get an accurate picture. Such is the case with Deluxe. If negative shareholders’ equity comes about, it will be the result of three things:

I would encourage investors to focus on our cash flow generating capability and interest coverage ratios, when appraising the underlying health of Deluxe.

The fourth way we will put cash to work for us in the long-term is through strategic acquisitions to bolster our existing market position or by entering related or adjacent markets. As we’ve stated in the past, but I’ll gladly say it again, we have carefully defined parameters for potential acquisitions. Acquisitions must build off our core competencies of personalization, direct marketing and e-commerce. They also must be accretive to cash flow and EPS.

Okay, let’s move on and take a look at Deluxe’s key operating statistics compared to last year, beginning with revenue. Our revenue decline is slowing as shown in the first two quarters for two reasons: One, increasing revenues in Business Services and Direct Checks. Second, we have retained and attracted more business in Financial Services through valued-added quality and service, combined with our technology capabilities. Revenue in that segment declined approximately $19 million in the first quarter and $12 million in the second quarter, evidence that unit volume declines are moderating in this channel.

We believe that trend will continue and that we will deliver overall modest revenue growth in the last half of the year. There are a couple of key points to note on this slide showing key operating statistics for the first half of the year. First, operating margin at 22.2% is up .3 percentage points compared to last year. Second, EBITDA margin is also improving, up 1.9 points to 28.5% year-to-date. Third, and more important than percentages, EBITDA dollars have also improved. They were up $9.7 million, to $180.7, compared to 2000. These indicators show excellent financial health and competitive strength.

Another positive indicator has been Deluxe’s share price since the spin-off of eFunds. However, if you look at this table that compares Deluxe to businesses in our peer group, you might come to the conclusion that Deluxe still is undervalued. It could be argued that our PE multiple doesn’t reflect our industry leadership, strong operating margin and high dividend yield.

So, that’s where Deluxe stands as of mid-August. What does the rest of 2001 look like? Well, we will focus on a number of issues:

All this with the intended outcome of

And while we’re on the subject of creating shareholder value, I couldn’t close my comments without showing you this updated table. It’s the same one you saw in February, only the numbers now are even more impressive. The $42.65 combined value as of August 13 represents an increase of more than 60% in the stock price since any one of those three key dates. It clearly demonstrates that our efforts to spin-off eFunds were worth it. Separating the companies was the right thing to do for both entities.

In summary, Deluxe has the financial strength to invest in the business, pay dividends, repurchase shares, and pursue acquisitions that meet our strategic and financial criteria.

Now, I’ll turn the podium back to Larry.

Larry Mosner
Thanks, Doug.

I hope you found your time here today to be worthwhile. We trust that our presentation has accomplished a number of things:

If you haven’t noticed, let me come out and say it—we’re excited about Deluxe’s future, and we hope you are, too.