Edgar Filing: DELUXE CORP

2013.12.31 10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K



þ	Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended December 31, 2013

Commission file number: 1-7945

DELUXE CORPORATION

(Exact name of registrant as specified in its charter)



Minnesota (State or other jurisdiction of incorporation or organization)	41-0216800 (I.R.S. Employer Identification No.)
3680 Victoria St. N., Shoreview, Minnesota (Address of principal executive offices)	55126-2966 (Zip Code)

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

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



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

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

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. þ Yes o No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. o Yes þ No

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). þ Yes o No

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer þ	Accelerated filer o
Non-accelerated filer o (Do not check if a smaller reporting company)	Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes þ No

The aggregate market value of the voting stock held by non-affiliates of the registrant is $1,726,122,182 based on the last sales price of the registrant's common stock on the New York Stock Exchange on June 28, 2013. The number of outstanding shares of the registrant's common stock as of February 17, 2014, was 50,423,988.

Documents Incorporated by Reference: Portions of our definitive proxy statement to be filed within 120 days after our fiscal year-end are incorporated by reference in Part III.

DELUXE CORPORATION

FORM 10-K

FOR THE YEAR ENDED DECEMBER 31, 2013

TABLE OF CONTENTS



Item				Page
Item 1. Business				3
Item 1A. Risk Factors				12
Item 1B. Unresolved Staff Comments				19
Item 2. Properties				19
Item 3. Legal Proceedings				19
Item 4. Mine Safety Disclosures				19
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities				19
Item 6. Selected Financial Data				21
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations				22
Item 7A. Quantitative and Qualitative Disclosures About Market Risk				43
Item 8. Financial Statements and Supplementary Data				45
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure				100
Item 9A. Controls and Procedures				100
Item 9B. Other Information				100
Item 10. Directors, Executive Officers and Corporate Governance				100
Item 11. Executive Compensation				101
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters				101
Item 13. Certain Relationships and Related Transactions, and Director Independence				101
Item 14. Principal Accounting Fees and Services				101
Item 15. Exhibits, Financial Statement Schedules				102
Signatures				106
Index to Exhibits				107

PART I

Item 1. Business.

Deluxe Corporation was incorporated under the laws of the State of Minnesota in 1920. From 1920 until 1988, our company was named Deluxe Check Printers, Incorporated. Our principal corporate offices are located at 3680 Victoria Street North, Shoreview, Minnesota 55126-2966. Our main telephone number is (651) 483-7111.

COMPANY OVERVIEW

Our vision is to be the best at helping small businesses and financial institutions grow. Through our various businesses and brands, we help small businesses and financial institutions grow, operate and protect their businesses. We employ a multi-channel strategy to provide a suite of life-cycle driven solutions to our customers. We use printed and electronic marketing, a direct sales force, financial institution and telecommunication client referrals, purchased search results from online search engines, and independent distributors and dealers to promote and sell a wide range of customized products and services. Over the past 24 months, our Small Business Services segment has provided products and services to over 4.5 million small business customers and our Direct Checks segment has provided products and services to more than six million consumers. Through our Financial Services segment, we provide products and services to approximately 5,500 financial institution clients. Our product and service offerings are comprised of the following:

Checks – We remain one of the largest providers of checks in the United States, both in terms of revenue and the number of checks produced. Checks account for the majority of the revenue in our Financial Services and Direct Checks segments and represented 43.2% of our Small Business Services segment's revenue in 2013.

Forms – Our Small Business Services segment is a leading provider of printed forms to small businesses, including deposit tickets, billing forms, work orders, job proposals, purchase orders, invoices and personnel forms. This segment also offers computer forms compatible with accounting software packages commonly used by small businesses. Forms sold by our Financial Services and Direct Checks segments include deposit tickets and check registers.

Accessories and other products – Small Business Services offers products designed to provide small business owners with the customized documents necessary to efficiently manage their business, including envelopes, office supplies, stamps and labels, as well as retail packaging supplies. Our Financial Services and Direct Checks segments offer checkbook covers and stamps.

Marketing solutions – All three of our segments offer products and services that help small businesses and/or financial institutions promote their businesses and acquire customers. Our Small Business Services segment offers services designed to fulfill the sales and marketing needs of small businesses, including web design, hosting and other web services; search engine optimization; marketing services, including email, mobile, social media and other self-service marketing solutions; digital printing services; and logo design. In addition, Small Business Services offers products such as promotional products, postcards, brochures, apparel, greeting cards and business cards. Financial Services offers various customer acquisition programs, marketing communications services and rewards and loyalty programs. Direct Checks provides package insert programs under which companies' marketing materials are included in our check packages.

Other services – All three of our segments provide fraud protection and security services. In addition, our Small Business Services segment offers payroll services and health care enrollment solutions, and Financial Services provides financial institution profitability and risk management services.

Revenue, by product and service category, as a percentage of consolidated revenue for the years ended December 31 was as follows:



	2013		2012		2011
Checks, including contract settlements	55.8	%	58.7	%	61.5	%
Marketing solutions, including services	15.7	%	13.6	%	10.6	%
Forms	12.6	%	13.2	%	13.8	%
Accessories and other products	9.9	%	9.2	%	9.0	%
Other services	6.0	%	5.3	%	5.1	%
Total revenue	100.0	%	100.0	%	100.0	%

BUSINESS SEGMENTS

Our business segments are generally organized by type of customer and reflect the way we manage the company. Additional information concerning our segments appears under the caption “Note 16: Business segment information” of the Notes to Consolidated Financial Statements appearing in Item 8 of this report.

Small Business Services

Small Business Services operates under various brands including Deluxe®, NEBS®, Safeguard®, PsPrint®, Hostopia®, Logo Mojo®, Aplus.net^SM, OrangeSoda^SMand VerticalResponse®. This is our largest segment in terms of revenue and operating income and we are concentrating on profitably growing this segment. Small Business Services strives to be a leading supplier to small businesses by providing personalized products and services that help them grow, operate and protect their businesses. This segment sells products and services to small businesses in North America and portions of South America and Europe.

The majority of Small Business Services products are distributed through more than one channel. Our primary channels are direct response mail and internet advertising, referrals from financial institutions and telecommunications clients, Safeguard distributors, a network of independent local dealers, and a direct sales force which focuses on major accounts. These efforts are supplemented by the account development efforts of an outbound telemarketing group. Customer service for initial order support, product reorders and routine service is provided by a network of call center representatives located throughout the United States and Canada.

Our strategies within Small Business Services are as follows:


•	Effectively acquire and retain customers by optimizing each of our sales channels;


•	Expand sales of higher growth marketing solutions and other services;


•	Increase our share of the amount small businesses spend on the types of products and services in our portfolio through increased brand awareness and improved customer segmentation and analytics; and


•	Continue to optimize our cost and expense structure.

We continue to invest in several key enablers to achieve our strategies and reposition Small Business Services as not just a provider of business checks and printed forms, but also as a provider of higher growth marketing solutions and other services. These key enablers include attracting new customers, strengthening our portfolio of products and services, improving our use of technology, growing our distributor channel, and enhancing brand awareness and positioning.

We have focused on identifying opportunities to expand sales to our existing customers and to acquire new customers. The small business customer referrals we receive through our Deluxe Business Advantage® program continue to be important to our growth. This program provides a fast and simple way for financial institutions to offer expanded personalized service to small businesses. Our relationships with financial institutions are important in helping us more deeply serve unique customer segments such as contractors, retailers and professional services firms. In addition, we continue to leverage customer referrals from our telecommunications clients, we continue to invest in our e-commerce platforms to increase opportunities to market and sell on-line, and we continue to utilize various marketing initiatives, including television, internet and direct mail solicitations. We have also acquired the operations of several small business distributors with the intention of increasing our customer base and growing revenue in our distributor channel. These distributors primarily sell checks, accessories, forms and promotional products.

We continuously evaluate ways to strengthen our portfolio of products and services. In recent years, we have grown our base of partnerships and we have acquired companies which allow us to expand our marketing solutions and other services offerings, including additional web services, web-to-print capabilities, internet marketing services and electronic checks. We expect sales of these higher growth products and services will continue to represent an increasing portion of our revenue. Specifically, during June 2013, we acquired VerticalResponse, Inc., a provider of self-service marketing solutions for small businesses, including e-mail marketing, social media, on-line event marketing, postcard marketing and on-line surveys. In May 2012, we acquired OrangeSoda, Inc., a provider of internet marketing services specializing in search, mobile and social media campaign strategies for small businesses, and in July 2011, we acquired PsPrint, LLC a web-to-print solutions company that provides online print marketing and promotional services for small businesses.

During the past several years, we have invested in promoting and strengthening the Deluxe brand to increase brand awareness and loyalty. In late 2012, we implemented an advertising campaign intended to encourage small business owners to view us as a business partner who can provide many of the key elements they need to operate and promote their business, so the owners can focus instead on doing what they love. This campaign continued throughout 2013 and into 2014. We examined our marketing strategies, held focus groups, analyzed research studies, and shadowed small business owners while they worked. Through these efforts, we learned that the primary motivator for today's small business owner has shifted from business growth to personal satisfaction. This insight formed the basis of our brand awareness campaign, the redesign of our Deluxe.com website and updated training for our call center sales representatives. We completed a small business brand awareness study late in the fourth quarter of 2013, which showed positive improvements in areas such as brand awareness, buying consideration, and likelihood to recommend. For example, for existing customers, the study showed double-digit percentage improvements in

familiarity with Deluxe as a website design and hosting services provider. Our intent for 2014 is to continue our brand awareness campaign, including television, online digital and print media. We plan to increase our focus on direct response marketing, as well as drive a more targeted local market concentration.

As in our other two business segments, we continue our efforts within Small Business Services to simplify processes, eliminate complexity and lower costs. Small Business Services outsources the production of some of its products, including certain business forms, promotional products and apparel. In conjunction with our cost reduction initiatives, we continually seek to further enhance our strategic supplier sourcing arrangements within this segment. In addition, the expertise we have developed in logistics, productivity and inventory management has allowed us to reduce the number of production facilities while still meeting client requirements. During the fourth quarter of 2013, we closed our New Albany, Indiana manufacturing facility and moved its operations into another facility. In 2012, we closed our Rockford, Illinois printing facility and consolidated the work into other facilities and in 2011, we closed our Crystal Lake, Illinois business products fulfillment center, moving its operations into another facility.

Financial Services

Financial Services' products and services are sold primarily through a direct sales force, which executes supply contracts with our financial institution clients nationwide, including banks, credit unions and financial services companies. Check supply contracts usually range in duration from three to six years. As part of our check programs, we provide enhanced services such as customized reporting, file management, expedited account conversion support, trackable delivery and billing services. Consumers typically submit their check order to their financial institution, which then forwards the order to us. Consumers may also submit their check orders over the phone or internet. We process the order and ship it directly to the consumer. Financial Services produces a wide range of check designs, with many consumers preferring one of the dozens of licensed or cause-related designs we offer, including Disney®, Warner Brothers®, Garfield®, Harley-Davidson®, NASCAR®, PGA TOUR®, Thomas Kinkade®, Susan G. Komen for the Cure® and National Arbor Day Foundation®.

Our strategies within Financial Services are as follows:


•	Optimize core check revenue streams and acquire new clients;


•	Expand sales of higher growth marketing solutions and other services that differentiate us from the competition; and


•	Continue to optimize our cost and expense structure.

We continue to focus on maintaining high client retention and on acquiring new clients. We added new large financial institution clients in the third quarter of 2013, the first quarter of 2012 and in the third quarter of 2010. We are also advancing our marketing solutions and other services offerings with customer acquisition, risk management, and other new services. In December 2013, we acquired the assets of Destination Rewards, a rewards and loyalty program provider, in August 2013, we acquired the assets of Acton Marketing, LLC, a provider of direct marketing services for financial institutions, and in April 2011, we acquired the assets of Banker's Dashboard, LLC, which provides online financial management tools that provide banks with a comprehensive daily view of their financial picture. We also continue to leverage our Deluxe Business Advantage program which is designed to maximize financial institution business check programs. It offers the products and services of our Small Business Services segment to the small business customers of financial institutions through a number of service level options. The revenue from the products and services sold through this program is reflected in our Small Business Services segment.

In our efforts to expand beyond check-related products, we offer several marketing solutions and other services offerings, including:

•

Marketing solutions – a variety of strategic marketing solutions which help financial institutions acquire new customers, deepen existing customer relationships and retain customers, including Cornerstone Solutions^SM; the service offerings of Acton Marketing; Destination Rewards® proprietary customer loyalty, incentive and engagement solutions; analytics-driven direct marketing programs; and SwitchAgent^SM, a proprietary service allowing consumers to easily switch from one financial institution to another.


•	Banker's Dashboard® – online financial management tools that provide financial institutions with a comprehensive daily view of their financial picture.


•	Deluxe Provent^SM – a comprehensive suite of identity protection services.


•	Deluxe Detect® – an account applicant screening tool.

We expect providing products and services that differentiate us from the competition will help partially offset the impacts of the decline in check usage and the competitive pricing pressures we are experiencing in our check programs. As such, we also continue to focus on accelerating the pace at which we introduce new products and services.

As in our other two business segments, Financial Services continues to simplify processes, eliminate complexity and lower costs. During 2013, we integrated our customer call center leadership structure with Small Business Services to leverage internal best practices, processes and resources, and during 2011, we closed our Financial Services customer call center located in Phoenix, Arizona, moving the work to other facilities.

Direct Checks

Direct Checks is the nation's leading direct-to-consumer check supplier, selling under various brand names including Checks Unlimited®, Designer® Checks, Checks.com, Check Gallery®, The Styles Check Company®, and Artistic Checks®, among others. Through these brands, we sell our products and services directly to consumers using direct response marketing.

We use a variety of direct marketing techniques to acquire new customers, including newspaper inserts, in-package advertising, statement stuffers and co-op advertising. We also use search engine marketing and search engine optimization strategies to direct traffic to our websites, which include: checksunlimited.com, designerchecks.com, checks.com, 4checks.com, checkgallery.com, styleschecks.com, and artisticchecks.com, among others.

Direct Checks competes primarily on price and design. We believe that pricing in the direct-to-consumer channel is generally lower than retail prices charged to consumers in the financial institution channel. We compete on design by seeking to offer the most attractive selection of images with high consumer appeal, many of which are licensed from well-known artists and organizations such as Disney, Warner Brothers, Harley Davidson and Thomas Kinkade.

Our strategies within Direct Checks are as follows:


•	Maximize the lifetime value of customers by selling new features, accessories and products;


•	Continue to optimize our cost and expense structure; and


•	Optimize cash flow.

We continue to actively market our products and services through targeted advertising, including a continued focus on the internet channel. We continue to explore avenues to increase sales to existing customers. One example is the check protection service we offer in partnership with EZShield, Inc., which provides reimbursement to consumers for losses resulting from forged signatures or endorsements and altered checks. As in our other two business segments, Direct Checks continues to simplify processes, eliminate complexity and lower costs. During 2012, we consolidated our Little Rock, Arkansas and Joppa, Maryland call centers into our Colorado Springs, Colorado call center and closed our Joppa, Maryland printing facility, moving the production to other facilities. We continue to identify additional opportunities to lower our cost and expense structure in all functional areas, particularly in the areas of marketing and fulfillment.

MANUFACTURING AND FULFILLMENT

We continue to focus on improving the customer experience by providing excellent service and quality, reducing costs and increasing productivity. We accomplish this by embedding lean operating principles in all processes while emphasizing a culture of continuous improvement. Under this approach, employees work together to produce products, rather than working on individual tasks in a linear fashion. Because employees assume more ownership of the end product, the results are improved productivity and lower costs.

We have demonstrated our commitment to innovative technology solutions by implementing a fully automated flat check delivery package, for which we have a patent pending, to mitigate the effect of postal rate increases. We also continue to sponsor “sustainability” initiatives which encompass environmentally friendly practices. We have aligned with suppliers that promote sustainable business practices and we continually seek opportunities to eliminate wasted material, reduce cycle times and use more environmentally friendly materials. More than 90% of our check and form paper is purchased from Forest Stewardship Council certified supplier mills, our vinyl checkbook covers are produced utilizing a minimum of 45% post-industrial recycled material and we use environmentally friendly janitorial supplies. Our sustainability initiatives have also benefited our results of operations over the past several years as we focused on reducing our consumption of water, electricity and natural gas and improved our transportation efficiency. We continue efforts to reduce solid waste sent to landfills, and we have been a member of the Environmental Protection Agency's Green Power Leadership Club since 2010. The green power that we purchased during 2013 amounted to more than 65% of our annual U.S. electricity needs.

The expertise we have developed in logistics, productivity and inventory management has allowed us to reduce the number of production facilities while still meeting client requirements. During 2013, we closed our New Albany, Indiana manufacturing facility and moved its operations into another facility. In 2012, we closed our Rockford, Illinois and Joppa, Maryland fulfillment facilities, relocating the operations and assets of those facilities to existing locations, and during 2011, we closed our Crystal Lake, Illinois business products fulfillment center and moved its operations into another facility. We have also expanded our use of digital printing processes, and the 2011 acquisition of PsPrint, LLC, a web-to-print solutions company, allowed us to enhance our web-to-print capabilities.

In manufacturing, we have a shared services approach which allows our three business segments to leverage shared manufacturing facilities to optimize capacity utilization, enhance operational excellence and foster a culture of continuous improvement. We continue to reduce costs by utilizing our assets and printing technologies more efficiently and by enabling employees to better leverage their capabilities and talents.

INDUSTRY OVERVIEW

Checks

According to a Federal Reserve study released in December 2013, debit card, credit card and ACH payments all exceeded the number of checks written in 2012. Approximately 21.0 billion checks were written in 2012, accounting for approximately 17% of all non-cash payment transactions. This is a reduction from the Federal Reserve Study released in December 2010 when checks accounted for approximately 25% of all non-cash payment transactions. The Federal Reserve estimates that checks written declined approximately 8.8% percent per year between 2009 and 2012. Although, we experienced a slightly lower decline in our check order volume than the Federal Reserve estimate, we expect that the number of checks written will continue to decline. However, we cannot predict the rate at which this decline will continue in the long-term. In addition, we believe that turmoil in the financial services industry between 2009 and 2011 had a negative impact on our check volumes, as some of our clients experienced higher than normal customer attrition. However, our Financial Services check order decline rates did return to pre-recessionary levels in 2013 and 2012.

In addition to the shift to electronic payment methods, consumer spending, employment levels and housing stock also impact the number of checks consumers use. Weak growth in consumer spending during 2013, along with only modest private sector growth in employment, continued to negatively impact our personal check businesses. Consumer spending did improve in the fourth quarter of 2013, which may foreshadow a positive impact in 2014. Partially offsetting the negative impact of employment levels and consumer spending in 2013 was an improvement in housing stock. An increase in housing stock has a positive impact on the number of checks purchased, as new households typically are in need of new checks. According to statistics released by the U.S. Census Bureau in January 2014, housing units completed during 2013 increased 17.4% as compared to 2012. We cannot predict whether these economic trends will improve, stay the same or worsen in the near future.

Small Business Customers

The Small Business Administration's Office of Advocacy defines a small business as an independent business having fewer than 500 employees. According to data published by the U.S. Census Bureau, in 2011, the most recent period for which information is available, there were approximately 28.2 million small businesses in the United States. According to the Small Business Branch of Industry Canada, there are just over one million small businesses in Canada with employees, and 98% of businesses in Canada have fewer than 100 employees.

The small business market is impacted by general economic conditions and the rate of small business formations. The index of small business optimism published by the National Federation of Independent Business (NFIB) was 88.0 in December 2012 and ended 2013 at 93.9. Although this shows improvement, the December 2013 index was down 0.6 from its strongest reading in this recovery. A poll conducted by Gallup and Wells Fargo during October 2013 found that 23% of small business owners are more optimistic about the future of their businesses going into 2014 than they were at the same time the previous year. Roughly half or 49%, felt neither more nor less optimistic, and 28% were less optimistic. While slightly more small business owners are optimistic about 2014 compared to the results going into 2012, when the figure was 21%, we cannot assume there will be a significant improvement in economic conditions in 2014. On a positive note, according to data published by the U.S. Census Bureau, there was a slight increase in the number of small businesses created in 2011, as compared to 2010, the most recent information available. We believe small businesses are more likely to be significantly affected by economic downturns than larger, more established companies. During a sluggish economy, it may be more difficult for small businesses to obtain credit and small businesses may choose to spend their limited funds on items other than our products and services. In recent years, we believe the economy negatively impacted our operating results and/or our growth opportunities. We cannot predict whether these economic trends will improve, stay the same or worsen in the near future.

The business checks and forms portion of the markets serviced by Small Business Services has been declining, and we expect this trend to continue. In addition to the decrease in the use of checks due to the availability of alternative payment methods, continual technological improvements also provide small business customers with alternative means to enact and record business transactions. For example, because of the lower price and higher performance capabilities of personal computers, printers and mobile devices, small businesses now have alternate means to print many business forms. Additionally, electronic transaction systems, off-the-shelf business software applications and mobile applications have been designed to replace pre-printed business forms products. It is difficult to predict the pace at which these alternative products and services will gain widespread acceptance.

Financial Institution Clients

Checks are most commonly ordered through financial institutions, including banks, credit unions and other financial services companies. As such, several developments related to financial institutions have affected the check printing portion of the payments industry.

Financial institutions seek to maintain the profits they have historically generated from their check programs, despite the decline in check usage. This continues to put significant pricing pressure on check printers. When financial institutions consolidate through mergers and acquisitions, often the newly combined entity seeks to reduce costs by leveraging economies of scale in purchasing, including its check supply contracts. This results in check providers competing intensely on price in order to retain not only their previous business with one of the financial institutions, but also to gain the business of the other financial institution in the merger/acquisition. Financial institution mergers and acquisitions can also impact the duration of our contracts. Normally, the length of our supply contracts with financial institutions ranges from three to six years. However, contracts may be renegotiated or bought out mid-term due to a consolidation of financial institutions. Banks, especially larger ones, may request pre-paid product discounts in the form of cash incentives payable at the beginning of a contract. These contract acquisition payments negatively impact check producers' cash flows at the beginning of these contracts.

Turmoil in the financial services industry, which began in late 2008, led to increases in bank failures and consolidations over the past several years. To the extent any financial institution failures and consolidations impact large portions of our customer base, this could have a significant impact on our financial institution check programs.

Direct Mail Response Rates

Direct Checks and portions of Small Business Services have, at times, experienced declines in response rates related to direct mail promotional materials. While we believe that media response rates have declined across a wide variety of products and services, we believe that the declines we have experienced are also attributable to the decline in check usage, the gradual obsolescence of standardized forms products and increasing utilization of e-commerce by both consumers and small businesses. We continually evaluate our marketing techniques in order to utilize the most effective and affordable advertising media.

Competition

The small business forms and supplies market and the small business marketing solutions and other services markets are highly fragmented with many small local suppliers, large national retailers and internet-based providers. We believe we are well-positioned in this competitive landscape through our broad customer base, the breadth of our small business product and service offerings, multiple distribution channels, established relationships with our financial institution and telecommunications clients, competitive prices, high quality and dependable service.

In the small business forms and supplies market, the competitive factors influencing a customer's purchase decision are breadth of product line, speed of delivery, product quality, price, convenience, customer service and past experience with the supplier. Our primary competitors are office product superstores, local printers, business forms dealers and internet-based suppliers. Local printers provide personalization and customization and offer a local relationship, but typically have a limited variety of products and services, as well as limited printing sophistication. Office superstores offer a variety of products at competitive prices, but provide limited personalization and customization. We are aware of numerous competitors offering printed products and business supplies to small businesses through the internet, direct mail, distributors or a direct sales force.

Many of our marketing solutions and other services offerings also face intense competition, including competition from numerous internet-based service providers. We expect the intensity of competition to increase in the future from other established and emerging companies due to the relatively low barriers to entry for the services we offer, as well as small businesses' increasing use of the internet which allows service providers to work directly with small businesses as opposed to using intermediaries. The competitive factors affecting marketing solutions and other services offerings include the breadth, quality and ease of use of web and other services, price, and the responsiveness and quality of customer support.

In the check printing portion of the payments industry, we face considerable competition from other check printers, and we expect competition to remain intense as check usage continues to decline. We also face competition from check printing software vendors. Moreover, the check product must compete with alternative payment methods, including credit cards, debit cards, direct deposit, wire transfers and internet-based bill paying services, as well as automated teller machines, which make cash a more readily available alternative.

In the financial institution check printing business, there are two large primary providers, one of which is Deluxe. The principal factors on which we compete are product and service breadth, price, quality and check merchandising program management. We believe the key items which differentiate us from our competition include our fully automated flat check delivery package, our online performance dashboard and portal analytics tools for financial institution branches, our personalized customer call center experience, and our Deluxe Business Advantage program, which provides a fast and simple way for financial institutions to offer expanded personalized service to small businesses.

recent years. These up-front payments negatively impact check printers' cash flows at the beginning of the contracts. Our goal is to reduce the use of up-front product discounts by structuring new contracts with alternative incentives throughout the duration of the contract.

Seasonality

We experience seasonal trends in sales of some of our products. For example, holiday card and retail packaging sales typically are stronger in the fourth quarter of the year due to the holiday season, as are health care enrollment solutions. Sales of tax forms are stronger in the first and fourth quarters of the year, and check sales for our Direct Checks segment have historically been stronger in the first quarter of the year.

Raw Materials, Supplies and Service Providers

The principal raw materials used in producing our main products are paper, plastics, ink, cartons and printing plate material, which we purchase from various sources. We also purchase stock business forms produced by third parties. We believe that we will be able to obtain an adequate supply of materials from current or alternative suppliers.

We have entered into agreements with third party providers for information technology services, including telecommunications and network server and transaction processing services. In addition, we have agreements with companies to provide services such as electronic checks and on-line payment solutions. We believe we would be able to obtain an alternative source of supply if one or more of our service providers failed to perform.

Governmental Regulation

We are subject to regulations implementing the privacy and information security requirements of the federal financial modernization law known as the Gramm-Leach-Bliley Act, as well as the Electronic Communications Privacy Act and other federal and foreign regulation and state law regarding the protection of consumer information. These laws and regulations require us to develop, implement and maintain policies and procedures to protect the security and confidentiality of consumers' nonpublic personal information. We are also subject to additional requirements in certain of our contracts with financial institution clients, which are often more restrictive than the regulations, as well as confidentiality clauses in certain of our communication service provider contracts that cover small businesses’ customer information. These regulations and agreements limit our ability to use or disclose nonpublic personal information for other than the purposes originally intended, which could limit business opportunities. The complexity of compliance with these regulations may also increase the cost of doing business.

Due to our increasing use of the internet for sales and marketing, laws specifically governing the internet, e-commerce, behavioral advertising and email marketing may have an impact on our business. Existing and future laws governing issues such as privacy, consumer protection or commercial email may impede the growth of the internet and our ability to market and provide our products and services. It is not always clear how existing laws governing these and other issues apply to the internet and e-commerce, as the vast majority of applicable laws were adopted before the advent of the internet and do not contemplate or address the unique issues raised by e-commerce. Those laws that do reference the internet, such as the U.S. CAN-SPAM Act of 2003 and the U.S. Digital Millennium Copyright Act, are only beginning to be interpreted by the courts. More restrictive legislation, such as new privacy laws, search engine marketing restrictions or “anti-spam” regulations, could decrease traffic to our websites, decrease marketing opportunities and increase the cost of obtaining new customers.

The Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Act") was enacted in 2010. The Act implements changes that affect the oversight and supervision of financial institutions, creates a new agency responsible for implementing and enforcing compliance with consumer financial laws and introduces more stringent regulatory capital requirements. The full impact of the Act and/or any additional related regulatory changes remains unclear due to the pace at which formal rulemaking is finalized. It is likely that the Act has and will have a negative impact on the profitability of our financial institution clients as they incur costs to comply with the new regulations. In spite of these additional costs, financial institutions may seek to maintain the profits they have historically generated, and they may put significant pricing pressure on their suppliers, including their check and service providers. The increase in cost and profit pressure may also lead to further consolidation of financial institutions. Additionally, the Act gave the Consumer Financial Protection Bureau (CFPB) the authority to pursue financial institutions engaged in unfair, deceptive or abusive practices. The CFPB’s rule-making and enforcement power may also extend to financial institutions’ service providers. This has made some financial institutions wary of offering add-on services, such as fraud/identity protection or expedited check delivery, to their customers. It would have an adverse impact on our results of operations if we were unable to market such services to consumers or small businesses through our financial institution clients.

At this time, we are not aware of any changes in these laws or regulations which will have a significant impact on our business during 2014.

Intellectual Property

limited protection. Despite our efforts to protect our intellectual property, third parties may infringe or misappropriate our intellectual property or otherwise independently develop substantially equivalent products or services which do not infringe on our intellectual property rights. In addition, we may be the target of aggressive and opportunistic enforcement of patents by third parties, including non-practicing entities. Check designs exclusively licensed from third parties account for a portion of our revenue. These license agreements generally average three years in duration. There can be no guarantee that such licenses will be available to us indefinitely or under terms that would allow us to continue to sell the licensed products profitably.

EMPLOYEES

As of December 31, 2013, we employed 5,006 employees in the United States and 569 employees in Canada. None of our employees are represented by labor unions, and we consider our employee relations to be good.

AVAILABILITY OF COMMISSION FILINGS

We make available through our investor relations website, Deluxe.com/investor, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to these reports filed or furnished pursuant to section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after these items are electronically filed with or furnished to the Securities and Exchange Commission (SEC). These reports can also be accessed via the SEC website, sec.gov, or via the SEC's Public Reference Room located at 100 F Street N.E., Washington, D.C. 20549. Information concerning the operation of the SEC's Public Reference Room can be obtained by calling 1-800-SEC-0330.

A printed copy of this report may be obtained without charge by calling 651-787-1068, by sending a written request to the attention of Investor Relations, Deluxe Corporation, P.O. Box 64235, St. Paul, Minnesota 55164-0235, or by sending an email request to investorrelations@deluxe.com.

Further information about Deluxe Corporation is also available at Deluxe.com, facebook.com/deluxecorp and twitter.com/deluxecorp.

CODE OF ETHICS AND CORPORATE GOVERNANCE GUIDELINES

We have adopted a Code of Ethics and Business Conduct which applies to all of our employees and our board of directors. The Code of Ethics and Business Conduct is available on our investor relations website, Deluxe.com/investor, and also can be obtained free of charge upon written request to the attention of Investor Relations, Deluxe Corporation, P.O. Box 64235, St. Paul, Minnesota 55164-0235. Any changes or waivers of the Code of Ethics and Business Conduct will be disclosed on our website. In addition, our Corporate Governance Guidelines and the charters of the Audit, Compensation, Corporate Governance and Finance Committees of our board of directors are available on our website or upon written request.

One of the policies supporting our Code of Ethics and Business Conduct addresses political contributions. It is not our practice to make political contributions. We permit political contributions only upon written approval by our most senior management in their capacity as the corporate Compliance Committee under our ethics and compliance program. The Compliance Committee has not approved any such contributions. We are a member of various trade groups that represent the interests of specified industries. However, as a part of those memberships, we have not provided funds designated for political contributions.

EXECUTIVE OFFICERS OF THE REGISTRANT

Our executive officers are elected by the board of directors each year. The following summarizes our executive officers and their positions.



Name	Age	Present Position	Executive Officer Since
Anthony Scarfone	52	Senior Vice President, General Counsel and Secretary	2000
Terry Peterson	49	Senior Vice President, Chief Financial Officer	2005
Lee Schram	52	Chief Executive Officer	2006
Pete Godich	49	Senior Vice President, Fulfillment	2008
Julie Loosbrock	54	Senior Vice President, Human Resources	2008
Malcolm McRoberts	49	Senior Vice President, Small Business Services	2008
John Filby	51	Senior Vice President, Financial Services	2012
Jeffrey Bata	48	Vice President, Controller and Chief Accounting Officer	2012
Tracey Engelhardt	49	Vice President, Direct-to-Consumer	2012
Michael Mathews	41	Vice-President, Chief Information Officer	2013
Amanda Brinkman	34	Vice-President, Chief Brand and Communications Officer	2014

Anthony Scarfone has served as Senior Vice President, General Counsel and Secretary since joining us in September 2000.

Terry Peterson was named Senior Vice President, Chief Financial Officer in November 2009. Mr. Peterson served as Chief Accounting Officer from March 2005 to October 2009. From October 2006 through October 2009, Mr. Peterson also served as Vice President of Investor Relations.

Lee Schram has served as Chief Executive Officer since joining us in May 2006.

Pete Godich was named Senior Vice President, Fulfillment in March 2011. From May 2008 to March 2011, Mr. Godich served as Vice President, Fulfillment.

Julie Loosbrock was named Senior Vice President, Human Resources in September 2008.

Malcolm McRoberts was named Senior Vice President, Small Business Services in February 2011. From September 2010 to February 2011, Mr. McRoberts served as Senior Vice President, Chief Information and Technology Officer. Mr. McRoberts joined us in May 2008 and served as Senior Vice President, Chief Information Officer until September 2010.

John Filby joined us in April 2012 as Senior Vice President, Financial Services. From May 2008 to April 2012, Mr. Filby served as President of the risk and compliance division of Fiserv, Inc., a global provider of technology solutions to the financial services industry.

Jeffrey Bata joined us in June 2012 as Vice President, Controller and Chief Accounting Officer. Prior to joining us, Mr. Bata served as Vice President and Chief Financial Officer for Carlson Marketing Worldwide, Inc. (CMW) from August 2009 to February 2011. CMW is a global loyalty marketing services, engagement and events provider, and a division of Aimia, Inc., a Canadian-based, publicly traded loyalty management company. Prior to this, Mr. Bata held a variety of leadership positions at Carlson Companies, Inc., a global hospitality and travel company, including Vice President and Chief Accounting Officer for Carlson Companies from April 2008 to August 2009.

Tracey Engelhardt was named Vice President, Direct-to-Consumer in July 2012. From August 2011 to July 2012, Ms. Engelhardt served as Vice President, e-commerce for Small Business Services. Prior to this, Ms. Engelhardt served as Executive Director of e-commerce for Small Business Services from January 2010 to August 2011 and as Director of e-commerce for Direct Checks from August 2007 to December 2009.

Michael Mathews joined us in May 2013 as Vice President, Chief Information Officer. Prior to joining us, Mr. Mathews served as Senior Vice President, Strategy and Enterprise Programs for UnitedHealth Group from July 2009 to May 2013. UnitedHealth Group is a publicly-traded diversified health and well-being company which provides health care coverage and benefits services and information and technology-enabled health services. From April 2007 to July 2009, Mr. Mathews served as Global Head of Strategy and Delivery for Technology and Operations for the Global Wealth and Investment Management group of Merrill Lynch & Co., Inc., one of the world's leading capital markets, advisory and wealth management companies.

Amanda Brinkman joined us in January 2014 as Vice President, Chief Brand and Communications Officer. Prior to joining us, Ms. Brinkman was self-employed, operating her own brand agency from January 2013 to December 2013. From August 2009 to December 2012, Ms. Brinkman served as Vice President, Brand and Creative Services for Allianz Life Insurance Company of North America. From June 2007 to August 2009, Ms. Brinkman served as Vice President, Creative Services for UnitedHealth Group.

Item 1A. Risk Factors.

Our business, consolidated results of operations, financial condition and cash flows could be adversely affected by various risks and uncertainties. These risks include, but are not limited to, the principal factors listed below and the other matters set forth in this Annual Report on Form 10-K. We have disclosed all known material risks. Additional risks not presently known to us, or that we currently believe are immaterial, may also adversely affect our business, results of operations, financial condition and cash flows. You should carefully consider all of these risks and uncertainties before investing in our common stock or other securities.

The following important factors could cause our actual results to differ materially from the statements we make from time to time regarding our expected future results, including, but not limited to, forecasts regarding estimated revenue, earnings per share or cash provided by operating activities. Any forecast regarding our future performance reflects various assumptions which are subject to significant uncertainties and, as a matter of course, may prove to be incorrect. Further, the achievement of any forecast depends on numerous factors which are beyond our control. Consequently, no forward-looking statement can be guaranteed and the variation of actual results or events from such statements may be material and adverse. You are cautioned not to base your entire analysis of our business and prospects upon isolated statements, and are encouraged to use the entire mix of historical and forward-looking information made available by us, and other information affecting us and our products and services, including the following factors.

We may not be successful at implementing our growth strategies.

We continue to execute strategies intended to drive sustained revenue and earnings growth, including our focus on increasing marketing solutions and other services revenue, which we believe represents our most significant revenue growth opportunity. We have and will continue to invest in several key enablers to achieve our strategies, including strengthening our portfolio of products and services, enhancing brand awareness and positioning, attracting and retaining customers, growing our distributor, dealer and major accounts networks, improving the customer experience and investing in small to medium-sized acquisitions. Our business strategies could fall short of our expectations for many reasons, including, among others:


•	the failure to anticipate and overcome obstacles to achieving our goals;


•	the decision to forgo intended investments because the investments are more costly than we anticipated or because we are unable to devote the necessary operational or financial resources;


•	the inability to promote, strengthen and protect our brand;


•	the failure to acquire new customers, retain our current customers and sell more products and services to current and new customers;


•	unanticipated changes in our business, markets, industry or the competitive landscape;


•	the failure to generate profitable revenue growth; and


•	challenging general economic conditions.

We can provide no assurance that our growth strategies will be successful either in the short-term or in the long-term, that they will generate a positive return on our investment, or that they will not dilute our operating margins. Additionally, if our strategies are not successful, or if there is market perception that our strategies are not successful, our reputation and brand may be damaged and the price of our shares may decline.

We face intense competition in all areas of our business.

Although we are one of the leading check printers in the United States, we face considerable competition. In addition to competition from alternative payment methods, we also face intense competition from another large check printer in our traditional financial institution sales channel, from direct mail and internet-based sellers of personal and business checks, and from check printing software vendors. The markets for small business products and services are also intensely competitive, highly fragmented and geographically dispersed. Current and potential competitors include traditional storefront printing companies; office superstores; companies offering website design and hosting; wholesale printers; online printing companies; email marketing services companies; suppliers of custom apparel, promotional products and customized gifts; and numerous internet firms and retailers.

We can provide no assurance that we will be able to compete effectively against current and future competitors. In recent years, our revenue has benefited from price increases in all three of our business segments. We can provide no assurance that we will be able to increase prices in the future while remaining competitive. Continued competition could result in price reductions, reduced profit margins, loss of customers and brand recognition, and an increase in up-front cash payments to

financial institutions upon contract execution or renewal, all of which would have an adverse effect on our results of operations and cash flows.

The check printing portion of the payments industry is mature and, if check usage declines faster than expected, it could have an adverse impact on our operating results.

Check printing is, and is expected to continue to be, an essential part of our business. We sell checks for personal and small business use and believe that there will continue to be a substantial demand for these checks for the foreseeable future. However, the total number of checks written in the United States has been in decline since the mid-1990's. According to a Federal Reserve study released in December 2013, the total number of checks written declined 8.8% each year between 2009 and 2012, and we expect the decline to continue. We believe that the number of checks written will continue to fall due to the increasing use of alternative payment methods, including credit cards, debit cards, direct deposit, wire transfers and internet-based bill paying services, as well as automated teller machines, which make cash a more readily available alternative. However, the rate and the extent to which alternative payment methods will achieve acceptance and replace checks, whether as a result of legislative developments, personal preference or otherwise, cannot be predicted with certainty. A surge in the popularity of any of these alternative payment methods, or our inability to successfully offset the decline in check usage with other sources of revenue, would have an adverse effect on our business and results of operations.

Small Business Services' standardized business forms and related products face technological obsolescence and changing customer preferences.

Continual technological improvements provide small business customers with alternative means to enact and record business transactions. For example, because of the lower price and higher performance capabilities of personal computers, printers and mobile devices, small businesses now have alternate means to print many business forms. Additionally, electronic transaction systems, off-the-shelf business software applications and mobile applications have been designed to replace pre-printed business forms products. It is difficult to predict the pace at which these alternative products and services will gain widespread acceptance. If small business preferences change rapidly and we are unable to develop new products and services with comparable profit margins, our results of operations would be adversely affected.

If we are unable to attract customers in a cost effective manner, our business and results of operations could be adversely affected.

We rely on a variety of methods to promote our products and services, including direct mail advertising, e-mail marketing, purchased search results from online search engines, broadcast media, and advertising banners and other online links. The profitability of our Direct Checks segment depends in large part on our ability to secure adequate advertising media placements at acceptable rates. We can provide no assurance regarding the future cost, effectiveness and/or availability of suitable advertising media. Additionally, our Direct Checks segment and portions of our Small Business Services segment have, at times, experienced declines in response rates related to direct mail promotional materials. While we believe that media response rates have declined across a wide variety of products and services, we believe that the declines we have experienced are also attributable to the decline in check usage, the gradual obsolescence of standardized forms products and increasing utilization of e-commerce by both consumers and small businesses. In an attempt to offset these impacts, we continually modify our marketing and sales efforts and have shifted a greater portion of our advertising investment to the internet. Competitive pressure may inhibit our ability to reflect increased costs in the prices of our products and new marketing strategies may not be successful. We can provide no assurance that we will be able to offset a decline in response rates, even with additional marketing and sales efforts.

Future legislation could affect our ability to advertise via direct mail or e-mail. Congress has contemplated enacting “anti-spam” legislation in response to consumer complaints about unsolicited e-mail advertisements. If anti-spam legislation is enacted and/or if similar legislation is enacted for direct mail advertisers, we may be unable to sustain our current levels of profitability.

In addition to print and e-mail advertising, many customers access our websites through internet search engines. Search engines typically provide two types of search results, algorithmic and purchased listings. Algorithmic listings are not purchased, but are determined and displayed solely by a set of formulas designed by the search engine. Purchased listings can be bought to attract users to our websites. We rely on both algorithmic and purchased listings to attract customers to our websites. Search engines revise their algorithms from time to time in an attempt to optimize their search results listings and to maximize the advertising revenue generated by those listings. If search engines on which we rely for algorithmic listings modify their algorithms, this could result in fewer customers going to our websites. Additionally, one or more of the search engines on which we rely for purchased listings could modify or terminate their relationship with us. As we analyze our overall advertising strategy, we may have to resort to more costly resources to replace lost internet traffic, which would adversely affect our results of operations. In addition, the cost of purchased search engine listings could increase as demand for them continues to grow, and further cost increases could negatively affect our profitability.

Another trend impacting our business is that the use of smart phone and tablet computing devices is increasing. According to the International Data Corporation (IDC) Worldwide Quarterly Smart Connected Device Tracker report published in September 2013, 87% of connected device sales by 2017 will be tablets and smart phones. As current and potential customers

increase their use of mobile devices, visits to our websites via traditional computers may decline. Designing and purchasing custom products on mobile devices is more difficult than doing so with a traditional computer due to limited screen sizes and bandwidth. Beyond these difficulties, our technology may not be optimized for mobile devices, and the development of mobile-oriented user interfaces and other technologies is complex. Although we are constantly making investments to update our technology, we cannot predict the success of these investments. If the market shift to mobile devices accelerates faster than we are able to make the necessary changes, we could find it increasingly difficult to attract new and repeat visitors to our websites and convert these visitors to customers, which would result in decreased revenue.

We may not succeed in promoting and strengthening our brand, which could prevent us from acquiring customers and increasing revenue.

The success of Small Business Services depends, in part, on our ability to attract new and repeat customers. For this reason, a component of our business strategy is the promotion and strengthening of the Deluxe brand. We believe that the importance of brand recognition is essential for the success of our service offerings because of the level of competition for these services. Customer awareness of our brand, as well as the perceived value of our brand, will depend largely on the success of our marketing efforts and our ability to provide a consistent, high quality customer experience. To promote our brand, we have incurred and will continue to incur expense related to advertising and other marketing efforts. We can provide no assurance that we will realize a positive return on this investment.

A component of our brand promotion strategy is establishing a relationship of trust with our customers, which we believe can be achieved by providing a high quality customer experience. We have invested, and will continue to invest, resources in website development, design and technology, and customer service and production operations. Our ability to provide a high quality customer experience is also dependent on external factors including the reliability and performance of our suppliers, telecommunications providers and third-party carriers. If we are unable to provide a high quality customer experience for any reason, our reputation would be harmed and our efforts to develop brand loyalty would be adversely impacted. The failure of our brand promotion activities could adversely affect our ability to attract new customers and maintain customer relationships, which would adversely harm our business and results of operations.

We face uncertainty regarding the success of recent and future acquisitions, which could have an adverse impact on our operating results.

During 2013, we acquired VerticalResponse, Inc. and substantially all of the assets of Acton Marketing, LLC and Destination Rewards, Inc. During 2012, we acquired OrangeSoda, Inc., and during 2011, we acquired substantially all of the assets of PsPrint, LLC and Banker's Dashboard, LLC. We have invested in acquisitions that offer marketing solutions and other services and extend the range of products and services we offer to financial institutions and small businesses. In addition, we have purchased the operations of several small business distributors with the intention of growing revenue in our Small Business Services distributor channel. The integration of any acquisition involves numerous risks, including: difficulties and/or delays in assimilating operations, technologies and products; failure to realize expected synergies; diversion of management's attention from other business concerns; potential loss of key employees; potential exposure to unknown liabilities; and possible loss of our customers or the customers of the acquired businesses. One or more of these factors could impact our ability to successfully integrate an acquisition and could negatively affect our results of operations.

We may continue to invest in small to medium-sized acquisitions. We cannot predict whether suitable acquisition candidates can be acquired on acceptable terms or whether any acquired products, technologies or businesses will contribute to our revenue or earnings to any material extent. Significant acquisitions typically result in additional contingent liabilities and/or additional amortization expense related to acquired intangible assets, and thus, could adversely affect our business, results of operations and financial condition.

Security breaches involving customer data, or the perception that e-commerce is not secure, could adversely affect our reputation and business.

Online commerce and communications depend on the secure transmission of confidential information over public networks. Web-based channels collect customers’ bank account information and bill our customers’ credit card accounts. Within Small Business Services, we provide internet-based marketing services, including web hosting services which we provide directly to small businesses and through wholesale partners. We rely on various security procedures and systems to ensure the secure storage and transmission of data, including encryption and authentication technology licensed from third parties, to effect secure transmission of confidential information. Computer networks and the internet are, by nature, vulnerable to unauthorized access. An accidental or willful security breach could result in unauthorized access and/or use of customer data, including consumers' nonpublic personal information. Our security measures could be breached by a third-party action, computer viruses, accidents, employee error or malfeasance, or design flaws in our systems could be exposed and exploited. Because techniques used to obtain unauthorized access or to sabotage systems change frequently and generally are not recognized until they are launched against a target, we may be unable to anticipate these techniques or to implement adequate preventive measures. Although we encounter threats from time to time, none of which have materially impacted us, and we maintain a system of information security and controls, the impact of a material event could damage our reputation, deter clients and consumers from ordering our products and services, and result in the termination of client contracts, all of which would adversely affect our business and operating results. We could also be exposed to time-consuming and expensive litigation. If we are unsuccessful in

defending a lawsuit regarding security breaches, we may be forced to pay damages which would have an adverse effect on our operating results.

In addition, there are federal, state and foreign laws requiring companies to notify individuals of data security breaches involving their personal data. These mandatory disclosures regarding a security breach often lead to widespread negative publicity. If we were required to make such a disclosure, it may cause our clients and customers to lose confidence in the effectiveness of our data security measures. Likewise, general publicity regarding security breaches at other companies could lead to the perception among the general public that e-commerce is not secure. This could decrease traffic to our websites and limit future business opportunities.

Interruptions to our website operations or information technology systems could damage our reputation and harm our business.

The satisfactory performance, reliability and availability of our information technology systems is critical to our reputation and our ability to attract and retain customers. We could experience temporary interruptions in our websites, transaction processing systems, network infrastructure, printing production facilities or customer service operations for a variety of reasons including, among others: human error, software errors, security breaches, power loss, telecommunications failures, fire, flood, extreme weather and other events beyond our control. In addition, our technology, infrastructure and processes may contain undetected errors or design faults which may cause our websites or operating systems to fail. The failure of our systems could interfere with the delivery of services to our customers and impede our customers' ability to do business. In addition to the potential loss of customers, we may be required to incur additional development costs, divert technical and other resources, and we may be the subject of negative publicity and/or liability claims, all of which would adversely affect our reputation and operating results.

The cost and availability of materials, delivery services and energy could adversely affect our operating results.

We are subject to risks associated with the cost and availability of paper, plastics, ink, other raw materials, delivery services, and energy. There are relatively few paper suppliers. As such, when our suppliers increase paper prices, we may not be able to obtain better pricing from alternative suppliers. Postal rates have increased in recent years and the United States Postal Service (USPS) has incurred significant financial losses. This may result in changes to the breadth and/or frequency of USPS mail delivery services in the future. Also, fuel costs have fluctuated over the past several years, sometimes resulting in fuel surcharges for delivery services. Competitive pressures and/or contractual arrangements may inhibit our ability to reflect increased costs in the price of our products.

Paper costs represent a significant portion of our materials cost. Historically, we have not been negatively impacted by paper shortages because of our relationships with paper suppliers. However, we can provide no assurance that we will be able to purchase sufficient quantities of paper if such a shortage were to occur. Additionally, we depend upon third party providers for delivery services. Events resulting in the inability of these service providers to perform their obligations, such as extended labor strikes, could adversely impact our results of operations by requiring us to secure alternate providers at higher costs.

If we do not adapt to changes in technology, our ability to sustain and grow our business could be adversely affected.

Changes in the way the internet operates or in how it is used by small businesses and their customers may occur rapidly. The introduction of competing products and services using new technologies, the evolution of industry standards or the introduction of more attractive products or services could make some or all of our web-based products and services less desirable, or even obsolete. To be successful, our web-based products and services must keep pace with technological developments and evolving industry standards and address the ever-changing and increasingly sophisticated needs of our customers. We could lose current and potential customers if we are unable to develop products and services that meet these changing demands in a timely manner. Additionally, our operating results could be adversely affected if we are required to incur substantial costs to keep pace with technological advances.

Asset impairment charges would have a negative impact on our consolidated results of operations.

Goodwill and an indefinite-lived trade name represented 54% of our total assets as of December 31, 2013. On at least an annual basis, we assess whether the carrying value of these assets is impaired. This analysis considers factors including, but not limited to, economic, market and industry conditions. For example, if our stock price were to decline for a sustained period, if a downturn in economic conditions were to negatively affect our actual and forecasted operating results, or if order volume declines for our Direct Checks segment were to accelerate, these situations could indicate a decline in the fair value of one or more of our reporting units. This may require us to record an impairment charge for a portion of goodwill and/or our indefinite-lived trade name. We are also required to assess the carrying value of other long-lived assets, including intangibles and assets held for sale. If we were required to record an asset impairment charge for any reason, our consolidated results of operations would be adversely affected.

Governmental regulation could limit or harm our business.

Economic conditions could continue to have an adverse effect on our operating results in each of our business segments.

Domestic and global economic conditions have affected and, most likely, will continue to affect our results of operations and financial position. Current and future economic conditions that affect consumer and business spending, including unemployment levels, the availability of credit and small business confidence, as well as the financial condition and growth prospects of our customers, may adversely affect our business and results of operations.

A significant portion of our business relies on small business spending. As such, the level of small business confidence and the rate of small business formations and closures impact our business. In recent years, below average small business optimism, as well as declines in small business formations and increases in small business closures, negatively impacted our results of operations and/or our growth opportunities in Small Business Services. We believe small businesses are more likely to be significantly affected by economic downturns than larger, more established companies. During a sluggish economy, it may be more difficult for small businesses to obtain credit and small businesses may choose to spend their limited funds on items other than our products and services. Within our personal check printing businesses, consumer spending, employment levels and housing stock impact the number of checks consumers use. Weak growth in consumer spending during 2013, along with only modest private sector growth in employment, continued to negatively impact our personal check businesses. Partially offsetting the negative impact of employment levels and consumer spending in 2013 was an improvement in housing stock. An increase in housing stock has a positive impact on the number of checks purchased, as new households typically are in need of new checks. We cannot predict whether these economic trends will improve, stay the same or worsen in the near future.

As a result of global economic conditions in recent years, a number of financial institutions sought additional capital, merged with other financial institutions and, in some cases, failed. This turmoil in the financial services industry affected and may continue to affect our results of operations in a number of ways.

Our experience indicates that financial institution failures, as well as the consolidation of companies within the financial services industry, may have caused some larger financial institutions to lose customers, and this trend appears to be continuing. A study published by cg42, a management consulting firm, in July 2013 indicated that 26% of the top 10 retail banks’ customers expressed that they are frustrated with their primary banks, and 15% of these customers are actively pursuing a change in their banking relationship. The loss of customers for some financial institutions may reduce our order volume when those customers

move their accounts to financial institutions that are not our clients, or customers may reduce or delay their check purchases while they are considering changing banks.

The failure of one or more of our larger financial institution clients, or large portions of our customer base, could adversely affect our operating results. In addition to the possibility of losing a significant client, the inability to recover contract acquisition payments made to one or more of our larger financial institution clients, or the inability to collect accounts receivable or contractually required contract termination payments, could have a significant negative impact on our results of operations.

There may be an increase in financial institution mergers and acquisitions during periods of economic uncertainty. Such an increase could adversely affect our operating results. Often the newly combined entity seeks to reduce costs by leveraging economies of scale in purchasing, including its check supply contracts. This results in check providers competing intensely on price in order to retain not only their previous business with one of the financial institutions, but also to gain the business of the other party in the merger/acquisition.

Although we devote considerable effort toward the development of a competitively-priced, high-quality suite of products and services for the financial services industry, there can be no assurance that significant financial institution clients will be retained or that the impact of the loss of a significant client can be offset through the addition of new clients or by expanded sales to our remaining clients.

The severity and length of the present sluggish global economy is unknown. A further deterioration in financial markets and in general business conditions in 2014 could negatively affect our operating results.

The failure to reduce costs could have an adverse impact on our operating results.

Intense competition, declines in the use of checks and business forms, and sluggish economic conditions compel us to continually improve our operating efficiency in order to maintain or improve profitability. We have significantly reduced costs over the past several years, primarily within sales, marketing and our shared services functions, including fulfillment, information technology, real estate, finance and human resources. We realized net cost reductions of approximately $55 million in 2013, as compared to our 2012 results of operations, and we will continue to explore ways to simplify our business processes and reduce our cost and expense structure. Cost reduction initiatives have required and will continue to require up-front expenditures related to items such as redesigning and streamlining processes, consolidating information technology platforms, standardizing technology applications, improving real estate utilization and funding employee severance benefits. We can provide no assurance that we will achieve future cost reductions or that we will do so without incurring unexpected or greater than anticipated expenditures. Moreover, we may find that we are unable to achieve business simplification and/or cost reduction goals without disrupting our business and, as a result, may choose to delay or forgo certain cost reductions as business conditions require. Failure to continue to improve our operating efficiency could adversely affect our business if we are unable to remain competitive.

We may be unable to maintain our licenses to use third party intellectual property on favorable terms, which would affect our ability to offer licensed products to our customers, and thus, adversely affect our operating results.

Check designs licensed from third parties account for a portion of our revenue. These license agreements generally average two to three years in duration. There can be no guarantee that such licenses will be available to us indefinitely or under terms that would allow us to continue to sell the licensed products profitably, which would adversely impact our results of operations.

A third party could assert that we are infringing its intellectual property rights, which could result in costly litigation or require us to obtain licenses.

The e-commerce channel is characterized by the existence of a large number of patents, trademarks and copyrights, and by increasing litigation based on allegations of infringement or other violations of intellectual property rights. Third parties may assert patent and other intellectual property infringement claims against us, which could include aggressive and opportunistic enforcement of patents by non-practicing entities. These claims, whether successful or not, could divert management's attention, result in costly and time-consuming litigation, require us to enter into royalty or licensing agreements, or require us to redesign our software or services to avoid infringement. If we fail to obtain a required license or we are unable to design around a third party's patent, we may be unable to effectively conduct certain business activities. Consequently, third party intellectual property claims could result in increased expense or could limit our ability to generate revenue.

If we are unable to attract and retain key personnel and other qualified employees, our business could suffer.

The success of our business depends on the contributions and abilities of key employees, especially in the areas of sales, marketing, product management, and information technology. If we are unable to retain our existing employees and attract qualified personnel, we may not be able to grow and manage our business effectively. We can provide no assurance that we will be successful in attracting and retaining such personnel.

We may be subject to sales and other taxes which could have an adverse effect on our business.

In accordance with existing state and local tax laws, we currently collect sales, use or other similar taxes in state and local jurisdictions where each legal entity has a physical presence. One or more state or local jurisdiction may seek to impose sales tax collection obligations on out-of-state companies which engage in remote or online commerce. Further, tax law and the interpretation of constitutional limitations thereon is subject to change, including pending federal legislation which would allow a state to impose collection requirements on entities which make sales into that state but lack physical presence in that state. In addition, cross-marketing and other affiliate support activities between our direct-to-consumer businesses and any of our other entities which have a physical presence in numerous states, could subject shipments of goods by our direct-to-consumer businesses to sales tax collection under current and/or future state statutes. If one or more state or local jurisdiction successfully asserts that we must collect sales or other taxes in the future beyond our current practices, this could have an adverse effect on our business if it discourages customers from purchasing our products or services. Additionally, we could incur a substantial tax liability if one or more state or local jurisdiction successfully asserts we should have collected sales or other taxes in the past, but did not.

If third party providers of certain significant information technology needs are unable to provide services, our business could be disrupted and the cost of such services could increase.

We have entered into agreements with third party providers for information technology services, including telecommunications, network server and transaction processing services. In addition, we have agreements with companies to provide services such as electronic checks and on-line payment solutions. A service provider's ability to provide services could be disrupted for a variety of reasons, including unauthorized access, computer viruses, accidental or intentional actions, electrical disruptions, or other extreme conditions. In the event that one or more of our service providers is unable to provide adequate or timely information technology services, our ability to deliver products and services to our customers could be adversely affected. Although we believe we have taken adequate steps to protect our business through contractual arrangements with our service providers, we cannot completely eliminate the risk of disruption in service. Any significant disruption could harm our business, including damage to our brand and loss of customers. Additionally, although we believe that information technology services are available from numerous sources, a failure to perform by one or more of our service providers could cause a disruption in our business while we obtain an alternative source of supply. The use of substitute third party providers could also result in increased expense.

A decline in the value of our postretirement medical plan assets and/or a significant change in the number of participants in our postretirement medical plan could adversely affect our operating results and cash flows.

The fair value of our postretirement medical plan assets is subject to various risks, including credit, interest and overall market volatility risk. If the equity markets were to experience a significant decline in value, the fair value of our plan assets would decrease. This would affect the funded status of our plan and result in higher postretirement benefit expense in the future. Although our obligation is limited to funding benefits as they become payable, future declines in the fair value of our plan assets would also result in the need to contribute increased amounts of cash to fund benefits payable under the plan.

There is uncertainty surrounding the impact that the Patient Protection and Affordable Care Act of 2010 will have on the number of people participating in our postretirement medical plan. It is unclear at this time whether this legislation will result in more people electing to participate in our plan. The legislation could also result in fewer people participating in our plan or it could have no impact. For the 2014 plan year, 47% of those eligible to participate in our postretirement medical plan had elected not to participate. If a significant portion of those not participating were to opt-in to our plan, our benefit obligation would increase, which would result in increased expense. Although our plan is currently overfunded, a significant increase in plan participants could also require us to contribute increased amounts of cash to fund benefits payable under the plan.

We may be unable to protect our rights in intellectual property, which could harm our business and ability to compete.

We rely on a combination of trademark and copyright laws, trade secret and patent protection, and confidentiality and license agreements to protect our trademarks, software and other intellectual property. These protective measures afford only limited protection. Despite our efforts to protect our intellectual property, third parties may infringe or misappropriate our intellectual property or otherwise independently develop substantially equivalent products and services which do not infringe on our intellectual property rights. We may be required to spend significant resources to protect our trade secrets and to monitor and police our intellectual property rights. The loss of intellectual property protection or the inability to secure or enforce intellectual property protection could harm our business and ability to compete.

We are subject to environmental risks which, if realized, could have an adverse impact on our operating results.

Our printing facilities are subject to many federal and state regulations designed to protect the environment. We have sold former printing facilities to third parties and, in some instances, have agreed to indemnify the buyer of the facility for certain environmental liabilities. Unforeseen conditions at current or former facilities could result in additional liability and expense beyond our insurance coverage.

Item 1B. Unresolved Staff Comments.

None.

Item 2. Properties.

Our principal executive office is an owned property located in Shoreview, Minnesota. As of December 31, 2013, we occupied 30 facilities throughout the United States and six facilities in Canada where we conduct printing and fulfillment, call center, data center and administrative functions. We also had one data center located in Ireland. 41% of our facilities are owned, while the remaining 59% are leased. These facilities have a combined floor space of approximately 2.6 million square feet. We believe that our properties are sufficiently maintained and are adequate and suitable for our business needs as presently conducted.

Item 3. Legal Proceedings.

We record provisions with respect to identified claims or lawsuits when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Claims and lawsuits are reviewed quarterly and provisions are taken or adjusted to reflect the status of a particular matter. We believe the recorded reserves in our consolidated financial statements are adequate in light of the probable and estimable outcomes. Recorded liabilities were not material to our financial position, results of operations or liquidity, and we do not believe that any of the currently identified claims or litigation, either individually or in the aggregate, will materially affect our financial position, results of operations or liquidity upon resolution.

Item 4. Mine Safety Disclosures.

Not applicable.

PART II

Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Our common stock is traded on the New York Stock Exchange under the symbol DLX. Dividends are declared by our board of directors on a current basis and therefore, are subject to change in the future. As of December 31, 2013, the number of shareholders of record was 6,709. The table below shows the per share closing price ranges of our common stock for the past two fiscal years as quoted on the New York Stock Exchange, as well as the quarterly dividend amount for each period.



			Stock price
	Dividend		High		Low		Close
2013
Quarter 4	$	0.25	$	52.69	$	41.61	$	52.19
Quarter 3	0.25		43.49		34.67		41.66
Quarter 2	0.25		42.43		33.37		34.65
Quarter 1	0.25		42.50		32.32		41.40
2012
Quarter 4	$	0.25	$	32.58	$	28.33	$	32.24
Quarter 3	0.25		32.39		25.02		30.56
Quarter 2	0.25		25.25		21.40		24.94
Quarter 1	0.25		26.90		22.53		23.42

The following table shows purchases of our own equity securities, based on trade date, which we completed during the fourth quarter of 2013.



Period	Total number of shares (or units) purchased	Average price paid per share (or unit)		Total number of shares (or units) purchased as part of publicly announced plans or programs	Maximum number (or approximate dollar value) of shares (or units) that may yet be purchased under the plans or programs
October 1, 2013 - October 31, 2013	—	$	—	—	3,396,828
November 1, 2013 - November 30, 2013	104,584	47.81		104,584	3,292,244
December 1, 2013 - December 31, 2013	196,782	50.82		196,782	3,095,462
Total	301,366	49.77		301,366	3,095,462

In August 2003, our board of directors approved an authorization to purchase up to 10 million shares of our common stock. This authorization has no expiration date and 3.1 million shares remained available for purchase under this authorization as of December 31, 2013.

While not considered repurchases of shares, we do at times withhold shares that would otherwise be issued under equity-based awards to cover the withholding taxes due as a result of the exercise or vesting of such awards. During the fourth quarter of 2013, we withheld 26,311 shares in conjunction with the vesting and exercise of equity-based awards.

Absent certain defined events of default under our debt instruments, and as long as our ratio of earnings before interest, taxes, depreciation and amortization (EBITDA) to interest expense, as defined in such instruments, is in excess of two to one, our debt covenants do not restrict our ability to pay cash dividends at our current rate. There are currently no limitations on the amount of dividends and share repurchases under the terms of our amended credit facility agreement executed in February 2014. However, if our leverage ratio, defined as total debt less unrestricted cash to EBITDA, should exceed 2.75 to 1, there would be an annual limitation on the amount of dividends and share repurchases under the terms of the credit facility.

The table below compares the cumulative total shareholder return on our common stock for the last five fiscal years with the cumulative total return of the S&P MidCap 400 Index and the Dow Jones U.S. Support Services (DJUSIS) Index.

* The graph assumes that $100 was invested on December 31, 2008 in each of Deluxe common stock, the S&P MidCap 400 Index and the DJUSIS Index, and that all dividends were reinvested.

Item 6. Selected Financial Data.

The following table shows certain selected financial data for the five years ended December 31, 2013. This information should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations appearing in Item 7 of this report and our consolidated financial statements appearing in Item 8 of this report.



(dollars and orders in thousands, except per share and per order amounts)	2013			2012			2011			2010			2009
Statement of Income Data:
Total revenue	$	1,584,824		$	1,514,917		$	1,417,596		$	1,402,237		$	1,344,195
As a percentage of total revenue:
Gross profit	64.6		%	65.4		%	65.2		%	65.2		%	62.4		%
Selling, general and administrative expense	43.6		%	44.9		%	45.2		%	44.5		%	45.9		%
Operating income	20.1		%	19.9		%	19.1		%	20.1		%	14.2		%
Operating income	$	317,914		$	302,028		$	271,058		$	281,544		$	190,589
Income from continuing operations:	186,652			170,492			144,595			153,395			99,365
Per share - basic	3.68			3.33			2.82			2.98			1.94
Per share - diluted	3.65			3.32			2.80			2.97			1.94
Cash dividends per share	1.00			1.00			1.00			1.00			1.00

Balance Sheet Data:
Cash and cash equivalents	$	121,089		$	45,435		$	28,687		$	17,383		$	12,789
Return on average assets⁽¹⁾	12.5		%	12.2		%	10.7		%	12.1		%	8.2		%
Total assets	$	1,569,529		$	1,412,440		$	1,388,809		$	1,308,691		$	1,211,210
Long-term obligations⁽²⁾	640,704			652,581			741,706			748,122			742,753
Total debt⁽³⁾	640,704			652,581			741,706			755,122			768,753

Statement of Cash Flows Data:
Net cash provided by operating activities of continuing operations	$	261,502		$	244,077		$	235,367		$	212,615		$	206,438
Net cash used by investing activities of continuing operations	(101,050		)	(68,513		)	(131,785		)	(136,170		)	(81,788		)
Net cash used by financing activities of continuing operations	(82,297		)	(159,510		)	(91,702		)	(72,541		)	(128,545		)
Purchases of capital assets	(37,459		)	(35,193		)	(35,506		)	(43,932		)	(44,266		)
Payments for acquisitions, net of cash acquired	(69,709		)	(34,172		)	(85,641		)	(98,621		)	(30,825		)
Payments for common shares repurchased	(48,798		)	(27,155		)	(23,620		)	(2,999		)	(1,319		)

Other Data (continuing operations):
Orders⁽⁴⁾	52,584			53,216			54,348			56,736			59,174
Revenue per order⁽⁴⁾	$	30.14		$	28.47		$	26.08		$	24.72		$	22.72
Number of employees	5,575			5,476			5,565			5,765			6,089
Number of printing/fulfillment facilities	14			14			16			15			14
Number of call center facilities	16			13			13			14			12

⁽¹⁾Return on average assets is calculated as net income divided by average assets for the period.

⁽²⁾Long-term obligations include both the current and long-term portions of our long-term debt obligations, including capital leases.

⁽³⁾Total debt in 2010 and 2009 includes amounts outstanding under our credit facility.

⁽⁴⁾Orders is our company-wide measure of volume and includes both products and services.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

EXECUTIVE OVERVIEW

We employ a multi-channel strategy to provide a suite of life-cycle driven solutions to our customers. We use printed and electronic marketing, a direct sales force, financial institution and telecommunication client referrals, purchased search results from online search engines, and independent distributors and dealers to promote and sell a wide range of customized products and services. Over the past 24 months, our Small Business Services segment has provided products and services to over 4.5 million small business customers and our Direct Checks segment has provided products and services to more than six million consumers. Through our Financial Services segment, we provide products and services to approximately 5,500 financial institution clients. We operate primarily in the United States. Small Business Services also has operations in Canada and portions of Europe. Our product and service offerings are comprised of the following:

Accessories and other products – Small Business Services offers products designed to provide small business owners with the customized documents necessary to efficiently manage their business including envelopes, office supplies, stamps and labels, as well as retail packaging supplies. Our Financial Services and Direct Checks segments offer checkbook covers and stamps.

Throughout the past several years, we have focused on opportunities to increase revenue and operating income, while maintaining strong operating margins. These opportunities have included new product and service offerings, brand awareness and positioning initiatives, investing in technology for our service offerings, enhancing our internet capabilities, improving customer segmentation, adding new small business customers, and reducing costs. In addition, we invested in various acquisitions that extend the range of products and services we offer to our customers, including marketing solutions and other services offerings. During 2014, we will continue our focus in these areas, with an emphasis on profitable revenue growth, increasing revenue from our marketing solutions and other services offerings for small businesses and financial institutions, and assessing small to medium-sized acquisitions that complement our large customer bases, with a focus on marketing solutions and other services.

Earnings for 2013, as compared to 2012, benefited from price increases in all three segments and continuing initiatives to reduce our cost structure, primarily within our fulfillment, sales and marketing, and information technology organizations. Additionally, earnings benefited from lower interest expense driven by the refinancing of a portion of our long-term debt in the fourth quarter of 2012, as well as lower performance-based compensation and medical expense. These increases in earnings were partially offset by volume reductions for our personal check businesses due primarily to the continuing decline in check usage, as well as increased investments in revenue growth opportunities, including brand awareness advertising, marketing solutions and other services offers, and enhanced e-commerce capabilities.

Our Strategies

Small Business Services – Our strategies within Small Business Services are as follows:


•	Effectively acquire and retain customers by optimizing each of our sales channels;


•	Expand sales of higher growth marketing solutions and other services;


•	Increase our share of the amount small businesses spend on the types of products and services in our portfolio through increased brand awareness and improved customer segmentation and analytics; and


•	Continue to optimize our cost and expense structure.

We continuously evaluate ways to strengthen our portfolio of products and services. In recent years, we have grown our base of partnerships and we have acquired companies which allow us to expand our marketing solutions and other services offerings, including additional web services, web-to-print capabilities, internet marketing services and electronic checks. We expect sales of these higher growth products and services will continue to represent an increasing portion of our revenue. Specifically, during June 2013, we acquired VerticalResponse, Inc., a provider of of self-service marketing solutions for small businesses, including email marketing, social media, online event marketing, postcard marketing and on-line surveys, for cash of $27.3 million, net of cash acquired. In May 2012, we acquired OrangeSoda, Inc., a provider of internet marketing services specializing in search, mobile and social media campaign strategies for small businesses, for cash of $26.7 million, net of cash acquired. In July 2011, we acquired substantially all of the assets of PsPrint, LLC, for cash of $45.5 million, net of cash acquired. PsPrint is a web-to-print solutions company that provides online print marketing and promotional services for small businesses.

During the past several years, we have invested in promoting and strengthening the Deluxe brand to increase brand awareness and loyalty. In late 2012, we implemented an advertising campaign intended to encourage small business owners to view us as a business partner who can provide many of the key elements they need to operate and promote their business, so the owners can focus instead on doing what they love. This campaign continued throughout 2013 and into 2014. We examined our marketing strategies, held focus groups, analyzed research studies, and shadowed small business owners while they worked. Through these efforts, we learned that the primary motivator for today's small business owner has shifted from business growth to personal satisfaction. This insight formed the basis of our brand awareness campaign, the redesign of our Deluxe.com website and updated training for our call center sales representatives. We completed a small business brand awareness study late in the fourth quarter of 2013, which showed positive improvements in areas such as brand awareness, buying consideration, and likelihood to recommend. For example, with existing customers, the study showed double-digit percentage improvements in familiarity with Deluxe as a website design and hosting services provider. Our intent for 2014 is to continue our brand awareness campaign, including television, online digital and print media. We plan to increase our focus on direct response marketing, as well as drive a more targeted local market concentration.

Financial Services – Our strategies within Financial Services are as follows:


•	Optimize core check revenue streams and acquire new clients;


•	Expand sales of higher growth marketing solutions and other services that differentiate us from the competition; and


•	Continue to optimize our cost and expense structure.

We continue to focus on maintaining high client retention and on acquiring new clients. We added new large financial institution clients in the third quarter of 2013, the first quarter of 2012 and in the third quarter of 2010. We are also advancing our marketing solutions and other services offerings with customer acquisition, risk management, and other new services. In December 2013, we acquired substantially all of the assets of Destination Rewards, a rewards and loyalty program provider, in a cash transaction for $20.1 million, net of cash acquired. In August 2013, we acquired substantially all of the assets of Acton Marketing, LLC in cash transaction for $4.1 million, net of cash acquired. Acton Marketing is a provider of direct marketing services for financial institutions. In April 2011, we acquired substantially all of the assets of Banker's Dashboard, LLC, for $39.7 million, comprised of $35.0 million of cash and $4.7 million of shares of our common stock plus related dividend equivalent payments. Banker's Dashboard provides online financial management tools that provide banks with a comprehensive daily view of their financial picture. We also continue to leverage our Deluxe Business Advantage program which is designed to maximize financial institution business check programs. It offers the products and services of our Small Business Services segment to the small business customers of financial institutions through a number of service level options. The revenue from the products and services sold through this program is reflected in our Small Business Services segment.

In our efforts to expand beyond check-related products, we offer several marketing solutions and other services offerings, including:

•


•	Banker's Dashboard® – online financial management tools that provide financial institutions with a comprehensive daily view of their financial picture.


•	Deluxe Provent^SM – a comprehensive suite of identity protection services.


•	Deluxe Detect® – an account applicant screening tool.

Direct Checks – Our strategies within Direct Checks are as follows:


•	Maximize the lifetime value of customers by selling new features, accessories and products;


•	Continue to optimize our cost and expense structure; and


•	Optimize cash flow.

Cost Reduction Initiatives

For several years we have been pursuing cost reduction and business simplification initiatives, including: reducing shared services infrastructure costs; streamlining our call center and fulfillment activities; eliminating system and work stream redundancies; and strengthening our ability to quickly develop new products and services and bring them to market. We have reduced stock-keeping units (SKUs), standardized products and services and improved the sourcing of third-party goods and services. As a result of all of these efforts, we realized net cost savings of approximately $55 million during 2013, as compared

to our 2012 results of operations, generated primarily by our sales and marketing, fulfillment, and information technology organizations. Approximately 70% of these savings impacted selling, general and administrative (SG&A) expense, with the remaining 30% affecting cost of revenue. We anticipate that we will realize additional net cost reductions of approximately $55 million in 2014, as compared to our 2013 results of operations, which will be generated primarily by our sales, marketing and fulfillment organizations. Approximately, 70% of these savings are expected to impact SG&A expense, with the remaining 30% affecting cost of revenue.

Outlook for 2014

We anticipate that consolidated revenue will be between $1.610 billion and $1.650 billion for 2014, compared to $1.585 billion for 2013. In Small Business Services, we expect revenue to increase between 6% and 8% compared to 2013 revenue of $1.050 billion, as volume declines in core business products are expected to be more than offset by benefits from our e-commerce investments, price increases and growth in our distributor, dealer and major accounts channels and in our marketing solutions and other services offerings. The anticipated revenue increase includes incremental revenue from the VerticalResponse acquisition. In Financial Services, we expect revenue to be close to flat compared to 2013 revenue of $343.2 million. We expect that check order declines of approximately 6%, as well as pricing pressure on contract renewals, will be offset by continued growth from non-check revenue streams, including incremental revenue from the Acton Marketing and Destination Rewards acquisitions, as well as higher revenue per order and a full year of revenue from a new large financial institution client acquired in the third quarter of 2013. In Direct Checks, we expect revenue to decline between 10% and 11% compared to 2013 revenue of $191.4 million, driven by check order volume declines.

We expect that 2014 diluted earnings per share will be between $3.90 and $4.10, compared to $3.65 for 2013, which included total charges of $0.22 per share related to restructuring-related costs, an asset impairment charge and transaction costs related to acquisitions. We expect that the benefits of additional cost reduction activities and lower interest expense will be partially offset by increases in medical expenses, material costs and delivery rates, as well as continued investments in revenue growth opportunities, including brand awareness, marketing solutions and other services offers, and enhanced internet capabilities. We estimate that our annual effective tax rate for 2014 will be approximately 34%, compared to 33.6% for 2013. A number of discrete credits to income tax expense in 2013 collectively reduced our 2013 tax rate by 0.7 points.

We believe that cash generated by operating activities, along with availability under our credit facility, will be sufficient to support our operations in 2014, including required interest and principal payments related to our long-term debt, dividend payments, capital expenditures and possible small-to-medium-sized acquisitions. We are focused on a disciplined approach to capital deployment that focuses on our need to continue investing in initiatives to drive revenue growth, including small-to-medium-sized acquisitions and continued expansion of our distributor channel. We also anticipate that our board of directors will maintain our current dividend level. However, dividends are approved by the board of directors on a quarterly basis, and thus are subject to change. We also anticipate that we will repurchase shares to offset the dilutive impact of shares issued under our employee stock incentive plan. To the extent we generate cash flow in excess of these priorities, we plan to accumulate cash in advance of our October 2014 senior note maturity of $253.5 million. In February 2014, we increased the amount available for borrowing under our credit facility from $200.0 million to $350.0 million, along with extending the term of the agreement from February 2017 to February 2019. We currently anticipate using cash on hand and our credit facility to meet the October 2014 debt obligation. We may also, from time to time, consider retiring outstanding debt through open market purchases, privately negotiated transactions or other means.

BUSINESS CHALLENGES/MARKET RISKS

Market for checks and business forms

The market for checks, which is our largest product, is very competitive. The check product is mature and its use has been declining. The total number of checks written in the United States has been in decline for many years as a result of alternative payment methods, including credit cards, debit cards, direct deposit, wire transfers and internet-based bill paying services, as well as automated teller machines, which make cash a more readily available alternative. According to a Federal Reserve study released in December 2013, debit card, credit card and ACH payments all exceeded the number of checks written in 2012. Approximately 21.0 billion checks were written in 2012, accounting for approximately 17% of all non-cash payment transactions. This is a reduction from the Federal Reserve Study released in December 2010 when checks accounted for approximately 25% of all non-cash payment transactions. The Federal Reserve estimates that checks written declined approximately 8.8% percent per year between 2009 and 2012. Although, we experienced a slightly lower decline in our check

order volume than the Federal Reserve estimate, we expect that the number of checks written will continue to decline. However, we cannot predict the rate at which this decline will continue in the long-term.

In addition to the decline in check usage, the use of business forms is also under pressure. Continual technological improvements provide small business customers with alternative means to enact and record business transactions. For example, because of the lower price and higher performance capabilities of personal computers, printers and mobile devices, small businesses now have alternate means to print many business forms. Additionally, electronic transaction systems, off-the-shelf business software applications and mobile applications have been designed to replace pre-printed business forms products. It is difficult to predict the pace at which these alternative products and services will gain widespread acceptance.

Financial institution clients

Because check usage is declining, we have been encountering significant pricing pressure when negotiating contracts with our financial institution clients. Financial institutions seek to maintain the profits they have historically generated from their check programs, despite the decline in check usage. Our traditional financial institution relationships are typically formalized through check supply contracts averaging three to six years in duration. As we compete to retain and acquire new financial institution business, the resulting pricing pressure, combined with declining check usage in the marketplace, has negatively impacted our revenue and profit margins. We expect these trends to continue.

There could be a significant impact on our consolidated results of operations if we were to lose a significant amount of business and/or we were unable to recover the value of unamortized contract acquisition costs or accounts receivable. As of December 31, 2013, unamortized contract acquisition costs totaled $35.4 million, while liabilities for contract acquisition costs not paid as of December 31, 2013 were $6.3 million. The inability to recover amounts paid to one or more of our larger financial institution clients could have a significant negative impact on our consolidated results of operations.

The consolidation of financial institutions may also impact our results of operations. In the past we have occasionally acquired new clients as financial institutions that were not our clients consolidated with our clients. When two of our financial institution clients consolidate, the increase in general negotiating leverage possessed by the consolidated entity could result in a new contract which is not as favorable to us as those historically negotiated with the clients individually. However, we may also generate non-recurring conversion revenue when obsolete checks have to be replaced after one financial institution merges with or acquires another. Conversely, we have also lost financial institution clients when they consolidated with financial institutions which were not our clients. If we were to lose a significant amount of business in this manner, it could have a significant negative impact on our consolidated results of operations. In such situations, we have typically collected contract termination payments and we may be able to do so in similar circumstances in the future.

Recent legislation has impacted our financial institution clients. The Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Act") was enacted in 2010. The Act implements changes that affect the oversight and supervision of financial institutions, creates a new agency responsible for implementing and enforcing compliance with consumer financial laws and introduces more stringent regulatory capital requirements. The full impact of the Act and/or any additional related regulatory changes remains unclear due to the pace at which formal rulemaking is finalized. It is likely that the Act has and will have a negative impact on the profitability of our financial institution clients as they incur costs to comply with the new regulations. In spite of these additional costs, financial institutions may seek to maintain the profits they have historically generated, and they may put significant pricing pressure on their suppliers, including their check and service providers. The increase in cost and profit pressure may also lead to further consolidation of financial institutions. Additionally, the Act gave the Consumer Financial Protection Bureau (CFPB) the authority to pursue financial institutions engaged in unfair, deceptive or abusive practices. The CFPB's rule-making and enforcement power may also extend to financial institutions' service providers. This has made some financial institutions wary of offering add-on services, such as fraud/identity protection or expedited check delivery, to their customers. It would have an adverse impact on our results of operations if we were unable to market such services to consumers or small businesses through our financial institution clients.

Competition

The small business forms and supplies market and the small business marketing solutions and other services markets are highly fragmented with many small local suppliers, large national retailers and internet-based providers. In the small business forms and supplies market, the competitive factors influencing a customer's purchase decision are breadth of product line, speed of delivery, product quality, price, convenience, customer service and past experience with the supplier. Our primary competitors are office product superstores, local printers, business forms dealers and internet-based suppliers. We are aware of numerous competitors offering printed products and business supplies to small businesses through the internet, direct mail, distributors or a direct sales force. We believe we are well-positioned in this competitive landscape through our broad customer base, the breadth of our small business product and service offerings, multiple distribution channels, established relationships with our financial institution and telecommunications clients, competitive prices, high quality and dependable service.

At times, check suppliers have reduced the prices of their products during the supplier selection process in an attempt to gain greater volume. The corresponding pricing pressure has negatively impacted our profit margins. Pricing pressure will continue to impact our results of operations through lower pricing levels or client losses. Additionally, product discounts in the form of cash incentives payable to financial institutions upon contract execution are a common practice within the industry. Both the number of financial institution clients requesting these payments and the size of the payments has fluctuated significantly in recent years. These up-front payments negatively impact check printers' cash flows at the beginning of the contract. Our goal is to reduce the use of up-front product discounts by structuring new contracts with alternative incentives throughout the duration of the contract.

Economic conditions

We cannot predict whether these negative economic trends will improve, stay the same or worsen in the near future. We believe that in recent years the economy negatively impacted our operating results and/or our growth opportunities, and we expect the economic environment will continue to be challenging in 2014.

CONSOLIDATED RESULTS OF OPERATIONS

Consolidated Revenue



							Change
(in thousands, except per order amounts)	2013		2012		2011		2013 vs. 2012		2012 vs. 2011
Total revenue	$	1,584,824	$	1,514,917	$	1,417,596	4.6	%	6.9	%
Orders	52,584		53,216		54,348		(1.2	%)	(2.1	%)
Revenue per order	$	30.14	$	28.47	$	26.08	5.9	%	9.2	%

The increase in total revenue for 2013, as compared to 2012, was primarily due to price increases in all three segments and growth in marketing solutions and other services revenue, including incremental revenue of $27.9 million from businesses acquired during 2013 and 2012, as well as growth in our Small Business Services distributor channel. These revenue increases were partially offset by lower order volume for our personal check businesses and continued pricing pressure on contract renewals within Financial Services.

The increase in total revenue for 2012, as compared to 2011, was primarily due to price increases in all three segments, incremental revenue of $36.8 million generated by the businesses acquired during 2012 and 2011, growth in our Small Business Services distributor channel and in marketing solutions and other services, and revenue from a new large financial institution client. These revenue increases were partially offset by lower order volume for our personal check businesses and continued pricing pressure on contract renewals within Financial Services.

Service revenue represented 13.6% of total revenue in 2013, 11.2% in 2012 and 9.7% in 2011. As such, the majority of our revenue is generated by product sales. We do not manage our business based on product versus service revenue. Instead we analyze our products and services based on the following categories:



							Change
	2013		2012		2011		2013 vs. 2012	2012 vs. 2011
Checks, including contract settlements	55.8	%	58.7	%	61.5	%	(2.9) pt.	(2.8) pt.
Marketing solutions, including services	15.7	%	13.6	%	10.6	%	2.1 pt.	3.0 pt.
Forms	12.6	%	13.2	%	13.8	%	(0.6) pt.	(0.6) pt.
Accessories and other products	9.9	%	9.2	%	9.0	%	0.7 pt.	0.2 pt.
Other services	6.0	%	5.3	%	5.1	%	0.7 pt.	0.2 pt.
Total revenue	100.0	%	100.0	%	100.0	%	—	—

The number of orders decreased in each of the past two years due primarily to the continuing decline in check and forms usage, partially offset by growth in the Small Business Services distributor channel and in marketing solutions and other services. Revenue per order increased in each of the past two years primarily due to the benefit of price increases in all three segments, as well as a shift from personal check orders to higher dollar Small Business Services orders. At the same time, Financial Services continues to experience pricing pressure on contract renewals.

Consolidated Gross Margin



										Change
(in thousands)	2013			2012			2011			2013 vs. 2012		2012 vs. 2011
Gross profit	$	1,023,708		$	990,542		$	924,194		3.3	%	7.2	%
Gross margin	64.6		%	65.4		%	65.2		%	(0.8) pt.		0.2 pt.

As with revenue, we do not separately analyze gross margin generated by product revenue and service revenue. Instead, we evaluate gross margin on a consolidated basis when analyzing our consolidated results of operations to gain important insight into significant profit drivers. As a significant portion of our revenue is generated from the sale of manufactured and purchased products, we believe the measure of gross margin best demonstrates our manufacturing and distribution performance, as well as the impact of pricing on our profitability. Gross margin is not a complete measure of profitability, as it omits SG&A expense. However, it is a financial measure which we believe is useful in evaluating our results of operations.

Gross margin decreased for 2013, as compared to 2012, due primarily to the shift in our revenue mix to lower margin services and outsourced products, as well as higher delivery rates and material costs in 2013. These decreases in gross margin

were partially offset by the benefit of price increases, as well as manufacturing and delivery efficiencies and other benefits resulting from our continued cost reduction initiatives.

Gross margin increased for 2012, as compared to 2011, due primarily to the benefit of price increases, as well as manufacturing and delivery efficiencies and other benefits resulting from our continued cost reduction initiatives. Partially offsetting these increases in gross margin were higher delivery rates and material costs and increased performance-based compensation in 2012.

Consolidated Selling, General & Administrative Expense



										Change
(in thousands)	2013			2012			2011			2013 vs. 2012		2012 vs. 2011
SG&A expense	$	691,359		$	680,460		$	640,307		1.6	%	6.3	%
SG&A expense as a percentage of total revenue	43.6		%	44.9		%	45.2		%	(1.3) pt.		(0.3) pt.

The increase in SG&A expense for 2013, as compared to 2012, was driven primarily by incremental operating expenses of the businesses we acquired in 2013 and 2012, increased Small Business Services commission expense due to increased volume, and investments in revenue growth opportunities, including efforts to grow our Small Business Services distributor channel, brand awareness advertising, marketing solutions and other services offers, and enhanced internet capabilities. These increases were partially offset by various expense reduction initiatives within sales, marketing and our shared services organizations, including improved labor and advertising efficiency, as well as lower performance-based compensation and lower medical expense.

The increase in SG&A expense for 2012, as compared to 2011, was driven primarily by increased Small Business Services commission expense due to increased volume, higher performance-based compensation, incremental operating expenses of the businesses we acquired in 2012 and 2011, and investments in revenue-generating initiatives, including efforts to grow our Small Business Services distributor channel and increase brand awareness. These increases were partially offset by various expense reduction initiatives within sales, marketing and our shared services organizations, including improved labor and advertising efficiency, as well as lower acquisition-related amortization related to previous acquisitions.

Net Restructuring Charges



							Change
(in thousands)	2013		2012		2011		2013 vs. 2012		2012 vs. 2011
Net restructuring charges	$	9,435	$	7,926	$	11,743	$	1,509	$	(3,817	)

We recorded restructuring charges and reversals related to the cost reduction initiatives discussed under Executive Overview. The charges and reversals for each period primarily relate to costs of our restructuring activities such as employee severance benefits and other direct costs of our initiatives, including employee and equipment moves, training and travel. In addition to the restructuring charges shown here, restructuring charges of $1.5 million in 2013, $2.8 million in 2012 and $2.0 million in 2011 were included within total cost of revenue in our consolidated statements of income. Further information can be found under Restructuring Costs.

Asset Impairment Charge



							Change
(in thousands)	2013		2012		2011		2013 vs. 2012		2012 vs. 2011
Asset impairment charge	$	5,000	$	—	$	1,196	$	5,000	$	(1,196	)

During the fourth quarter of 2013, we performed an impairment analysis of a customer relationship intangible asset within our Small Business Services segment. The impairment analysis was performed because revenue from the applicable group of customers was lower than previously projected. This analysis resulted in a non-cash, pre-tax impairment charge of $5,000 during 2013.

During the fourth quarter of 2011, we recorded an asset impairment charge of $1.2 million related to our Thorofare, New Jersey facility, which was classified as assets held for sale in our consolidated balance sheet. The impairment charge was determined based on market conditions and ongoing negotiations for the sale of this facility. During 2012, we sold the facility for net cash proceeds of $2.6 million, realizing a net pre-tax loss of $0.1 million.

Loss on Early Debt Extinguishment



							Change
(in thousands)	2013		2012		2011		2013 vs. 2012			2012 vs. 2011
Loss on early debt extinguishment	$	—	$	5,258	$	6,995	$	(5,258	)	$	(1,737	)

During the fourth quarter of 2012, we retired $200.0 million of long-term notes, realizing a pre-tax loss of $5.3 million. During the first quarter of 2011, we retired $205.5 million of long-term notes, realizing a pre-tax loss of $7.0 million. We may retire additional debt, depending on prevailing market conditions, our liquidity requirements and other potential uses of cash, including acquisitions or share repurchases.

Interest Expense



										Change
(in thousands)	2013			2012			2011			2013 vs. 2012		2012 vs. 2011
Interest expense	$	38,301		$	46,847		$	47,797		(18.2	%)	(2.0	%)
Weighted-average debt outstanding	654,751			742,534			760,798			(11.8	%)	(2.4	%)
Weighted-average interest rate	5.32		%	5.73		%	5.63		%	(0.41) pt.		0.10 pt.

The decrease in interest expense for 2013, as compared to 2012, was due to our lower average debt level and lower weighted-average interest rate in 2013, driven by the refinancing of a portion of our long-term debt. In the fourth quarter of 2012, we retired long-term debt with an interest rate of 7.375% and we issued long-term debt with an interest rate of 6.0%. Additionally, $84.8 million of long-term debt matured in December 2012.

The decrease in interest expense for 2012, as compared to 2011, was due to our lower average debt level in 2012, as well as charges of $1.3 million in the first quarter of 2011 related to the retirement of long-term notes. The debt retirements required that we accelerate the recognition of a portion of a derivative loss, and we recognized expense related to the settlement of a portion of our interest rate swap agreements. These decreases in interest expense were partially offset by our slightly higher average interest rate in 2012.

Income Tax Provision



										Change
(in thousands)	2013			2012			2011			2013 vs. 2012		2012 vs. 2011
Income tax provision	$	94,407		$	80,261		$	71,489		17.6	%	12.3	%
Effective tax rate	33.6		%	32.0		%	33.1		%	1.6 pt.		(1.1) pt.

The increase in our effective tax rate for 2013, as compared to 2012, was primarily due to discrete credits to income tax expense in 2012, which reduced our effective tax rate by 2.0 points, as well as actions taken in 2012 to restore a portion of the deferred tax asset associated with our postretirement benefit plan, which reduced our 2012 effective tax rate by 0.4 points. In addition, our state and foreign income tax rates were higher in 2013. Partially offsetting these increases in our effective tax rate relative to 2012 were several discrete credits to income tax expense in 2013, which collectively reduced our effective tax rate by 0.7 points. Additionally, research and development credits were lower in 2012, as the federal law providing for these credits expired at the end of 2011 and was not re-enacted until the first quarter of 2013. We expect that our annual effective tax rate for 2014 will be approximately 34%.

The decrease in our effective tax rate for 2012, as compared to 2011, was primarily due to a number of discrete credits to income tax expense, including adjustments related to foreign deferred income taxes, which collectively decreased our 2012 tax rate by 2.0 points. In addition, our 2012 effective tax rate included a 0.4 point reduction due to actions taken to restore a portion of the deferred tax asset associated with our postretirement benefit plan, our overall state income tax rate decreased and our production activities deduction increased in 2012. Partially offsetting these decreases in our 2012 effective tax rate was a favorable adjustment of 1.2 points in 2011 resulting from actions taken to restore a portion of the deferred tax asset associated with our postretirement benefit plan, as well as a number of minor discrete credits to income tax expense in 2011, including adjustments to receivables for amendments to prior year tax returns, which collectively decreased our 2011 tax rate by 0.6 points. In addition, tax credits for research and development were lower in 2012 as the federal law providing for these credits expired at the end of 2011.

RESTRUCTURING COSTS

We have recorded expenses related to our restructuring activities, including accruals consisting primarily of employee severance benefits, as well as employee and equipment moves, training and travel, which were expensed as incurred. Our restructuring activities are driven by our cost reduction initiatives and include employee reductions in various functional areas, as well as the closing of facilities, including one printing facility in 2013, two customer call centers and two printing facilities during 2012, and one call center and one printing facility during 2011. Restructuring costs have been reduced by the reversal of severance accruals when fewer employees receive severance benefits than originally estimated.

Net restructuring charges for the years ended December 31 consisted of the following components:



(dollars in thousands)	2013			2012			2011
Severance accruals	$	7,495		$	7,619		$	8,826
Severance reversals	(805		)	(1,862		)	(1,737		)
Operating lease obligations	216			396			52
Operating lease obligations reversals	(157		)	—			(6		)
Net restructuring accruals	6,749			6,153			7,135
Other costs	4,157			4,581			6,586
Net restructuring charges	$	10,906		$	10,734		$	13,721

Number of employees included in severance accruals	230			395			400

The majority of the employee reductions included in our restructuring accruals are expected to be completed by mid-2014, and we expect most of the related severance payments to be paid by the end of 2014, utilizing cash from operations.

As a result of our employee reductions and facility closings, we realized cost savings of approximately $3 million in total cost of revenue and $12 million in SG&A expense in 2013, in comparison to our 2012 results of operations, which represents a portion of the approximately $55 million of total net cost reductions we realized in 2013. In 2014, we expect to realize cost savings of approximately $3 million in total cost of revenue and $11 million in SG&A expense, in comparison to our 2013 results of operations, which represents a portion of the estimated $55 million of total net cost reductions we expect to realize in 2014. Expense reductions consist primarily of labor and facility costs. Information about the other initiatives driving our cost savings can be found in Executive Overview.

Further information regarding our restructuring charges can be found under the caption “Note 8: Restructuring charges” of the Notes to Consolidated Financial Statements appearing in Item 8 of this report.

SEGMENT RESULTS

Additional financial information regarding our business segments appears under the caption “Note 16: Business segment information” of the Notes to Consolidated Financial Statements appearing in Item 8 of this report.

Small Business Services

This segment's products and services are promoted through direct response mail and internet advertising, referrals from financial institutions and telecommunications clients, Safeguard® distributors, a network of local dealers, a direct sales force which focuses on major accounts, and an outbound telemarketing group. Results for this segment were as follows:



										Change
(in thousands)	2013			2012			2011			2013 vs. 2012		2012 vs. 2011
Total revenue	$	1,050,250		$	961,631		$	846,449		9.2	%	13.6	%
Operating income	175,888			160,363			145,219			9.7	%	10.4	%
Operating margin	16.7		%	16.7		%	17.2		%	—		(0.5) pt.

The increase in total revenue for 2013, as compared to 2012, was due primarily to growth in marketing solutions and other services revenue, including incremental revenue of $23.6 million from acquisitions, as well as growth in our distributor channel and price increases. These increases in revenue were partially offset by a decrease in volume for our core business.

Operating income increased for 2013, as compared to 2012, primarily due to price increases, benefits of our cost reduction initiatives and lower performance-based compensation and medical expense. Partially offsetting these increases in

operating income was the shift in our revenue mix to lower margin services and outsourced products, increased commission expense, an increase in investments in revenue growth opportunities, including efforts to grow our distributor channel and increase brand awareness, and increases in delivery rates and material costs in 2013. Additionally, we recorded a pre-tax asset impairment charge of $5.0 million during 2013 related to a Small Business Services customer relationship intangible asset.

Operating margin was flat in 2013, as compared to 2012, as the improvements in operating income from price increases and cost reduction initiatives were offset by the shift in our revenue mix to lower margin services and outsourced products, an increase in investments in revenue growth opportunities and increases in commission rates, delivery rates and material costs in 2013, as well as the asset impairment charge.

The increase in total revenue for 2012, as compared to 2011, was due primarily to price increases, growth in our distributor channel, incremental revenue of $34.8 million from acquisitions, and growth in marketing solutions and other services revenue. Additionally, business check revenue, as well as revenue generated via our relationship with a new large Financial Services client and growth in our major accounts channel, contributed to the revenue increase.

The increase in operating income for 2012, as compared to 2011, was due primarily to price increases, growth in our distributor channel and in marketing solutions and other services revenue, benefits of our cost reduction initiatives, and lower amortization related to acquisitions completed in previous years. Partially offsetting these increases in operating income were higher performance-based compensation, investments in revenue-generating initiatives, including efforts to grow our distributor channel and increase brand awareness, and increases in delivery rates and material costs in 2012.

Operating margin decreased for 2012, as compared to 2011, as the increase in commissions, expenses associated with acquisitions, higher performance-based compensation and investments in revenue-generating initiatives were only partially offset by the benefits of price increases and our cost reduction initiatives.

Financial Services



										Change
(in thousands)	2013			2012			2011			2013 vs. 2012		2012 vs. 2011
Total revenue	$	343,160		$	341,135		$	342,382		0.6	%	(0.4	%)
Operating income	82,343			77,728			59,804			5.9	%	30.0	%
Operating margin	24.0		%	22.8		%	17.5		%	1.2 pt.		5.3 pt.

The increase in revenue for 2013, as compared to 2012, was due to price increases and growth in marketing solutions and other services, including incremental revenue of $4.3 million from the acquisitions of Acton Marketing in August 2013 and Destination Rewards in December 2013. Partially offsetting these revenue increases were a decrease in order volume, resulting primarily from the continued decline in check usage, and continuing competitive pricing pressure on contract renewals. The increase in revenue for 2013, as compared to 2012, was the first time since we implemented our current segment structure in 2001 that Financial Service's revenue increased compared to the previous year.

Operating income and operating margin increased for 2013, as compared to 2012, primarily due to price increases, the benefit of our continuing cost reduction initiatives and lower performance-based compensation and medical expense, partially offset by investments in revenue growth opportunities and increased delivery rates and material costs in 2013. Additionally, restructuring charges related to our cost reduction initiatives increased $2.1 million as compared to 2012. Further information regarding the restructuring charges and related costs can be found under Restructuring Costs.

The slight decrease in revenue for 2012, as compared to 2011, was due to a decrease in order volume resulting primarily from the continued decline in check usage, as well as continuing competitive pricing pressure on contract renewals. Offsetting these revenue declines were price increases, revenue from a new large financial institution client, and growth in marketing solutions and other services, including incremental revenue from the Banker's Dashboard® acquisition completed in April 2011.

Operating income and operating margin increased for 2012, as compared to 2011, primarily due to price increases and the benefit of our continuing cost reduction initiatives. Additionally, restructuring-related costs decreased $3.4 million, as compared to 2011. Further information regarding the restructuring charges and related costs can be found under Restructuring Costs. These increases in operating income and operating margin were partially offset by higher performance-based compensation, increased delivery rates and material costs in 2012, and investments to generate additional revenue.

Direct Checks

Direct Checks sells products and services directly to consumers using direct response marketing, including print advertising and search engine marketing and optimization strategies. Direct Checks sells under various brand names, including Checks Unlimited®, Designer® Checks, Checks.com, Check Gallery®, The Styles Check Company®, and Artistic Checks®, among others. Results for this segment were as follows:



										Change
(in thousands)	2013			2012			2011			2013 vs. 2012		2012 vs. 2011
Total revenue	$	191,414		$	212,151		$	228,765		(9.8	%)	(7.3	%)
Operating income	59,683			63,937			66,035			(6.7	%)	(3.2	%)
Operating margin	31.2		%	30.1		%	28.9		%	1.1 pt.		1.2 pt.

The decrease in revenue for 2013, as compared to 2012, was due to a reduction in orders stemming from the continued decline in check usage. Partially offsetting the revenue decline was higher revenue per order, partly due to price increases.

The decrease in operating income for 2013, as compared to 2012, was due primarily to the lower order volume and increased delivery rates and material costs in 2013. These decreases in operating income were partially offset by benefits from our cost reduction initiatives, price increases and lower performance-based compensation and medical expense. Additionally, restructuring charges related to our cost reduction initiatives decreased $1.5 million compared to 2012. Further information regarding the restructuring charges and related costs can be found under Restructuring Costs.

Operating margin increased for 2013, as compared to 2012, as the benefits from our cost reduction initiatives, price increases and lower performance-based compensation, medical expense and restructuring charges exceeded the impact of increased delivery rates and material costs in 2013.

The decrease in revenue for 2012, as compared to 2011, was due to a reduction in orders stemming from the decline in check usage. Partially offsetting this revenue decrease was higher revenue per order, partly due to price increases.

The decrease in operating income for 2012, as compared to 2011, was due primarily to lower order volume, higher performance-based compensation and increased delivery rates and material costs in 2012. Additionally, restructuring-related costs increased $0.8 million for 2012, as compared to 2011. Further information regarding the restructuring charges and related costs can be found under Restructuring Costs. These decreases in operating income were partially offset by lower amortization related to a previous acquisition and benefits from our cost reduction initiatives.

Operating margin increased for 2012, as compared to 2011, as the lower amortization expense and benefits from our cost reduction initiatives exceeded the impact of higher performance-based compensation and increased delivery rates and material costs in 2012.

CASH FLOWS AND LIQUIDITY

As of December 31, 2013, we held cash and cash equivalents of $121.1 million. The following table shows our cash flow activity for the last three years, and should be read in conjunction with the consolidated statements of cash flows appearing in Item 8 of this report.



										Change
(in thousands)	2013			2012			2011			2013 vs. 2012			2012 vs. 2011
Net cash provided by operating activities	$	261,502		$	244,077		$	235,367		$	17,425		$	8,710
Net cash used by investing activities	(101,050		)	(68,513		)	(131,785		)	(32,537		)	63,272
Net cash used by financing activities	(82,297		)	(159,510		)	(91,702		)	77,213			(67,808		)
Effect of exchange rate change on cash	(2,501		)	694			(576		)	(3,195		)	1,270
Net change in cash and cash equivalents	$	75,654		$	16,748		$	11,304		$	58,906		$	5,444

The $17.4 million increase in net cash provided by operating activities for 2013, as compared to 2012, was primarily due to an $11.8 million decrease in the funding of medical benefits as we began utilizing the plan assets of our postretirement medical plan to pay a majority of our retiree medical benefits, as well as an increase in cash provided by earnings, a $7.8 million decrease in interest payments, and a $4.8 million decrease in contract acquisition payments in 2013. The decrease in interest payments was due to the refinancing of a portion of our long-term debt in the fourth quarter of 2012 and the maturity of $84.8

million of long-term debt in December 2012. These increases in net cash provided by operating activities were partially offset by an $11.5 million increase in employee profit sharing/cash bonus payments related to our 2012 performance, the impact of net increases in working capital, and a $6.4 million increase in income tax payments.

The $8.7 million increase in cash provided by operating activities for 2012, as compared to 2011, was due primarily to increased cash provided by earnings, as well as an $8.4 million decrease in pension contributions and employee profit sharing/cash bonus payments related to our 2011 performance. We discontinued contributions to our defined contribution pension plan for at least three years, effective with the 2011 plan year. As such, the contribution made to this plan in early 2011 for the 2010 plan year was our last contribution to this plan. These increases in cash provided by operating activities were partially offset by a $23.0 million increase in income tax payments, a planned $4.9 million increase in contributions to our trust used to pay for medical benefits, as well as increases in contract acquisition and interest payments.

Included in net cash provided by operating activities were the following operating cash outflows:



							Change
(in thousands)	2013		2012		2011		2013 vs. 2012			2012 vs. 2011
Income tax payments	$	90,322	$	83,875	$	60,861	$	6,447		$	23,014
Interest payments	38,676		46,514		42,542		(7,838		)	3,972
Employee profit sharing/cash bonus payments⁽¹⁾	30,346		18,805		27,165		11,541			(8,360		)
Funding of medical benefits⁽²⁾	29,861		41,670		36,792		(11,809		)	4,878
Contract acquisition payments	12,133		16,952		12,190		(4,819		)	4,762
Severance payments	5,451		7,183		7,484		(1,732		)	(301		)

⁽¹⁾In 2011, this amount also includes contributions to our defined contribution pension plan.

⁽²⁾This amount includes payments made to our voluntary employee beneficiary association (VEBA) trust used to fund employee and retiree medical benefits, as well as the funding of and benefits paid for our postretirement medical plan.

Net cash used by investing activities in 2013 was $32.5 million higher than 2012, driven primarily by a $35.5 million increase in the amount spent for acquisitions in 2013. In 2013, we acquired VerticalResponse, Destination Rewards, several small business distributors and Acton Marketing for an aggregate of $69.7 million, net of cash acquired. In 2012, we acquired OrangeSoda and distributor operations for an aggregate of $34.2 million, net of cash acquired. Partially offsetting the impact of increased payments for acquisitions were proceeds from company-owned life insurance policies of $4.6 million in 2013.

Net cash used by investing activities in 2012 was $63.3 million lower than 2011, driven primarily by a $51.5 million decrease in payments for acquisitions in 2012. In 2012, we acquired OrangeSoda and distributor operations for an aggregate of $34.2 million, net of cash acquired. In 2011, we acquired PsPrint, Banker's Dashboard and distributor operations for $85.6 million, net of cash acquired. Additionally, we made payments of $6.4 million on company-owned life insurance policies in 2011.

Net cash used by financing activities in 2013 was $77.2 million lower than 2012 due primarily to a decrease in payments on long-term debt of $287.4 million related to debt retirements and the maturity of long-term notes in 2012. This was partially offset by proceeds from the issuance of long-term debt of $200.0 million in 2012, and an increase of $21.6 million in payments to repurchase common shares to offset dilution from shares issued under our share-based compensation plans.

Net cash used by financing activities in 2012 was $67.8 million higher than 2011 due primarily to an increase in payments on long-term debt of $73.9 million in 2012 related to debt retirements and the maturity of long-term notes in 2012. During 2012, we made payments of $204.1 million for debt retirements and $84.8 million for the maturity of long-term debt. During 2011, we made payments of $215.0 million for debt retirements. In addition, we spent $3.5 million more on payments for share repurchases in 2012. Partially offsetting these increases in cash used in 2012 were net payments of $7.0 million in 2011 to repay borrowings on our line of credit.

Significant cash inflows, excluding those related to operating activities, for each period were as follows:



							Change
(in thousands)	2013		2012		2011		2013 vs. 2012			2012 vs. 2011
Proceeds from issuing long-term debt	$	—	$	200,000	$	200,000	$	(200,000	)	$	—
Proceeds from issuing shares under employee plans	15,948		12,320		7,671		3,628			4,649
Proceeds from company-owned life insurance policies	4,599		—		—		4,599			—

Significant cash outflows, excluding those related to operating activities, for each period were as follows:



							Change
(in thousands)	2013		2012		2011		2013 vs. 2012			2012 vs. 2011
Payments for acquisitions, net of cash acquired	$	69,709	$	34,172	$	85,641	$	35,537		$	(51,469	)
Cash dividends paid to shareholders	50,711		50,918		51,126		(207		)	(208		)
Payments for common shares repurchased	48,798		27,155		23,620		21,643			3,535
Purchases of capital assets	37,459		35,193		35,506		2,266			(313		)
Payments on long-term debt, including costs of debt reacquisition	1,555		288,938		215,030		(287,383		)	73,908
Loans to distributors	778		3,287		5,175		(2,509		)	(1,888		)
Net payments on short-term debt	—		—		7,000		—			(7,000		)
Payments on company-owned life insurance policies	—		—		6,383		—			(6,383		)

We anticipate that net cash provided by operating activities will be between $260 million and $275 million in 2014, compared to $262 million in 2013, driven by higher earnings, lower contributions to our trust used to fund medical benefits, and lower employee profit sharing/cash bonus payments, partially offset by higher contract acquisition and income tax payments. We anticipate that cash generated by operating activities in 2014 will be utilized for dividend payments, capital expenditures of approximately $40 million, share repurchases and possibly additional small-to-medium-sized acquisitions. We intend to focus our capital spending on key revenue growth initiatives and investments in order fulfillment and information technology infrastructure. We plan to accumulate cash in advance of our October 2014 senior note maturity of $253.5 million. In February 2014, we increased the amount available for borrowing under our credit facility from $200.0 million to $350.0 million, along with extending the term of the agreement from February 2017 to February 2019. We currently anticipate using cash on hand and our credit facility to meet the October 2014 debt obligation. We may also from time to time consider retiring outstanding debt through open market purchases, privately negotiated transactions or other means.

As of December 31, 2013, our subsidiaries located in Canada held cash and marketable securities of $47.0 million. Deferred income taxes have not been recognized on unremitted earnings of our foreign subsidiaries, as these amounts are intended to be reinvested indefinitely in the operations of those subsidiaries. If we were to repatriate the Canadian cash and marketable securities into the U.S. at one time, we would incur a U.S. tax liability of approximately $7 million.

We had $191.6 million available for borrowing under our credit facility as of December 31, 2013. We believe that cash generated by operating activities, along with availability under our credit facility, will be sufficient to support our operations in 2014, including required interest and principal payments related to our long-term debt, dividend payments, capital expenditures and possible small-to-medium-sized acquisitions.

CAPITAL RESOURCES

Our total debt was $640.7 million as of December 31, 2013, a decrease of $11.9 million from December 31, 2012. We have entered into interest rate swaps to hedge against changes in the fair value of a portion of our long-term debt. As of December 31, 2013, interest rate swaps with a notional amount of $398.0 million were designated as fair value hedges. The carrying amount of long-term debt as of December 31, 2013 included a $14.7 million decrease related to adjusting the hedged debt for changes in its fair value. As of December 31, 2012, this fair value adjustment was a decrease of $0.8 million. Further information concerning the interest rate swaps and our outstanding debt can be found under the captions “Note 6: Derivative financial instruments” and “Note 13: Debt and lease obligations” of the Notes to Consolidated Financial Statements appearing in Item 8 of this report. Information regarding our debt service obligations can be found under Off-Balance Sheet Arrangements, Guarantees and Contractual Obligations.

Our capital structure for each period was as follows:



	December 31, 2013				December 31, 2012
(in thousands)	Amount		Weighted- average interest rate		Amount		Weighted- average interest rate		Change
Fixed interest rate	$	257,408	6.6	%	$	255,478	6.6	%	$	1,930
Floating interest rate	383,296		4.5	%	397,103		4.5	%	(13,807		)
Total debt	640,704		5.3	%	652,581		5.3	%	(11,877		)
Shareholders’ equity	550,457				432,935				117,522
Total capital	$	1,191,161			$	1,085,516			$	105,645

We have an outstanding authorization from our board of directors to purchase up to 10 million shares of our common stock. This authorization has no expiration date, and 3.1 million shares remained available for purchase under this authorization as of December 31, 2013. During 2013, we purchased 1.2 million shares for $48.8 million. Information regarding changes in shareholders' equity can be found in the consolidated statements of shareholders' equity appearing in Item 8 of this report.

We may, from time to time, consider retiring outstanding debt through open market purchases, privately negotiated transactions or by other means. Any such purchases or exchanges would depend on prevailing market conditions, our liquidity requirements and other potential uses of cash, including acquisitions or share repurchases.

As of December 31, 2013, we had a $200.0 million credit facility, which was scheduled to expire in February 2017. Our commitment fee ranged from 0.20% to 0.45% based on our leverage ratio. Borrowings under the credit facility are collateralized by substantially all of our personal and intangible property. The credit agreement governing the credit facility contains customary covenants regarding limits on levels of subsidiary indebtedness and capital expenditures, liens, investments, acquisitions, certain mergers, certain asset sales outside the ordinary course of business, and change in control as defined in the agreement. The agreement also contains financial covenants regarding our leverage ratio, interest coverage and liquidity.

In February 2014, we amended our credit facility agreement. We increased the amount available for borrowing from $200.0 million to $350.0 million, we extended the term from February 2017 to February 2019, and the commitment fee narrowed from a range of 0.20% to 0.45% to a range of 0.20% to 0.40%, based on our leverage ratio. There were no changes to the financial covenants regarding our leverage and interest coverage ratios. We were in compliance with all debt covenants as of December 31, 2013 and we expect to remain in compliance with all debt covenants throughout 2014.

No amounts were borrowed under our credit facility during 2013 or 2012. Daily average amounts outstanding under our credit facility during 2011 were as follows:



(in thousands)	2011
Daily average amount outstanding	$	21,655
Weighted-average interest rate	3.03		%

No amounts were outstanding under our credit facility as of December 31, 2013 or December 31, 2012. As of December 31, 2013, amounts were available for borrowing under our credit facility as follows:



(in thousands)	Total available
Credit facility commitment	$	200,000
Outstanding letters of credit⁽¹⁾	(8,415		)
Net available for borrowing as of December 31, 2013	$	191,585

⁽¹⁾ We use standby letters of credit primarily to collateralize certain obligations related to our self-insured workers' compensation claims. These letters of credit reduce the amount available for borrowing under our credit facility.

OTHER FINANCIAL POSITION INFORMATION

Assets held for sale – Assets held for sale consisted of the operations of small business distributors which we previously purchased. The assets consisted primarily of customer lists. We are actively marketing the assets and expect the selling prices will exceed the carrying values. The $24.5 million increase in assets held for sale as of December 31, 2013, as compared to December 31, 2012, was due to the distributors purchased during 2013. Further information concerning all of the assets and liabilities attributable to the businesses held for sale can be found under the caption "Note 2: Supplemental balance sheet and cash flow information" of the Notes to Consolidated Financial Statements appearing in Item 8 of this report.

Contract acquisition costs – Other non-current assets include contract acquisition costs of our Financial Services segment. These costs, which are essentially pre-paid product discounts, are recorded as non-current assets upon contract execution and are amortized, generally on the straight-line basis, as reductions of revenue over the related contract term. Changes in contract acquisition costs during the past three years can be found under the caption "Note 2: Supplemental balance sheet and cash flow information" of the Notes to Consolidated Financial Statements appearing in Item 8 of this report. Cash payments made for contract acquisition costs were $12.1 million for 2013, $17.0 million for 2012 and $12.2 million for 2011. We anticipate cash payments of approximately $25 million in 2014.

The number of checks being written has been declining, which has contributed to increased competitive pressure when attempting to retain or acquire clients. Both the number of financial institution clients requesting contract acquisition payments and the amount of the payments has fluctuated significantly from year to year. Although we anticipate that we will selectively continue to make contract acquisition payments, we cannot quantify future amounts with certainty. The amount paid depends on numerous factors such as the number and timing of contract executions and renewals, competitors’ actions, overall product discount levels and the structure of up-front product discount payments versus providing higher discount levels throughout the term of the contract.

Liabilities for contract acquisition payments are recorded upon contract execution. These obligations are monitored for each contract and are adjusted as payments are made. Contract acquisition payments due within the next year are included in accrued liabilities in our consolidated balance sheets. These accruals were $3.9 million as of December 31, 2013 and $3.8 million as of December 31, 2012. Accruals for contract acquisition payments included in other non-current liabilities in our consolidated balance sheets were $2.4 million as of December 31, 2013 and $4.9 million as of December 31, 2012.

OFF-BALANCE SHEET ARRANGEMENTS, GUARANTEES AND CONTRACTUAL OBLIGATIONS

It is not our general business practice to enter into off-balance sheet arrangements or to guarantee the performance of third parties. In the normal course of business we periodically enter into agreements that incorporate general indemnification language. These indemnifications encompass third-party claims arising from our products and services, including service failures, breach of security, intellectual property rights, governmental regulations and/or employment-related matters. Performance under these indemnities would generally be triggered by our breach of the terms of the contract. In disposing of assets or businesses, we often provide representations, warranties and/or indemnities to cover various risks, including, for example, unknown damage to the assets, environmental risks involved in the sale of real estate, liability to investigate and remediate environmental contamination at waste disposal sites and manufacturing facilities, and unidentified tax liabilities and legal fees related to periods prior to disposition. We do not have the ability to estimate the potential liability from such indemnities because they relate to unknown conditions. However, we have no reason to believe that any possible liability under these indemnities would have a material adverse effect on our financial position, annual results of operations or annual cash flows. We have recorded liabilities for known indemnifications related to environmental matters. Further information can be found under the caption “Note 14: Other commitments and contingencies” of the Notes to Consolidated Financial Statements appearing in the Item 8 of this report.

We are not engaged in any transactions, arrangements or other relationships with unconsolidated entities or other third parties that are reasonably likely to have a material effect on our liquidity or on our access to, or requirements for, capital resources. In addition, we have not established any special purpose entities.

As of December 31, 2013, our contractual obligations were as follows:



(in thousands)	Total		2014		2015 and 2016		2017 and 2018		2019 and thereafter
Long-term debt and related interest	$	818,933	$	289,388	$	52,000	$	52,000	$	425,545
Lease obligations	21,293		8,839		12,083		371		—
Purchase obligations	29,023		17,835		11,114		74		—
Other non-current liabilities	21,792		7,667		8,857		1,615		3,653
Total contractual obligations	$	891,041	$	323,729	$	84,054	$	54,060	$	429,198

Purchase obligations include amounts due under contracts with third-party service providers. These contracts are primarily for Direct Checks direct mail advertising agreements, information technology services and amounts due under Direct Checks and Financial Services royalty agreements. We routinely issue purchase orders to numerous vendors for the purchase of inventory and other supplies. These purchase orders are not included in the purchase obligations presented here, as our business partners typically allow us to cancel these purchase orders as necessary to accommodate business needs. Of the purchase obligations included in the table above, $9.4 million allow for early termination upon the payment of early termination fees. If we were to terminate these agreements, we would have incurred early termination fees of $13.4 million as of December 31, 2013.

Other non-current liabilities presented in our consolidated balance sheet as of December 31, 2013 consisted primarily of derivative liabilities associated with long-term debt, non-current liabilities of distributors held for sale, liabilities for uncertain tax positions, and amounts due for environmental matters, performance-based compensation and deferred compensation. Of the $61.1 million reported as other non-current liabilities in our consolidated balance sheet as of December 31, 2013, $47.0 million is excluded from the obligations shown in the table above. The excluded amounts, including the current portion of each liability, are comprised primarily of the following:


•	Profit sharing, cash bonus and long-term incentive payments – Amounts payable under our performance-based compensation arrangements are dependent on our future operating performance. As of December 31, 2013, accrued liabilities included $29.5 million and other non-current liabilities included $6.1 million for performance-based compensation accruals.


•	Fair value of interest rate swaps – As of December 31, 2013, other non-current liabilities included $16.2 million for the fair value of interest rate swaps related to our long-term debt due in 2020.

•

Deferred income taxes of businesses held for sale – As of December 31, 2013, other non-current liabilities included $7.8 million of deferred income taxes related to small business distributors held for sale. Further information regarding net assets held for sale can be found under the caption "Note 2: Supplemental balance sheet and cash flow information" of the Notes to Consolidated Financial Statements appearing in Item 8 of this report.

•

Payments for uncertain tax positions – Due to the nature of the underlying liabilities and the extended time frame often needed to resolve income tax uncertainties, we cannot make reliable estimates of the amount or timing of cash payments that may be required to settle these liabilities. Our liability for uncertain tax positions, including accrued interest and penalties, was $7.0 million as of December 31, 2013, excluding tax benefits of deductible interest and the federal benefit of deductible state income tax.

•

Insured environmental remediation costs – As of December 31, 2013, $4.2 million of the costs included in our environmental accruals are covered by an environmental insurance policy which we purchased in 2002. The related receivables from the insurance company are reflected in other current assets and other non-current assets in our consolidated balance sheets based on the amounts of our environmental accruals for insured sites. Uninsured environmental accruals of $4.1 million as of December 31, 2013 are included in the table above.


•	A portion of the amount due under our deferred compensation plan – Under this plan, some employees may begin receiving payments upon the termination of employment or disability, and we cannot predict when these events will occur. As such, $2.4 million of our deferred compensation liability as of December 31, 2013 is excluded from the obligations shown in the table above.

Total contractual obligations do not include the following:

•

Benefit payments for our postretirement benefit plan – In the past, we have contributed funds to this plan for the purpose of funding our obligations. Thus, we have the option of paying benefits from the accumulated assets of the plan or from the general funds of the company. Additionally, we expect the plan assets to earn income over time. As such, we cannot predict when or if payments from our general funds will be required. We anticipate that we will utilize plan assets to pay a majority of our benefits during 2014. Our postretirement benefit plan was overfunded $25.0 million as of December 31, 2013.


•	Payments to our 401(k) plan – Payments to our 401(k) plan throughout the year are dependent on the number of employees participating in the plan, the level of employee contributions and employee wage rates.


•	Income tax payments, which are dependent upon our earnings.

RELATED PARTY TRANSACTIONS

We have not entered into any material related party transactions during the past three years.

CRITICAL ACCOUNTING POLICIES

Management's discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles (GAAP) in the United States of America. Our accounting policies are discussed under the caption: “Note 1: Significant accounting policies” of the Notes to Consolidated Financial Statements appearing in Item 8 of this report. We review the accounting policies used in reporting our financial results on a regular basis. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and the related disclosure of contingent assets and liabilities. We base our estimates on historical experience and on various other factors and assumptions that we believe are reasonable under the circumstances, the result of which forms the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Results may differ from these estimates due to actual outcomes being different from those on which we based our assumptions. The estimates and judgments utilized

are reviewed by management on an ongoing basis and by the audit committee of our board of directors at the end of each quarter prior to the public release of our financial results.

APPLICATION OF CRITICAL ACCOUNTING POLICIES

Our critical accounting policies are those that are most important to the portrayal of our financial condition and results of operations, or which place the most significant demands on management's judgment about the effect of matters that are inherently uncertain, and the impact of different estimates or assumptions could be material to our financial condition or results of operations.

Income Taxes

When preparing our consolidated financial statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves estimating our actual current tax obligations based on expected taxable income, statutory tax rates and tax credits allowed in the various jurisdictions in which we operate. In interim reporting periods, we use an estimate of our annual effective tax rate based on the facts available at the time. Changes in the jurisdictional mix or estimated amount of annual pre-tax income could impact our estimated effective tax rate in interim periods. In the event there is a significant unusual or one-time item recognized in our results of operations, the tax attributable to that item is separately calculated and recorded in the interim period during which the unusual or one-time item occurred. The actual effective tax rate is calculated at year-end.

Tax laws require certain items to be included in our tax return at different times than the items are reflected in our results of operations. As a result, the annual effective tax rate reflected in our results of operations is different than that reported on our tax return (i.e., our cash tax rate). Some of these differences are permanent, such as expenses that are not deductible in our tax return, and some are temporary differences that will reverse over time, such as depreciation expense on capital assets. These temporary differences result in deferred tax assets and liabilities, which are included within our consolidated balance sheets. Deferred tax assets generally represent items that can be used as a tax deduction or credit in our tax return in future years for which we have already recorded the expense, net of the expected tax benefit, in our statements of income. We must assess the likelihood that our deferred tax assets will be realized through future taxable income, and to the extent we believe that realization is not likely, we must establish a valuation allowance against those deferred tax assets. Deferred tax liabilities generally represent items for which we have already taken a deduction in our tax return, but we have not yet recognized the items as expense in our results of operations. Significant judgment is required in evaluating our tax positions, and in determining our provision for income taxes, our deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets. We had net deferred tax liabilities of $74.0 million as of December 31, 2013, including valuation allowances of $3.2 million. As of December 31, 2012, we had net deferred tax liabilities of $65.8 million, including valuation allowances of $2.6 million. The valuation allowances related primarily to capital loss carryforwards in Canada and net operating loss carryforwards in various state jurisdictions and in Ireland which we do not expect to fully realize.

We are subject to tax audits in numerous domestic and foreign tax jurisdictions. Tax audits are often complex and can require several years to complete. In the normal course of business, we are subject to challenges from the Internal Revenue Service (IRS) and other tax authorities regarding the amount of taxes due. These challenges may alter the timing or amount of taxable income or deductions, or the allocation of income among tax jurisdictions. We recognize the benefits of tax return positions in the financial statements when they are “more-likely-than-not” to be sustained by the taxing authorities based solely on the technical merits of the position. If the recognition threshold is met, the tax benefit is measured and recognized as the largest amount of tax benefit that, in our judgment, is greater than 50% likely to be realized. The total amount of unrecognized tax benefits as of December 31, 2013 was $6.0 million, excluding accrued interest and penalties and the federal benefit of deductible state income tax. If the unrecognized tax benefits were recognized in our consolidated financial statements, $6.0 million would positively affect income tax expense and our related effective tax rate. Interest and penalties recorded for uncertain tax positions are included in our income tax provision. As of December 31, 2013, we had accrued $1.0 million of interest and penalties, excluding the tax benefit of deductible interest. The statute of limitations for federal tax assessments for 2009 and prior years has closed. Our federal income tax returns through 2009 have been audited by the IRS, and our returns for 2010 through 2013 remain subject to IRS examination. In general, income tax returns for the years 2009 through 2013 remain subject to examination by foreign, state and city tax jurisdictions. In the event that we have determined not to file tax returns with a particular state or city, all years remain subject to examination by the tax jurisdiction. The ultimate outcome of tax matters may differ from our estimates and assumptions. Unfavorable settlement of any particular issue would require the use of cash and could result in increased income tax expense. Favorable resolution would result in reduced income tax expense.

Changes in unrecognized tax benefits during the last three years can be found under the caption: “Note 9: Income tax provision” of the Notes to Consolidated Financial Statements appearing in Item 8 of this report. Within the next 12 months, it is reasonably possible that our unrecognized tax benefits will change in the range of a decrease of $4.3 million to an increase of $1.3 million as we attempt to resolve certain federal and state matters or as federal and state statutes of limitations expire. We are not able to predict what, if any, impact these changes ultimately may have on our effective tax rate or cash flows.

The determination of our provision for income taxes, deferred income taxes and unrecognized tax positions requires significant judgment, the use of estimates, and the interpretation and application of complex tax laws. As such, the amounts reflected in our consolidated financial statements may require adjustment in the future as additional facts become known or circumstances change. If actual results differ from estimated amounts, our effective income tax rate and related tax balances could be affected.

Revenue Recognition

We recognize revenue when (1) persuasive evidence of an arrangement exists, (2) delivery has occurred or services have been rendered, (3) the sales price is fixed or determinable, and (4) collectibility is reasonably assured. The majority of our revenues are generated from the sale of products for which revenue is recognized upon shipment or customer receipt, based upon the transfer of title. Our services, which account for the remainder of our revenue, consist primarily of web design, hosting and other web services; fraud prevention; marketing services, including email, mobile, social media and other self-service marketing solutions; financial institution customer acquisition and loyalty programs; payroll services; health care enrollment solutions; and logo design. We recognize these service revenues as the services are provided. In some situations, our web hosting and applications services are billed on a quarterly, semi-annual or annual basis. When a customer pays in advance for services, we defer the revenue and recognize it as the services are performed. Up-front set-up fees related to our web hosting and applications services are deferred and recognized as revenue on the straight-line basis over the term of the customer relationship. Deferred revenue is included in accrued liabilities in our consolidated balance sheets.

Revenue includes amounts billed to customers for shipping and handling and pass-through costs, such as marketing materials for which our financial institution clients reimburse us. Costs incurred for shipping and handling and pass-through costs are reflected in cost of products sold. For sales with a right of return, we record a reserve for estimated sales returns based on significant historical experience.

At times, a financial institution client may terminate its contract with us prior to the end of the contract term. In substantially all of these cases, the financial institution is contractually required to remit a contract termination payment. Such payments are recorded as revenue when the termination agreement is executed, provided that we have no further service or contractual obligations, and collection of the funds is assured. If we have a continuing service obligation following the execution of a contract termination agreement, we record the related revenue over the remaining service period.

Revenue is presented in the consolidated statements of income net of rebates, discounts, amortization of contract acquisition costs and sales tax. We enter into contractual agreements with financial institution clients for rebates on certain products we sell. We record these amounts as reductions of revenue in the consolidated statements of income and as accrued liabilities in the consolidated balance sheets when the related revenue is recorded. At times we may also sell products at discounted prices or provide free products to customers when they purchase a specified product. Discounts are recorded as reductions of revenue when the related revenue is recorded. The cost of free products is recorded as cost of products sold when the revenue for the related order is recorded.

Certain revenue streams require judgment to determine if revenue should be recorded on a gross basis or net of related costs. Reported revenue for our Financial Services segment does not reflect the full retail price paid by end-consumers to their financial institutions. Instead, revenue reflects the amounts paid to us by our financial institution clients. Revenue generated by our Safeguard distributors within the Small Business Services segment is generally recorded on a gross basis, with commissions paid to our distributors included in SG&A expense. In December 2013, we acquired substantially all of the assets of Destination Rewards, Inc., a rewards and loyalty program provider. Because of the December 2013 acquisition date, the revenue generated by this business was not significant to our 2013 consolidated statement of income. However, this business provides new revenue streams which will affect our results of operations going forward. Destination Rewards receives payments from consumers or its own clients for products and services which are part of its rewards, incentive and loyalty programs. These products and services can include hotel stays, gift cards and other merchandise such as apparel, electronics, and clothing. This revenue is recorded net of the related fulfillment costs.

Postretirement Benefit Plan

Detailed information regarding our postretirement benefit plan, including a description of the plan, its related future cash flows, plan assets and the actuarial assumptions used in accounting for the plan, can be found under the caption: “Note 12: Postretirement benefits” of the Notes to Consolidated Financial Statements appearing in Item 8 of this report.

We recorded net postretirement benefit income of $1.4 million for 2013. Net postretirement benefit expense was $1.1 million for 2012 and $0.7 million for 2011. Our business segments record postretirement benefit (income) expense in cost of revenue and in SG&A expense, based on the composition of their workforces. Our postretirement benefit expense and liability are calculated utilizing various actuarial assumptions and methodologies. These assumptions include, but are not limited to, the discount rate, the expected long-term rate of return on plan assets, the expected health care cost trend rate and the average remaining life expectancy of plan participants. We analyze the assumptions used each year when we complete our actuarial valuation of the plan. The effects of changes to our assumptions are recognized immediately on the consolidated balance sheet, but are generally amortized into earnings over future periods, with the deferred amount recorded in accumulated other

comprehensive loss. If the assumptions utilized in determining our postretirement benefit expense and liability differ from actual events, our results of operations for future periods are impacted.

Discount rate – The discount rate is used to reflect the time value of money. It is the assumed rate at which future postretirement benefits could be effectively settled. The discount rate assumption is based on the rates of return on high-quality, fixed-income instruments currently available whose cash flows approximate the timing and amount of expected benefit payments. In determining the discount rate, we utilize the Aon Hewitt AA Above Median Curve and the Citigroup Pension Discount yield curves to discount each cash flow stream at an interest rate specifically applicable to the timing of each respective cash flow. The present value of each cash flow stream is aggregated and used to impute a weighted-average discount rate. The discount rate established at year-end for purposes of calculating our benefit obligation is also used in the calculation of the interest component of benefit expense for the following year. In measuring the accumulated postretirement benefit obligation as of December 31, 2013, we assumed a discount rate of 4.25%. A 0.25 point change in the discount rate would increase or decrease our annual postretirement benefit expense by approximately $0.1 million, and would increase or decrease our postretirement benefit obligation by approximately $2.2 million.

Expected long-term rate of return on plan assets – The long-term rate of return on plan assets reflects the average rate of earnings expected on the funds invested or to be invested to provide for expected benefit payments. In determining this rate, we utilize our historical returns and then adjust these returns for estimated inflation and projected market returns. Our inflation assumption is primarily based on analysis of historical inflation data. In measuring net postretirement benefit expense for 2013, we assumed an expected long-term rate of return on plan assets of 6.75%. A 0.25 point change in this assumption would increase or decrease our annual postretirement benefit expense by approximately $0.3 million.

Expected health care cost trend rate – The health care cost trend rate represents the expected annual rate of change in the cost of health care benefits currently provided due to factors other than changes in the demographics of plan participants. In measuring the accumulated postretirement benefit obligation as of December 31, 2013, our initial health care inflation rate for 2013 was assumed to be 7.75% for participants under the age of 65 and 7.25% for participants aged 65 and older. Our ultimate health care inflation rate was assumed to be 5.0% in 2021 and beyond for participants under the age of 65 and 5.0% in 2020 and beyond for participants aged 65 and older. A one percentage point change in the health care inflation rate for each year would have the following effects:



(in thousands)	One-percentage-point increase		One-percentage-point decrease
Effect on total of service and interest cost	$	75	$	(71	)
Effect on benefit obligation	1,775		(1,664		)

Average remaining life expectancy of plan participants – In determining the average remaining life expectancy of plan participants, our actuaries use a mortality table which includes estimated death rates for each age. We use the RP-2000 Combined Healthy Participant Table with fully generational projection.

When actual events differ from our assumptions or when we change the assumptions used, an unrecognized actuarial gain or loss results. The gain or loss is recognized immediately in the consolidated balance sheet within accumulated comprehensive loss and is amortized into postretirement benefit expense over the average remaining life expectancy of inactive plan participants, as a large percentage of our plan participants are classified as inactive. This amortization period was 17 years as of December 31, 2013.

The fair value of our postretirement benefit plan assets is subject to various risks, including credit, interest and overall market volatility risks. If the equity markets were to experience a significant decline in value, the fair value of our plan assets would decrease. This would affect the funded status of our plan and result in higher postretirement benefit expense. Although our obligation is limited to funding benefits as they become payable, future declines in the fair value of our plan assets would also result in the need to contribute increased amounts of cash to fund benefits payable under the plan. We utilized plan assets to pay a portion of our benefit payments during 2013 and we anticipate that we will utilize plan assets to pay a significant portion of our benefits during 2014.

Goodwill and Indefinite-Lived Trade Name

Goodwill and our indefinite-lived trade name totaled $841.9 million as of December 31, 2013, which represented 53.6% of total assets. These assets are tested for impairment on an annual basis as of July 31, or more frequently if events or circumstances occur which could indicate impairment. In addition to the required impairment analyses, we regularly evaluate the remaining useful life of our indefinite-lived trade name to determine whether events and circumstances continue to support an indefinite useful life. If we would determine that this asset has a finite useful life, we would test the asset for impairment and then amortize the asset's remaining carrying value over its estimated remaining useful life.

In completing our annual goodwill impairment analysis in each of the last three years, we elected to perform a qualitative assessment for all of the reporting units to which goodwill is assigned. These qualitative analyses evaluated factors including,

but not limited to, economic, market and industry conditions, cost factors and the overall financial performance of the reporting units. We also considered the quantitative analysis we completed as of July 31, 2010 in which the estimated fair values of our reporting units exceeded their carrying values by amounts between $43.0 million and $546.0 million, or by amounts between 55% and 442% above the carrying values of their net assets. In completing our qualitative analyses in each year, we noted no changes in events or circumstances which would have required us to complete the two-step quantitative goodwill impairment analysis for any of our reporting units.

When completing the two-step, quantitative approach during 2010, we compared the carrying value of a reporting unit, including goodwill, to the estimated fair value of the unit. Carrying value is based on the assets and liabilities associated with the operations of that reporting unit, which often requires the allocation of shared or corporate items among reporting units. In calculating the estimated fair value, we utilize the income approach. The income approach is a valuation technique under which we estimate future cash flows using the reporting unit's financial forecast from the perspective of an unrelated market participant. Using historical trending and internal forecasting techniques, we project revenue for the next five years. We apply our fixed and variable cost experience rates to the projected revenue to arrive at the future cash flows. A terminal value is then applied to the projected cash flow stream. Future estimated cash flows are discounted to their present value to calculate the estimated fair value. The discount rate used is the value-weighted average of our estimated cost of capital derived using both known and estimated customary market metrics. In determining the estimated fair values of our reporting units, we are required to estimate a number of factors, including projected future operating results, terminal growth rates, economic conditions, anticipated future cash flows, and the discount rate. For reasonableness, the summation of our reporting units' fair values is compared to our consolidated fair value as indicated by our market capitalization plus an appropriate control premium. If the carrying amount of any of our reporting unit's net assets were to exceed its estimated fair value, we would be required to complete the second step of the goodwill impairment analysis. This step would require us to measure the amount of the impairment loss. An impairment loss is calculated by comparing the implied fair value of the goodwill to its carrying amount. To calculate the implied fair value of goodwill, the fair value of the reporting unit's assets and liabilities, excluding goodwill, is estimated. The excess of the fair value of the reporting unit over the amount assigned to its assets and liabilities, excluding goodwill, is the implied fair value of the reporting unit's goodwill. We were not required to complete the second step of the goodwill impairment analysis for any of our reporting units when completing our analysis during 2010.

The estimate of fair value for our indefinite-lived trade name is based on a relief from royalty method, which calculates the cost savings associated with owning rather than licensing the trade name. An assumed royalty rate is applied to forecasted revenue and the resulting cash flows are discounted. If the estimated fair value is less than the carrying value of the asset, an impairment loss would be recognized for the difference. The annual impairment analysis completed during 2013 indicated that the estimated fair value of our indefinite-lived trade name exceeded its carrying value of $19.1 million by approximately $14.0 million. In this analysis, we assumed a discount rate of 13.2% and a royalty rate of 1.5%. A one-half percentage point increase in the discount rate would reduce the indicated fair value of the asset by approximately $1.6 million and a one-half percentage point decrease in the royalty rate would reduce the indicated fair value of the asset by approximately $11.0 million.

The evaluation of asset impairment requires us to make assumptions about future events, market conditions, and financial performance over the life of the asset being evaluated. These assumptions require significant judgment and actual results may differ from our assumptions. For example, if our stock price were to decline for a sustained period, if a further downturn in economic conditions were to negatively affect our actual and forecasted operating results, or if order volume declines for our Direct Checks segment were to accelerate, these situations could indicate a decline in the fair value of one or more of our reporting units. This may require us to record an impairment charge for a portion of goodwill and/or our indefinite-lived trade name or other assets.

Restructuring Accruals

Over the past several years, we have recorded restructuring accruals as a result of facility closings and other cost management efforts. Cost management is one of our strategic objectives and we continually seek ways to lower our cost structure. These accruals primarily consist of employee termination benefits payable under our ongoing severance benefit plan. We record accruals for employee termination benefits when it is probable that a liability has been incurred and the amount of the liability is reasonably estimable. As such, judgment is involved in determining when it is appropriate to record restructuring accruals. Additionally, we are required to make estimates and assumptions in calculating the restructuring accruals as, on some occasions, employees choose to voluntarily leave the company prior to their termination date or they secure another position within the company. In these situations, the employees do not receive termination benefits. To the extent our assumptions and estimates differ from our actual costs, subsequent adjustments to restructuring accruals have been and will be required. We reversed previously recorded severance accruals of $0.8 million in 2013, $1.9 million in 2012 and $1.7 million in 2011, primarily as a result of fewer employees receiving severance benefits than originally estimated. Further information regarding our restructuring accruals can be found under the caption “Note 8: Restructuring charges” of the Notes to Consolidated Financial Statements appearing in Item 8 of this report.

NEW ACCOUNTING PRONOUNCEMENTS

Information regarding the accounting policies adopted during 2013 can be found under the caption “Note 1: Significant accounting policies” of the Notes to Consolidated Financial Statements appearing in Item 8 of this report.

In July 2013, the Financial Accounting Standards Board issued Accounting Standards Update No. 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. This standard provides guidance regarding when an unrecognized tax benefit should be classified as a reduction to a deferred tax asset or when it should be classified as a liability in the consolidated balance sheet. The guidance becomes effective for us on January 1, 2014. The adoption of this standard will not have a significant impact on the consolidated balance sheet.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

The Private Securities Litigation Reform Act of 1995 (the Reform Act) provides a “safe harbor” for forward-looking statements to encourage companies to provide prospective information. We are filing this cautionary statement in connection with the Reform Act. When we use the words or phrases “should result,” “believe,” “intend,” “plan,” “are expected to,” “targeted,” “will continue,” “will approximate,” “is anticipated,” “estimate,” “project,” “outlook” or similar expressions in this Annual Report on Form 10-K, in future filings with the Securities and Exchange Commission, in our press releases and in oral statements made by our representatives, they indicate forward-looking statements within the meaning of the Reform Act.

We want to caution you that any forward-looking statements made by us or on our behalf are subject to uncertainties and other factors that could cause them to be incorrect. Known material risks are discussed in Item 1A of this report and are incorporated into this Item 7 of the report as if fully stated herein. Although we have attempted to compile a comprehensive list of these important factors, we want to caution you that other factors may prove to be important in affecting future operating results. New factors emerge from time to time, and it is not possible for us to predict all of these factors, nor can we assess the impact each factor or combination of factors may have on our business.

You are further cautioned not to place undue reliance on those forward-looking statements because they speak only of our views as of the date the statements were made. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

We are exposed to changes in interest rates primarily as a result of the borrowing activities used to support our capital structure, maintain liquidity and fund business operations. We do not enter into financial instruments for speculative or trading purposes. The nature and amount of debt outstanding can be expected to vary as a result of future business requirements, market conditions and other factors. As of December 31, 2013, our total debt was comprised of the following:



(in thousands)	Carrying amount		Fair value⁽¹⁾		Weighted-average interest rate
Long-term notes maturing October 2014, including increase of $1,569 related to the cumulative change in fair value of hedged debt	$	255,026	$	259,559	4.3	%
Long-term notes maturing March 2019	200,000		216,574		7.0	%
Long-term notes maturing November 2020, including decrease of $16,239 related to the cumulative change in fair value of hedged debt	183,761		208,000		4.9	%
Capital lease obligations	1,917		1,917		2.0	%
Total debt	$	640,704	$	686,050	5.3	%

⁽¹⁾For our long-term notes, fair value is based on quoted market prices as of December 31, 2013 for identical liabilities when traded as assets. Capital lease obligations are presented at their carrying amount.

We may, from time to time, retire outstanding debt through open market purchases, privately negotiated transactions or otherwise. Any such purchases or exchanges would depend on prevailing market conditions, our liquidity requirements and other potential uses of cash, including acquisitions or share repurchases.

We have entered into interest rate swaps to hedge against changes in the fair value of a portion of our long-term debt. As of December 31, 2013, interest rate swaps with a notional amount of $398.0 million were designated as fair value hedges. The carrying amount of long-term debt as of December 31, 2013 included a $14.7 million decrease related to adjusting the

hedged debt for changes in its fair value. Changes in the fair value of the interest rate swaps and the related long-term debt are included in interest expense in the consolidated statements of income. When the change in the fair value of the interest rate swaps and the hedged debt are not equal (i.e., hedge ineffectiveness), the difference in the changes in fair value affects the reported amount of interest expense in our consolidated statements of income. Information regarding hedge ineffectiveness can be found under the caption “Note 7: Fair value measurements” of the Notes to Consolidated Financial Statements appearing in Item 8 of this report.

Based on the outstanding variable rate debt in our portfolio, a one percentage point change in interest rates would have resulted in a $4.0 million change in interest expense for 2013, excluding any hedge ineffectiveness related to our interest rate swaps.

We are exposed to changes in foreign currency exchange rates. Investments in, loans and advances to foreign subsidiaries and branches, as well as the operations of these businesses, are denominated in foreign currencies, primarily the Canadian dollar. The effect of exchange rate changes is expected to have a minimal impact on our earnings and cash flows, as our foreign operations represent a relatively small portion of our business. We have not entered into any hedges against changes in foreign currency exchange rates.

See Business Challenges/Market Risks for further discussion of market risks.

Item 8. Financial Statements and Supplementary Data.

Report of Independent Registered Accounting Firm

To the Shareholders and Board of Directors of Deluxe Corporation:

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, comprehensive income, shareholders' equity and cash flows present fairly, in all material respects, the financial position of Deluxe Corporation and its subsidiaries at December 31, 2013 and December 31, 2012, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2013 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2013, based on criteria established in Internal Control - Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on these financial statements and on the Company's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers LLP

Minneapolis, Minnesota

February 28, 2014

DELUXE CORPORATION

CONSOLIDATED BALANCE SHEETS

(in thousands, except share par value)



	December 31, 2013		December 31, 2012
ASSETS
Current assets:
Cash and cash equivalents	$	121,089	$	45,435
Trade accounts receivable, net of allowances for uncollectible accounts	88,049		70,387
Inventories and supplies	28,966		23,291
Deferred income taxes	6,946		7,687
Funds held for customers	42,425		43,140
Other current assets	31,838		29,803
Total current assets	319,313		219,743
Deferred income taxes	1,851		1,662
Long-term investments (including $2,407 and $2,196 of investments at fair value, respectively)	44,451		46,898
Property, plant and equipment, net of accumulated depreciation	101,343		104,189
Assets held for sale	25,451		970
Intangibles, net of accumulated amortization	153,576		150,717
Goodwill	822,777		789,636
Other non-current assets	100,767		98,625
Total assets	$	1,569,529	$	1,412,440