In accordance with Regulation FD, this conference call is open to all interested parties. A replay of the call will be available and details on how to access the replay will be provided at the conclusion of our teleconference.

Before I turn the call over to Larry, I will make a brief cautionary statement – comments made today regarding earnings estimates and projections, and statements regarding management’s intentions and future performance, are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995, and, as such, are necessarily subject to risks and uncertainties that could cause actual future results to differ materially from those projected. Additional information about various factors that could cause actual results to differ from those presented are contained in the news release that we issued this morning and in the company’s quarterly report on Form 10-Q for the quarter ended June 30, 2001.

With those items out of the way, I will now turn the call over to Larry Mosner.

Larry Mosner
Good morning, everyone.

As you saw from our news release this morning, Deluxe had an excellent quarter. We reported record net income and earnings per share. Revenue was up substantially in two of our business units and down only slightly in the third. However, looking ahead to the fourth quarter and beyond, we are being cautious as we see how the events of September 11^th continue to impact the economy.

In a few minutes, I’ll share with you some highlights of the past quarter, as well as our current expectations for the fourth quarter. First I’ll turn the call over to Doug Treff, our CFO, who will review the financials. Doug—

Doug Treff
Thanks, Larry. In my comments today, I will first cover the current quarter’s results, and then discuss the Company’s nine-month performance.

Deluxe’s third quarter net income increased 8.7 percent and diluted EPS increased 15.4 percent. Third quarter 2001 net income was 51.1 million dollars, or 75 cents diluted per share. Last year’s income from continuing operations was 47 million dollars, or 65 cents diluted per share.

Revenue in the third quarter increased 2.3 percent to 323.5 million dollars, compared to 316.1 million dollars during the same period last year. Unit volume increased nearly 4 percent, while revenue per unit declined 1.5 percent. Both unit volume and revenue per unit were impacted by conversion work for several financial institution (FI) clients. You might recall that conversions positively impact our units, but they negatively impact revenue per unit because conversion units are a lower-priced item.

Breaking revenue down by business segment:

Let’s move on to gross margin: For the third quarter, gross margin was 65.7 percent of revenue compared to 64.2 percent last year. The improvement is primarily due to higher productivity levels in our printing facilities and distribution centers.

Now for selling, general, and administrative (SG&A) expense. In the third quarter, SG&A was 39.9 percent of revenue, compared to 41.1 percent in 2000. Cost management was responsible for the positive change, as well as the timing of project spending being pushed into the fourth quarter, and a favorable comparison to last year’s spending on an e-commerce initiative.

Operating margin improved in the third quarter to 25.8 percent of revenue, compared to 23.1 percent of revenue last year.

Capital expenditures for the quarter were 5.2 million dollars compared to 13.9 million dollars in 2000 when we had higher spending due to e-commerce initiatives.

Now, here’s how things look after the first nine months of the year.

Diluted earnings per share were up 8.2 percent. The company’s net income was 137.9 million dollars compared to 131.6 million dollars for the same period of 2000. This equates to $1.97 diluted per share in 2001, and $1.82 diluted per share in 2000.

Revenue for the nine-month period was 957.1 million dollars, compared to 959.9 million dollars for the same period a year ago. Getting us to this relatively flat comparison were a couple of offsetting factors:

And now a look at nine-month revenue by business segment:

Gross margin for the first nine months of 2001 was 64.5 percent of revenue compared to 64.4 percent last year. Productivity improved during the third quarter, but it was offset by lower volume and pricing pressures in earlier quarters.

SG&A expense for the first nine months improved to 41.1 percent of revenue compared to last year’s 42.1 percent. Cost management efforts, the timing of project spending and a discontinued e-commerce initiative were the reasons we did better.

EBITDA—or earnings before interest, taxes, depreciation and amortization—increased 6.4 percent to 281.9 million dollars for the nine-month period. For the first nine months last year, EBITDA was 265 million dollars.

Operating margin was 23.4 percent of revenue in the first nine months of 2001, compared to 22.3 percent a year ago.

Deluxe Value Added, or DVA, was 110.9 million dollars in the first nine months compared to 97 million dollars for the same period of 2000. DVA represents Deluxe’s calculation of return on capital invested in the business that exceeds the cost of capital.

Capital expenditures through nine months were 22.3 million dollars compared to 40.7 million dollars last year when we were spending on an e-commerce initiative. Cap-ex for the full year will be below the 40 to 45 million dollar target we gave you earlier this year. A more current estimate is 35 to 40 million dollars.

My final comment concerns our ongoing share repurchase program. As you’re most likely aware, Deluxe’s board of directors authorized a 14 million share repurchase program early this year. Through September 30, 2001, we’ve repurchased approximately 8.3 million shares. Repurchase activity produced a 7-cent increase in diluted earnings per share for the third quarter and a 10-cent increase for the first nine months of 2001.

Now that we’ve reviewed the financial highlights, I'll turn the call back over to Larry. I look forward to taking your questions in a couple of minutes. Larry.

Larry Mosner
Thanks, Doug.

It’s a pleasure to speak with you today, especially given what a great quarter we had. What the third quarter confirms is that our business model is working as we expected. It is a successful tool in keeping our business focused and strong. Many of the analysts on the call today probably attended the meeting we held in New York City back in August, and heard the details of our business alignment model. For those of you who were not there, here’s a very brief recap.

Our business model consists of three primary elements: Deluxe’s shared values … the Company’s vision … and our business objectives.

I’ll define each in the simplest of terms. First, our shared values. They are the six things—behaviors, if you will—that drive how we do everything across the entire corporation.

The second piece of our business model is our vision, which is: to grow Deluxe by leveraging our personalization, direct marketing and e-commerce competencies.

And the third and final element of our business model consists of five primary business objectives:

These objectives ground us, keeping the Company focused over time on what it is we want to accomplish.

I believe that this business model has helped us achieve the results we’ve reported to you today. Also contributing to our excellent quarter are a strong and cohesive leadership team, a very capable and supportive board of directors and Deluxe’s 6,900 dedicated employees.

As I mentioned in my opening comments, I want to share with you some of the reasons for our good quarter.

First, within our financial services business segment … as we shared with you in August, the FI segment has had a good year in terms of business wins. We’ve acquired new business or enhanced existing business with Boeing Credit Union, Citibank, First Union, JP Morgan Chase, Synovus and Wells Fargo, as well as many smaller regional and community banks.

Deluxe has more than 4,400 employees working in our Financial Services business segment. They’re doing a remarkable job in bringing in business and satisfying our FI clients with quality products and value-added service in a very competitive and mature market.

Moving on to the Deluxe Business Services segment … revenue per order is up and this business did a great job acquiring new, and retaining existing customers. DBS noticed a drop-off in order volume immediately after the events of September 11^th. However, levels are returning to what we would expect, given the time of year.

And finally, our third business—Direct Checks. If you’re wondering why operating profit was not as strong as revenue gain, let me explain: Revenue was higher due to a price increase, as well as higher order volume from our efforts to acquire new customers. While we always will be involved in programs to acquire new customers, these efforts take substantial investments which affects our operating profit. To further explain, on first-time orders, revenue is offset by new customer acquisition costs. Reorders, however, are very profitable.

Direct checks also had higher levels of orders coming in through the Internet. The latest software release on the Checks Unlimited site included dynamic up-sell/cross-sell functionality aimed at increasing revenue and overall contribution of on-line orders.

Internet orders as a percentage of Direct Checks’ total orders grew from 11 percent in the 3rd quarter of 2000 to 17 percent in the 3rd quarter of 2001. Internet orders have higher revenue and lower costs than orders that are received by mail.

That’s where we stand in terms of the three segments. Here are a few additional items:

As we’ve discussed in the first two quarterly calls this year, check writers continue to prefer and order licensed checks and related products. Both our Financial Services and Direct Checks businesses offer a wide range of licensed designs—something to suit just about anyone’s preference: Disney, Warner Brothers, Harley Davidson, NASCAR, Laura Ashley, Peanuts, Sesame Street and many more.

What we don’t talk about quite as often are the more serious, or cause-related licensed products, we offer. Our Financial Services business is featuring one such check design package during the month of October. Check writers can support National Breast Cancer Awareness Month by using Deluxe’s Check for the Cure(TM) check package. Eight percent of the proceeds from the sale of these checks benefits the Susan G. Komen Breast Cancer Foundation. This organization’s mission is to eradicate breast cancer as a life-threatening disease by advancing research, education, screening and treatment. The checks, which feature the recognizable pink ribbon and the Komen Foundation logo, along with coordinating checkbook covers, are available exclusively to our financial institution clients, who in turn make them available to their customers. The partnership between Deluxe and the Susan G. Komen Foundation has generated more than 100,000 dollars to date for the foundation.

There’s one more check design promotion I’d like to share with you. As a result of last month’s tragic events in New York, Pennsylvania and Washington D.C., our Financial Services business is featuring our "Forever Free" check design as another way for Americans to show their patriotism. The check’s artwork combines three familiar symbols of freedom—the American flag, the bald eagle and the Statue of Liberty. For every Forever Free check package sold, Deluxe is donating one dollar to the American Red Cross Disaster Relief Fund. Americans have responded in record numbers. Through the end of last week, the program has raised more than 42,000 dollars for this special fund. A growing number of our FI clients are also matching Deluxe’s donation with their own donation.

I’d like to mention a second item related to last month’s terrorist attacks. On September 11th, immediately following the four plane crashes, the Deluxe Corporation Foundation donated 50,000 dollars to the Red Cross Disaster Relief Fund on behalf of all Deluxe employees. Because so many employees wanted to know what they could do to help, the Deluxe Foundation also established a special matching program.

For every dollar Deluxe employees contribute to "The September 11^th Fund," the Deluxe Foundation is matching their gifts, to a maximum of an additional 50,000 dollars. The September 11^th Fund was created by the United Way and The New York Community Trust to ensure that donations are effectively distributed to all cities affected by these tragic events. As of late yesterday, Deluxe employees had contributed more than 46,000 dollars to this important cause. We are sure we’ll hit the $50,000.

Another Deluxe affiliated foundation—the W.R. Hotchkiss Foundation—named after the founder of Deluxe¾ contributed 75,000 dollars to the "Families of Freedom Scholarship Fund," a fund that has been established to benefit children who lost parents as a result of the terrorist acts on September 11^th.

Here at Deluxe, our thoughts and prayers continue to be with the people who have been personally touched by the acts of September 11—families who lost friends and loved ones, residents of the New York City area and Washington, D.C., and to the thousands of workers who are part of the arduous recovery and clean-up process.

Before I wrap up my prepared comments and Doug and I take your questions, I’d like to offer a word of caution about our business as we go forward, even in light of the excellent quarter we just completed and the strong numbers Doug discussed.

It’s difficult to predict what will happen to consumer confidence in light of the softness in the economy and the escalation of our country’s anti-terrorism military action. Although the Federal Reserve Board cut interest rates again just recently, it’s possible that the economy was too weak prior to September 11^th to avoid a deepening recession.

A drop in consumer confidence has an impact on Deluxe as consumers spend less and hence, use fewer checks. Although our business isn’t typically affected as severely in a recession as many other businesses, consumers may be slower to use up their check supplies, meaning that orders are likely to drop off.

In closing, I’d like to thank you for taking time from your busy schedules to join us on this call today. I realize that many of you work in or near the financial district in New York City. We wish you the best as you try to resume a more normal business and personal life.

And now, Doug and I will be happy to take your questions.

1. LM¾ It is primarily driven by our ability to acquire additional business from existing customers and acquire some new customers in our financial institutions business, where we produce a higher volume of conversion units. We have also had growing units in our other two businesses, but as we have a higher conversion unit percentage, those units are at a lower average price per unit. Therefore, you have higher units from conversions but lower average-per-unit dollar value.

17. How do you think your volume and pricing compare to the industry for the nine months?

1. LM¾ We picked up some volume during the course of the year because of business we’ve gained from existing customers and new customers we’ve won. It’s difficult to say on the average price, but we have historically enjoyed a premium on the average price per unit based on our mix of product, etc., compared to the industry.

17. You talked about the impact of a recession. Earlier in the year you had said that at least historically you were pretty much immune to recessions, now it sounds like if indeed we go into a recession that there will be some impact.

1. LM¾ I didn’t say we were immune; I said the impact has not been as severe on us as it has been for other industries. And we see that continuing to be the case. However, the unusual events that have just occurred have created a situation where I think it is difficult for anyone, including us, to forecast with the level of confidence and certainty that historically we have. We think that it will have an impact on us. We think it will be far less than other industries and other businesses, but we’re just trying to be very forthright here, hence our cautionary note. Regardless of how the economy trends, we are going to be doing our very very best to manage our costs and our investments.

17. I guess I used the wrong word. I thought you had said earlier in the year that there might be some small impact on check demand but that you would be able to offset that with some other actions and therefore there would be no perceptible impact on the bottom line.

1. LM—True, I think that what we have seen here is, with the events of September 11, an increased negative impact on the economy that we think will have an impact on us. Again, not a major one, and we are going to continue to try to do everything we can to offset that by managing our costs and investments so that it has the most positive impact on shareholder value.

17. Doug, did I hear you correctly that cap-ex was $35-40 million this year?

1. DT—Yes, we anticipate a lower level of spending. We’ve been reducing and focusing our capital spending this year on two types of initiatives: those that are strategic in nature and will push and drive revenue growth opportunities in the future, and secondly, those that have a very short payback and allow us to take advantage of reduced costs.

17. And cap-ex next year?

1. DT—We are still in the process of finalizing our plans for next year and therefore I am not comfortable providing a projection at this time.

17. I think earlier in the year you talked about an EBITDA of $350 million. It looks to me like you are going to be above that. Can you give us a new number?

1. DT—I think that implicit in the estimate that was shown in the press release this morning of $.65-$.68 for the fourth quarter, is an assumption that EBITDA will exceed $350 million for the year although I don’t have a specific target – it is more than $10 million higher than that.

17. And lastly, the new accounting regulation on amortization – will that wipe out all of your amortization or the vast majority of it?

1. DT—No. We have an acquisition that we completed in February of 2000, the Designer Check acquisition. At this point in time we estimate the impact on goodwill to be approximately $6 million annually, but then again, when we get to next year’s financials, we will clearly note that in the financials so that we show comparability.

17. Maybe I’m off on this, but is the accounting rule on all intangibles or just goodwill?

1. DT—Just on goodwill.

17. Doug, could you talk a little bit about your comments related to SG&A, that you had pushed some projects into the fourth quarter? Should we see a significant step up in SG&A? Can you just put a little color on what types of projects those might be?

1. DT—The reason I talked about that is that we do anticipate moving forward with some initiatives that we had pushed out slightly. As a result, although SG&A won’t be significantly higher in the fourth quarter, and we actually anticipate it could go down, I wanted to make you aware that it may not go down as rapidly as you might otherwise expect in looking at the first three quarters of Deluxe’s results this year.

17. And those types of projects – just out of interest?

1. DT—They typically revolve around electronic capabilities. Then we have some cost takeout initiatives as well.

17. Regarding the guidance you gave for the fourth quarter, is there any assumption regarding share repurchase in that? Can you also talk in broader terms about the share repurchase program? How it’s gone under the new Rule 10b5-1 plan you adopted and how long you think it will take you to finish it?

1. DT—Let’s take the first question around the share repurchase assumptions implicit in the $.65 to $.68 estimate for the fourth quarter. We are assuming that there is not additional share repurchase in that $.65 to $.68 figure and that has been our practice. So that does not build in additional share repurchases but it does take into account all share repurchases to date, which is 8.3 million shares through September 30. Secondly, related to the share repurchase program, we have a 10b5-1 program in place that allows us to purchase shares, subject to certain restrictions, while we are in predefined blackout periods. In terms of share repurchase, the things that we take into consideration in determining how aggressively to push forward are the outlook for the economy and a potentially cautious bias toward cash, offset by our desire to ensure that we are reducing our weighted average cost of capital. We’re also looking at the stock price.

17. In terms of putting any long-term debt on the balance sheet given that the rate environment, I guess, is fairly favorable. Being a short-term borrower has helped you, but I think at some point you had talked about the need to perhaps put some longer terms out on the balance sheet – I was wondering if you had any additional thoughts about that?

1. DT—I do have some thoughts on that. We have really benefited from the short end of the yield curve from very low interest rates, but our intent, as borrowing increases, is to put in place longer-term financing. With the current borrowing at $104 million, there really isn’t a driving need today to translate that into long-term debt. However, as that amount moves north of $200 million, we would seriously consider the use of longer-term debt.

17. What’s your feeling about the rates though? It doesn’t seem like you are going to repurchase shares fast enough to get you to $200 million soon, but the rate environment seems to be fairly favorable. Are you just going to wait until you absolutely need it or do you try to gain the rate environment?

1. DT—That’s a great question. It’s a debate we have internally. But at this point, my outlook is that we want to ensure that we aren’t sitting in a negative arbitrage situation with higher interest rate, long-term debt, and cash on the balance sheet, that we are investing at a lower level. So the bias that I have is to make sure that we incur the debt prior to transferring the short-term commercial paper to a long-term debt structure which could be 3-5 years, but certainly the rate environment is very attractive. We are aware of that and certainly we are prepared to move forward in placing long-term debt when that time comes.

17. I see the number of employees went down substantially, which obviously points to very strong improvement in productivity. Can you talk about going forward, what we might expect to see along those lines?

1. LM—We will continue to manage as we have. If you look over the past six years, we have dramatically reduced our number of operations and facilities, our employees have done a terrific job of improving productivity, and we’ve put in systems to help them do that. We’ll continue to do so. I think there are still opportunities, but they are smaller in nature. We continue to look for opportunities to improve productivity. We have also outsourced some activities which means we still have the cost, but it is a savings to the company and the head count will go down more dramatically than the dollars because we have outsourced the activity.

17. Back in the December-January timeframe, I believe you estimated that check volume for the industry would be down maybe 0 – 2 percent for the year, and I’m wondering how that looks now?

1. LM—I would say that right now we don’t have any new forecast for the industry, but I would think that it is probably going to be down slightly more than that for the industry simply because of the general economy and the added impact of the events of September 11. So I would say that it is going to be greater than that.

17. What is the number of shares outstanding as of September 30^th?

1. DT—As of September 30 we had 66.2 million shares outstanding and that compares to 68.2 million at the end of June.

17. So you bought over 1 million shares in October alone?

1. DT—No, I’m saying in the third quarter, ending September 30, we were at 66.2 million shares. We actually repurchased 3.5 million shares during the third quarter, however, the exercise of stock options and the issuance of employee stock purchase plan shares was 1.5 million shares, so the net reduction in shares was 2 million shares during the third quarter.